Knight Ridder may not be the best managed company, or a great place to work. But can another media company do a better job of leveraging its 29 newspapers? This is the assumption behind a challenge by two major shareholders, who want to get rid of 65-year-old Chairman Tony Ridder and either sell the company off to the highest bidder, or break it up.
Legg Mason’s Private Capital Management (PCM), which owns 19 percent of the company, complains in a letter to the board that Knight Ridder is underperforming, even compared to the rest of the newspaper industry. The firm’s stake is currently worth about $740 million, down roughly $100 million.
According to PCM, the company has failed to deal with “continuing consolidation among traditional sources of print advertising revenue; the redirection of advertising dollars to other media; its unexceptional operating margins; and its lack of a nationally read paper capable of being leveraged in the online market.” PCM’s complaint has been joined by Harris Associates, which owns 9 percent. Together, they have 28 percent. Tony Ridder, meanwhile, holds just 1.9 percent.
The specter of a possible bidding war for Knight Ridder has caused the company’s battered stock to do a quick jump. But one assumes that PCM and Harris’ complaints are about more than just a short-term stock boost. PCM and Harris are probably thinking that ownership by companies like Gannett, McClatchy or Tribune would drive up the company’s value. The question is why PCM thinks that other newspaper companies would achieve better results.
To be sure, the entire industry has been hit hard by the trends that PCM notes above. The shift of readers to TV and the Web, and the rise of Internet verticals such as Monster, AutoTrader etc. have also done damage. Craig’s List comes in for a special mention. The inability to attract sufficient national advertising on a local level has been an issue as well (although folding in with USA Today, which is run independently, is no answer).
Arguably, Knight Ridder has been hit harder by many of these trends. This is not so much due to the failings of its management as its papers’ locations in larger, more vulnerable markets. Three hurricanes in Miami haven’t helped either.
What concerns me most, as an online specialist, is the implication that other newspaper companies have been more aggressive on the online side, and to good effect. Some newspaper companies have made more money, as they watched their dollars more carefully. But none have been as open to trying out new models.
Give Tony Ridder credit. When it comes to online, he’s been single-minded in verticalizing the newspaper business. He’s placed a top priority on CareerBuilder, a successful triage with Gannett and Tribune. The formula has again been applied with Cross Media Services’ ShopLocal, and with Topix.net. CareerBuilder is successful enough that PCM might think that a spinoff would unlock some value.
Overall, of course, KRD has a mixed record. On its own, KRD has struggled to maintain RealCities, a national advertising network that was initially meant to be a portal. Its efforts with Classified Ventures, a joint venture with seven other newspaper companies, have also been disappointing, although the Cars.com and HomeScape brands seem stable. KRD has also invested in Tribe Networks, a social network that doesn’t appear to be going anywhere. In earlier years, KRD suffered many failed ecommerce and community models (along with, full disclosure, its consultants).
The bottom line here is that Knight Ridder and KRD has struggled. While some things may get better, other things may get worse. But don’t expect a white knight to come in, cut some costs, push the clock back on readership, and attract new kinds of advertisers. As we have seen with Tribune’s troubled and demoralizing takeover of Times Mirror, it simply isn’t in the works for anybody in the newspaper industry.
Instead, what newspapers need to do is create or buy new products, and partner with other media players to create compelling synergies (like The New York Times has done with Discover Networks). That’s the struggle going forward. If you’ve got too much money in newspaper company stocks, like PCM and Harris, it is your struggle too.