Why is KR for sale? Because
the market makes no sense
By Brad Warthen
Editorial Page Editor
JENNIFER HARDING, The State’s vice president for advertising, was frustrated, exasperated and disgusted at her division’s October revenue figures.
“It was horrible, just horrible,” she said with vehemence at a senior staff meeting in November. (These quotes, by the way, are reconstructions; I wasn’t taking notes. But I’m sure I’m faithful to the spirit. If Jennifer feels misrepresented, she knows where to find me.) “We’re all going to go out back, build a bonfire and burn our calendars. Everybody’s welcome; bring marshmallows.”
After repeated budget reforecasts accompanied by a series of cost cuts that had started as early as January, this was not what we wanted to hear. (“We,” by the way, refers to the heads of the various divisions of the newspaper: news, advertising, circulation, human resources, editorial, etc.) One of our number asked glumly whether that meant October revenues had been down compared to the previous October.
“Oh, no! Of course not,” Jennifer said. She just meant we had “missed goal.” Her division had performed admirably. Advertising revenue for the month had been 2.8 percent higher than 12 months earlier. But that was 7.1 percent less than the much-higher number we were expected to hit.
And that’s today’s newspaper business in a single anecdote.
Who expected us to hit that number? That would be Knight Ridder, the corporation that owns this and 31 other dailies. So they’re the bad guys, right?
Well, it’s tempting to say “yes” — especially since those folks in San Jose (KR’s headquarters) are less and less likely to own us for much longer — but the insanity doesn’t start with them. They just pass it on, the same way my publisher passes it on to me, and I pass it on to the people who report to me. I’m the bad guy when I tell my folks that yet again, we’re going to have to do with less.
So while it’s easy to cuss corporate (an exercise that would lack novelty, believe me), I know those folks are just trying to keep their heads above the surging flood of irrational expectations from Wall Street.
I don’t begin to understand the stock market, and my experience with the way investors have batted the newspaper industry around in recent years hasn’t made it any easier to figure out.
For instance, I read recently in The Wall Street Journal that Wal-Mart — that monster of capitalism — maintains a profit margin of 3.5 percent. And nobody’s talking about angry investors demanding that Wal-Mart be sold.
In our industry, numbers such as 3.5 — indeed, any single-digit numbers — are used to measure expectations of growth in profit margin, not the total.
If a newspaper company isn’t making 20 percent or better, it’s in trouble. (Yes, I know Wal-Mart’s 3.5 percent, which is 2.5 percent of the U.S. gross domestic product, is worth more than any newspaper chain’s 20 percent. Still — and I guess I’m showing my ignorance — isn’t it better performance to get 20 cents back on every dollar than to get 3.5?)
Knight Ridder’s operating profit margin in 2004 was 19.4 percent. It hasn’t exactly shown dramatic improvement this year. So Knight Ridder is in trouble.
Hence all those budget cuts. Of course, we’ve been cutting for years. Our editorial department lost one full-time position years ago. But things got worse in 2005. My Sunday column mentioned that one plus in turning our entire Monday editorial pages over to writers in the community was that it meant “fewer editorials we have to write.” That consideration wasn’t rooted in laziness. It does reduce our writing load by 14 percent. But I now have 25 percent fewer writers.
We are, of course, far from alone. The State’s newsroom, a separate and much larger division, has lost more positions than I can count without taking my shoes off. The newsroom is particularly vulnerable because it tends to have a much higher rate of turnover than does a staid bunch such as the editorial staff. And when you’re in cost-cutting mode, there are not enough comings to match the goings.
That means everybody working harder to get the job done, which fortunately leaves us less time to think about the fact that the market is still not satisfied.
The reason the company is up for sale is that KR’s three largest investors had the leverage to act upon their displeasure.
Here’s the bit that makes it all surreal for us here at The State: If all of Knight Ridder performed the way The State does, the folks in San Jose wouldn’t have the Bruce Shermans of the world breathing down their necks.
Or to put it another way, if The State were a publicly traded company in its own right (although why it would want to be publicly traded in any arrangement is beyond me), it would be fine. More than fine, actually.
As it stands, we could get new owners who will strip our resources down to a point that we’ll look back on 2005 as the fat old days. And we won’t be the only ones noticing. You’ll see it in the quality of the product.
Or we could be bought by a company that believes in investing in the product, and is better insulated against the whims of the equity markets.
Or something else could happen — something I can’t imagine.
So why am I telling you all this? Because nice people in the community keep expressing their sympathy that we’re doing so poorly. It’s as if we were losing money, or maybe only making pitiful, Wal-Mart-sized margins.
Well, I would laugh, except that under the circumstances, it would probably hurt too much.
Why is KR for sale? Because