Return of the press barons

THE NEWS OF LATE has not been good to the newspaper industry. Over the past year, circulation numbers nationwide have fallen sharply; the numbers for daily papers are now a third less than their peak in 1984. Ad sales, which had long held steady despite circulation declines, have tailed off as well, as advertisers, along with readers, migrate to the Web. And though many newspapers are gamely pouring time, money, and effort into their websites, the revenue from online advertising Is far from closing the gap in profits.

As a result, newspaper stocks have performed feebly, and publicly held media companies have reacted by cutting costs -- and making deep cuts in newsroom staffs. "Newspapers are coming to the point where they have long ago cut off the flesh, the blood, and the muscle and now they're into the bone," says Jay Harris, the former publisher of the San Jose Mercury News and now a journalism professor at the University of Southern California's Annenberg School. And the problems are not limited to newspapers: Radio stations and television networks are struggling with similar pressures.

In other words, this would seem to be a strange time to think about buying a newspaper company. In recent weeks, though, that's exactly what several high-profile multimillionaires and billionaires have been doing. In Baltimore, a group of local investors has gotten together to bid on The Baltimore Sun, and a wealthy Connecticut family has expressed interest in The Hartford Courant. Here in Boston, former General Electric CEO Jack Welch, along with the former advertising executive Jack Connors, has floated the idea of buying the Globe from the New York Times Company. (The company has not commented on the potential bid.)

The Los Angeles Times -- where the publisher, Jeffrey Johnson, and editor, Dean Baquet, were recently fired after refusing to make job cuts demanded by the paper's owner, the Chicago-based Tribune Company -- has proved particularly alluring. The paper has attracted the attentions of real estate developer Eli Broad, supermarket magnate Ron Burkle, entertainment mogul David Geffen, and Maurice "Hank" Greenberg, former chairman of the insurance giant American International Group. Earlier this month, Broad and Burkle teamed up on a bid for the entire Tribune Company, which owns a total of 11 newspapers -- including the Los Angeles Times, The Chicago Tribune, and The Hartford Courant -- 24 television stations, and the Chicago Cubs.

Few of the suitors are speaking directly to reporters, and the resulting silence has seeded a storm of speculation around the sudden interest of these aspiring press barons. It is far from certain whether any of the bids will be successful, but they have turned heads at a time when the future of newspapers as we know them seems to be at stake.

In theory, an owner with the resources of a Jack Welch or a David Geffen could afford to forgo some earnings and pump more money back into his newspaper. He could take the sort of risks that publicly traded corporations, with their focus on quarterly earnings growth, would balk at -- the sort of risks that could allow a newspaper to adapt to a rapidly shifting economic and technological landscape.

Ted Venetoulis, a publisher and leader of the group bidding on The Baltimore Sun, is promising to do just that. "We are taking a much longer view of the newspaper institution, we're not interested in flipping it. We want it to be profitable, and we will run it as a business, but we don't need to meet Wall Street monthly or quarterly expectations, and we know our community."

And yet, historically, private, local ownership has had its share of problems. Private owners, after all, are businessmen, and human beings. They tend to like making money and getting their way. And they're as displeased as the next person over unfavorable media coverage.

"I don't think there's any guarantee that a local owner is better than a corporate owner," says Dean Baquet. Anyone who thinks so, he says, "is not looking at the history of what some local owners have done to newspapers."

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Though most newspapers today are owned by publicly traded corporations, that's a relatively recent development. Fifty years ago, almost all of the nation's newspapers were privately owned, in many cases by the families that had founded them. It was in the 1960s that they started going public -- some wanted cash to buy out family members no longer interested in being in the business; others, like the Gannett Company, were raising capital to buy up other papers.

For decades, investors loved newspaper stocks. Newspapers had always been profitable, but according to longtime industry analyst John Morton, in the 1970s and '80s advances in technology made them even more lucrative, mechanizing the sort of production jobs that used to be taken by salaried workers and sapping the power of the unions. Shareholders kept demanding higher and higher returns, and into the late 1990s many newspapers boasted profit margins above 30 percent. Even after recent declines, the average profit margin of all publicly held newspaper companies is 17 percent, twice that of the average Fortune 500 firm.

Several of the country's leading newspapers, however, made sure to keep power concentrated in the hands of the original owners. At the New York Times Company, the Sulzberger family owns the bulk of a special class of stock that gives them control of the board -- as does the Graham family at the Washington Post Company and the Bancroft family at Dow Jones, publisher of The Wall Street Journal.

"It's no accident that the newspapers that have the best reputation for news coverage have that dual stock structure," says James Hamilton, a Duke University economist who studies the media. Jay Harris argues that, unlike the large institutional investors that control many large media companies, the country's leading newspaper families take seriously their "responsibility for the public trust" -- whether that means devoting resources to covering local issues, or publishing the Pentagon Papers despite threats of government prosecution.

Today's aspiring newspaper bosses are eager to place themselves in this tradition of public-minded journalism. "We realize that a newspaper is the conscience of a community," Venetoulis says. Friends of Broad, Burkle and Geffen have told reporters that the men would be willing to put up with smaller profits if that meant more money for maintaining the quality and quantity of news coverage. Geffen has reportedly told associates that he'd be happy with returns comparable to the 3 or 4 percent he might get from municipal bonds.

Broad even floated the idea, several months ago, of turning the Los Angeles Times into a nonprofit. There is some precedent for this, not only in publicly funded news organizations like the Public Broadcasting System and National Public Radio, but in newspapers like New Hampshire's Manchester Union Leader and Florida's St. Petersburg Times, both of which were bequeathed by their former owners to journalism schools.

Broad hasn't mentioned the idea since, though, and most observers think it unlikely. Turning a newspaper into a nonprofit essentially means giving it away, and estimates put the value of the Los Angeles Times at around a billion and a half dollars. "That's a lot of money," says John Morton, "even for a billionaire."

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Despite their professed ideals, the suitors probably don't see buying a newspaper as philanthropy. For one thing, there are the shrinking but still fat profit margins. The insurance tycoon Hank Greenberg has suggested that he thinks a skittish stock market has undervalued newspaper companies. According to reporting in The New York Times, Greenberg has expressed interest not only in the Los Angeles Times but in The Boston Globe and Dow Jones, as well.

A private owner enjoys an enormous amount of latitude. The Grahams and Sulzbergers, even with their special class of stock, are still beholden to their shareholders -- the institutional investors who now own most newspaper stocks are intensely focused on short-term earnings growth. And whereas publicly traded companies are required to report profits according to generally accepted accounting standards, someone who owned a paper outright would have no such requirement. A private owner would have the luxury of worrying only about whether enough cash was coming in to pay expenses and, presumably, invest in new ventures.

"They could take some chances, make some long-term plans," says Philip Meyer, a journalism professor at the University of North Carolina. A wealthy private owner could even afford to absorb short-term losses with an eye toward the more distant future.

But according to Rick Edmonds, a media business analyst at the Poynter Institute, the journalism school that owns the St. Petersburg Times, the problem is that no one's really sure what those long-term investments should be -- aside from a general sense that the answer lies in moving more resources from print to the Internet and finding better ways to connect with and extract money from readers there. "No one," he says, "has a golden key-type solution right now." That could make it a particularly difficult time, he suggests, for people with no experience in the newspaper industry to be running things.

David Nasaw, a historian at the City University of New York and author of a biography of William Randolph Hearst, notes that past experience bears this out. "The old press barons," he says, "knew what they were doing. This wasn't amateur hour, this wasn't something you did after you were already a success. You weren't doing this as a hobby or a philanthropy for the good of the community, you were doing it as a business, and because you had something to say."

For all their purported good intentions, there's also no guarantee that local, private owners would be more willing to lose money than the corporations they supplant. Six months ago, a group of Philadelphia businessmen, led by advertising executive Brian Tierney, bought The Philadelphia Inquirer from Knight Ridder. Tierney proclaimed that "the next great era of Philadelphia journalism" had begun. But the Inquirer faced a particularly difficult financial picture, and the paper's publisher and editor have since left, while Tierney is looking to cut a further 150 jobs. He has said that without significant restructuring, the paper won't be able to make its interest payments next year.

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What also worries many journalists is the issue of what happens when a newspaper owner exercises the prerogatives of ownership. William Randolph Hearst famously used his newspaper empire to drum up support for the Spanish-American War. The Sulzbergers were accused, most recently in a 1999 book by the journalists Alex Jones and Susan Tifft, of playing down the Holocaust in the pages of The New York Times out of concern that the paper would seem too Jewish.

Part of the pitch of suitors like Broad and Welch is that local ownership can bring a renewed focus to local and regional issues. Local owners, says Mortimer Zuckerman, owner of the New York Daily News, "are themselves members of the community, and this is a benefit to a paper."

But being local cuts both ways. Local owners, Dean Baquet points out, "bring the burden of their business entanglements, and personal and social entanglements" to the paper. Broad, a leading donor to charities in Los Angeles and elsewhere, has suggested that the Los Angeles Times should run more photos of people at charity events. In July, five editors and a columnist at the Santa Barbara News-Press resigned over what they claimed was intrusion in local coverage by the paper's owner, a wealthy Santa Barbara resident who had bought it from the New York Times Company six years ago.

Some owners have been brazen about using their papers to their own advantage. In the first half of the 20th century, members of the Chandler family used the Los Angeles Times to enrich themselves and consolidate their power over local and state politicians. Walter Annenberg, who owned The Philadelphia Inquirer for nearly 30 years, was notorious for refusing to allow his papers to mention the names of those who had offended him -- including Ralph Nader, Zsa Zsa Gabor, Sonny Liston, and, for a time, the Philadelphia Phillies.

In fact, according to Philip Meyer, the Inquirer "got a lot better when it went from a private to a public owner." In the two decades after Knight Newspapers (soon to merge with the Ridder newspaper chain) bought the paper from Annenberg in 1970, it won 15 Pulitzer Prizes.

Even so, the newspaper industry's recent difficulties suggest that public ownership is no more a panacea than private ownership. "It's not ownership per se," says Jay Harris, "it's the values of the owners that matter."

Drake Bennett is the staff writer for Ideas. E-mail drbennett@globe.com