Why newspapers are buyout targets

Even for America's newspaper families, the media oligarchies that control many of the nation's broadsheets, the economics of continuing to publish a newspaper is challenging.

Circulation is hard to maintain when information is free on the Internet. Meanwhile, there are fewer and fewer department stores, which are traditional advertisers in big city papers. And within the newspaper families themselves, an increasing number of members want to diversify their assets, as they try to get a better return on their investment.

For some families, one solution has been a sale. The latest to be tempted is the Bancroft family, which controls Dow Jones & Co., publisher of The Wall Street Journal. On Tuesday, the family was faced with a $5 billion buyout offer by Rupert Murdoch's News Corp. For the moment, they've turned the media mogul down. But regardless of what happens to Dow Jones, the offer illustrates how hard it is to own a newspaper – often viewed as a public asset – as families get into the third or fourth generation of owners.

"Given the tumult in the industry, nothing would surprise me in terms of buyers and sellers," says Bob Steele, the Nelson Poynter scholar for journalism values at the Poynter Institute in St. Petersburg, Fla. "So many media companies are trying to keep the floodwaters out and save their companies that all sorts of possibilities for financial saviors emerge."

Among the media families who have sold interests in recent years are the Chandlers, who owned the Los Angeles Times; the Taylors, who sold their interest in The Boston Globe; the Pulitzers, who owned the St. Louis Post-Dispatch; the Ridders of Knight Ridder; and the Binghams, who sold The Courier-Journal of Louisville, Ky.

"Over a generation or so, families that established great American newspapers evolved. It's been impossible to hold on to the papers," says Peter Osnos, founder and editor at large at Public Affairs books. "The main issue is the tug of war over the nature of the newspaper as a business or as a public asset."

Mr. Osnos sees the Dow Jones bid as the ultimate test. "Murdoch has it all, but his standards are perceived as commercial," he explains. "But some people see The Wall Street Journal as a national asset, and Murdoch would probably treat it as another business."

Even the Sulzberger family, which owns The New York Times, has been under pressure recently from a dissident shareholder, Hassan Elmasry, a London-based portfolio manager at Morgan Stanley. Other large investors have discussed their interest in buying the newspaper – if a way could be found to wrest if from the family.

Indeed, many family-owned newspapers have a structure that makes it hard for investors to take control. Shares are separated into Class B voting shares, mostly owned by the families, and Class A shares, owned by the public. Class A shareholders are often precluded from voting on important issues relating to company management.

"The ownership structure of privately owned companies is based on the general thought that the business is not simply about making money, but is a public trust," says Richard Wald, professor of media and society at Columbia Graduate School of Journalism in New York.

From a pure business standpoint, the Murdoch bid of $5 billion, or $60 a share, might make sense for News Corp., whose media empire includes Fox Broadcasting. This fall, Fox plans to roll out a business news channel to compete with CNBC. Ownership of Dow Jones would thus give Fox access to reporters and information.

"Murdoch has a real problem. If he wants to start a financial news network, he needs the wherewithal," says Mr. Wald. "[The Dow Jones offer] is to make his bid for the financial network work."

But, Wald notes, shareholders have also long been muttering about improving the performance at Dow Jones. "The financial community has been saying The Wall Street Journal is a poorly run business," he says.

If Mr. Murdoch or another media company were to take over Dow Jones, some worry that it would mean yet more concentration in the industry. "We're seeing a decline in the commitment of resources for doing journalism," says Bob McChesney, professor of communications at the University of Illinois at Urbana-Champaign.

Mark Crispin Miller, who teaches media, culture, and communications at New York University, notes that some members of Congress are worried about this trend. But, he adds, "No one will go near it."