White knights for red-ink media

Local ownership can help renew a newspaper's priorities, but it's no panacea.

The newspaper industry is looking for a savior. After years of falling circulation, slumping ad revenue growth, and stumbling stock prices, we are now at that scene in the movie where things are heading south and everyone is wondering if and when a hero will show up.

And while heroes are in relatively short supply these days, some in the industry think they might have found a white knight in local ownership. The storyline goes something like this: A wealthy pillar of the community buys the local paper, makes quality his goal, grows the staff, and brings back readers.

In cities such as Los Angeles, Boston, Baltimore, and Hartford, Conn., that scenario is being speculated about, with big names such as music impresario David Geffen (Los Angeles) and former GE chairman Jack Welch (Boston) expressing interest in buying their local dailies.

It's an alluring notion with a certain amount of logic to it.

While newspapers are not as profitable as they once were, many still offer solid returns with profit margins in the high teens. The industry's problem, local owner advocates say, is that public corporations have created unreal profit targets to please Wall Street investors. When papers feel they won't hit those profit targets, staffs are cut. That weakens the paper more, pushing more readers away. It's a vicious cycle.

Proponents of local ownership hope a proprietor with regional ties – particularly one with a bulging bank account and no stockholders to coddle – might be less likely to cut staff simply to hit profit targets. In fact, as a prominent member of the community, he might even feel pressure not to.

Voilà, local ownership ends newspapers' cycle of decline, right? It might not be so simple. Local ownership brings with it its own raft of potential problems.

For one thing, local owners may still have to borrow money, and industry experts say banks and other financial institutions who can invest elsewhere won't lend big sums in the name of charity. Also, local ownership may entail more local conflicts of interest and sacred cows – after all that's what it means to be a member of the community.

And the limited resources of local owners could be a problem, too. They may not be as able to ride out regional economic swings as a chain might.

Hence, the question of who can best save newspapers is a great deal more complicated than those looking for either heroes or scapegoats may want to believe. The first test case shows how complex these things can be.

A few months ago, Philadelphia became the newspaper industry's canary in the coal mine for the new, local ownership model when Brian Tierney, a wealthy, well-known local public-relations man, headed up a group of local investors to buy the Philadelphia Inquirer and Daily News. "The next great era of Philadelphia journalism begins today," Mr. Tierney announced after the purchase.

But after a lot of initial fanfare, the ride has been bumpy. The paper had a very hard year, worse than its new owners said they had expected, with revenues falling 10 percent in September 2006, compared with September 2005. Circulation was down by more than 7 percent for the year. And then last week, the axe fell – hard.

The new owners announced the paper would be laying off 17 percent of its staff – some 70 employees. The paper said the moves were part of a larger reorganization as it redesigns its website and focuses more on local coverage. Those words probably sting the ears of local ownership advocates. Announcing staff cuts along with some talk of reorganizing and growing an outlet's Internet presence has been a hallmark of big media owners in recent years.

Does that mean local ownership isn't any better than the alternative? No. The Inquirer's management said in statements following the announced cuts that there would have been more staff laid off by the paper's former owner, Knight Ridder. And who knows, there might have been.

Last week's Philadelphia story doesn't necessarily mean local ownership is a bad idea, but it shows there is no simple solution – or no simple shield – for the troubles newspapers are facing. Newspapers around the country, owned by big public companies and individuals, went through steep staff cuts last year.

The truth is there are good and bad owners in the newspaper industry among the big corporations and local individuals out there. And yes, a good one that wants to invest in quality can make all the difference.

But the newspaper industry's problems at this point are a tangled mess. They range from Internet competition to sprawling metropolitan areas that are almost impossible to cover properly to the demise of local stores that used to buy ads. So no matter what anyone wishes, lone heroes riding in to save the day are likely to remain the stuff of matinees, not newsrooms.

Dante Chinni, a senior associate at the Project for Excellence in Journalism, writes a twice-monthly column on media issues. E-mail him at Dante Chinni.

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