Clear choices in an uncertain time
I gave a short talk and answered questions this morning at the California Society of Newspaper Editors gathering in Santa Barbara, where I was asked to address both the McClatchy/Knight Ridder deal and the future of newspapers.
Attendance was lighter than usual (isn't that true at all newspaper meetings nowadays?) but there was a good representation from papers large and small throughout the state. I was happy to see Sandra Duerr and Tad Weber from San Luis Obispo amongst some familiar faces from Modesto, Sacramento and elsewhere. I was able to take in an excellent presentation on how California newspapers are using video online, including some impressive samples from small, rural papers.
I doubt there's much in my remarks you don't know or haven't heard, but what the heck; I already wrote this, so I'm going to post it here:
Remarks for CSNE Convention * 9 June 2006
Howard Weaver * Santa Barbara, CA
Some of you have already heard the story of how McClatchy’s involvement with the Knight Ridder acquisition began. We can date it almost to the moment, starting at lunchtime on November first, 2005 – a warm day in Sacramento with a small group of McClatchy executives sitting at a sidewalk table having lunch. At some point in the proceedings, CFO Pat Talamantes glanced down at his Blackberry and then stood up to leave. He read us the email from Gary Pruitt: “Knight Ridder in play. Let the games begin.”
The prospective end of Knight Ridder’s long and storied history and the beginning of McClatchy’s new adventure are not, of course, all “games.” But there is no denying that a thrill of excitement infused our discussions that afternoon, and animated the long days of hard work between that afternoon and this morning.
I heard Gary Pruitt tell Tony Ridder and his executive team in San Jose one afternoon that McClatchy’s first choice would be that Knight Ridder not be forced to sell. We believe in independent newspaper companies, and like everybody in our industry, we knew and admired what those newspapers have accomplished over many decades. It’s never a good thing for a great newspaper company to go away.
But I also heard Gary say and know that we all strongly believed that if the company was to be sold, we wanted very much to be in the hunt.
You probably know that McClatchy’s acquisition strategy has always been tightly focused and very disciplined. We look at practically every opportunity that comes into play, but we act on almost none. We had purchased the Raleigh News & Observer in 1995, the Minneapolis Star Tribune in 1998, and the Merced Sun-Star in 2004. In between were long, patient periods of saying no, of passing on one opportunity after another. We were a successful company as we were, and knew we didn’t have to grow to prosper.
But now, with the Knight Ridder sale, we were looking at the prospect of not one or two or even a half-dozen possibilities: there might be 15 or 20 opportunities here that matched our market-centered acquisition criteria. We started studying them with real excitement.
Much has been written about our decision to keep some of the Knight Ridder papers, and to sell others. I know it surprised and even shocked many in our industry, but it really shouldn’t have. McClatchy has always said that it had a strict acquisition criteria, and would apply it with discipline. So when the time came and we applied our strict criteria in a disciplined way, it really should have come as no surprise.
People typically write that McClatchy is interested only in growth markets, and while it is true in a broad sense that growth is key, that certainly doesn’t fully describe our process. If it did, anybody could duplicate it: just call up the Census Bureau, get the numbers and start writing checks.
We’ve said a number of times that the analysis actually involves a wide range of factors: household growth, retail sales, education, propensity to read and many others. We don’t describe it in detail because it’s proprietary information. I’d argue that we have been pretty successful in our acquisitions to date, and this formula is, in a way, our Secret Sauce.
What took some of the observers by surprise, I suspect, is that we analyzed Knight Ridder not as a single monolithic entity, but market by market. We ran hundreds, perhaps thousands of econometric models predicting what would happen under the broadest range of conditions: what if there was another recession? Would this roster of markets still generate the cash flow to pay the debt? What if there was a terrorist attack, or an influenza pandemic. I heard Gary say once that we had modeled everything this side of a direct hit by an asteroid.
In the end, we were thrilled to find 20 of Knight Ridder’s markets matched our criteria nearly perfectly. But the other 12 did not, and most of the stock analysts and investment bankers who got quoted assumed we wouldn’t be willing to buy and immediately sell them on account of what they call “tax leakage.” As Gary’s pointed out, we just call that “paying our taxes,” and we were willing to do so as a part of our larger plan for doing the deal.
As I have told folks in Philadelphia and San Jose, we clearly were not selecting a journalistic all-star team; if we were, those papers surely would have been included. What we did instead was pick the markets where we thought our established, tested strategy would work. It’s what we know how to do, what defines our company. Other companies have other strategies and operating styles; they are not necessarily better or worse, they are different.
We know, like all of you, that the economics of the news business are changing, and that the margin for making mistakes has become much smaller. Where dominant daily newspapers used to be something very much like a license to print money, there are now distinguished, big-city papers losing lots of money.
Equally threatening is the fact that our relationship with our readers is changing. Our credibility is under assault on all sides – from talk radio, and bloggers, from political parties and the government of the United States. Partisan advocacy and ideology – the Journalism of Affirmation – threatens to take the place of our longstanding ambition: a journalism of verification, based on fair, honest, fearless newsgathering and truthtelling.
In other words, the stakes are very high. In seeking the create a 21st century news company – one that serves diverse audiences on many platforms, when and how they want to access us – we needed nothing less than the strongest team we could field.
Today we are earnestly and diligently engaged in just that pursuit: in Modesto and Merced, in Raleigh and Rock Hill. Soon, we hope, our team will be joined by colleagues in San Luis Obispo and Miami and State College, PA.
We know the battle is not ours alone; newspapers across the country are awakening from their slumber to embrace the opportunities and challenges we have described. More and more editors have rallied to the battle cry of ASNE President David Zeeck, who said: “I'm not spending another minute of my life worrying about the future of newspapers … I believe in newspapers and I believe they will last. But I also believe in the web. Heck I'm willing to believe in iPods and cell phones. Really what I'm saying is I believe in journalism.”
And if newspapers don’t defend journalism, who will? We know no other media have the will or the wherewithal to advance our central values into the new media landscape. In each of your communities, you should have the largest news staff, the leading website, the most ad salesmen and the best reputation. We still making good money, and have resources to invest.
I cannot guarantee you success, though in my heart I truly do expect us to prevail. But I can offer you the satisfaction of a choice well made.
For what are the choices for an honest journalist today? I can think of three.
We can give up.
We can hunker down and try to bleed as slowly as possible.
Or we can fight back.
I have not one moment’s doubt about those choices.– Howard Weaver