Chain buyouts of family papers: taxes talk
Family-owned newspapers appear to be going the way of the dinosaur in the United States. Although there is worry about concentration of media power in the hands of a few chains, several veteran journalists and analysts of the news business say there is little that can -- or perhaps even should -- be done about it.
``You can wring your hands, but what are you going to do?'' says Benjamin Compaigne, a professor at Harvard Business School and editor of ``Who Owns the Media?'' -- a regularly updated reference book much used by those who study the news media.
``There's nothing inherent in being locally owned that makes you a better paper,'' Mr. Compaigne adds.
Tax law makes it inevitable that many family-owned and independent papers will eventually be sold. In fact, analysts say, most of the papers large and reputable enough to attract buyers have already been bought. Beyond that, chains often improve these smaller papers, both analysts and journalists generally concede.
Chains such as the Gannett Company, Dow Jones, and the Times Mirror Company have the financial resources to broaden a paper's coverage. Acquisition by one of them has often made the difference between a paper's surviving or not.
On the other hand, the Hearst chain has been retreating in recent years. On Tuesday, it announced the closure of the Baltimore News American, the 213-year-old evening newspaper that competes with the more profitable Baltimore Sun.
Last week, Gannett, the largest newspaper chain in the United States, picked another family-run plum, its third in the last 16 months. The $300 million purchase of the Louisville (Ky.) Courier-Journal and the Louisville Times will add luster to Gannett's reputation. It also ends, albeit unhappily, the kind of financial tensions present at virtually every newspaper that has remained in family hands for more than two generations.
The Louisville papers, which use the same staff and are usually considered one paper, had been the pride of the Bingham family since 1918.
``The Binghams were among the few [family publishers] that were outstanding,'' says Norman Isaacs, who was executive editor of the papers during the 1950s and '60s. ``Barry Bingham Sr. had a sense of mission about journalism.'' During the Bingham ownership, the Courier- Journal and Times won eight Pulitzer Prizes, America's most valued newspaper award.
But money and sibling rivalry have ended the tradition. Barry Bingham Jr. wanted to keep the papers within the family; his sister Sallie wanted to sell. Sallie was willing to sell her share to the family, and the two were within about $6 million of striking a deal. But finally on Jan. 8, after watching family relations deteriorate, Barry Bingham Sr. decided to sell the papers.
The Bingham empire had come under the same pressures that most large family-owned newspapers in the US -- including the Los Angeles Times and Washington Post -- had already succumbed to, says Benjamin Bagdikian, author of ``The Media Monopoly'' and dean of the graduate school of journalism at University of California, Berkeley.
Mr. Bagdikian says that starting in the 1960s, independent papers began to disappear as families ``took them public'' (that is, offered stock for public sale) or sold them to media conglomerates.
A primary reason was inheritance taxes. Many papers that later became big and profitable (like the New York Times) were brought under family control in the late 1800s and early 1900s. By the 1960s, the third or fourth generations were facing millions of dollars in estate taxes. To pay those taxes, the owners had a stark choice: Sell shares to the public or to a chain.
And when papers began to go public, ``it became obvious that they were making enormous amounts of profits,'' Mr. Bagdikian says. Wall Street suddenly saw newspapers as ``juicy investments,'' he says. ``They became very good prospects for investment, which is the chief reason the chains grew.''
The tax law also gives chains a voracious appetite, says Compaigne. They could avoid paying taxes by setting aside profits for legitimate business expansion -- that is, acquiring other newspapers. That puts chains in constant pursuit of independent newspapers.
Those are ever harder to find, which is creating a new and accelerating trend: large chains buying smaller groups.
``If they want their acquisitions to have any kind of impact, they have to get a sizable paper or a group or it's hardly worth their trouble,'' says Bruce Thorp, a newspaper analyst at John Morton Inc., a research group specializing in the newspaper industry.
Gannett appears to be the most aggressive suitor. Last July it bought the Des Moines Register and the Jackson (Miss.) Sun. Three months ago it bought the Detroit News, along with several other papers and radio and television stations.
The few remaining independent papers are vulnerable targets. Some are taking decisive action to ensure that controlling stock does not fall into outside hands. For example, the Pulitzer family, which publishes the St. Louis Post-Dispatch, has bought the 22 percent stake of four family dissidents and reached a conditional agreement to buy 21 percent from other family members.
Meanwhile, media-watchers disagree on whether the ``Gannettization of America,'' as one critic calls it, is a benign trend. Bagdikian notes that chains don't ``necessarily'' do a worse job than independents, but he is concerned that they are under financial pressures which independents can ignore to some degree: maximizing profits for Wall Street and raising dividends for shareholders.
Because labor is such a large cost for newspapers, he notes, ``it's easy to squeeze out more profits by reducing payroll,'' if not by layoffs, then by attrition. And that, Bagdikian says, is precisely what Gannett has done on its smaller papers, where the practice is less likely to draw widespread attention. Financial pressures are increasing at Gannett. With the Des Moines and Detroit acquisitions, the chain pushed its debt up to $1 billion. Besides that, Gannett's USA Today reportedly lost $85 million last year and is not expected to be profitable until late 1987 at the earliest.
Scholars and other observers have studied the effect of the Gannett chain's growth on the editorial content of papers it has acquired. Thus far, says newspaper analyst Thorp, Gannett has used a hands-off policy.
``The main thing Gannett does is strengthen these papers financially. It may in the long run make the difference between these papers surviving and not surviving. They at least maintain editorial quality, and probably enhance it,'' says Mr. Thorp, because the Gannett News Service (a wire service) can feed small papers national stories.
There is considerable dissent with that view, particularly among practicing newspaper journalists. Standardization of appearance and content, reduction in staff, and loss of editorial independence are common complaints. Also, it is pointed out, the degree to which business is put ahead of journalism varies widely among chains.
At the Detroit News, a reporter who asked to remain anonymous, expressed consternation with changes among the top editors. The changes, he said, may have come about because Gannett chairman Allen Neuharth, who recently announced his retirement as the chief executive officer of Gannett, once worked at the rival Detroit Free Press.
No one suggests Gannett will tamper with the formula that has made the Louisville newspapers among the most respected in the nation. But the effects of chain ownership evolve over time. And family pride and tradition do not appear on the corporate balance sheet.