Holding newspapers accountable (Dinosaur Media DeathWatch™)

Houston Chronicle ^ | November 30, 2006 | LOREN STEFFY

[Milhous]

An ugly conundrum of journalism is laid bare in a proposal filed last month by a shareholder of the New York Times Co.

In it, Morgan Stanley Investment Management, which owns almost 8 percent of the Times' stock, calls for changes in the corporate structure that allows the publisher's family to control the venerable newspaper. Morgan Stanley wants to split the chairman and chief executive titles and eliminate a special class of stock that gives the Sulzberger family a majority vote.

"The company's current corporate governance practices deviate from what is widely considered to be best practice," Morgan Stanley says in the proposal, which it wants shareholders to vote on at the annual meeting in April.

The two-tier stock structure is also used by other media companies, such as the Washington Post. The tactic was adopted to prevent newspapers from being hijacked by business interests while still allowing them to tap the equity markets.

I understand the sentiment. Shielding journalism from the whims of business is essential for news organizations to fulfill their role in a democracy.

But it's unfair to shareholders. The Times, essentially, wants to have its capital without the responsibility that comes with it.

Ran out of patience Morgan Stanley, by the way, isn't chasing a short-term profit. It's been an investor in the Times for 25 years. It's apparently run out of patience, which isn't all that surprising.

Shareholder discontent led to the forced sale of Knight Ridder last year. Tribune Co., which publishes the Chicago Tribune and the Los Angeles Times, has put itself on the block for similar reasons.

Recent analyst reports on the Times aren't pretty. In cutting his rating on the Times to "sell," Citigroup analyst William Bird predicted the stock will fall 29 percent in the next year. Last year its shares fell 35 percent, and they've slid another 9 percent so far this year.

The readership of the Times and the company's other major paper, the Boston Globe, is concentrated in urban areas where readers and classified advertisers are more likely to be wooed by the Internet, Bird wrote.

Internet readers, though, are worth far less than print readers. The Center for Excellence in Journalism predicts it will take at least another decade before newspapers' Internet revenue matches print revenue.

In the meantime, declining circulation and forecasts of slower growth are driving down stock prices, even as newspapers continue to generate profit margins that are the envy of most industries.

Among the stocks on the Standard & Poor's 500 Index, the Times is now among those with the lowest average analyst rating, according to Bloomberg News.

In other words, as a business, the Times is failing to meet its obligations to shareholders. Yet it has shielded its management from accountability.

Recently, the Times' executive editor, Bill Keller, wrote a letter to the Wall Street Journal in which he defended, among other things, the Sulzbergers' control of the company and lauded its commitment to journalism.

Years ago, Newsweek's Jonathan Alter spoke at a conference in which he said as journalists we have two allegiances: readers and the truth.

Publicly traded media companies, though, have a third: investors.

Most journalists would argue, rightly, that allegiance to readers is sacrosanct. So where, then, does that leave investors?

Private owners are more likely to embrace a business equation that puts readers ahead of return. At least they are free to make that choice.

The Sulzbergers may be willing to weather a 29 percent stock drop in the name of groundbreaking stories. As a journalist, I'd cheer their commitment.

As a business columnist, I'd chide a company that forces investors to endure such poor returns on their investment.

If the Times, or any news organization, didn't want to answer to investors, then it shouldn't have sought the public's investment.

(In the interest of full disclosure, the Hearst Corp., which owns the Chronicle, is privately held.)

Of course, some investors, such as hedge funds, still find newspapers appetizing. That, though, is hardly a solution to the dilemma that pits reader interest against investor return.

Private equity firms Private equity firms may take the media companies private, but they'll cut costs, then flip the company back into the public markets for a big gain.

They are attracted only to the fat profit margins — the industry average is about 20 percent, according to the Center for Excellence in Journalism — that most newspaper companies still generate.

A better prospect may be wealthy private owners, such as entertainment magnate David Geffen, who's said he's interested in the Los Angeles Times, and former General Electric Chairman Jack Welch, who's reportedly eyeing the Boston Globe.

Their interest apparently stems from civic pride, which is how many of the country's best newspapers started in the first place.

The question remains, though, how far that pride would go. Because sometimes, in the newspaper business, pride in doing the job right is the return that matters more.

[Milhous]

Lady in distress

Migrating the New York Times Co. from public to private ownership could well endanger our most distinguished journalistic institution.

Although some wishful thinkers believe a management-led buyout could shield the New York Times from the disenchanted investors pummeling the stock of its parent company, the heavy debt required to take NYT Co. private would put more profit pressure than ever on the Gray Lady and her sister publications.

That pressure almost certainly would lead to sharp reductions in the abundant resources - staff, bureaus, travel budgets and more - that enable the Times to be the newspaper of record for the world's largest and most powerful democracy.

If the unthinkable occurred, the Times likely would remain a solid and respectable regional publication. But it would lack the resources and authority to fulfill its unique role as watchdog and national conscience. With all due respect to the Wall Street Journal and Washington Post, even they lack the resources or mandate to fill the void.

The good, the bad and the ugly aspects of private ownership were discussed here in connection with the unfolding drama that will determine the fate of the Tribune Co.

Although private ownership might prove to be the best course for Tribune (if not for the employees whose jobs are sacrificed in the interests of efficiency), it is difficult to imagine a structure more favorable to the New York Times than its existing ownership.

Unlike Tribune, whose management answers more or less directly to the owners of its common stock, the NYT Co. is effectively controlled by members of the founding Ochs-Sulzberger family, who own a super class of shares that gives them the ultimate power in managing the business and setting profit targets.

Even though a rising chorus of investors is pressuring the family to cut expenses to raise profits to 20% of sales or more, the company has produced an operating profit of 16.4% in the last 12 months. The additional resources made possible by lower profit targets are a blessing for the New York Times and its readers, but there's a problem:

The relatively low operating profits are depressing the value of NYT stock and effectively forcing holders of the shares to subsidize the company. Because shareholders believe their investments would be worth more if the family required management to produce higher profits, they are up in arms.

Led by Morgan Stanley Investment Management, there is a growing movement among common stockholders to pressure the family to abandon the two-tier stock structure. If the movement were successful, the management elected by the common shareholders - and not the family - would set the profit targets. Rest assured, they would be a lot higher than they are today.

In light of the shareholder discord and the fairly depressed value of NYT stock, it is perfectly logical for family members to think about buying the public shares and running the company as a private entity insulated from the scrutiny Wall Street. This would require raising more than $5 billion of debt and equity from financial firms seeking high rates of return.

A leveraged buyout, as such a transaction is called, can work well when management has a plan to improve profitability by accelerating sales, significantly cutting expenditures or, ideally, both of the above.

Given concerns in the financial ocmmunity that newspapers may face up to five more years of weak revenue growth, the only buyout plan likely to win funding would be one calling for even deeper expense reductions than typically demanded by the public shareholders.

If the family decides to take the company private, it's hard to imagine how the Gray Lady could come out whole.

[Milhous]

Let's Talk About Us

That's a lot of media news, and it's no coincidence: As every careful Times reader knows, the Monday business section is designedly media-focused. And why not? New York is one of the great centers of global media doings, and the paper covers that world with intelligence and verve.

Still, if you were an alien life form just arrived in Manhattan from, say, South Dakota, you might find this a little strange. Out of every seven days of business coverage, the nation's premier newspaper devotes one day to the media. That's a big slice of the pie.

Think of all the other pieces of the economy that don't get such treatment. Oil is a huge, profitable business, one that touches everyone's life. Yet I know of no national news outlet offering a weekly petroleum section. Insurance? Farming? And what about the cement industry? A strange silence prevails.

I know, I know: That's all old hat compared with the sexy, celebrified, plugged-in world of information.

Yet, after a few hours in the echo chamber, everything else begins to seem weirdly fascinating. The only nonmedia story on The Times business front that particular day was about a copper mining company acquiring one of its rivals. Amid all of the buzzy media news, this "latest move in a series of mining and metals mergers" seemed wonderfully solid and real, especially next to this: "The long-term goal of the alliance with Yahoo, according to one senior executive at a participating newspaper company, is to be able to have the content of these newspapers tagged and optimized for searching and indexing by Yahoo."

The Times is not alone here, nor is intense media-gazing just a feature of business news outlets. These days, almost everything in the media seems to be about the media.

From Los Angeles to Philadelphia, newspapers are flailing -- read all about it, in exquisite detail, in those papers themselves and everywhere else. Bloggers are a big media topic right now, but then so is citizen journalism. Or are they the same thing?

The end of a piece is no longer the end anymore. It's the beginning of a journey to other media places and experiences. Now you have the "opportunity" to comment and subscribe to the RSS feed. Or perhaps you'd like to send what you just read to Digg or Del.icio.us? It's all very happening, but sometimes I long for the days when the media weren't trying so hard to rope us into hanging around and doing all of this extra work. A story just ended and went out with the trash. Bye-bye. It was brilliant.

Media outlets don't only track the latest poll numbers of the president and Congress. How are the media doing? There are now polls on that.

Remember the Katie Couric madness in September? Just a decade ago, would the debut of a network news anchor have occasioned all of that fervid reporting and chatter? True, it was partly about the idea of a woman as the new Cronkite. But did the media basically come to a stop for a week the first time a woman became the CEO of a Fortune 500 company that had nothing to do with the media? Do you even know who that woman was?

Of course, you're reading one of the symptoms of this disorder -- a regular column of media commentary, devoted today to questioning the idea of media narcissism. Next week we'll discuss the media as simulacra of semiotic hyperstructuralism.

Media stories about the media were once the exception. The more journalism declines into depression and general dysfunction, the more journalists and other media types obsess about themselves.

It's all a kind of therapy. Maybe if we just discuss and link and analyze ourselves enough, we'll get out of this fix we're in. Besides, what's more interesting -- other people's problems or your own?

[Milhous]

GONE WITH THE WIND - 2006

"There was a land of Publishers and Editors called the Newspaper Business... Here in this pretty world Journalism took its last bow... Here was the last ever to be seen of Reporters and their Enablers, of Anonymous Sources and of Stringers... Look for it only in books, for it is no more than a dream remembered. A Civilization Gone With the Wind..."

With apologies to Margaret Mitchell...

[Billthedrill]

I could solve this problem for them. Fire all the lying sacks of crap working there and you'd reduce your payroll by at least 50%. Start printing the unslanted truth and the market comes back.

Sorry. Started my morning out smoking crack again...

[jiggyboy]

In cutting his rating on the Times to "sell," Citigroup analyst William Bird predicted the stock will fall 29 percent in the next year. Last year its shares fell 35 percent...

Hey Billy nice job there getting your clients out at the top

[OldFriend]

Let's talk about Morgan Stanley. They were the first corporation to invite slick willie speak after his ugly departure from the White House. After his unseemly pardons generated serious negative publicity.

Yet they thought to pay him a large sum of money to speak at a corporate function.

Due to the storm of publicity they withdrew the invitation to slick willie.

If their bottom line is harmed by the NYSlimes, then, IMO, that's a good thing.

[Samurai_Jack]

Such as it is, the press has become the greatest power within the Western World, more powerful than the legislature, the executive and judiciary. One would like to ask; by whom has it been elected and to whom is it responsible? — Aleksandr Solzhenitsyn

[bert]

.....which it wants shareholders to vote on at the annual meeting in April.....

Now we have Mr Greenburg entering the fray. One wonders if the two tier structure will prevent bringing the question.?

Then, there must be enough votes to overcome the family. Something is afoot...... should pinch worry?

[Jeff Chandler]

fat profit margins — the industry average is about 20 percent

And these fudgepackers have the audacity to wail and gnash their teeth over BIG OIL!!!!! earning 9 percent?

[Grampa Dave]

Lets add another dark side of these fishwraps like the NY Slimes. The control of competition by legislation for the papers and their media outlets. I just posted a reply to abb on another thread that needs to be repeated about this dark side:

"The quotes below show that these so called leaders of business, who controlled a piece of the media monopoly are not real capitalists. They are facist moguls who need regulation to grow their companies and make high profits.

---

The root of practically every media empire is control of a some pipe. Spectrum, bandwidth, cable lines, phone lines, sewers - any closed system.

These media moguls are political entrepreneurs who adore regulation that keeps them controlling pipes. I love this quote from Peter Wallison in the WSJ:
...industries that rely on regulation to protect them from competition build a coffin instead of a wall. In our dynamic and innovative economy, regulation is a double-edged sword. While it might confer some temporary protection from competition, in the long run it isolates the regulated industry from the realities and opportunities of the marketplace.

---

Which is why these so called media business leaders are in bed with the power democrats like the Clintoons, the Kennedy's, the Reids, the Murthas, Pelosis, Finesteins, Boxers, Kerrys, Dodds and others. They depend on these rats to push and enact legislation that protects their facist media empires.

[Doctor Raoul]

King Pinch: Holder of the Royal Stock

[Milhous]

Political entrepreneurs with big media sewer pipes trying to "extend colonialism, media colonialism, into whatever they can."

[3niner]

Years ago, Newsweek's Jonathan Alter spoke at a conference in which he said as journalists we have two allegiances: readers and the truth.

Most of America's large media organizations have long since foregone any effort to be truthful, in favor of trying to achieve desired political outcomes. Since non-stop, biased lying doesn't serve readers, they are solidly 0 for 2 here.

The only problem with the slow death of the NYT and their ilk, is that it's not happening quickly enough.

[3niner]

Such as it is, the press has become the greatest power within the Western World, more powerful than the legislature, the executive and judiciary. One would like to ask; by whom has it been elected and to whom is it responsible? — Aleksandr Solzhenitsyn

Great points Alex (if I may be so familiar). Let's start electing our media. We need to start with some term limits.

[3niner]

One wonders if the two tier structure will prevent bringing the question.?

It could, but "the family" needs to worry about possible intervention by the SEC, Justice Department, courts, etc.

[abb]

Some animals are more equal than others...

http://www.marketwatch.com/News/Story/Story.aspx?guid={C56D153B-8D2E-40A3-B83C-07B23C5380F8}&siteid=mktw&dist=nbi
Second-class stockholders
Why do so many public firms still give family insiders so much voting power?

By Russ Britt, MarketWatch
Last Update: 7:34 PM ET Dec 1, 2006

LOS ANGELES (MarketWatch) -- In the post-Enron era, Corporate America has undergone a sea change in how it polices itself. Public companies now are more vigilant and upfront on their financial reports, they've cut back on fat pay for executives and eliminated management cronies from boards of directors.

So why, then, in this much-vaunted golden age of shareholder governance do some 200 companies still cling to the two-tier stock systems that give common holders one class of shares while another class of stock, with vastly greater voting power, is given only to founding family members or other insiders?
Now that practice is newly facing the harsh glare of scrutiny, as a major shareholder of the New York Times Co. (NYT) is demanding an end to the decades-old practice at that venerable newspaper giant.

These supervoting shares -- usually impossible for outside investors to get -- often are the regime in place at family-controlled firms, particularly newspaper companies that created separate, unequal share classes as a way to preserve their editorial independence. But at a time of rising shareholder dissatisfaction with big media companies, dual-class stock promises to gain visibility -- while also standing in the way of the kind of shareholder revolts and hostile takeovers that have transformed so many companies in recent years.

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