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Wednesday, Nov. 8, 2006 05:33 am

Bad news?

Despite tough times for newspapers, the SJ-R's next owner could be getting a cash cow

Fresh from a heart transplant in the summer of 2005, billionaire newspaper magnate David Copley reassured employees that he wasn’t interested in selling his family’s company, Copley Press Inc.

“As we celebrate a century in the newspaper business, I want nothing more than to be a good custodian of a great legacy,” he wrote employees in an e-mail.

One year later, on Nov. 1, Copley surprised those employees with the announcement that seven of the company’s Midwest papers, including Springfield’s State Journal-Register, were for sale.

Other Illinois papers on the block are the Peoria Journal Star, the Galesburg Register-Mail, and the Lincoln Courier. In Ohio, Copley is selling the Canton Repository, the Massillon Independent, the New Philadelphia Times-Reporter, and the weekly Green Suburbanite.

In Peoria, that paper reported that employees were “stunned” when publisher John McConnell broke the news; in Canton, David J. Greenfield, publisher of the Repository and president of Copley Ohio Newspapers, reported that workers were “taken aback” by the announcement.

At the SJ-R, which is marking its 175th anniversary, the reaction was no different.

“Change is not easy,” says Sue Schmitt, publisher of the SJ-R and the Courier. “Many here have never had another employer and are uncertain what this will mean.”

Indeed, uncertainty is the only sure thing about this deal.

It’s unclear who is likely to emerge as a successful bidder for the newspapers; it’s unclear how much the papers are worth.

And given a rapidly changing media landscape, in which once-dominant newspaper chains such as Knight-Ridder and Tribune have stumbled, the conventional wisdom suggests that you’d have to be a few bundles short of a rack to be thinking about buying a daily newspaper.

But the conventional wisdom can be wrong.

The trouble with newspapers has been well documented over the past 15 years.

Flat advertising revenues, plummeting circulation, the rising cost of newsprint, and ever-growing competition from the Web have industry observers speculating that newspapers may no longer be fit to print.

Certainly fears of newspapers’ extinction aren’t without merit.

Just last week, the Audit Bureau of Circulations reported that the average daily circulation for the nation’s newspapers fell by 2.8 percent in the six-month period ended Sept. 30, compared with the same period in 2005, and Sunday circulation decreased by 3.4 percent. It was the steepest drop in more than a decade and a sign of accelerating decline for daily papers.

The trend was mirrored in Springfield, where the SJ-R’s Sunday circulation, which averaged 61,330 copies in the Sept. 30 period, was down by nearly 3 percent and weekday and Saturday circulation was off by about 4 percent.

For the most part, what’s driving this contraction is the fact that more news consumers, especially the young, are choosing to get their information online — right after signing on an instant-messenger service and before checking their personal-information-sharing sites such as MySpace.

According to this year’s edition of the Washington, D.C.-based research organization Project for Excellence in Journalism’s annual report State of the News Media, power over what the public knows is moving away from journalists, with citizens are assuming a more active role as gatherers, editors, and creators of news.

In short, consumers of news are moving toward new media and away from old media such as local television newscasts and newspapers — and the trend is likely to accelerate.

That’s not to say that the newspaper business is in its death throes, however.

“With all the adverse publicity about stagnant growth, the perception out there among a lot of people is that the industry is not doing well. The problem is, I don’t know that the perception is an accurate one,” says Brian Steffens, executive director of the National Newspaper Association, based at the University of Missouri-Columbia.

Despite newspaper profit margins’ having fallen from an average of 22 percent four years ago, margins have remained high during the first half of 2006 — about 18 percent.

By contrast, Steffens notes, supermarkets tend to live on a 1 to 2 percent margin, retailers on a 6 percent margin, and nobody is predicting that either of those industries will collapse.

“I’m sure Ford and GM would just do cartwheels for a 20 percent margin, but Wall Street doesn’t reward profit margins; they tend to reward quarter-over-quarter growth — and the newspaper industry has struggled with that,” Steffens says.

That’s why private-equity firms, such as the group of local investors that recently bought the Philadelphia Inquirer for $562 million, are looking at newspapers. No matter what Wall Street says about stagnant growth, daily newspapers are practically ATMs — and private firms appreciate the steady cash flow.

In recent months, the Los Angeles Times and Boston Globe have piqued the interest of experienced businessmen: Geffen Records founder David Geffen and former General Electric chairman Jack Welch, respectively.

But just because some newspaper chains, such as the Chicago-based Tribune Co., are hitting the skids doesn’t mean that the Copley papers won’t attract interest from newspaper chains. Among the likely suitors is Gannett, the nation’s largest newspaper company and publisher of USA Today.

McClatchy, which this year swallowed much of the larger Knight Ridder chain, owns the Belleville, Ill., News-Democrat. The company’s CEO, Gary Pruitt, recently told financial analysts, “We’re not in the acquisition hunt right now.”

The newspaper association’s Steffens says that although analysts tend to concentrate on the top 100-or-so newspaper markets to measure the overall health of the industry, papers in smaller cities that aren’t saddled with challenges of large metropolitan papers are performing quite well (and so are state capital newspapers).

So companies that specialize in acquiring smaller newspapers — Community Newspaper Holdings Inc. in Birmingham, Ala., which owns 94 dailies and 49 nondailies in 21 states, and Cincinnati-based Brown Publishing Co., which operates 18 daily newspapers in the Buckeye State — might also be interested in Copley’s Midwest properties.

Davenport, Iowa-based Lee Enterprises could be the most logical buyer, because it already has a strong newspaper presence in Illinois and the Midwest.

But Ed Bishop, editor of the St. Louis Journalism Review, says he doesn’t think that Lee, which borrowed $1.46 billion to acquire Pulitzer Inc. and its flagship, the St. Louis Post-Dispatch, can afford to buy anything right now.

Lee probably paid more money for Pulitzer than it was worth, Bishop says. That, on top of an industry-wide advertising recession, has caused Lee to do everything it can to economize.

“Since there are not going to be increased revenues for some time, they’re going to have to cut costs,” Bishop says. At the Post-Dispatch, that’s been accomplished with buyouts of older, higher-paid employees — something, Bishop says, that has affected the quality of the paper.

All that said, he believes that it’s now a buyer’s market for newspapers, with the future generation of newspaper owners more likely to be private local owners than large chains.

That’s probably good news for the SJ-R, and other Copley papers, which, company officials say, are performing better than the rest of the industry.

Dave Bennett, executive director of the Illinois Press Association, says, “Statistics tend to suggest that if you’re in a smaller market, where the economy is good and your readership tends to be more in tune with your newspaper as the primary source of information, then your paper is more stable than others.”

Contact R.L. Nave at rnave@illinoistimes.com.

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