Newspaper Ownership Is Turning The Page

In Orange County, The Private Model

SANTA ANA, Calif. -- A quarrelsome newspaper family, fed up with its papers' poor performance, puts the company up for sale. Private-equity bidders step in, letting the unhappy family members cash out with millions of dollars. In the wake of their exit, the papers face buyouts and other cost-cutting measures as they struggle to keep readers.

The scene sounds like the one playing out at the once-mighty Tribune Co., where a boardroom fight has forced the company onto the block and led to the firings of the editor and publisher of its largest property, the Los Angeles Times.

But the events described actually began playing out three years ago and 45 minutes south of L.A. down Interstate 5, at the Orange County Register and its parent company, Freedom Communications.

As such, what happened in Orange County may prove a lesson for Tribune, the L.A. Times and much of the rest of the industry. Declining circulation and advertising revenue are chasing newspapers out of the longtime hands of family and Wall Street shareholders and into the arms of the trendiest owners in the industry: private-equity firms.

Tomorrow is the deadline Tribune has set for bids on its $7.3 billion newspaper and television empire. But enthusiasm for Tribune has been tepid, rousing little interest from publicly traded newspaper companies but plenty from private money.

That unsettles some, who fear that private equity's focus on short-term gain will lead to more cuts and quality reductions in an already shaky industry. But Freedom president Scott N. Flanders said private-equity ownership of newspapers is actually the best idea for this turbulent era.

"Media companies in transition should be private," Flanders said. "When you're privately backed, you have the flexibility to be nimble."

In recent decades, almost all large newspapers and chains have been publicly owned. Now, however, newspapers have fallen into disfavor with Wall Street, which values stock-price growth over almost every performance metric. And newspapers are not growing.

Advertising growth exists only online, yet digital revenue is still less than 10 percent of almost every paper's total revenue. Consequently, public investors have forced companies to sell newspapers and break up venerable chains in an effort to extract value. The result: More papers are falling into private hands, where equity partnerships rule.

Though they are not growing, many newspapers continue to make healthy profits, making them appealing targets for equity firms: small groups of moneyed investors who typically hold their new companies for a few years, urge them to cut costs and create value, and then sell their interest and move on. Some equity firms leave the companies stronger and better-positioned for the future; others do not. Private-equity companies used to be known as leveraged-buyout firms, and some of those were known as sharks.

One of Freedom's owners, Providence Equity Partners, is interested in Tribune, which would give it an unrivaled footprint in Southern California. Another equity firm bought the Minneapolis Star Tribune late last month. Equity firms took a run at the Knight Ridder papers last year before they were purchased by the McClatchy newspaper chain.

In Santa Ana, a two-decade feud among Freedom's owners -- the Hoiles family -- forced the sale of the company. In 2004, two private-equity firms, Providence and Blackstone Group, bought 40 percent of the company for $1.3 billion, including debt. Disgruntled Hoiles family members could cash out; those who wanted to stay were able to keep running the company.