Slow-motion train wreck

Submitted by yelvington on January 17, 2009 - 9:41am

It's a sad and painful thing, watching the slow-motion train wreck in Minneapolis. And for the passengers on that train, it must be bewildering and humiliating to be the utterly dominant newspaper in a market long considered solid gold, yet declare bankruptcy.

It seems like just yesterday when we were burying money in the basement. Not literally, of course, but there was a year at the peak of the Star Tribune's performance when the order went out: Stock up on supplies. We're making too much money. (Note: I was the founding editor in 1994 of Star Tribune Online, which was rebranded StarTribune.com. I left in 1999.)

It's not sustainable, we were told, and if we're going to deliver consistent growth numbers and keep our investors happy, we have to smooth it out. Suddenly we all got new Compaq desktop computers and threw out the old P-60 IBMs. New monitors. Anything that could be expensed was expensed. Anything that could be rapidly depreciated was welcomed.

Then the paper went on the block, and McClatchy snatched it away from the Tribune Company, which thought it had a winning bid, and the Washington Post, long an investor. At over a billion dollars, it was the richest newspaper deal in history, when market size was factored in. McClatchy used the paper to slingshot itself into the big leagues.

Who ever imagined the Star Tribune would be resold at half price, then declared bankrupt?

This is another example of what I've called the ownership crisis.

The Star Tribune is, strangely enough, still profitable as an ongoing business. Its print product is still profitable and is huge, with 522,000 Sunday circulation and 322,000 daily -- far ahead of the rival Pioneer Press at 246,000 Sunday and 184,000 daily. Its website utterly dominates a highly competitive, wired, highly educated marketplace and enjoys one of the highest market shares of any newspaper site in the world.

Profitable.

But in the face of a brutal recession that has dried up advertising revenues, it can't meet the payments on the loans its owners took out in order to grab control. It's not profitable enough.

Humiliating and offensive as it may seem to the newspaper staff -- who are among the victims in this soap opera -- the bankruptcy is probably a good thing. Some second-tier lenders who made poor risk evaluations are going to lose everything, but unless the recession turns even more ugly, it's likely that the paper will ride this one out. But will it be recognizable? Will the senior managers continue to gut the product and fire key staffers until it becomes a joke?

I can't imagine the Pioneer Press emerging a winner. Nobody in the bulk of the metro area reads the Pioneer Press. Its distribution on the west side is nonexistent, and it's effectively surrounded in the eastern suburbs by the Star Tribune.

But then, who in 1999 could imagine that the Strib would be bankrupt in 2009?

Comments

Submitted by Dan (not verified) on January 17, 2009 - 10:26am
There are several flavors of the ownership crisis. This one appears to be overleveraging the company's assets based on the laughably faulty assumption that double-digit profits would be perpetual. Not all newspaper companies are in the same boat when it comes to debt service, but I believe the boardroom culture that produced this failure is close to universal among American newspaper companies. People ask me if print is dead. I tell those interviewers that newspaper companies are dead, because they're so broken that even when they produce good solutions to problems, they either reject them, allow their internal divisions to strangle them in the cradle, or fail to implement them as intended. Decades of local monopolies and flush profits have bred competence, intelligence and integrity right out of the American newspaper management class. What remains is not worth saving. If Americans want good newspapers, they should begin by destroying the bad newspaper companies that have been sucking the lifeblood out of journalism for decades.

Submitted by yelvington on January 17, 2009 - 12:33pm

The irony for the Star Tribune is that it once was extraordinarily smartly managed. Some things that happened while I was there raised a lot of eyebrows in the industry, but in retrospect were spot on. Here's what was happening at the Strib in the 1990s:

  • Afternoon fax product focusing on business news (early 1990s).
  • Among the first to connect the newsroom to the Internet (1993) -- email, Telnet and Gopher to every desktop in the pre-Web era.
  • New-media research lab (1993-94); member of new-media consortium PAFET.
  • Among the first in the current wave to launch online services, first dialup-online, then Web (1994-1995).
  • Addressable home delivery, enabling the newspaper carriers to deliver other companies' products.
  • Complete restructuring of the business to serve customer groups, abolishing traditional internal departments and titles.
  • Development of a portfolio product strategy, recognizing the fracturing of the marketplace into niches.
  • Self-managed work teams and mandatory group-process skills training for everybody in the company.
  • Optional-delivery sections; beginnings of the personalized newspaper.

Long before Google existed -- let alone Google Street View -- we had a real estate database that let you look up and down the street and compare a house with those of the neighbors.

And, of course, the Star Tribune pioneered electronic page layout with work that directly led to the desktop publishing revolution (the project manager went on the found Aldus and create Pagemaker).

Several senior managers came from outside the newspaper industry -- banking, auto manufacturing, real estate, academic research -- helping cure the inbred newspaper disease. Joel Kramer, who now runs Minnpost.com, was publisher. The journalism was first-class and the profits were top-rank. It was good place to be, and a good time to be there.

Submitted by Fred Hundt (not verified) on January 18, 2009 - 12:54am
Steve- I very much appreciated your comments on the disaster that we now call the Star Tribune. A few things strike me as an ex-Stribber: 1. Leverage--the paper is still making money, but when Avista bought it with 90% debt and almost none of their own money, they set it up for failure. 2. EBIDTA--I can't remember the exact numbers, but I believe the paper made over $100MM in profit BEFORE interest, deductions, taxes and amortization...in 2008 the number was about $25 million, even after the company "reduced costs by $50 million." As much as the leverage drove ST into bankruptcy, a business whose EBIDTA drops by 80% AFTER Draconian cuts is in big trouble. 3. Family Ties--if the paper were owned by the Cowles family, with no public shareholders or lenders, it could potentially withstand the current economic problems and, maybe, even the secular decline. But in the hands of a private equity firm with 90%+ leverage, it was already a train wreck before economic or secular declines! I've always enjoyed your perspective on the news business. We should talk sometime.... Fred Hundt

Submitted by Anonymous (not verified) on January 26, 2009 - 7:16pm
The Pioneer Press is not "surrounded" in the East Metro. In effect, the Pioneer Press has locked up the East Metro, part of the reason the Star Tribune just shuttered its weekly East zone section.