Today I offer unsolicited advice on a situation in which I have neither expert stature nor direct financial stake. I refer to the warning issued by Knight-Ridder’s largest shareholder — later echoed by others — that the newspaper chain must light a fire under its stock or face a possible takeover. To which I say: if a better-performing stock is the goal, don’t think big, think small. Consider spinning off some KR papers through leveraged buyouts. Sell to local owners. Let KR keep a minority stake AND monetize the properties now. We should even get better community journalism as a dividend.
What a mouthful, even for a mad blogger like me! But let’s consider what more sober people say about the odds of success through acquisition. Below is a quote from Bain & Company, a global consulting firm, speaking about M&A in general:
“We have learned that a disciplined approach to the acquisition process is vital to ensure success in a world where all studies concur that most deals destroy shareholder value.” (emphasis added)
Okay, so maybe the deal that swallows KR — if that isto be the outcome — will be one of the exceptions to the rule. There is plenty of speculation about which entities might be big enough and hungry enough to entertain a takeover. But given that most acquisitions don’t pan out, why not consider an alternative?
If you think about the financial health of newspapers (which I certainly do, as I am employed by a non-KR daily) it is clear that the industry’s advertising base is being nibbled away by Internet media. The ecosystem is changing. In a sense newspapers may be akin to the dinosaurs. And the lesson we learned from their passing is that life thrived by getting smaller, and not the reverse.
That’s why some thought should be given to an out-of-the-box idea that would maintain the existing chain structure — whether it’s KR or any of the other bigs — while trying to realize some of the benefits that should come with smallness. Here’s a metaphor for the framework I suggest.
Think of a newspaper chain as a baseball league with teams in different cities. The league owner could sell controlling stakes in these individual teams to local franchise owners. Investment bankers could calculate the sale price and also create some sort of revenue participation scheme going forward, so the league owner — who would maintain a minority stake — could benefit from the hoped-for success of the franchise. The league owner would get cash up front — and the local owners would run the team. These local owners would have what investors call “skin in the game.” The result should be a win-win. Local owners would presumably run a tight ship. The league owner — and its shareholders — would presumably benefit, not just at the time of the sale but in an ongoing way. And let’s not forget the fans, i.e. the readers. I believe local owners would have a stronger connection to the communities upon whom they depend.
This notion may not please the most ardent critics of media concentration, but then they might not settle for any solution that did not involve a guillotine. Likewise, my suggestion may only serve to infuriate the powers that be. (In the Lord of the Rings trilogy Gandalf warns: “Do not meddle in the affairs of wizards for they are subtle and prone to anger.”)
But what else is a hobbit to do when he thinks the Big Folks may have forgotten the lessons of evolution: that smaller may be better, and that in the midst of an ecosystem shift, survival may depend on experimentation — all of which militates toward more local owners taking more chances and making different choices, rather than trusting a few people in the big towers to make the best rolls of the dice.
‘Cause if you ain’t Mass Media, you’re Mini Media