America's Media Dynasties Can The Ridders Ride it Out?
America’s Media Dynasties
Can The Ridders Ride it Out?
Just because a business bears a family name doesn't mean that keeping it in the family will be easy. P. Anthony "Tony" Ridder, the 61-year-old chief executive of Ridder, is keenly aware of this as he struggles to keep the U.S.'s second-largest newspaper company independent.
Knight Ridder (nyse: KRI - news - people ) is more vulnerable to a hostile takeover than most media ventures in this age of industry consolidation because of its unique capital structure. It's one of the few family newspaper outfits, along with Tribune(nyse: TRB - news - people ), that has a single class of shares. Other ink-stained clans like the New York Times Co.'s (nyse: NYT- news - people ) Sulzbergers, the Washington Post Co.'s (nyse: WPO - news - people ) Grahams, the Pulitzers of Pulitzer Inc. (nyse: PTZ - news - people ) and the Scripps of E.W. Scripps Co. (nyse: SSP - news - people ), are all insulated from unsolicited offers because they each have one class of voting shares held only by the families, as well as a separate class of nonvoting stock distributed to the public.
The Ridder family owns just 6% of the company, but it has more than just a financial interest in shielding its business from corporate raiders. "Their name is on the door and I think they take more than a corporate interest in the success of the company--they take a family pride in it," says New York-based media investment banker Ken Marlin of Marlin Associates.
Knight Ridder is the product of the 1974 merger between Knight Newspapers and Ridder Publications--family companies that date back to 1903 and 1892, respectively. Second only to USA Today publisher Gannet (nyse: GCI - news - people ) in size, it has 32 papers that have a readership of 8.5 million and its stable includes gems like the Miami Herald, the Philadelphia Inquirer and theDetroit Free Press.
And it is those crown jewels that some accuse Tony Ridder of sullying in his recent quest for increased profitability, which is driven to some extent by the vulnerability created by the company's single-voting-class shareholder arrangement. His cost cutting has earned him the nickname "Darth Ridder" among his detractors.
Knight Ridder has always had a reputation for journalistic excellence as well as for making that value a priority over the bottom line--which is perhaps why Knight Ridder's financial performance has lagged that of its industry peers for years. Those priorities changed abruptly when Tony Ridder was installed in the executive suite in 1995 after spending 32 years working his way up through the company. He was the first member of either family member to take the helm since the merger.
"Yes, [Tony is] a tight business manager, but that's not a contradiction to putting out a good paper," says Miles Groves, the chief economist at the Washington, D.C.-based newspaper consultancy The Barry Group. "You can't sell more newspapers without a quality product."
Some may deride his management, but the fact is that operating margins have jumped from 12.5% in 1995 when Tony Ridder took over, to 18.2% in 2001. The trouble: It isn't enough. Indeed, Knight Ridder's margins have significantly trailed those of its competitors until last year when it just made the industry average.
Working with this disadvantage, Ridder now has the advertising slump on his hands. Compared to 2000, revenue was down 8% in 2001 and help-wanted classifieds--the lifeblood of any newspaper company--plummeted 36% surpassing the industry's 2001 average decline, according to J.P. Morgan analyst Barton Crockett. "Tony has said he wants to get to 25% operating margins," says John Morton, president of Silver Spring, M.D.-based newspaper consultancy Morton Research.
And to keep the wolves at bay, he'd better. Cost cutting and layoffs will certainly play a significant role in this effort. Knight Ridder began 2001 with a payroll of 22,000 and rang in 2002 with about 19,000 employees, which will cut an estimated $100 million in costs. Tony Ridder has also instituted a program that ties executive compensation to circulation rates-- a unique motivational strategy in the industry.
Ridder is also putting significant muscle behind its Internet job board, CareerBuilder.com, which is a joint venture with Tribune. Most of their newspapers have re-branded their help-wanted sections as CareerBuilder and now the sales force is up-selling recruiters and employers by offering package deals of online and newspaper ads.
Perhaps most critical is Knight Ridder's renewed focus upon community service, which is at the heart of any newspaper's success when trying to boost circulation. "That may attract less attention than Pulitzer Prizes, but it's much better for the bottom line," says Morton. "Newspapers make money locally."
And despite the hue and cry of journalism's cognoscenti, making money is the priority.
"The worst that anyone can accuse Tony Ridder of is failing to meet the standards of some self-appointed arbiters of what constitutes responsible journalism," says Ken Marlin. "But it's also responsible journalism to keep your business alive."