The headline asks:
As a leading indicator of the newspaper biz's health, what does the chain's bad news portend for the rest of the industry?
Here’s the lead:
Just two years ago, McClatchy Co. President and CEO Gary Pruitt boasted the sunniest disposition of all newspaper executives. In a Wall Street Journal op-ed, he toasted newspapers as "still among the best media businesses" as his firm's purchase of the Knight Ridder chain tripled its print holdings.
Pruitt conceded that newspaper advertising had peaked in 2000, but he maintained that no competitors in local markets had held their audiences as well as newspapers. Far from being a "dying industry," wrote Pruitt, the newspapers were adding the "unduplicated reach of newspaper Web sites to newspaper readership" to grow their audiences.
Since Pruitt's declaration, McClatchy stock has fallen, fallen, and then fallen some more. It's dropped about 75 percent in the past year and is now trading at less than $10. Last week, the McClatchy-owned Sacramento Bee reported that the company is taking a $1.47 billion write-down, this following a similar $1.37 billion write-down in November.
Essentially, the write-downs are McClatchy's way of acknowledging under accounting rules that it paid way too much for Knight Ridder, that its stock price has vaporized, and that advertising has croaked. McClatchy's January ad revenue dropped about 16 percent over the previous year, a company press release reports. Real estate ads are off 34 percent and employment ads—a bigger business—fell 30 percent.
By scrutinizing McClatchy's agonies, I don't mean to rub Pruitt's nose in his optimistic 2006 op-ed. His reputation as one of the nation's best and most creative newspaper executives makes his chain a leading indicator of the newspaper future. Other chains are experiencing similar downturns, but McClatchy isn't just another chain. It's supposed to be smarter and more nimble than the rest, but is it? Did Pruitt show bad geographical judgment by overinvesting in the wrong markets at the wrong time? He bulked up on real-estate-driven economies, adding newspapers in Florida and the Sun Belt, just as those places were about to decline. He doubled down on newspapers just as newspaper's core advertisers—real estate, finance, job listings—were opting out for Web alternatives.
Pruitt must somehow reference his Journal op-ed and admit that he was wrong about his industry's prospects and then explain what he's going to do to rectify his error. He bought Knight Ridder at the peak of the housing bubble and obviously didn't foresee the subprime crisis. In that regard, he's not alone. The subprime monster has trashed real estate ad revenue in California and Florida, home to some of the chain's biggest papers. "Revenue from California and Florida operations dropped more than 20 percent," the Bee reports. Newspapers have traditionally been patient about riding out advertising downturns, but the subprime disaster may make this downturn an abyss for McClatchy's most affected newspapers.
As Alan D. Mutter noted in his Newsosaur blog last month, Pruitt mistakenly jettisoned the Knight Ridder newspapers in Akron, Ohio; Philadelphia; and the Dakotas in favor of the hot-house Sun Belt properties. Pruitt's plan to grow the Web side of McClatchy as advertisers migrate there, sketched briefly in the Journal op-ed, didn't work out, as Mutter reported in another post last September. "With industry-wide online sales up 20.8 percent in the first half of this year, McClatchy's interactive revenues gained a meager 1.4 percent through June, according to the company," he writes.
Click on the headline to read it all and then remember where you were because we may not have room for future posts in the series.
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