Is The Seattle Times’ Owner Being Remarkably Open About His Company’s Challenges?

Or just shrewd?

At least he had the decency to wait until after Christmas to send his annual staff memo to employees at The Seattle Times. As publisher of the family-controlled paper, Frank Blethen laid out a series of dire numbers: "For 2007 our print revenue will be down about 9 percent. Similar losses are expected next year." Last year's net ad revenues of $200 million were off by 25 percent from 2000. Then there's the Blethens' unhappy minority owner: "In just the past few months, McClatchy Newspapers lost 70 percent of its value." McClatchy bought Knight Ridder's 49.5 percent share in the Seattle Times Co. two years ago. For that deal, wrote Blethen, that share was valued "at well over $200 million. It has since been written down twice, and as of last month [McClatchy] valued it at only $19 million." Geez, Frank, thanks for the holiday cheer. But is the bad news being deployed strategically? The union's contract with both Seattle dailies expires this July, meaning spring negotiations will begin in the long shadow of Blethen's memo. The Times previously had to dig itself out of a financial hole following the 2001 strike. It offered generous severance packages to divest itself of senior, top-line talent like film critic John Hartl (still a freelance contributor), columnist Jean Godden (now on the City Council), sportswriter Blaine Newnham, and photographer Harley Soltes (who has since lent his lens to us). Dozens followed them out the door, and a similar round of buyouts led to 88 staff departures in 2005. This time could be different. "The consistent drumbeat that we've heard in the rumor mill is that there will be no buyouts," says Liz Brown, representative of the Pacific Northwest Newspaper Guild. That's probably because buyouts are no longer necessary. Of late, staff have continued to abandon the building without incentives, and without being replaced, due in part to a two-year wage freeze. "If they don't do something on the salary side, they are going to keep losing employees," says Brown. Which is probably fine with the company. "We must maintain and enhance our core business while cutting costs to match falling revenues," says Jill Mackie, the Times Co.'s spokesperson. "I think there will certainly be cuts in content," Brown says. The Times advertised for a television critic in 2006, but the position was never filled. Many observers have speculated that the paper will further reduce its far-flung coverage in, say, South King County and Washington, D.C. Conveniently, the Times just announced the paper would begin reprinting New York Times stories on a daily basis, instead of just on Sundays. Two days before that announcement, editor-at-large Mike Fancher penned his last "Inside the Times" column after 16 years, simultaneously declaring his faith in the paper and announcing his pending retirement. Touchingly, he wrote, "I am optimistic because I've had the opportunity in the past year and a half to spend time with high-school and college students who say they want to be journalists. Technology, for them, is a comfortable tool that will enable them to tell stories in ways that earlier generations couldn't have imagined." Did we mention those tech-friendly kids will work for free T-shirts and eagle-logo coffee mugs? "The company's going to grow where the revenue is growing," says Mackie. And those young new employees of NWsource, the Times-owned Web site, aren't represented by the Newspaper Guild. Truth is, the online news is pretty good for the Times Co. (which, under a joint operating agreement, also handles print and online advertising for the Hearst-owned P-I). The two papers together would be the 10th biggest newspaper site in the country, according to the Newspaper Association of America. "Our online revenue growth is among the best in the country, but is still only about 10 percent of our print revenue," wrote Blethen. Meaning online growth is barely covering the rapid erosion of print revenues. But perhaps bad-mouthing his own company's financial health could have other benefits for Blethen, besides intimidating the union. Could it perhaps also be a way back total ownership? Blethen used to regularly piss on Knight Ridder; he has always hated to share his 111-year-old family-founded company with outsiders. Before, $200 million would've been too steep a price to pay for the 49.5 percent of the company he sold off years ago. But $19 million—that's a much more manageable number, particularly when the future may look so dismal to McClatchy. Would McClatchy consider dumping its Times interest? "They took on a load of debt to do the Knight Ridder transaction," says analyst Chris Watters from Chicago, where his Ariel Capital Management owns a substantial stake in McClatchy. "Under the right circumstances, they would be willing to sell the minority stake. For the right price, they'd sell anything." Says Mackie, "You are correct that Frank has acknowledged an interest in that in the past. At this point, no such opportunity exists." Is Blethen's $200 million–into–$19 million assessment accurate? "$19 million doesn't sound realistic to me," says John Morton, essentially the dean of American newspaper analysts, speaking from Morton Research in Maryland. "If you determine the value of a newspaper that's going through a bad period strictly as a multiple of operating cash flow, you're going to come up with a very low value. Some of these papers don't have any cash flow!" So are there any potential buyers out there? Morton chuckles at the thought: "Oh, no, I doubt it. It had a history of contentious ownership when Knight Ridder owned it. Few newspapers are interested in obtaining a minority position in a company whose chief executive, Frank Blethen, has made it clear that he's going to run things his way, whether they like it or not. That's what he's done. I can't imagine that Hearst will want to unload its interest in the JOA. They have a favorable contract. "So it's just not a very inviting investment for anybody I can think of offhand. So I don't see that there will be any interest on the part of anybody in trying to buy a newspaper in Seattle for the foreseeable future." Except, perhaps, Frank Blethen, assuming he could raise the money. Would that be a possible scenario? Watters replies, "If you had talked to me before this credit crunch hit, I'd say absolutely yes." But, he explains, financiers would expect to see a strict plan for drastically restructuring the paper to guarantee repayment. Blethen and company couldn't raise the money "if they did not commit to doing significant cost-cutting measures. In other words, firing a lot of journalists. They'd have to do things like outsourcing production. Everything would be on the table." Also in the wait-and-see camp is Rick Edmonds, industry analyst with the Poynter Institute, a media think tank in Florida, who thinks that if Blethen is angling to buy, "he'd like to see the price as low as possible" on McClatchy's books. He recalls Tony Ridder, then head of Knight Ridder, once saying of the Times, "This is the worst investment we've ever made." How long will it take for McClatchy to come to the same conclusion?

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