The bankruptcy shoe finally dropped for the Minneapolis Star Tribune last night. It was the least surprising piece of Minnesota footwear since fur-lined boots . Since Avista stopped making debt payments and then conducted a three-act drama with their unions, last night’s filing was a certainty.
A lot of numbers are being tossed around so I will add mine. In the months prior to my well-planned retirement as Editor and Senior Vice-President in June of 2002 I think I remember that McClatchy wanted $136 million profit that year and Star Tribune management wanted to come up with $132 million. the years and the numbers have mixed together, but that is my memory. In the Star Tribune report on last night’s filing, long-time reporter Dave Phelps says that profit number was 115 million in 2004, 59 million in 2007 (when the sale from McClatchy to Avista was finalized) and is now 26 million. On the back of the envelope I have always figured, based on the multiple Avista paid, that earnings were about 80-85 million in 2006 which would have been the basis for the purchase.
The two key numbers in that discussion are 136 and 26. A major newspaper’s profit line dropped $110 million in 7 years! Importantly, according to David Brauer at MinnPost that $26 million does not include debt service. That’s like saying I am doing fine financially except I am not paying my mortgage, my car payment or my credit card bills. Remember too, the Star Tribune is not that unusual. The magnitude of that decline is heart-stopping. Most people believe this is an industry implosion none of us could have ever imagined. Well that’s not really true.
The Cowles family imagined it and after years of strong stewardship decided in 1997 the old saw about discretion and valor made a lot of sense to the family. Early in 1997 David Cox, then Cowles CEO, commissioned the major consulting firm Booz-Allen to analyze the future of classifieds. I would dearly love to have that report in front of me now, but I vividly remember sitting through the excruciating pounding my beloved business got that day. While I only remember the broad outlines of the report I remember enough to know that as seers the Booz-Allen people were almost mystical. They predicted the classified demise with a precision that today strikes me as awesome. At the time I thought they were a bunch of negative doomsayers. Unfortunately, they nailed it.
There were two available reactions. Mine, which was “nothing could be this bleepin’ bad!” In my defense, people like McClatchy’s Gary Pruitt and other newspaper buyers saw it my way. The other possible reaction was, “our entire net worth is tied up in this company and the risk is simply too great.” That was the Cowles family reaction and within months they announced they were going to research “strategic alternatives” The preferred ‘strategic alternative’ was the sale to McClatchy.
So many critics focus on the McClatchy purchase, but the focus really ought to be on the wisdom of that sale. I have seen very few folks acknowledge that the Cowles family was smart enough to seek advice, wise enough to heed that advice and then courageous enough to take decisive action.
When somebody tells you nobody saw this newspaper/classified implosion coming you tell them they’re flat wrong. Booz-Allen and the Cowles family did see it coming. They made the right call.
4 Comments
Tim,
Someone sent me your blog a few weeks ago. I enjoy reading your thoughts on this subject. This must be a gut-wrenching time for you. Sort of an existential moment; I know them well.
I think that the Cowles decision is remarkable in one way: they were a newspaper family that made a wise, strategic, and visionary decision and got it right. Why would anyone not give them credit for making a deal that was so good for them, makes them look so smart, added to their wealth, and makes McClatchy look like idiots? They had no obligation to go down with the ship.
The more important issue to me is: What did those in the newspaper industry do with that information (and other information, common sense, and foresight)? Did they jump into strategic/scenario planning to ask, “If this information is correct, what do we do now to insure a sustainable future for our newspaper/industry?”
Your initial reaction of “nothing could be this bleeping bad” is understandable. Did that denial of industry threatening information continue unchallenged as happens so often in life? The first rule of change is “see reality as it is” and few can do that.
For other readers: Tim’s and my careers at the Star Tribune overlapped. I left in 1994 to study and consult in organizational transformation and leadership. I worked in Circulation so our worlds were vastly different.Since I left, I’ve consulted and warned people in a variety of industries that this chaos was on the way and they better be preparing for it–few do.
I’ve written several pieces about the Star Tribune and newspaper industry (“A Few Bad Apples,” “What Might Have Been,” The Sad Decline of the Star Tribune,” and “A Return to Excellence” and more)posted at my site.
I grew up in a newspaper family and spent much of my life up to age 48 connected to the Star Tribune. I did my grieving when I left in 1994 with an idea of what the future would be like absent transformational change. Today I feel sad for the innocent people hurt and harmed by decisions made and not made in years and even decades past (the seeds of the financial decline Tim described were sown long before it showed up on the balance sheet).
Life goes on and we get wiser.
I agree the Cowles family made a smart decision to cash out. And I personally prospered as a result. However, for the sake of the industry, I wish the Booz Allen type reports in Minneapolis and elsehwere had lead to significant investment in R&D for our industry. The best time to invest in the future is when businesses are flush, not when they’re in decline.
Clarification: You picked up the $26 million EBITDA figure that we used in our first story. It was based on a draft filing we had at the time. The actual filing put EBITDA at $31 million in 2008.
Tim … Like many of my former colleagues at the Star Tribune, I find myself veering from anger to sadness to utter confusion. (You will, as my former editor, remember the utter confusion part; nothing new there.)
Maybe there’s a little guilt, too. Was there more I could have done to avoid what happened? Since my first story was published in the Fargo Forum more than 40 years ago, and throughout the 20 years I spent at the Star Tribune, I paid scant attention to the business of the business. That was deliberate and, I thought, principled. All I wanted to do was tell stories. All I wanted to do was write stories that people would read the way I once read stories by Larry Batson. I wanted them to buy the paper every day and order a cup of coffee and read, anticipating the serendipity of finding something moving, inspiring, enlightening …or just interesting. Not skim, but read. Not HAVE to read a piece twice because of the way it was written, but WANT to read it twice because of the way it was written. (I wish I had hit that mark more often.) And I wanted to believe that I was part of a community discussion involving people of all sorts and opinions, that we all came together regularly in this town square of a newspaper and considered our world and our shared place in it.
I fear that when newspapers are gone, replaced by the great splintering and interest-narrowing of blogs and the rest of the oh so smug Web and its champions, people will find that something of great intrinsic value has been lost, and they’ll miss it, but it will be too late.
Thank you for some of the things you let me do at the newspaper, including write occasionally about North Dakota. (I get to do that fulltime now.)
Chuck
(Big guy, shaggy beard.)
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