Playing the Market: Diversification as Management Strategy Among Newspaper
PLAYING THE MARKET
Diversification as a Management Strategy
Among Publicly Traded Newspaper Companies
Earlier this century, most newspapers were owned by private citizens, often
families. That has changed over the years. Faced with disadvantageous
inheritance tax laws and the need to finance expensive new technologies, many
family-owned newspapers turned to public stock ownership to achieve financial
stability. The Dow Jones Co., publisher of the Wall Street Journal, was the
first to "go public," in 1963. Now, many newspapers in the United States are
owned by publicly traded large companies.
For such companies, success is measured not so much by journalistic values such
as excellence in reporting, but by "bottom-line" values such as attractive stock
performance. Within that definition, standards such as profit margins,
dividends earned, and increased share value emerge as relevant, because they
Publicly traded newspaper companies employ many methods to improve their bottom
lines and please investors. Aggressive cost-cutting is one method and has been
reported, and criticized, extensively. But that is not the only method
employed. Media companies, like their counterparts in other industries, develop
diversification strategies relating to the acquisition and divestiture of
various properties. They buy and sell individual properties, announce joint
ventures and start-ups, and close down unprofitable businesses.
Aggressive expansion often saddles a company with a heavy debt load: For
example, when Gannett purchased Multimedia for $1.7 billion in 1995, the company
also agreed to assume $500 million in Multimedia debt. Such moves pressure
company management to reduce debt quickly, whether by cost-cutting or by selling
off, even closing down, properties. Any of these decisions poses a threat to
media outlets and their staff.
Michael Porter, professor of business administration at Harvard University, is
among those who promotes the corporate strategy of diversification as one way of
enhancing shareholder value. To Porter, a successful company is one that
enhances value by entering, at a low cost, attractive ventures that will be
better off through the existing company's involvement. This entry can take
place through acquisition, joint ventures, or start-ups.
One of Porter's most comprehensive studies examined 33 large American companies
over a 36-year period. He found that most of them would diversify by
acquisition, joint venture or start-up, but that most of the new activities were
eventually divested rather than kept, often at a lower price. Such actions, far
from enhancing shareholder value, in fact dissipated the companies' stock value
and left them vulnerable to takeovers by corporate raiders.
Most large publicly traded newspaper companies in the United States seem to
have embraced Porter's strategy over the past two decades, through
diversifications in such closely related industries as television, cable, and
book publishing, along with newspapers. To the dismay of many media
professionals, particularly those in newspapers, the companies have become just
as adept at selling off or closing unprofitable subsidiaries -- mainly
As is reflected in the literature review, extensive previous research has
focused on how public ownership affects decision-making at the local newspaper.
Few studies, however, have broadened the perspective to study company-wide
management strategies like diversification. Given the increasing centralization
of authority at such media companies, management strategy would seem to be an
important focus of study.
The purpose of this paper is to apply Porter's model of diversification
strategy to publicly-owned newspapers, to answer the following questions: Are
such companies aggressively following Porter's model? How does their
performance compare to other publicly-traded companies? Which standards should
be used to measure such success?
This paper will seek to answer these questions by looking at the
diversification performance of the eleven largest publicly-traded American
newspaper companies between 1992 and 1996, replicating Porter's methodology.
Through that method, the paper will demonstrate whether newspaper companies have
embarked on a program of aggressive diversification -- a strategy that could
have serious consequences for media professionals.
The growth of newspaper chains -- publicly and privately held -- in the 1970s
and 1980s led to extensive research within the field of journalism, as scholars
tried to determine how these chains' influence on local management affected the
quality of newspaper reporting and the diversity of viewpoints represented. An
early critic of the growth of chains, Ben H. Bagdikian, warned:
Each year it is more likely that the American citizen who turns
to any medium -- newspapers, magazines, radio or television, books,
movies, cable, recordings, video cassettes -- will receive
information, ideas, or entertainment controlled by the same handful
of corporations, whether it is daily news, a cable entertainment
program, or a textbook.
In Bagdikian's opinion, this concentration of media companies threatened the
flow of information as these companies stressed profit over public service.
In reviewing the literature, it is important to note that public ownership and
group ownership are not necessarily identical. Each involves its unique
implications for newspaper managers. Most public ownership research studied
issues of short-term profit orientation vs. long-term investment in product
quality. Most group ownership studies examined issues of individual newspaper
autonomy within a centralized corporate environment that stresses uniform
policies and procedures.
Publicly-traded newspaper companies. To many journalists, the capital from
public stock offerings has a serious consequence: the involvement of
stockholders, whose interests might not match those of journalists. A recent
Columbia Journalism Review article noted, "The clash between meeting investors'
financial expectations and protecting journalistic integrity may be approaching
a critical juncture." The article pointed to decisions such as Times-Mirror
Co.'s closing down of New York Newsday as proof that executives of
publicly-owned newspapers were more interested in cost-saving moves that
impressed stock analysts than in the survival of newspaper properties.
One early study of the effects of public ownership on newspaper management was
conducted by Philip Meyer and Stanley T. Wearden in 1983. Meyer and Wearden
were concerned that stockbrokers' emphasis on such short-term financial factors
as profits was detrimental to newspapers. Measuring attitudes of publishers,
editors, and staff members, they found that no newspaper employee, at any level
of authority, held the same attitudes as newspaper stock analysts. Given a list
of ten yardsticks of success, the stock analysts stressed such factors as
management quality, financial health, and earnings consistency, while even
publishers -- who would work most closely with the analysts -- instead stressed
product quality and editorial quality.
Subsequent research reflected an evolution in philosophy, however. A 1993
study found that publishers who worked for public newspaper companies emphasized
profits more, were more attentive to the stock market, and were more interested
in short-term returns. A 1996 replication of that study found that
newspaper companies with greater "outside control" (defined by stock holdings
outside company control) managed in ways that kept stock prices higher. Such
companies were associated with higher operating margins, higher cash flow
margins, higher returns on equity, lower ratios of expenses to revenue, and
higher earnings predictability -- all issues of prime concern to
One 1996 study, however, did examine the effects of public ownership on
publisher autonomy. It found that publishers of privately owned newspapers
reported more freedom to make personnel decisions without seeking approval from
the home office than their counterparts on publicly owned newspapers. No
difference was noted concerning minor managerial decisions or decisions relating
to capital expenditures.
Another study examined the role of institutional stock investors -- insurance
companies, pension plans, and investment firms. Such investors were drawn to
the newspaper industry "because it is a stable industry that has produced steady
profits at almost twice the rate of manufacturing firms." The study
identified several warning signals of potentially unhealthy influence by
institutional investors: greater than 50 percent ownership by institutional
investors, greater than 5 percent ownership by a single institutional investor,
and representation by institutional investors on executive boards. Several
newspaper companies reflected all of the warning signals; several reflected
Group ownership. Other studies have looked at the effect of ownership by
groups, also known as "chains," on local newspapers. These studies have tried to
determine the extent to which centralized group policy filters down to
influence, even control, individual local newspapers. The concern is that such
centralization diminishes the newspaper's commitment to community service.
One earlier study compared the "driving objectives" of organizations, as stated
by management, between publishers at group-owned and individually-owned
newspapers. It found that publishers at group-owned papers were more likely to
identify profit as a driving objective, while publishers at individually- owned
newspapers mentioned community service.
Other studies, however, found no difference between group-owned and
individually-owned newspapers, in such areas as publisher autonomy and
organizational professionalism. In the former study, top editors at larger
newspapers reported more freedom to make decisions that improved content,
regardless of group or individual ownership. In the latter, two size-related
factors -- the size of the newspaper group and the number of newspapers owned by
the group -- affected organization professional practices more than group
ownership, when compared to individual ownership.
Some authors have criticized the trends toward both public and group ownership.
In his book, When MBAs Rule the Newsroom, Doug Underwood criticized newspaper
managers for their emphasis on the "bottom line." Such managers' response to
declines in circulation seemed to be an obsession with marketing studies and
reader surveys. For Underwood, the solution was an abandonment of the
profit-oriented marketing techniques of group-owned and publicly-owned
newspapers, and an emphasis on newspapers' traditional approach to reporting:
The newspapers that devote themselves to filling their pages
with real news, enterprise reporting, good writing, and intelligent
analysis will survive and prosper, I am convinced, despite the
pressures from the marketplace, the beguilements of video culture,
and the abandonment of reading by some segments of the public.
None of the previous studies, however, have examined newspaper companies on
broader management strategies, such as diversification of media properties.
Most criticisms have centered on such issues as declining circulation and local
newspaper autonomy, without looking at management strategies that affect
financial decisions. While issues of local content and penetration are
certainly relevant, diversification strategies can have even more of a serious
impact on local media, through pressure from the parent company to demonstrate
strong financial performance or risk closure.
The writings of Michael E. Porter. A professor of general management at the
Harvard Business School, Michael E. Porter has published several influential
books on business competition and strategy. His books include Competitive
Strategy (New York: Free Press, 1980), Competitive Advantage (New York: Free
Press, 1985), and The Competitive Advantage of Nations (New York: Free Press,
1990). Although many critics note that Porter's teachings on strategy lack
originality, his emphasis on strategy over management topics found a ready
audience in the stock market boom of the 1980s. His free- market writings
also drew the attention of President Ronald Reagan, whom he served as an
Researchers have applied Porter's principles within scholarly studies of other
industries. One such study looked at nine major United States airlines, to
determine how they applied Porter's strategies to position themselves for
competitive advantage. The strategies in this case were cost leadership,
product differentiation, and strategic focus. The study identified five
airlines that were achieving competitive advantage, and four that were not.
Another such study applied Porter's principles to the hospital industry. That
study added the dimension of applying Porter's cost leadership and product
differentiation strategies within the changing organizational environment that
characterized health care industries. They found that the differentiation
strategy was more appropriate than cost leadership with hospitals, providing
hospitals with competitive advantage and improved financial performance.
No studies, however, have applied Porter's principles of diversification to
publicly owned media companies. This paper will add to the existing literature
on publicly-owned newspaper companies and on the applicability of Michael
Porter's teachings on diversification and competitive advantage to newspaper
This paper looks at the diversification performance of the largest publicly
traded newspaper companies. The newspaper companies were selected according to
the following criteria. First, the companies had to be publicly traded on stock
exchanges located in the United States. These companies were identified by
using the 1996 edition of Standard & Poor's Register of Corporations. The list
was further refined to identify the eleven largest newspaper companies by
aggregate daily circulation, using the 1996 Editor & Publisher International
Yearbook. That yielded the following eleven newspaper companies.
Top Eleven Publicly-Owned United States Newspaper Companies
Company Newspapers Combined
Name Owned Circulation
1. Gannett 92 6,010,092
2. Knight-Ridder 31 3,744,181
3. Times-Mirror 10 2,409,781
4. New York Times, Inc. 20 2,335,765
5. Dow Jones & Co. 1 1,763,140
6. Scripps-Howard 12 1,236,242
7. Cox Newspapers 20 1,142,348
8. McClatchy 12 959,128
9. Tribune Co. 5 880,535
10. Washington Post 2 844,966
11. Central Newspapers 8 804,016
To evaluate these companies' commitment to diversifying, the profile in
Porter's study was applied, with modifications. Porter's diversification
profile measured the corporation's entries into new industries, then segmented
out those entries as joint ventures, start-ups, and acquisitions. A joint
venture was a new project started with another company; a start-up was a new
project initiated only by one company; and an acquisition was a purchase of an
Because of his study's wide time period, Porter was able to trace the history
of each venture. That allowed him to trace which acquisitions were divested
over the same period. To apply such a methodology directly to newspaper
companies ignores realities specific to the industry. First, many newspaper
companies are only recent entrants into the public ownership arena and have only
recently adapted their strategy to incorporate acquisitions.
For these reasons, this study will look at the performance of newspaper
companies from 1992 until 1996. Also, this study will not be limited to
ventures that were initiated and then ended within the five-year period.
Instead, this paper will track all acquisitions, start-ups, joint ventures, and
divestitures over the five-year period. From a media management standpoint, it
could be argued that any divestiture is relevant to a media company's overall
performance, regardless of whether that property was held for five years or 50
years. In addition, many recent newspaper closures represent properties that
had been published for many years.
Although companies have diversified into many non-media areas, this paper will
only look at transactions involving media-related properties: newspapers,
magazines, broadcast stations, cable companies, book publishers, and media
software projects. The acquisitions, start-ups, joint ventures, and
divestitures were tracked according to articles in trade publications that
specialized in reporting on media industries. The publications included Editor
& Publisher, Broadcasting & Cable, Publishers Weekly, Advertising Age, Variety,
and MediaWeek. Because publicly traded companies are required to publicize any
developments that affect stock performance, those trade publications are
reliable sources for information on such moves.
For this study, the unit of measurement is the media property purchased or
divested.. In other words, Gannett Co.'s $1.7 billion purchase of Multimedia in
1995 would be measured as seventeen transactions (ten daily newspapers, five
television stations, and two radio stations). Cox Communication's $9 million
purchase of a Chicago radio station in 1993 would count as one transaction.
While Gannett's decision to purchase Multimedia represents only one decision, to
treat it as only one transaction creates a measurement problem, given the
practice of selling off media properties after purchasing a conglomerate. Thus,
should Gannett sell two daily newspapers originally owned by Multimedia, the net
diversification would be a value of -1, even though Gannett still grew by
fifteen properties from the transaction. The method also is valid given this
paper's purpose -- to compare diversification efforts using equal standards.
Combination AM-FM operations, however, still were counted as single
transactions. In addition, so-called "swaps" were counted as two transactions:
an acquisition and a divestiture. The reasoning behind this decision is that a
swap does involve two decisions for a company -- which units to give up and
which to accept.
A total of 234 transactions were reported. The companies that made the most
transactions had holdings in the cable industry during this period, although
Times-Mirror and Scripps divested theirs. Only the last two companies can be
described as the least diverse, with their holdings concentrated in newspaper
Top Eleven Publicly-Owned United States Newspaper Companies
Ranked by Number of Diversification-Related Decisions (1992-96)
Company Name Decisions
1. Cox Newspapers 82
2. Gannett 46
3. Tribune Co. 31
4. Times-Mirror 24
5. New York Times, Inc. 14
6. Knight-Ridder 13
7. E.W. Scripps 11
8. Washington Post 8
9. Dow Jones & Co. 3
10. McClatchy 1
10. Central Newspapers 1
To replicate Porter's diversification chart, it is necessary to break down the
diversification decisions in two different ways. The first is to compare
entries into new industries (acquisitions, start-ups, and joint ventures) with
exits from existing industries (divestitures).
Top Eleven Publicly-Owned United States Newspaper Companies
Diversification-Related Decisions: Exits vs. Entries (1992-96)
Company Name Entries Exits Total
Cox Newspapers 66 16 82
Gannett 28 18 46
Tribune Co. 27 4 31
Times-Mirror 12 12 24
New York Times, Inc. 7 7 14
Knight-Ridder 10 3 13
E.W. Scripps 7 4 11
Washington Post 6 2 8
Dow Jones & Co. 2 1 3
McClatchy 1 0 1
Central Newspapers 1 0 1 One way to interpret these various transactions, to
make them more meaningful, is by subtracting the exits from the entries, to
determine the newspaper company's "net diversification" over the five-year
period. Two companies -- Gannett and Times-Mirror -- showed a lower net
diversification value, compared to the transactions reported. In both cases,
the companies aggressively divested themselves of broadcasting properties. Cox
Newspapers and the Tribune Co. showed, by far, the most diversification of the
companies in this study, mainly through acquisition of broadcasting and cable
Top Eleven Publicly-Owned United States Newspaper Companies
Net Diversification (1992-96)
Company Name Entries Exits Net
Cox Newspapers 66 16 50
Tribune Co. 27 4 23
Gannett 28 18 10
Knight-Ridder 10 3 7
Washington Post 6 2 4
E.W. Scripps 7 4 3
Dow Jones & Co. 2 1 1
McClatchy 1 0 1
Central Newspapers 1 0 1
Times-Mirror 12 12 0
New York Times, Inc. 7 7 0
Another way of interpreting these decisions is to look at the "entry" decisions
to see which were more popular: acquisitions, start-ups, or joint ventures. It
is not surprising that acquisition of existing properties was the most popular
Top Eleven Publicly-Owned United States Newspaper Companies
Entry Decisions, by Category (1992-96)
Company Acquisitions J. Ventures Start-Ups Total
Cox Newspapers 59 5 1 65
Gannett 24 3 1 28
Tribune Co. 22 4 1 27
Times-Mirror 8 2 2 12
Knight-Ridder 7 2 1 10
E.W. Scripps 3 2 2 7
New York Times, Inc. 7 0 0 7
Washington Post 6 0 0 6
Dow Jones & Co. 2 0 0 2
McClatchy 1 0 0 1
Central Newspapers 1 0 0 1
TOTAL 140 18 8 166
It would appear that the larger media companies have adopted Michael Porter's
strategy for enhancing shareholder value by diversifying. Seven of the eleven
largest companies averaged at least one such decision each year. In addition,
the fact that the top newspaper companies acquired more properties than they
divested indicates that the concentration Bagdikian feared might be continuing.
But are such diversification strategies being administered wisely? Are some
companies putting their media properties, including newspapers, at risk by
expanding too aggressively? Within the companies in this study, the strategies
themselves vary widely. While companies like Gannett, Cox, and Tribune Co. are
aggressively entering such fields as cable and online, other companies, such as
Knight-Ridder and Times-Mirror, appear anxious to exit cable television, despite
its apparent promise for uniting the telephone, Internet, and television
industries by providing a single point of entry into homes accessing diverse
But success is not only measured by the diversity of a company's activities; an
important component is what that company does with these diverse activities.
Divestiture is, in one sense, an admission that, for whatever reason, a company
is better off without a property (and vice versa).
Studying diversification would provide future media researchers with many
promising topics. It would be meaningful to relate diversification-related
decisions to stock prices, to determine whether the decisions made by large
media companies indeed find favor with Wall Street. The decisions outlined in
this chapter could be studied in greater detail, using more sophisticated units
of measurement instead of the media properties involved, and a longer time
frame. In addition, circulations at the various newspapers owned by the
companies could be compared, for any relation between company diversification
For publicly traded media companies to succeed, they must play by the same set
of rules that have governed American industry for decades. For media researchers
concerned about whether these rules have a negative effect on the content of the
news media, it might be more enlightening to turn their attention to the
executive suite. If newspaper company executives continue dancing to Porter's
tune, the consequences could be serious indeed for newspapers.
 Philip Meyer and Stanley T. Wearden, "The Effects of Public Ownership on
Newspaper Companies: A Preliminary Inquiry," Public Opinion Quarterly 48 (1994):
 David Demers, "Corporate Newspaper Structure, Profits, and Organizational
Goals," The Journal of Media Economics 9 (1996) 2:4; Jonathan Kwitny, "The High
Cost of Profits," Washington Journalism Review, June 1990, 28, in Doug
Underwood, When MBAs Rule the Newsroom (New York: Columbia University Press,
 See Underwood, 4, 20, 41. In 1995 alone, the Times-Mirror Co. shut down
New York Newsday and the Baltimore Evening Sun, eliminating 2,000 staff
positions, to increase its profitability. Other newspapers reported cuts in
areas such as circulation and salary increases as cost-cutting measures for that
year. (See Tony Case, "Still Strong," Editor & Publisher, 6 January 1996,
 The following information was taken from the "Management Discussion" in the
1996 Gannett Co. Annual Report.
 Michael Porter, "From Competitive Advantage to Corporate Strategy," Michael
Porter on Competition and Strategy(Boston: Harvard Business Review, 1991): 19.
It should be noted, as Porter's critics have, that his emphasis on
diversification is hardly novel. However, his popularity among business leaders
in all industries warrants awareness of the strategies he promotes. (See
"Professor Porter Ph.D.: Management Theorists," The Economist, 8 October 1994,
 Porter, p. 15.
 Ben H. Bagdikian, The Media Monopoly (Boston: Beacon Press, 1980): ix.
 Bagdikian, 201.
 One important distinction that can be drawn is that many newspaper groups
are not publicly owned in that their stock is not traded publicly. Companies
such as Donrey and Thomson are owned privately. Thus, they are not required to
report transactions, as are publicly traded companies, making research on such
 Tim Jones, "The Day of the Analysts," Columbia Journalism Review,
November/December 1996, 42.
 Meyer and Wearden, 570.
 William B. Blankenburg and Gary W. Ozanich, "The Effects of Public
Ownership on the Financial Performance of Newspaper Corporations," Journalism
Quarterly 70 (Spring 1993) 1: 68-75.
 Stephen Lacy, Mary Alice Shaver, and Charles St. Cyr, "The Effects of
Public Ownership and Newspaper Competition on the Performance of Newspaper
Corporations: A Replication and Extension," Journalism & Mass Communication
Quarterly, 73 (Summer 1996) 2: 332-341. This study also introduced competition
as a factor in management decision making.
 Martha N. Matthews. "How Public Ownership Affects Publisher Autonomy,"
Journalism & Mass Communication Quarterly, 73 (Summer 1996) 2:342-353.
 Robert G. Picard, "Institutional Ownership of Publicly Traded U.S.
Newspaper Companies," The Journal of Media Economics, 7 (1994) 4: 64.
 Picard, 49-64.
 David P. Demers and Daniel B. Wackman, "Effect of Chain Ownership on
Newspaper Management Goals," Newspaper Research Journal, 9 (Winter 1988): 59-68.
 David Pearce Demers, "Effect of Corporate Structure on Autonomy of Top
Editors," Journalism Quarterly, 70 (Autumn 1993) 3: 499-508.
 Randal A. Beam, "The Impact of Group Ownership Variables on Organizational
Professionalism at Daily Newspapers," Journalism Quarterly, 70(Winter
 Underwood, especially Chapter 2, "When the Marketers and Managers Move
 Underwood, 179.
 Walter Kiechel, "Case of Michael Porter Superstar," Fortune, 9 November
1987, 39. The article estimated Porter's book sales to be 200,000 for
Competitive Strategy and 120,000 for Competitive Advantage, as of 1987.
 Richard Ryan, "The Competitive Advantage of Nations" (book review),
National Review, 9 July 1990, 46.
 James A. Kling and Ken A. Smith, "Identifying Strategic Groups in the U.S.
Airline Industry: An Application of the Porter Model," Transportation Journal,
35 (Winter 1995) 2: 26-34.
 Bruce T. Lamont, Dan Marlin, and James J. Hoffman, "Porter's Generic
Strategies, Discontinuous Environments, and Performance: A Longitudinal Study of
Changing Strategies in the Hospital Industry," Health Services Research, 28
(December 1993) 5: 623-640.
 See Exhibit I, "Diversification Profiles of 33 Leading U.S. Companies" and
Exhibit II, "Diversification Performance in Joint Ventures, Start-Ups, and
Unrelated Acquisitions," in Porter, 16, 22.
 Porter, 16-17.