San Diego developer Doug Manchester and radio executive John Lynch, who bought The San Diego Union-Tribune for $110 million a month ago, said they could pursue other newspapers or "video and audio" enterprises to wrap into a new media incubator emerging from the newspaper's Mission Valley headquarters.
Manchester and Lynch declined to identify potential acquisition candidates, but the new owners said in an interview at the fifth-floor offices last week that some business lines could be acquired or "grown organically" at the 13-acre complex at 350 Camino de la Reina in San Diego.
Manchester said that he and Lynch have begun discussions to form "joint partnerships" with some media companies to use their studios, and under some circumstances may find that the talks lead to an acquisition.
He declined to say whom the talks were with.
Manchester, who holds the title of chairman and publisher of the now-renamed U-T San Diego, also shrugged off a recent report in the online news website Voice of San Diego that quoted him as saying that he might be interested in acquiring the North County Times, which is owned by Iowa-based Lee Enterprises. Lee, saddled with nearly $1 billion in debt, is said to be readying to emerge from bankruptcy protection within weeks.
"It (the North County Times) could add to our collection and it could be beneficial. We're probably the logical buyers, but we haven't met with anyone on it," Manchester told Voice of San Diego in December.
However, in the interview, Manchester said that it was "a little premature" to discuss specific business plans going forward. Still, the business duo are talking with several media executives.
"We are talking to a range of TV stations and video providers," said Manchester, 69, who once sold newspapers for a dime at 6 a.m. when he was a lad at the Coronado Ferry, a few blocks from where he once lived in Coronado. "That was before the bridge was built."
Sale speculation
Given the sale price of recent newspaper properties, the North County Times could be valued in the mid-$40 million range, said Barry Lucas, media analyst with New York-based Gabelli & Co.
"I'd like to see a higher price," he said.
But whether Lee feels compelled to sell is another matter, Lucas said. In evaluating whether to sell, the newspaper group must weigh the cash flow generated by the paper and its potential loss as a contributor just as the company prepares to emerge from bankruptcy, he added.
Also, the paper's value could be enhanced as the California economy continues to heal, said Lucas, who owns stock in Lee, as does his employer, Gabelli. "If somebody has the money and sees regional synergies, and there could be some, then you might be able to work that out," he said. "Is Lee a seller at a price? I would hope they were a seller."
As for whether Lee might sell the North County Times, Lee spokesman Dan Hayes said, "In keeping with longstanding policy, Lee does not comment on rumors or speculation."
Other media companies also aren't commenting on whether discussions are under way with Manchester and Lynch.
Last month, Cincinnati-based media company E.W. Scripps completed the purchase of San Diego's KGTV-10 television station and eight other TV stations for $212 million from McGraw-Hill. While KGTV has a news sharing partnership with U-T San Diego, Manchester would only say that talks with others are confidential.
"I won't comment on whether anyone has approached us about buying some of those assets, but I will tell you that we didn't acquire them with the intention of flipping them to another buyer," said Tim King, a Scripps spokesman, in an email. "There are no plans for doing anything like that. To the contrary, we're very excited about these nine stations. We think we have great people in great markets, and are putting plenty of energy into running them as peak-performing media businesses"
San Diego's Amazon
Manchester and business partner Lynch, who delivered the Chicago Tribune as a boy in Downers Grove, Ill., described their efforts as that of building an "integrated media company."
"There's no reason (for consumers) to go to Amazon," said Lynch of the online book retailer that has moved into selling all kinds of things, from cameras to e-readers.
Lynch, who is vice chairman and CEO of U-T San Diego, said he was interested in the idea of hyper-local journalism in San Diego, where reporters prepare news reports in well-defined communities and immediately file them online. They also have "incentivized" salespeople to comb through neighborhoods to sell banner ads on their newly redesigned website, UTsandiego.com, formerly known as signonsandiego.com.
"The most important thing is, there is a tremendous opportunity to build on assets of the San Diego Union," he said. "We are really serious about building a media center, and getting other media entities to move into our building."
The paper employs roughly 650, according to Lynch's count. "We can continue to operate in that range," he said. But Manchester said the workforce size may fluctuate based on whether acquisitions are made.
In fact, the U-T on Friday laid off about 10 employees who were associated with the old signonsandiego.com website, mostly technical and marketing-related jobs, Lynch said. Some of the marketers were housed on the print side, as well, he said. The layoffs weren't editorial workers, but generally those who didn't possess the skill sets needed for the U-T as it shifts to the digital world, Lynch said.
Layoffs aren't uncommon among the region's newspapers, including the North County Times and other chains throughout Southern California.
"I think during the ordinary course of business, we bought a business and we are doing some change-outs. We are ending up with pretty much the same headcount," Lynch said of the overall 650 U-T workers.
"We are just reorienting the direction of the business. Not everybody will be here at the end of the day, when we have our full business model in place," Lynch said. "We will probably enhance the digital side of the business as we go on. I think really there's no story. I think in the course of time there will be some additional changes, but we are trying to make the business stronger."
Meanwhile, the North County Times hasn't been sitting on the sidelines watching the digital world unfold.
It has aggressively pushed its digital platforms, including new software applications for the iPad, Kindle Fire and smartphones. A recent Lee survey of 600 readers in the first six months of 2011 showed 63 percent of the adults in the paper's market have either browsed the nctimes.com website, read the paper, or done both in the past week. Expanding the digital platform offerings will help build market share.
Circulation falling
Both Manchester and Lynch see continued strength on the newsprint side of the business, and said they plan to find other niche publications interested in using their printing press. "We want to expand," Manchester said.
The newspaper industry in Southern California has been in decline for several years, with most major chains slipping into bankruptcy as circulation and advertising revenue have fallen steadily.
The U-T has seen its average paid circulation with branded editions go from 319,606 in 2005 to 227,872 for the six months ended Sept. 30, 2011, according to the Audit Bureau of Circulation. Branded editions, besides home deliveries and single-copy sales, include Newspapers in Education copies, alternate-language newspapers, commuter newspapers and community newspapers.
The ABC branded figures also show that the Orange County Register fell from 302,110 to 270,809 over the same period, the Los Angeles Times from 905,107 to 572,998, and the North County Times from 91,097 to 74,168. The Riverside Press-Enterprise did not have a branded circulation figure in 2011, according to ABC. It saw its "unbranded" circulation fall during the same period as the other papers from 185,344 to 112,084.
The Tribune Co., owner of the Los Angeles Times, and Freedom Enterprises, owner of the Orange County Register, have both gone bankrupt in recent years. Freedom has emerged from its reorganization, while Tribune is still several months away. Lee Enterprises expects to emerge from bankruptcy protection in the next several weeks.
Rumors persist in Southern California over a coming newspaper consolidation. So far, Manchester and Lynch have been the only major players.
Executives with Dallas-based A.H. Belo Corp., which owns Riverside's Press-Enterprise, have stated in filings with the Securities and Exchange Commission that Belo is not "an aggressive consolidator" and would not leverage the company with lots of debt to finance a large acquisition.
"We know there are other strategic and financial players in the process of trying to consolidate newspapers in certain geographies in Southern California," said Robert Decherd, chairman and CEO of Belo. "For the time being, we are going to be observers," he said in May at an investor conference.
David Gross, vice president of investor relations and strategic analysis, declined to comment on Belo's plans. Spokespersons with Freedom and Tribune also declined to comment on rumors of an industrywide consolidation in Southern California.
Freedom is now debt-free after recently selling off its portfolio of broadcast properties, and could become a player again. "We will continue to evaluate any opportunities as they might arise," said Robert Emmers, a Freedom spokesman.
Laura Martin, a media analyst with Needham & Co. in Los Angeles, says the U-T's new owners have their work cut out for them.
"As time passes, the data suggests that it is increasingly unlikely that the newspaper business can be turned around by anyone," she said. "Every year or situation that goes by where the industry is unsuccessful is another data point that points to the fact that nothing can be done ---- by anyone."
Manchester confirmed that he paid $110 million to Beverly Hills-based private equity firm Platinum Equity to buy U-T San Diego, and that the paper was earning roughly $30 million by one measure ---- sometimes referred to as a company's EBITDA, an acronym for earnings before interest, taxes, depreciation and amortization.
"John and I believe we can be a positive force for the business community in San Diego," said Manchester. "We'd like to point out what is good."
Please Wait…