SUBURBAN PAPERS CONTINUE TO BE HOT PROPERTIES

The hot newspaper selling market should continue well through the new year, according to a panel of market players and a broker at the Suburban Newspapers of America conference held recently in Palm Springs, Calif. SNA represents about 2,000 papers and reach 17 million households in North America.

But what about the next step? How are the newly bought suburban papers then integrated into the parent companies? Panelists at the session titled "Perspectives on Expansion: How, Why & When to Grow Your Suburban Newspaper Franchise" shared their individual experiences.

Newspaper broker Charlie Wurbel, who brokered the Forbes papers deal in New Jersey, says this is the time to expand. He believes that the U.S. Justice Department is too busy watching the telecommunications industry to police possible newspaper monopolies. "If a big daily knocks on your door, there is no one to say no," he says. "You buy what you want if you have the money."

For example, Wurbel cites the Record in northern New Jersey that has a corner on Passiac and Bergen counties. "This is a total monopoly," he says.

What happens once these papers are acquired? How are they and their employees mixed in the soup? Marcia McQuern, president of The Press-Enterprise Co. in Riverside, Calif., which is owned by Belo Corp., says her parent company employs a different strategy depending on the papers' markets. Belo's presence in the Dallas, Southern California, and Providence markets each have a unique strategy, she says.

For example, the Riverside strategy is all about zoning. Each of the eight zones have unique coverage, where at times the A1 coverage, editorials, and letters are zoned. And in her area of California which is experiencing explosive population growth, she says, the paper plans to add zones.

Describing the Los Angeles Times readership as a pyramid structure, McQuern plans to slice away at the bottom of the pyramid, those people who are not totally loyal to the metro daily's coverage. Her paper's strategy is "invasion of territory." The Press-Enterprise has entered the market north of Riverside and into Gannett territory, because McQuern claims she had readers request it. She says growth is rapid there.

The company has also started niche products to take advantage of the synergy with the daily paper. These products include auto, home, and employment advertising as well as business, seniors, and Spanish language publications.

But the company's approach is different in their Dallas markets where they only slightly zone, sometimes advertising or editorial or both. There, McQuern says, the Morning News offers a daily local paper free to the Morning News subscribers. They're also purchasing suburban papers around Dallas to serve smaller areas than the zones do.

Explosive consolidation in the newspaper market was probably best illustrated on the panel by Westward Communications. Since its inception in 1987, the company has acquired 71 publications in six Texas markets. Robert McMaster, who has been primarily responsible for the company's acquisitions and is its chairman, says, "We are trying to grow groups of papers."

For example, he says the most significant acquisition so far has been Houston Community Newspapers Inc. last summer. That acquisition has allowed an assortment of advertising add-ons with his other Houston suburban papers and also multi-media partnerships with radio and television stations. "It's a win-win situation," he says. "When we had a slice of the market, there was not any interest in that [partnerships]."

McMaster, who spent 27 years at KPMG Peat Marwick, is willing to pay for a publication its worth in terms of its cashflow once interpreted into Westward. In other words, how that paper fits in the Westward world, not the paper world as a whole. He's discouraged by papers that may look great on paper and yield high multiples, but with owners/operators who do three jobs. That won't replicate in his company. He looks for management depth and strength of financial systems.

He believes that the buying market will slow down a touch this year. "I expect a little more caution with buyers in 1999 and going forward," he says.

Kurt Davis, president and chief operating officer of the Community Newspaper Co., says his 100-plus papers reach 1 million homes surrounding Boston and the eastern Massachusetts area. The company has had an aggressive purchasing stance and is shooting to be 40% larger by 2003. In 1986, the company's eight weeklies and two specialty publications only had a circulation of 160,000.

Davis spoke of a few lessons learned along the acquisition and start-up road. For example, when its free 12,000-circulation tabloid in Medford could not knock the paid 3,500-circulation from its established (100-year history) perch, he bought it. He combined the two papers, used the paid's name since it had a stronger recognition and combined the staff. The paper was also brought in house. He paid 1x cash flow and says it was a "terrific example" of acquisition.

But when he wanted to go head-to-head with The Boston Globe's lucrative real estate market, he took a different approach. Community Newspaper Co. spoke with the Globe's real estate advertisers to find out what made them unhappy with their advertising experiences. "Could we change the rules of the game in the Boston real estate market?" Davis says the company asked itself.

He created a colorful product, filled with pictures and maps. After a focus group discovered the readers wanted things divided by neighborhoods, he changed the format. The 33,000-circulation product goes to five expensive neighborhoods every week and has been successful. But Davis also learned another important aspect: "We tried to vary a bit — and it hasn't been as successful."

Community has also learned some hard lessons during its expansive growth. When the company gave a local publisher the green light to start a third community paper for Duxbury, a tony suburb of Boston, it was a disaster. "We got killed," Davis says. Three community papers in a town of about 15,000 people was too much.

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Wendy Giman (fpp@mediainfo.com) is editor of Free Paper Publisher magazine.