Has Murdoch Given Up on U.S. Papers? : Some Analysts Say Metromedia Deal Is Sign Theories Failed

No one seemed to hold such widespread fascination for America’s newspaper publishers last week as Rupert Murdoch.

The Australian publishing magnate and America’s most controversial publisher figured prominently in the hallway whispering and barside chatter at the annual convention of the American Newspaper Publishers Assn.--at times taking on an aura of power and unpredictability in which even his whereabouts held mystery.

The newspaper industry’s leaders were trying to interpret Murdoch’s latest and boldest move--his decision to buy six television stations from Metromedia Inc. for $1.55 billion.

The deal signals not only Murdoch’s entry into U.S. television ownership but, legally, it likely will force Murdoch to sell his two largest American newspapers--the Chicago Sun-Times and his beloved New York Post.

Testing Novel Theories

Murdoch’s own staff warns against drawing any implications about Murdoch’s thinking from the maneuver. But many newspaper industry analysts and executives believe that the Metromedia deal suggests that Murdoch is ready to abandon his dramatic and novel theories about U.S. newspapers--theories that, had they succeeded, might have helped resurrect the future of second newspapers in major cities and turned conventional American newspaper economics on its head.

“I think his theories about newspapers in this country have been severely tested, and what he’s found is that his theories don’t work,” said the publisher of a major newspaper who competes with Murdoch, asking that his name not be used.

Murdoch’s plan to link his six television stations into a network with other independent stations brings into question Federal Communications Commission regulations prohibiting someone from acquiring a television station and newspaper in the same city, in this case Chicago and New York.

Murdoch since has said that he will not seek an exemption from the law, and Chicago Sun-Times Publisher Robert Page last Thursday wrote a memo confirming that the paper was for sale.

At the very least, Murdoch seems prepared to lose the papers that he once cared so deeply about and that he has paid millions of dollars to support.

Although Murdoch rarely theorizes in public, most newspaper professionals speculate that he believed that second newspapers were dying in America because the American newspaper industry had abandoned unnecessarily an entire sector of readers.

With the advent of television, Murdoch has complained, American newspapers abdicated “the mass market to the tube, meeting the challenge of television by a pious retreat to the high ground (upscale demographics), with its shrinking numbers.” Papers became elitist, drab and overly serious in an effort to win only the most affluent readers that are attractive to advertisers.

The abandoned rest, however, still wanted to read newspapers, Murdoch seemed to be suggesting, just not those now available.

Murdoch’s answer was to buy struggling or failing newspapers--two in San Antonio, then the New York Post, Boston Herald and Chicago Sun-Times--and turn them into a different kind of paper than America had seen, at least in the last 20 years. Murdoch’s papers treated news often as entertainment; they were filled with tales of the bizarre, the lurid, the weird and the sensational.

Tried British Formula

“Basically, Murdoch is trying to apply a British newspaper formula in the United States,” newspaper analyst J. Kendrick Noble Jr. explained. Noble researches the newspaper industry for the New York brokerage firm Paine Webber Mitchell Hutchins.

Murdoch indeed had built his newspaper empire, first in Australia and then in Britain, wielding the techniques of tabloid journalism that he had learned as a young reporter in Britain’s Fleet Street.

He turned around the failing Sun in London, for instance, with sensational headlines, photos of bare-breasted women on Page 3 and costly promotional gimmicks. In England, that quadrupled circulation to 4 million and transformed the paper into a profit machine that produced $25 million before taxes in 1983.

When he came to America in 1973 with the purchase of the morning San Antonio Express and its afternoon counterpart, the News, he had success with a hybrid of that style, but skeptics note that Murdoch’s formula there was not much different than the rival Hearst-owned San Antonio Light’s. Further, San Antonio is hardly a typical American newspaper town: Afternoon and not morning papers still dominate there.

Murdoch’s newspaper ideas were more purely exhibited and widely followed with the purchase in 1976 of the failing New York Post. A few choice New York Post headlines are usually trotted out as samplings of Murdoch’s formula: “Headless Body in Topless Bar,” “Leper Rapes Virgin” and “No One Is Safe From the Son of Sam!”

Accompanying it, too, was heavy promotion, usually through the use of games and lotteries in the paper, the most prominent of which is called Wingo.

Initially, circulation at the Post soared, rising from 485,000 in 1977 to close to 1 million, while the rival New York Daily News dropped.

Advertising, however, failed to follow. Despite the readership gains, the Post’s share of advertising linage in New York dropped, from 11.3% in 1977 to 7.6% in 1983. The Daily News, in contrast, rose from 25.1% to 32.7%.

Circulation Rising in Boston

In his nine years of ownership, the Post only lost money, and, after almost breaking even in 1983, the Post saw its circulation begin to slip in 1984 and losses bloat to an estimated $9 million to $16 million.

Murdoch has yet to prove his theories in his other two major U.S. papers as well, although some say judgments are premature. In Boston, where Murdoch purchased the failing Herald in 1982 for just $1 million, circulation again is rising impressively, from 220,000 when he purchased it to 368,027 as of March 31. But the paper still isn’t making money.

The Chicago Sun-Times was the first profitable major newspaper Murdoch had ever purchased in this country, earning an estimated $3.5 million the year before he bought it in January, 1984. Although Murdoch has not changed the paper as dramatically as in New York, spokesman Howard Rubenstein said the profits doubled under his stewardship. Others close to the Sun-Times, however, say the paper only broke even in 1984.

Given this mixed record, why do so many publishers believe that Murdoch’s theories are failing?

In part, the answer may be that many publishers want Murdoch to tumble. Murdoch’s success would confound many of their assumptions about newspaper economics and quite possibly threaten the security of their competitive situations.

Yet several more concrete explanations also exist that suggest that Murdoch’s approach faces difficult odds.

First, great differences exist between newspaper economics in America compared to Australia and Britain. In England, most newspapers have mass circulations--the Sun, 4 million, and the Mirror, 3.9 million--while most U.S. papers have much less and typically are read in just a quarter to a half of the households in their markets.

30% of Revenue

Mass circulation also is the basis of newspaper profits in England. The Sun derives 70% of its revenue from its cover price. In the United States, however, circulation accounts for only about 30% of revenue. Newspapers make money instead from advertising.

So, while gaining circulation may guarantee profits in England, that formula alone does not generate profits in the United States. Here, newspapers instead try to attract the most affluent sector of the market, because that is the audience advertisers try to reach with their carefully targeted budgets for print advertising.

Murdoch’s broadly mixed audience profile is simply the kind of mass market advertisers now reach through mediums other than newspapers.

“In the United States, his kind of newspaper has been replaced by television,” a major New York publisher said last week. “That’s why papers like his, which used to be plentiful in this country, have gone out of business.”

The same is not true in England, analysts speculate, because the government-controlled television evolved into a different kind of medium, both for news and advertising.

Murdoch’s particular style also has had trouble winning advertisers, analysts believe, because it relies so heavily on games and lotteries to build circulation--the Wingo lottery in the United States is called Bingo in England. Advertisers, analysts Noble said, wonder whether readers are really reading the paper and its ads or just checking their lottery numbers. And the lotteries raise the amount of advertising that a paper must attract to break even.

Murdoch is hardly conceding that he is losing confidence in his newspaper theories. He will continue to publish the paper in Boston, as well as the two in Texas, and Murdoch spokesman Rubenstein cautioned: “Don’t draw any conclusions from this (the Metromedia deal). Mr. Murdoch is deeply interested in print. He’s proud of his newspapers and he has not lost interest.”

Neither Murdoch nor any of his News America staff would comment for this article.

Yet even those who believe that it may be too strong to say that Murdoch has given up on U.S. newspapers say that they cannot escape the conclusion that his energies have moved elsewhere.

Bigger Opportunity

“I don’t know that this deal means he’s abandoned his print ambitions,” analyst Morton said. “I think he just sees a much bigger opportunity in television rather than that he has abandoned print.”

At the very least, Morton said, Murdoch clearly was willing to risk losing his once dearly beloved New York Post--and perhaps the expense of closing the paper.

“Murdoch’s image has changed or improved somewhat recently since he began to make a lot of money as a corporate raider,” Morton said. “We’ve seen stories praising him as a financial wizard. He may find that as appealing as he once did thinking of himself as a publishing baron.”

Whatever Murdoch’s thoughts about newspapers in America, his interests apparently have moved toward television, at least for now. Whether that means he has abandoned his newspaper dreams intellectually, he may have forced himself to abandon in action his biggest newspaper dream so far, being a successful publisher in New York.