Dow Jones sale a sign of dynasties’ decline
The Bancroft family, which has controlled the prestigious Wall Street Journal for more than a century, is the latest newspaper dynasty to be dismantled in mere months partly under the pressures of the Internet Age.
Its agreement Tuesday to sell Dow Jones & Co. for $5 billion to media mogul Rupert Murdoch’s News Corp. shows how the industry’s most powerful families are facing a tough choice: Cash out or watch their fortunes deteriorate as more readers and advertisers migrate to free online news sources such as Yahoo and Google.
Before the recent sell-offs, family-owned newspaper chains were considered the bulwark against corporate ownership, which had already accounted for control of other media businesses such as television and movie studios. For some families, the news-gathering business was not just about the bottom line, it was about performing a civic duty.
But that belief eroded as the dynasties, founded mainly in the late 1800s, entered their third, fourth and fifth generations, expanding to dozens of family members who collected dividends but had little commitment to traditional journalism.
“Journalism is being redefined whether we like it or not,” said Robert Decherd, who with his sister controls Belo Corp., owner of the Dallas Morning News, the Riverside Press-Enterprise and the Providence Journal. “The resistance in the news industry to consolidation has declined -- and that’s before you introduce the phenomenon of fourth- and fifth-generation ownership.”
The Journal’s fate was determined by three dozen Bancrofts, who held their stock in a maze of complicated trusts. No family member has had a career in management there since William Cox Jr. retired more than a decade ago.
The Dow Jones sale follows the recent exit of other newspaper clans. In February, the Chandler family, which once owned the Los Angeles Times, cut its 116-year industry ties by selling its stake in Tribune Co. as part of a pending takeover by real estate mogul Sam Zell. Last year, Tony Ridder, scion of the family that once shared control of Knight Ridder Inc. with the Knights, threw in the towel and sold out to Sacramento Bee owner McClatchy Co. after his family had spent 114 years in the business.
Newspaper analyst John Morton, who has consulted for some of the biggest privately owned chains, said the dismantling of newspaper dynasties was reminiscent of the disappearance of small farms.
“It’s like the farmer who leaves the farm to the family and divides it evenly,” Morton said. “A couple of generations go by and all of a sudden you’re sitting on an acre.”
A one-acre farmer is a farmer looking to sell, and the same is true for newspaper families. Only 1 in 10 family-owned companies of any kind survives the third generation, according to the Family Business Center at Chicago accounting firm Blackman Kallick.
What’s different now is that some of the best-known newspaper companies are passing that milestone.
New York Times Co., controlled by the Sulzberger family, passed the title of chairman to a fourth-generation publisher in 1997, and the third-generation chief executive of Washington Post Co., Donald E. Graham, turned 62 this year.
In their heyday, the families wielded enormous power. The Chandlers helped to bring Richard Nixon to prominence, and the Grahams took enormous risks in supporting the news reporters who brought Nixon down. The Sulzbergers backed editors who refused to stop tough reporting on the Vietnam War, which helped to hasten the end of that conflict.
It was easy to support good journalism when there was no meaningful competition from other sources. Washington Post investor and director Warren Buffett said newspapers naturally tended toward limited monopolies.
Profit margins above 20% attracted new investors, and many families looking to cash out or expand turned to the public markets beginning in the 1960s. For families like the Bancrofts, that outside cash turned out to be the taste of a poisoned apple.
The first to fall victim to the new pressure have been those newspaper companies with only one class of stock, including Knight Ridder and Tribune Co., which were the No. 2 and No. 3 chains by circulation until McClatchy bought Knight Ridder and sold off some of its papers. Both had families with past control and large stakes but only one kind of stock.
As online readership grew and profits stagnated, shareholder upheaval forced the sale of Knight Ridder and the planned sale of Tribune.
But also under pressure are companies with two classes of stock -- one regular, the other with extra voting power owned by a family. That group includes the New York Times, Washington Post, McClatchy, Belo and many others.
New York Times Co.'s poor stock performance in recent years prompted criticism from London-based money manager Hassan Elmasry of Morgan Stanley Investment Management. Elmasry, whose fund held 7% of New York Times shares, began agitating for change in a letter-writing campaign beginning in mid-2005.
His main goal: the abolition of the company’s two-tier stock structure, which he said made management unresponsive to nonfamily shareholders. Elmasry won a symbolic victory at the annual meeting in April by persuading 42% of shareholders to withhold their votes for the company-nominated slate of directors.
The protest vote made no practical difference because the family made clear it had no intention of changing the two-tier structure.
Washington Post Co. has been protected from such investor restlessness largely because of its success on the Web, which in turn is thanks largely to its Kaplan educational testing unit.
Among purer newspaper publishers, even such closely held companies as William Dean Singleton’s MediaNews Group, owner of the Los Angeles Daily News, are getting squeezed, said Rick Edmonds, an analyst at the nonprofit Poynter Institute in Florida, which publishes the St. Petersburg Times. Under pressure to repay loans, Singleton is among those cutting staff.
“In current circumstances, all the public companies and some of the private companies that are carrying a lot of debt are particularly vulnerable to cutting back,” Edmonds said.
The biggest factor in determining whether a given family will hang on is the number of relatives with a say -- a figure that tends to increase with each generation.
In the plain-spoken analysis of Harry Brandt Ayers, publisher of the Anniston (Alabama) Star, “Copulation is the great factor that undermines family control.” In that regard, the 150-year-old McClatchy empire is unusually lucky. There are only seven members of the fifth generation, four of whom sit on the chain’s board. The sixth generation has only six people.
“If there were scores and scores of family members, it would be difficult to keep the family’s control,” said CEO Gary Pruitt, the second top executive from outside the family.
At Belo, Decherd has an even easier time, although he is but one of several great-grandchildren of the Dallas paper’s founder. Because of his large super-voting stake, he can pretty much do what he wants. To be certain of a majority, he has only to get his sister to agree.
Decherd, a 56-year-old with two children, declined to say what he wants to happen to his stock after he passes on.
“I don’t think a lot about posterity,” he said. “We can build some impressive businesses in an Internet-centric world. To me, we’re all better served to think about it in those terms than to try to create an outcome 25 years from now.”
In dealing with issues of family size, the New York Times and the Washington Post have more in common with the Wall Street Journal than they do with the cozy world of the Dallas Morning News. Aware of how vulnerable that makes them, the two institutions have labored to keep the newer generations involved in the paper, or at least in the industry.
Perhaps the biggest difference between the Grahams and Sulzbergers on one hand and the Bancrofts on the other is that level of involvement, analyst Morton said.
Bancroft heir Crawford Hill noted the discrepancy last week in a letter to relatives complaining they were never trained in how to be active owners. “We never had, by the way, conversations that Sulzbergers, Grahams and, yes, Murdochs had every day,” Hill wrote.
But involvement alone may not be enough, so some families have taken care to preserve their involvement through trusts.
The Sulzberger trust is run by eight family members, six of whom must agree on any radical move, the company’s chairman disclosed last month. The Bancroft fortune, by contrast, is carved into about 40 trusts, which made organized resistance to a takeover much harder.
A newspaper that joins another company is subject to whatever good or bad fortune the market may bring. Nothing would stop the Journal from changing hands several more times.
After all, in wooing the Bancrofts, Murdoch made much of the fact that his own media empire is essentially a family business, over which he wields nearly complete control.
Murdoch’s fortune, including a passel of Australian newspapers, goes into a trust for his children, with voting rights belonging to the four eldest. He just hopes those four stay more unified than the Bancrofts have been.