Local news big for private equity

NEW YORK (CNNMoney.com) -- Northeastern Pennsylvania's media situation is like a miniature snapshot of the industry's national mosaic.

Ten years ago, an array of small daily newspapers struggled to survive in the working-class region. Newspapers in towns such as Hazleton, Wilkes-Barre, Pottsville and Shamokin all faced sagging or stagnant circulation numbers and were the constant subject of rumors on whether they would die or survive.

Enter Times-Shamrock Communications.

The burgeoning Scranton, Pa.-based family-owned media chain, with a few dozen broadcast and print properties stretching south to Orlando and west to San Antonio, began gobbling up the smaller papers one by one, establishing something of a coal region news empire.

With the most recent acquisition, Hazleton's 19,000-circulation Standard-Speaker, Times-Shamrock, with its flagship Scranton Times-Tribune, is now the undeniable king of all Northeastern Pennsylvania media. The chain controls newspapers in a hundred-mile swath of territory running south along Interstate 81, making the company a player, albeit a smaller one, in a media merger mania taking place across the nation.

At a time when controversial media mogul Rupert Murdoch is vying to take over Wall Street Journal parent Dow Jones (Charts), Reuters news service contemplates an offer from Thomson (Charts), and investor Sam Zell is taking Tribune Publishing private, Northeastern Pennsylvania's case stands as an interesting metaphor.

Media analyst Jack Lule at Lehigh University calls the Times-Shamrock Hazleton purchase "absolutely a microcosm for the national and international trend toward these consolidations."

With the purchase, Times-Shamrock's control of the print market stretches from the far north of Pennsylvania nearly to the state capital in Harrisburg. Only Wilkes-Barre's Times Leader, itself taken over by a private equity interest recently after spending almost 30 years bouncing from Capital Cities to Disney (Charts, Fortune 500) to Knight Ridder to McClatchy (Charts), stands outside the Times-Shamrock grip.

Such potential for news homogenization worries local analysts such as Lule and Walter Brasch, a journalism professor at Bloomsburg University, some 30 miles west of Hazleton. Nevertheless, Brasch said, the alternative could be worse for papers like the Standard-Speaker and Wilkes-Barre's smaller daily, the Citizens' Voice, which Times-Shamrock bought seven years ago and restored to health after the paper looked ready to go under.

"I really don't like that independent newspapers are being bought out. It weakens the independent voice," Brasch said. "But sometimes a good chain is better than a weak independent."

A smaller company like Times-Shamrock can boast that it is on the cutting edge of the M&A trend in media, which is to say that when buyers are looking for hot properties they're turning their gaze away from big-city metros and looking toward community-based publications like the Hazleton paper.

Private equity's takeover of the newspaper industry was the leading trend in the $9.96 billion worth of newspaper M&A transactions in 2006, many of which involved local papers. Publicly held McClatchy led the way with its $6.5 billion buyout of Knight-Ridder, which it followed by selling $2.1 billion worth almost exclusively to private buyers.

"Privately held companies continue to see value in community newspapers," Owen Van Essen, president of newspaper M&A firm Dirks, Van Essen & Murray, said in a statement. "Prices in the private marketplace remain strong despite lower valuations for the public companies."

Other leading privately held players in the field include Community Newspaper Holdings Inc., which bought seven Dow Jones dailies, and Dean Singleton's MediaNews Group. Avista Capital, meanwhile, bought the Minneapolis Star-Tribune in a deal valued at $530 million.

Many of the papers, like the Philadelphia Inquirer, acquired by a local private equity interest last year, are helping their bottom lines by shifting their focus away from ambitious foreign bureaus and inside-the-Beltway coverage and toward what the industry is calling "hyperlocal journalism."

Lule recalled a statement by new Inquirer owner Brian Tierney, who told the Washington Post after the paper's acquisition that, "We don't need a Jerusalem bureau. What we need are more people in the South Jersey bureau."

"As a journalist and former Philadelphia Inquirer writer, I found those words to be somewhat troubling, and yet there's a kernel of truth in that," Lule said. "If choices are going to have to be made for local newspapers, they probably should be made at the local level."

National and international companies are following a similar model.

Earlier this year, publicly owned Macquarie Media, an Australian-based firm that trades on that country's exchange, announced its acquisition of a sizeable handful of small dailies and other publications in Texas and Oklahoma. GateHouse Media (Charts), fresh off its successful IPO last fall, picked up seven papers in Illinois and Ohio.

And not to be outdone, Singleton's MediaNews also kept busy by grabbing a group of smaller Dow Jones publications in California and Connecticut.

"There's still a lot of money to be made from newspapers," Lule said. " The profit margins are still extraordinary."