Monday, December 26, 2005

The return of the small-town mentality.

Press Lords; Big newspapers are in trouble, but the small ones are thriving. Start your own publishing mini-empire.

Christopher Steiner
1268 words
12 December 2005
Forbes
216
Volume 176 Issue 12
English
(c) 2005 Forbes Inc.

Big newspapers are in trouble, but the small ones are thriving. How to start your own publishing mini-empire.

The romance of owning a small-town newspaper beats strongly within James White. Now that he has sold his lucrative dental insurance business, White throws himself into the paper he started in Payson, his central Arizona town (pop. 14,000), last January.

The novice publisher and editor in chief strives to be a latter-day version of another small-town journalist with the same last name. William Allen White was the famed "country editor" who ran the Emporia Gazette in Emporia, Kans. in the early 20th century with aims of informing the populace and, in his words, "taking the hide off somebody."

James White's four-color monthly, the Payson Patriot, zaps the town's government for overspending, crusades against domestic violence and ferrets out the cheapest supermarkets (a comparison-shopping article found Wal-Mart beat competitors like Safeway for a basket of staple items). One recent story showed how "fence rustlers" are tearing down chain-link fences to sell to receivers of stolen goods. And it's happening, an outraged Patriot thunders, "in broad daylight."

When his paper debuted, it fell somewhat short of the New York Times. Misspellings and grammar gaffes riddled his first effort. "It was terrible," he says. The editing and proofreading have improved since.

Startup costs were low. White spent $7,000 on computers, newsstand racks and software. White, who will publish semimonthly starting next year, will keep his month-to-month costs of $6,000 from ballooning by printing smaller runs. Working out of his home with five part-time reporters and two part-time ad-sellers, he is almost breaking even.

The paper has grown from its first run of 5,000 copies to 11,000. The Patriot typically has 20 to 24 pages, 8 in color, printed by a commercial printer. Townsfolk can grab the free Patriot at the grocer, hardware store or convenience shop--anywhere White has a rack. One Patriot hallmark that has helped circulation: large type. "We have a lot of seniors down here," White says. The paper's name is presented as a star-spangled, flag-themed eye grabber.

White, 70, came late to journalism after narrowly losing the race for Payson mayor in 2000. He then suffered a heart attack and, once recovered, took his doctor's advice to find something to do. "Instead of sitting around watching baseball, I'm thinking of things to write about," he enthuses. A former butcher, White writes a column with meat-thawing tips and whatnot.

Even though chains control so many rural and suburban papers, there is still room for intrepid souls who want to go it alone. While Web news sites may be sapping big-city dailies' circulations, small-time papers are thriving by covering school board meetings, town festivals and school lunch menus. Over the past 40 years circulation of dailies in the U.S. has fallen 9.5% to 55 million. But circulation of weekly and monthly papers has doubled to 50 million. And if the paper's free, like the Patriot, all you need to do for revenue is convince merchants to place an ad. White gets $500 a page.

Unlike most dailies, the Patriot has competition. The established twice-weekly Payson Roundup has a paid circulation of 7,200 and charges $1,100 for a full-page ad. Despite White's strides, the Roundup's publisher, Richard Haddad, professes not to be worried. "It's better for the community if there are two voices," he explains. Haddad supplements his paper with a Web site offering such fare as town meeting transcripts.

Newspaper startups are high-risk ventures. But then you could always buy an existing paper. A lively weekly with a circulation of 5,000 to 7,000 will run from $100 to $200 or so per subscriber, depending on ad rates, population, demographics, location, etc. A good starting point for valuing weekly newspapers, says Michael Lindsey, a seasoned newspaper broker, is up to 1.5 times gross revenues. A daily paper, which has higher revenues and more opportunities for bundled advertising, should fetch two to three times gross revenues. A typical daily of 6,000 would go for $3 million to $5 million, says broker Lindsey, who works out of Cheyenne, Wyo. Newspaper brokers get paid by the seller, on a sliding scale ($150,000 on a $3 million transaction is typical).

Small papers abound. The best ones to own are in vibrant towns within 100 miles of sizable cities. Check the last several censuses to see if population is stable or increasing. Take a look at the biggest employers' payrolls, municipal tax collections and school enrollments. Are they going up or down? Look at the shoppers (freebie papers that consist primarily of classifieds) that will be competing for your ad dollars. Do they seem to be gaining on the newspaper? If a paper is for sale, read it. Is it any good? "People now want local news," says Edward Anderson, a broker partner with National Media Associates. "And nobody covers local news like a local newspaper."

It is not unreasonable to expect an operating (that is, Ebitda) margin of 30% on a small daily, 20% on a weekly. You can pump up margins by paying no more than 30% of gross toward personnel. Compare advertising rates with those of similar papers, since raising them might be a real possibility. But to max out your profit potential, you will have to stoop to the usual tactics of press lords: underpaying the staff and churning out the sort of journalism that is not going to win any Pulitzers--like travel reviews, bridal specials and dining guides. For William Berger, 87, longtime owner of the Anvil Herald, a 5,000-circulation weekly in Hondo, Tex., the hottest advertising period comes in late August, when he prints a high school football supplement. This year it was 60 pages, half of it ads. He had photos of nearly every player, and most of the cheerleaders, from six teams. "People eat that up," Berger says.

Circulation numbers for pay papers often can be bumped up with a subscription drive. Most drives tempt nonsubscribers with slashed rates and that indispensable qualifier: "for a limited time only." This limited stretch usually lasts 30 days or so. In September the Payson Roundup added 275 new subscribers that way. The added circulation allows you to raise ad rates.

Savvy newspaper owners will tap neighboring communities--even ones with newspapers of their own--for ads. Larry G. Atkinson, who owns the weekly Mobridge Tribune in South Dakota (circulation: 2,900), has boosted yearly revenue to $1.4 million with this approach. Mobridge, so named because it has the only bridge over the Missouri River for 150 miles, is home to 3,800, yet it is the commercial center for 27,000 people within a 60-mile radius.

For years Atkinson's ads came mostly from Mobridge businesses. Then he paid $3,000 to Pulse Research of Portland, Ore. for market data. Pulse found that 40% of Atkinson's readers shopped up to 100 miles away from Mobridge, in places like Aberdeen, S.D. and Bismarck, N.D. The Tribune mined those other ad regions, with great success.

But beyond the money is the psychic satisfaction. Says Arizona's White: "It's a lot of work, but it's a lot of fun."

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