How Ownership, Competition Affect Papers' Financial Performance

Abstract

Iver the decades, media scholars and public policy makers have observed with trepidation the intensified acquisition of U.S. daily newspapers by public corporations. They fear these corporations are sacrificing public interest and reader welfare to pursue financial incomes.1 In 1993, Blankenburg and Ozanich,2 using data from 1986 to 1989, found that the degree of public ownership in terms of inside control or voting stock held by company managers, affected the financial performance of news corporations. They suggested a positive association between public ownership and financial management pressure. Blankenburg and Ozanich tested five hypotheses and concluded that publicly traded newspapers had more short-term financial aims, concentrating more on gaining a higher return on equity and earnings predictability than did privately run newspapers. Three years later, Lacy and associates,3 using data from 1990 to 1993, basically supported the initial study.4 Lacy and associates5 also concluded that public ownership and newspaper competition influenced news corporations' financial performance. The recovering economy may have caused the market-driven newspaper industry to shift its business strategy to public ownership, enabling a greater investment in order to compete in the long term. Our study re-examines the potential effects of public ownership and competition on newspaper operations. This research is important because it explores the effects of increased mergers, acquisitions and newspaper ownership clustering since Lacy et al.'s earlier study. Another study should provide a clearer understanding of media economics and related public policies dealing with public ownership, market competition and market performance. Brief Background Media scholars6 have investigated public newspaper ownership influence on newspaper performance. Conclusions about newspaper corporations' attitudes toward organization profits and newspaper quality are mixed across different types of ownership-- public vs. private. Daily newspaper competition, while examined less than newspaper ownership, has received considerable attention from scholars. For instance, Litman and Bridges'7 financial commitment theory served as the thread of many studies on newspaper performance. Method The present study followed the same method used by Lacy and associates: The researchers ran a multiple regression on eight performance variables for each newspaper (See Table 1).8 Eleven newspaper groups, reported in the Value Line Rating and Reports from 1994 to 1997, were used. The newspapers chosen met previous criteria: The groups had headquarters in the United States, had yearly revenues over $100 million, obtained more than half their incomes from newspapers and were highly traded. As in previous studies, public ownership was conceptualized and operationalized as a continuous variable measured as the percentage of inside control, which the Value Line data provided as the percentage of voting stock controlled by managers and initial owners. The average operating margin is the percentage of revenue after expenses are deducted. Cash flow is the earnings deducted from depreciation; average cash-flow margin equals cash flow as a percentage of revenue. Return on equity is earnings per share divided by equity per share, and earnings predictability is a Value Line index that calculates how well a company fulfills market analysis expectations. The plowback ratio is the ratio of retained earnings to common equity. The percentage of revenues used for expense is the percent of income used to operate, and the percentage of market with competition, found in the Standard Rate and Data Services Circulation, is the newspaper's percentage of market penetration. Finally, a competitive market is defined as any market that has an additional daily newspaper or has an additional daily with more than five percent of penetration.9 Findings The average percentage of inside control for newspaper groups over the years had dropped from 61. …