Printing Money

Unlike executives of other multimillion-dollar corporations, the president and secretary of the Kansas City Star Co. do not have offices of their own. Instead, they sit at desks in the newsroom, under the direct gaze of the staff. That is only fitting. Since 1926, when the estate of Founder William Rockhill Nelson was liquidated, the newspaper firm has been owned lock, stock and Linotype by its employees.

This week, however, the last of the Star Co.'s lunch-pail capitalists will sell out to Capital Cities Communications Inc., the Manhattan-based owner of four small newspapers, 13 broadcast stations and Women's Wear Daily. Employees of the Kansas City company, which publishes the evening Star and the morning Times, gave up their stake so willingly because the papers will soon require very expensive modernization --and because the price was right: $125 million, twice the book value of the firm and probably the highest price ever paid for a one-city newspaper company.

The sale of the Star Co. is only the latest in a recent epidemic of high-priced newspaper transactions. Australian Rupert Murdoch late last year paid more than $30 million for the New York Post. Gannett Co. is acquiring the 13-paper Speidel chain for $173 million. In perhaps the largest newspaper sale ever, S.I. Newhouse last year paid more than $300 million for Booth Newspapers' eight dailies and the Sunday supplement Parade. In all, 72 dailies changed hands last year, up from 49 in 1975. Says Otis Chandler, vice chairman of the Times Mirror Co. and an unsuccessful bidder for both Booth and the Star Co.: "Everyone is rushing to buy."

The desire to acquire is nothing new among publishers. Some 60% of U.S. dailies are chain-owned, a percentage that has been climbing steadily. But many publishing dynasties are running out of heirs, and recent estate tax-law changes have made it less lucrative to keep it all in the family. Beyond all that, newspapers themselves are making financial headlines. Industry pretax profits were up as much as 70% last year, from 1975's depressed levels, and another, though smaller gain is expected this year. Nationwide average daily circulation last year edged upward to 60,800,000, the first increase in three years, and advertising revenues exceeded $10 billion, a gain of more than 19% over 1975.

Of course, newspapers have long been moneymakers. In the early 1970s, however, a dramatic spurt in the price of newsprint hobbled the entire industry. Much of the present recovery is due to newspaper management's new reliance on marketing studies to help give readers what they want, rather than what editors think they should have. In most cases, that rather unjournalistic practice means less national and world news and more leisure-time features, consumer reporting and life-style coverage.

But perhaps the major reason that the presses are virtually printing money is technology. Newspapering, one of the last major industries to become automated, is making up for lost decades. Since the 1960s, most major dailies have begun computerizing their composing rooms and even their newsrooms, where the video display terminal is fast replacing the typewriter. The attendant productivity increases have been prodigious. The Richmond Times-Dispatch, for example, can now set type for a page of classified ads in 90 seconds, up from four hours in 1972. Savings: $1.2 million a year.

Cash Machines. Such economies are making newspapers so profitable --and thus so desirable as investment properties--that prices will probably continue to soar. Industry analysts concede that $125 million for the Star and Times may sound high, but add that the stodgy, bland and earnest dailies should become immensely profitable under firmer management from Capital Cities; besides, as in most U.S. cities, the papers have no real competition. "It is extremely difficult and expensive to start a new newspaper," says Otis Chandler. "Thus the ones that are in place and going are even more valuable." This is particularly true since newspapering is a largely unregulated monopoly business in an increasingly regulated economic world. Says one financial analyst: "Monopoly newspapers are cash machines."

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