While many companies still look for good acquisition opportunities outside of their current footprints, the desire to assemble groups of publications in geographic areas continues to drive a significant portion of the M&A market.
This trend, known as “clustering,” has gained considerable momentum since the early 1990s as the early adopters demonstrated that strong groups of newspapers could increase revenue and circulation at faster rates than stand-alones.
Approximately half of the daily newspaper transactions in 2004 resulted in the owner of a neighboring daily making the acquisition. Those that didn’t qualify under this definition included acquisitions of existing clusters, such as Journal Register Company buying 21st Century Newspapers in Michigan.
Research by Dirks, Van Essen & Murray shows that more than 15 million in daily circulation, or 27.2% of total daily circulation in the U.S., is part of a cluster of two or more dailies.
More striking is the number of daily newspapers now published as part of a cluster – 42.8% of all dailies. As these numbers indicate, smaller newspapers are more likely to be clustered.
Fifteen years ago, just 9% of daily newspaper circulation and 19% of all dailies were part of a publishing cluster.
Clustering has enabled newspapers to compete more effectively for ad dollars with other media that have consolidated much more rapidly than the newspaper industry – namely radio and cable television. A cluster of publications can offer equivalent or better geographic and demographic reach than a group of radio stations in a particular market.
Moreover, clustered operations often offer enhanced news products by adding Sunday publications and sharing resources in daily coverage. Areas invisible to the customers, such as printing, billing, accounting and composing, can be consolidated at considerable cost savings.
Once clustered, it is rare for a newspaper to be sold separately from its brethren.
Two such sales occurred in 2004 after the McClatchy Co. acquired the 17,000-circulation Merced Sun-Star, the centerpiece of a three-daily cluster owned by Pacific-Sierra Publishing in California’s Central Valley.
The acquisition created an opportunity for Morris Multimedia to buy the Turlock Journal, which was promptly clustered with a number of non-dailies it owns around Modesto. Local owners bought Pacific-Sierra’s Madera Tribune, south of Merced, and installed a press at the daily.
How We Conducted the Study of Daily Newspaper Clusters
For the purpose of this study, Dirks, Van Essen & Murray defined a cluster as a minimum of two daily newspapers under common ownership or management in the same county or adjacent counties.
A county (or parish) was considered part of a cluster if one of the daily newspapers or a combination of dailies under common ownership captures a minimum of 20% daily circulation penetration and is adjacent to another county that meets this criterion.
In addition, a county was considered part of a cluster if weekly newspapers under the same ownership “filled in the gap” between two dailies.
Thus, dailies serving communities in non-adjacent counties were considered clustered if one of the dailies reached at least 20% of the households in the intervening county or if the company owned weeklies in the intervening county.
In states with very large counties, we used our experience and knowledge of the operating dynamics of certain newspapers to determine whether newspapers in adjacent counties were truly clustered.
Our research found that Community Newspaper Holdings Inc. owns the most clusters with 20, while Gannett Co. Inc. has the highest clustered daily circulation with nearly 1.7 million. About two-thirds of CNHI’s daily newspapers meet our definition of being clustered.
The majority of clusters are located in rural areas with smaller dailies. However, more owners of larger operations have added smaller, suburban dailies in recent years.
For example, Gannett swapped for two dailies to augment its Nashville cluster this year; and Knight Ridder added a small daily near its Duluth News-Tribune. Belo acquired the daily Denton Record-Chronicle in 1999, just north of Dallas.