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Thursday, November 30, 2006

Portland 1950, part 2

The Oregonion presents, in 3 parts, Chapter 20 of "Newspaperman: S. I. Newhouse and the Business of News", by Richard H. Meeker © 1983. Meeker is publisher of Portland's Willamette Week.

Chapter 20 - Portland (part 2)
A monopoly or, at least, "the potentialities"

Since conducting the Syracuse sale, newspaper broker Smith Davis had taken on a new associate, Vincent Manno, and both of them were searching for a deal for Newhouse. That fall, Davis caught up with MacNaughton in Washington, D.C., and learned from him directly that rumors that the Oregonian was for sale were well founded. Davis also ascertained that Newhouse would be an acceptable buyer, but he was shocked at the price tag. At the time, it was generally accepted in the industry that a newspaper was worth some multiple – usually ten – of its net earnings. Though strapped by the costs associated with its new building, the Oregonian still managed to turn a profit of $250,000 a year. Thus, according to the formula, it was worth in the vicinity of $2.5 million. But MacNaughton said he wanted $5.6 million – all of it in cash. It was the largest amount of money anyone had ever dared ask for a newspaper.

Newhouse, however, not only had the cash on hand but had also developed a unique method of assessing a newspaper’s worth that made the deal seem quite attractive to him. Because most of the papers he had purchased were losing money when he first got hold of them, he put relatively little stock in the present earnings figures that served as the basis for other buyers’ calculations. What was important to him was something else – what he called "the potentialities" – and these were discerned by looking first at a paper’s market. Did it have a sound, diversified economic base? Was it growing? Then, he would examine the newspaper's relationship to that market. He had not always been in a position to insist that a prospect hold a monopoly in the area, but he always inquired. And if the answer were no, he required that it at least be the dominant publication in town. Only after he had obtained satisfactory answers to those questions would he concern himself with the numbers on recent profit-and-loss statements. It was a imminently reasonable approach to take, but one which and escaped the rest of the industry.

What Newhouse read about Portland in his market guides was encouraging. The city's population had grown rapidly from 305,394 in the 1940 census to 363,141 by mid-decade, and it showed no signs of slowing down. Moreover, N.W. Ayer's Advertising Directory described that part of Oregon as an "important trading center and port of entry," with a diversified industrial base, which ran the gamut from shipbuilding to lumber and canned goods.

As far as the other criterion – market position – was concerned, Portland did have a second newspaper – the afternoon Oregon Journal. It was not for sale in 1950, but Newhouse believed the Oregonian's inherent advantages were such that it would be only a matter of time before the Journal would be forced to sell, much as the Herald-Journal had bushed the Post-Standard into his hands in Syracuse.

At least one person close to the negotiations over the Oregonian believed Newhouse also secured a promise from the owners of the Oregon Journal that they would sell to him hen the proper time came. "There was a handshake," claimed Jerome Walker, who covered Newhouse's purchase of the Oregonian for Editor & Publisher. "S.I. had an agreement that the Journal would be his." Today, there is no one alive who can prove or disprove the existence of such an agreement. Subsequent events at the Oregonian and the Oregon Journal, however, were to demonstrate an unusually cooperative relationship between management at the two papers.

Having reached favorable conclusions as to his prerequisites, Newhouse still had to set an exact dollar figure for the Oregonian. His approach to this kind of problem was ingenious. Aided by his accountant, he would make a conservative estimate of what he could make a property pay over the next decade; that figure would then represent its worth to him. Given his basic faith in the business and his ability to avoid taxes by reinvesting earnings, he could quite realistically come up with values many times those set by the then acceptable industry standard. The Oregonian proved no exception. Newhouse figured he could earn at least $8 million with it by 1960. Thus, when Smith Davis announced that MacNaughton wanted $5.6 million, he was quick to accept.

Part 3 in a series: Newhouse profits & power - How the West was Won


Anonymous said...

I appreciate the history, I recieved a history degree in college and have a particular interest in Portland history.

But I hope this is building to some conclusion or assertion relevant to today.

I have read some of your earier posts and they are pointed and I have enjoyed them.

If only a bright beam of light can illuminate The Oregonian. What once was a center/right newspaper has become a Democratic organ which favors the status quo, but is always happy to see the status quo move farther left.

Question to Blog author: Just how far left is The Oregonian capable of going?

Anonymous said...

The Newhouse profit maximizing formula is all about ad revenue. Cheerleading for The Establishment can follow the culture very far, in any direction.

Anonymous said...

Hit The Oregonian in the bread basket(ad revenue)and you see results.

I agree.

This can happen in three ways in my opinion. The general economy will drop off(I'm leery of wishing for that).


Circulation drops off(it has already)due to disgust at the far-left bias of The Oregonian.


Alternative platforms for advertizing prove their effectiveness to the merchants bottom line.

Merchants are important to any correction or overthrow of The Oregonian.

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