Press Box

The Billionaire Newsboy

Making sense of Philip Anschutz’s Examiners.

Billionaire on a mission

Multibillionaire Philip Anschutz hasn’t given an interview in more than 30 years, so we can’t ask him why he entered competitive newspaper markets in San Francisco and Washington with his free, home-delivered tabloid Examiners. Nor can we ask if he intends to take the enterprise to any of the nearly 70 cities where he’s filed trademark applications for the Examiner name.

Conventional wisdom holds that the newspaper industry is a mature business, and that once a daily establishes its dominance in a market, only fools and ideologues ever go head-to-head with them—either by starting a paper or, as Anschutz has in San Francisco and Washington, pumping up existing, faltering franchises.

Nobody thinks Anschutz is a fool. An oil wildcatter raised by an oil wildcatter, he moved into the railroad business in the early 1980s and made billions by laying fiber-optic cable along his Southern Pacific Railroad track and purchasing Qwest Communications. According to one biography, his original $55 million investment in Qwest turned into a $4.9 billion profit when the company went public in 1997.

On the other hand, everybody recognizes that Anschutz is a conservative Republican ideologue and a devout Christian. In a February 2004 speech, he stated that he entered the movie business because he wanted to stop “cursing the darkness” (Hollywood’s violent and vulgar R-rated films) and start making family fare. He owns the largest theater chain in the country, Regal, and has invested in more than a dozen pictures, including Holes, a remake of Around the World in 80 Days (a huge bomb), the biopic Ray, Because of Winn-Dixie, and the forthcoming Sahara and A Sound of Thunder. His biggest bet is a series of movies based on C.S. Lewis’ Narnia books, with the first scheduled to reach screens Christmas 2005.

In his speech, Anschutz added this “aw shucks” justification for investing in movies. If he could be persuaded to take the call, he’d probably say the same thing about his newspaper ventures:

My friends think I’m a candidate for a lobotomy, and my competitors think I’m naive or stupid or both. But you know what? I don’t care. If we can make some movies that have a positive effect on people’s lives and on our culture, that’s enough for me.

Nobody dumps hundreds of millions of dollars into the movie and exhibition business—or newspapers—to uplift the masses. There’s got to be an angle.

In the case of the movie business, let’s say Anschutz’s first Narnia project proves moderately successful, and he films all seven books. If he’s negotiated the right deal with his distributor, the gross payout could be in the hundreds of millions, not counting the extra cut from screening them at Regal Cinemas. By virtue of its standing as a literary classic, the Narnia cycle comes almost as pre-sold as the Lord of the Rings movies, so the franchise could earn Anschutz billions from the movies and from the long tail of DVDs, soundtracks, toys, screenings on cable and the networks, games, ring-tones, and other tie-ins over the next two decades.

Anschutz excels in finding value in underappreciated assets, be they railroads or movies. A business model sketched by Philip Meyer in his just-published book The Vanishing Newspaper, suggests a strategy that might be behind Anschutz’s Examiner s.

Meyer describes newspapers as vulnerable to competition in these days of declining readership and media upheaval. A successful attack on a fading newspaper, he writes, depends on the understanding that only 20 percent of a newspaper’s value is physical assets, such as printing plants, trucks, computers, and offices. The remaining 80 percent is the goodwill—the faith that readers and advertisers place in the final product.

In many U.S. markets, the dominant paper is a fading enterprise, losing readers faster than it’s gaining them, even though the population is increasing. Young people, especially, resist the newspaper habit, preferring to get news and information from television, radio, the Internet, and magazines. Instead of using the classified ads, like their parents, they go to Craigslist or eBay. In the long run, no newspaper is safe from the competition posed by electronic technologies.

A cynical owner of a fading newspaper, Meyer writes, will “squeeze the goose to maintain profitability today without worrying about the long term.” He’ll raise the price of the paper and increase advertising rates. He’ll cut the news hole, trim the staff, reduce circulation in remote and low-income areas, and suppress salaries. He’ll do whatever is necessary to keep profits as close to the 30 percent margins some dominant papers have recorded. The owner who follows this path is essentially liquidating his publication over time, Meyer writes.

If an owner insists on squeezing the goose (“harvesting market position” in business-speak) he creates an opportunity for a competitor to enter with a new paper. If the competitor builds goodwill (editorial quality and standing) into his paper from scratch that is comparable to that of the established newspaper, he can end up with a paper as profitable as the dominant title but at only 20 percent of the cost (printing plants, trucks, offices, computers, etc.). Meyer explains:

… the challenger can get the same return on investment with a 6 percent margin that the old paper’s owners get with a 30 percent margin. Voila! A happy publisher with a 6 percent margin!

There is no way to overstate the complacency or arrogance of the greater newspaper industry. In many markets, the big daily acts like a quasi-monopoly, raising advertising rates annually or semi-annually—anything to reach those historic 30 percent margins. As falling circulation has put a crimp in advertising rates, some newspapers such as Newsday, Hoy, the Dallas Morning News, and the Chicago Sun-Times have padded the numbers to appear healthy, defrauding advertisers in the process. At Newsday, one-sixth of circulation was phony! A recent Prudential Equity Group report, which factored out those four naughty papers, assailed the general quality and quantity of American newspaper circulation.

With segments of the traditional newspaper audience peeling off, this market is now in play. But Anschutz can’t execute the fading-newspaper scenario in San Francisco or Washington if for no other reason that the dominant papers, the San Francisco Chronicle and the Washington Post, are not yet “harvesting market position.” Still, some of Anschutz’s moves in San Francisco are straight out of Meyer’s playbook. The Examiner’s previous owners, the Fang family, stripped it down to its chassis, torched it, and left it to rust. Its printing plant, not the Examiner name, was its biggest asset. But in the first year of Anschutz ownership, the paper’s credibility rose. According to San Francisco journalist Tali Woodward, the new, 160,000-circulation Examiner “has fewer typos, cleaner copy, even a snappy, almost elegant, new design.”

Woodward also gives the paper’s staff credit for beating the Hearst-owned Chronicle recently on local stories, even though it has only six reporters on the beat compared to the Chron’s dozens. Woodward spots a “general pro-big business, conservative ideology that’s out of touch with the San Francisco mainstream” in the Examiner, but she notes that the paper soft-pedals its master’s views: It didn’t endorse for president in 2004.

In Washington, the Examiner has no reputation. Anschutz purchased the suburban Journal newspapers and its printing plant and rebadged the Journal papers with his “Monarch of the Dailies” logo. It’s still too early to pass editorial judgment on the D.C. Examiner, which only launched last month and claims free circulation of 260,000. To say it’s better than the Journal newspapers—which it is—is damnation with faint praise.

Both free Examiners, however, already beat the established daily papers on price. The Chronicle, daily circ about 510,000,costs 50 cents on weekdays, and the Post, daily circ about 700,000, held its weekday price to a ridiculously low 25 cents until bumping it up a dime at the end of 2001. The Examiners limit distribution to affluent neighborhoods, which benefits them because it’s cheaper than full market saturation. Limited distribution appeals to hoity-toity advertisers who regard their diamond and Bentley ads as wasted on poor folks. Blocking the Examiner’s 6 percent adventure is the Washington Post Co., which pre-empted the non-reader market in August 2003 with its own free non-newspaper, the Express, which started with a circulation of 125,000 and now stands at 200,000. Express stories are so short the paper makes USA Today look like the Times of London.

The newspaper industry’s “inherent conservatism, a consequence of their easy-money history, places them at a disadvantage in attempts at innovation,” Meyer writes. Anschutz’s free dailies are innovative enough, but are they worth bending your back to retrieve in the morning? Not in my Arlington, Va., neighborhood, where the orange-bagged, home-delivered Examiner slowly composts in many a front yard.

Following Meyer’s formula, a genuine newspaper war won’t break out in San Francisco or Washington—or wherever Anschutz takes his Examinersuntil he elevates editorial quality to something approximating that of the local dailies. If he covets 6 percent margins, he’ll have to make editorial investments close to what the 30-percent-margin papers are spending.

Meyer imagines the established papers will combat the 6 percenters by counter-investing but not exclusively in newspapers. “How the information is moved—copper wire, cable, fiberglass, microwave, a boy on a bicycle—will not be nearly as important as the reputation of the creators of the content. Earning that reputation may require the creativity and the courage to try radical new techniques in the gathering, analysis, and presentation of news,” he writes.

Which prompts this question about Anschutz’s opening move: What explains his reliance on the antiquated analog technology of newsprint? Remember, he made his big fortune by laying 21st-century technology—fiber-optic cables pulsing with digital information—along the 19th-century railroad right-of-ways he owned. Likewise, in the movie-exhibition business, Anschutz has hoped to reap new economies by being among the first to deliver movies to theaters via fiber-optic cable and project them electronically.

As Anschutz builds his 6-percent-margin newspapers, he must realize that a business model already exists that delivers news and advertising more efficiently. Without looking like a shill for my bosses at the Washington Post Co., may I point to the and other online newspapers? No printing plants, no rolls of paper, and no delivery trucks—just a whole lot of computers and people. You don’t suppose that the newsprint Examiners are stalking horses for a nationwide network of Examiner Web sites, do you? It’s no crazier a business proposition than Ted Turner’s 24-hour news channel was in 1980.


In the case of Slate, 99 percent of its value—reported to be $15 million to $20 million when the Washington Post Co. bought it from Microsoft in January—was goodwill. Slate’s assets are limited to four dozen computers, a few printers and scanners, furniture, office supplies, 127 Slate baseball caps, and its archive of stories. What’s your goodwill value? Send e-mail to (E-mail may be quoted by name unless the writer stipulates otherwise.)