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Rockin' in the Bee World
Birth Of A Media Behemoth

August 2006

Gary Pruitt, the boyish-faced CEO of the McClatchy Co., is suddenly sitting atop the country’s second-largest newspaper chain, trailing only Gannett Co. Inc. in size. Pruitt, who recently turned 49, rode herd on the company’s swapfest of Knight Ridder papers that resulted in keeping the 20 strongest papers and selling the weakest 12.

Off an upstairs back corridor of The Sacramento Bee at 21st and Q streets, Pruitt’s office reflects his efficient style. It is neatly themed in shades of gray and blue, which he prefers over the maple paneling installed by his predecessor, Erwin Potts. Sitting at a long meeting table, he reflects on the deal that leaves the company with no small bill: about $3 billion in debt.

What Pressure?
“I think we’ll be able to pay down debt quickly,” says Pruitt. “For the early years, we’ll balance debt repayment with share repurchases. We’ll have plenty of use for cash.”

Part of the deal’s cost is a short-term hit of hundreds of millions of dollars in taxes. But it’s worth it, says Pruitt, because in return, the company, as it did with the buy a few years ago of the Minneapolis Star Tribune, becomes a much larger cash machine.

John Morton, a newspaper industry analyst, says given the success of the similarly styled Star Tribune buy, Pruitt’s approach of buying newspapers in growth markets has proved out. “It does say that even though it’s a challenging time for the newspaper business,” says Morton, “newspaper properties still throw off a lot of cash and are attractive.”

Pruitt concedes circulation dips are hitting most dailies around the country, including The Bee. But for papers in growth markets, he sees plenty of upside, especially when websites, direct marketing and foreign-language newspapers are added to the daily’s established audience. He sees that mix as a stronger pull to advertisers than the more fragmented TV and radio audiences.

In fact, Pruitt sees the online market reach of all McClatchy newspapers as key to making the most of an ongoing transition from print readers, who are largely made up of older readers, to the younger generation of typically online readers. Newspaper-industry analyst Morton agrees that a newspaper’s brand name can attract website visitors and lucrative ad revenue. Online ad revenue for McClatchy makes up 6.5 percent of its total ad revenue. But it’s expected to grow steadily.

Morton notes online ad revenue is growing at a 30 percent average rate for newspapers. But he cautions that Monster, Craigslist and others are tough competitors for online ad-revenue share. Pruitt’s bold acquisition moves have thrust him into the role of Pied Piper of the daily newspaper — as long as it dominates a growing market.

His confident cheer has been waved in the face of a skeptical Wall Street in recent years, but Pruitt says those doubts show the typical short-term myopia of publiccompany analysts. McClatchy, he says, makes deliberate moves to pay off over the long haul, noting, “We’re 149 years old.”

And so far, his moves have worked. Over the past 10 years, McClatchy has been the best-performing publicly traded newspaper company in the country and has outpaced the growth of the Standard & Poor’s 500. Steve Mallory, former NBC news correspondent and president of PACSAT, a Sacramento-based satellite-uplink vendor, has watched McClatchy’s moves for years. He’s no fan of The Bee’s local news coverage, but as for McClatchy, he says, “They seem to have a knack for putting these kinds of deals together and then making them profitable. They’re about making money.”

With the company’s new reach, McClatchy’s corporate office is swelling from 70 to around 115 legal, financial and human resource administrators. Now that McClatchy is truly national, will its local philanthropy increase?

“I don’t want to speak to any specific causes or projects,” says Pruitt. “But we do understand with great size comes great responsibilities for a broad leadership role. We do anticipate we would increase our philanthropic giving. We’ve had some preliminary discussions, but we haven’t reached any conclusions.”

But if McClatchy needs help finding a public cause, Barbara Hayes can think of a few. Hayes, executive director of Sacramento Area Commerce and Trade Organization, works to bring jobs here and loves to see any local headquarters stay long enough to burst onto the national stage. Here, it’s a rarity.

Big headquarters are community goldmines. They generate the strongest ripples of dollars to public causes and projects. Hayes respects the many years of contributions to the local arts, started many years ago by Eleanor McClatchy, The Bee’s support of the Sacramento Kings and The Bee’s membership on many area boards. While a generous contributor, McClatchy has kept “kind of under the radar,” about it, says Hayes.

A National Brand
“Now they are headquarters to a truly national company,” she adds. “This makes them big time.” The McClatchy name, she says, could brand signature local projects such as a new community arena, a park along the waterfront or something at the railyards.

Pruitt maintains the Knight Ridder deals weren’t necessary for McClatchy’s survival, but more a response to a golden opportunity. One of the biggest surprises of the Knight Ridder deal involved the San Jose Mercury News, the primary daily of the wealthy Silicon Valley.

Early on, “we thought we’d keep San Jose,” says Pruitt. “It’s near corporate headquarters and we thought it was due for a rebound. But we found it is not a growth market.” That made McClatchy’s decision on the Mercury News easy: sell it, along with 11 others in less-than-stellar markets. “Sacramento is a much more dynamic market,” he says. “It’s growing and has a much brighter future.”

And while he’s shown himself to be a proven boardroom force in the world of business suits, Pruitt hears the beat of a different drummer, or, rather, crash of an electric guitar. He likes the music of the Rolling Stones, Green Day, Lenny Kravitz and the Clash. He likes Chris Rock’s raucous, comedic takes on life.

Earlier this year, before an audience of stock analysts, Pruitt presented McClatchy’s best photojournalism for the year, accompanied by a recording of the crunching guitar chords of “Rockin’ in the Free World,” by Neil Young. He welcomed analysts to sing along if they wanted to try to harmonize with Young’s wailing. “I enjoy what I’m doing,” says Pruitt. “It’s better to show it, enjoy it and live it. It makes life more fun.”