Wednesday, November 16, 2005

Yahoo and Knight Ridder

Posted by Craig Westover | 10:36 AM |  

According to the Wall Street Journal on speculation about the sale of Knight Ridder --
Conventional wisdom holds that Gannett, the largest newspaper company, might be a good suitor for Knight Ridder. Others think a consortium of private-equity investors is more likely, since newspapers are considered cheap, but remain good cash-flow vehicles that would help finance a leveraged buyout. Some think a new-media company such as Yahoo Inc. or eBay Inc. might be interested.

Newspapers still dominate local news and advertising in many markets. That could attract a company such as Yahoo, which has moved increasingly into original content and would like to develop its local reach. Meanwhile, Google Inc. has expressed interest in entering the classified-ad market, where newspapers have deep relationships and continue to play a dominant role. Knight Ridder is part-owner of CareerBuilder Inc., the online classified Web site that competes with

In a previous life, I worked for a company that created small business web-sites. In business lingo, our core-competencies were a great telemarketing organization and a client base in six figures. This was a major appeal to Yahoo, and we signed a partnership agreement with Yahoo that placed our clients web sites (local businesses) in the Yahoo Yellow Page Directory. In addition, we set up a local sales force to sell local adds directly into the Yahoo Directory.

The point is, when considering just who might be a suitor for Knight Ridder -- or specific properties within Knight Ridder -- don’t underestimate the interest of Yahoo. It’s pretty easy for Yahoo to go into a major national account and sell a advertising deal on their online properties. It’s virtually impossible, from a corporate level for them to sell local advertising and impossibly expensive for them to set up their own local ad sales organizations.

Now imagine Yahoo ownership of, say, the Pioneer Press. You’re a Pioneer Press ad sales rep and when you walk into Wally McCarthy’s you can not only offer him an ad in the Pioneer Press -- something he’s familiar with -- but you can offer placement in the Yahoo Yellow Pages, placement on Yahoo Maps, display ads correlated to specific searches in Yahoo Search and the like.

Whereas as a newspaper entity, to another newspaper publisher the Pioneer Press has a value limited by some multiple of its potential earnings as a newspaper, to Yahoo the value of its local sale force is virtually unlimited in terms of pumping local revenue into Yahoo products. From an advertising standpoint, it’s like adding millions of subscribers and unlimited ad pages without a nickel's worth of added expense.

Newspaper publishers like Knight Ridder have made a pretty good business out of their own Internet networks, but in keeping advertising in house (that is not looking for partnerships with companies like Yahoo), they have made the classic mistake of thinking 100 percent of relatively small revenue (gained at considerable expense) is better than some percentage of huge revenues. Given stiff competition from Google and eBay for Internet dominance, don’t count out a bold move from Yahoo.

Category: Journalism