Media General, Inc. Business Information, Profile, and History

Company Perspectives:

Our mission is to be a leading provider of high-quality news, information and entertainment services in the Southeast by continually building our position of strength in strategically located markets.

History of Media General, Inc.

Media General, Inc. is a diversified media company with interests in daily and weekly newspapers, broadcast television, and newsprint production, mostly in the southern and eastern United States. In December 2000 the Richmond, Virginia-based company purchased Spartan Communications for $605 million, underscoring its long-term goal of remaining a top media player in the Southeast. Investor 'Super' Mario Gabelli owns approximately 27 percent of the company. An additional 11 percent of the company is owned by the founding Bryan family, which controls the board of directors.

From Family-Run Newspaper to Media Conglomerate: 1879-1969

The precursor to Media General began in 1879 as the Dispatch Co., which published the Richmond Dispatch and was run by the Bryan family. In 1896 the Bryans bought the Richmond Leader, and seven years later they merged it with a competing newspaper to create the News Leader. In 1937 the company started an AM radio outlet in Richmond. In 1949 an FM radio station was also launched. The FM station reached a larger area but had a much smaller audience, especially in its first few decades when FM technology was in its infancy.

By 1940 the company's newspapers had the widest circulation in Virginia, and the Dispatch Co. changed its name to Richmond Newspapers Inc. During the 1950s and 1960s the News Leader was known for its conservative editorials that strongly supported segregation, and some critics blamed it for splitting Richmond along racial lines. In 1964, the company began an $8.3 million three-year modernization program. New technologies were rapidly changing the way newspapers could be produced, and Richmond decided to take advantage of them. The company bought computer typesetting equipment, new presses, and photocomposition machinery, which set advertising on photographic film instead of in type. The equipment was expected to save $300,000 to $400,000 a year. The company also added a 42,780-square-foot, five-floor addition to its main office.

By the mid-1960s the Richmond area had grown to about 1.2 million people, and the company's newspapers were read by 90 percent of the community's households--the highest rate of readership in a major U.S. media market. With a circulation of 275,000, Richmond Newspapers not only had the highest newspaper circulation in Virginia, but was 34th in the United States. The Times-Dispatch had 12 news bureaus. The AM radio station was reaching a million listeners during the day by the late 1960s, and nearly 500,000 at night. The firm also owned both daily newspapers in Winston-Salem, North Carolina, and a cable television system in Virginia.

In 1966 the company went public and set about transforming itself from a small newspaper publisher into a media conglomerate. That year it bought a 52.2 percent interest in the Tribune Co. for $17.5 million, plus an exchange of stock. Based in Tampa, Florida, this media company had 1965 revenues of $18.9 million and owned the Tampa Tribune and the Tampa Times, as well as radio stations WFLA AM and FM and the television station WFLA. The television station, an NBC affiliate that began airing in 1955, was the fastest growing part of the operation, with income jumping from $416,000 in 1961 to $1.4 million in 1965. Its broadcasts had a 75-mile radius and reached 1.7 million people. Furthermore, Tampa was one of the fastest growing cities in the United States and was considered a good environment in which to build a media business.

In 1969 Media General, Inc. was formed as a public holding company for Richmond Newspapers and the Tribune Co. Media General then bought an additional 29 percent of the Tribune Company's stock for $9 million. Alan S. Donnahoe, a former statistician and research director who had been with Richmond Newspapers since 1950, was appointed president of Media General. In 1970 the new company bought New Jersey's Newark News and Garden State Paper's newsprint recycling plants from Richard B. Scudder for $50 million in Media General stock. The newspaper soon was closed for a year by an extended strike, however, and when it reopened it was severely weakened. The Newark News lost $3 million in five months before Media General closed it down. The company's loss was mitigated by the fact that it had earlier sold the Sunday edition to the rival Newark Star-Ledger for $20 million. Media General also kept $8 million worth of the News's presses.

Garden State Paper's reprocessing mills in California, New Jersey, and Chicago sold recycled newsprint to 160 newspapers and had patents on its recycling processes. Its cash flow was $27 million in 1970, growing to $32 million in 1971. With recycling becoming increasingly popular, it was expected to continue that growth rate. The recycling plant was so successful that some industry analysts felt that it was the paper plant, not the newspaper, that Media General had been after in the deal.

The 1970s and 1980s: On the Threshold of the Information Age

One of the primary functions of the company's computers and phototypesetters was preparing the News Leader's financial section. In 1971 the company decided that it could use that data to start a strictly financial newspaper. The Financial Daily was printed weekday afternoons in Richmond and flown to major cities along the East Coast. It included financial data on 9,000 securities and 4,000 stocks, as well as news centering on financial interests. When the printers union struck over wages and control of the automated typesetting equipment, Donnahoe bought more computers and the automated printing proceeded.

The Financial Daily continued to lose money, however; it lost $1.5 million during its first months of operation. Although the company spent $300,000 on an ad campaign for the Financial Daily and mailed 400,000 subscription offers, it found only 2,500 people interested in the $165 per year subscription. Rather than continue to support the newspaper, hoping it would eventually break even, Donnahoe soon decided to turn it into the Financial Weekly, lowering the price to $50 a year. When the daily paper went to a weekly format, management transferred the automated printing techniques to the other Richmond newspapers. About 200 printers were replaced by 140 clerks, who were paid an average of $50 a week less than the printers. Impressed with the $750,000 per year the new automation saved in production expenses, the company spent $24 million to automate the Tampa newspapers. It also began selling financial data to money managers, though the Financial Weekly was still losing money in 1973. Garden State Paper was contributing 20 percent of Media General's revenue, and in mid-1973 the firm announced plans to boost its recycling capacity 25 percent to 325,000 tons a year.

In the mid-1970s advertising fell and newsprint costs rose. Many newspaper chains were pinched by these trends, but Media General was able to profit because of its newsprint recycling operations. Not only did they hold down its own costs, but the firm made money selling newsprint to such customers as the New York Times, the Washington Post, and the Los Angeles Times. Garden State Paper accounted for about 40 percent of Media General's $170 million in total revenues. The biggest user of waste paper was the residential construction market, which used tons of fiberboard made from recycled paper. Demand from a home-building boom led to a doubling of the price of waste newsprint in 1973 and 1974, and to ensure Garden State's supply, Media General bought one of the biggest waste paper dealers in New York and signed contracts with several West Coast brokers.

In 1977 Media General, along with Knight-Ridder Newspapers, Inc. and Cox Enterprises, Inc., built a $125 million newsprint mill in Dublin, Georgia. The mill had an annual capacity of 156,000 tons, of which Media General took 20,000. Media General earned $18 million in 1978 on sales of $243.7 million. In 1980 the firm bought Golden West Publishing Corp., a chain of weekly newspapers in southern California, for $8 million. It bought another weekly newspaper publisher, Highlander Publications, for $12.7 million.

In 1982, with afternoon newspapers in steep decline throughout the United States, Media General stopped publication of the Tampa Times evening paper. It also sold WFLA AM and FM to John Blair & Co. for $14 million. Cable television was becoming a huge market, however, and Media General won a 15-year cable franchise in affluent Fairfax County, Virginia, near Washington, D.C. The cable system was a $120 million investment. In 1982, newspapers and publishing accounted for 42 percent of company profits, newsprint accounted for 45 percent, and broadcasting accounted for 13 percent.

Also in 1982, Media General bought William B. Tanner Co., a Memphis-based media buying service, for $36 million. The Tanner Co. served 200 large advertisers and about 6,000 broadcast outlets. In 1983, William Tanner was charged with income tax fraud, mail fraud, and accepting kickbacks, and federal law enforcement agents searched Tanner's premises for documents relating to the charges. Consequently, Tanner stepped down, and Media General took direct control of the company, renaming it Media General Broadcast Services. Tanner eventually pleaded guilty and went to jail, but Media General was cleared of any wrongdoing. Nevertheless, the broadcast unit was seriously hurt by the episode. Sales plummeted, and Media General Broadcast began losing between $2 million and $6 million a year.

In 1983 Media General bought television stations in Jacksonville, Florida, and Charleston, South Carolina. In 1984 Donnahoe, who was 68, retired and was succeeded by James S. Evans, who joined the firm in 1973 as a vice-president. Revenue for 1984 was $507.8 million.

In 1985 the company ceased publication of the afternoon Winston-Salem Sentinel. Its sister paper, the profitable morning Journal, expanded its coverage, started a new weekly business section, and absorbed most of its staff. Also in 1985, Media General acquired 40 percent of Garden City Newspapers Inc., the troubled newspaper publisher that the firm hoped to turn around.

After the stock market crash of 1987 a group of investors led by Hollywood producer Burt Sugarman bought about ten percent of Media General's stock. In 1988 the group offered first $1.57 billion and then about $2 billion for the company shares they did not already own. Media General management was able to refuse the takeover offer because the company had been created with two kinds of stock. The owners of the Class B stock, mostly the company's management, were given veto power over any takeover attempts. Sugarman challenged the legality of the A and B structure, but a judge upheld it, and, in the end, Sugarman sold his stake back to Media General for $100 million. Of this, $44 million was in cash and $56 million was represented by interest in the Pomona, California paper mill.

In 1988, the company sold Media General Broadcast Services to its management. Broadcast was still losing money, and Media General took a charge against earnings to cover the sale. In 1989, five Media General insiders sold about 50 percent of their stake in the company. The five said that they were selling for tax purposes, but some industry analysts felt that the move was related to a downturn in advertising and media, as well as the recent loss of the Pomona paper mill. The company also sold its recently acquired weekly newspapers at Highlander Publications and Golden West Publishing. The company made $20.7 million in 1989 on sales of $595 million.

Newsprint operations accounted for 47 percent of company profits in 1987. Although in 1990 the company decided to sell Garden State's recycling mill in Garfield, New Jersey, as part of a strategy to concentrate on its communications properties, management soon changed its mind and took the mill off the auction block before it was sold. The company had a difficult year in 1991, losing $62 million, in part due to a decline in sales prompted by the recession and in part due to a sharp increase in capital expenditures. The recession hampered advertising sales at the company's own newspapers and also hurt sales of recycled newsprint, since other newspapers were printing fewer pages. The recession seriously hurt the debt-laden Garden City Newspapers, and Media General wrote off its investment and took a $78.3 million charge against earnings.

In May 1992 publication of the 104-year-old Richmond News Leader ceased. An afternoon paper, its circulation had sunk to less than 100,000, while the morning Times-Dispatch was thriving. The News Leader was merged into the Times-Dispatch, and 44 of the two newspapers' 1,100 employees were laid off.

A New Strategy for the 1990s

With newsprint costs rising steadily throughout the early 1990s&mdash′ices rose 40 percent over the course of 1994--CEO J. Stewart Bryan III felt it was time to narrow the company's focus. In 1995 Media General embarked on a series of acquisitions and divestitures designed to redirect the company's energy into its holdings in the Southeast. The first major deal occurred in September of that year, when Media General purchased 27 Virginia newspapers, four of which were dailies, from Worrell Enterprises, Inc. In July of the following year the company reached a merger agreement with Park Acquisitions, Inc. worth more than $700 million. The purchase gave Media General 28 new daily and 82 new weekly newspapers, in addition to ten new TV affiliates. With this expansion of its regional broadcasting operations, the company now owned 22.1 percent of the television market in the Southeast. In all, over the course of 18 months Media General spent more than $1 billion buying and selling media outlets, doubling its holdings in the region in the process. The company also suffered a net loss of more than $10 million in 1997.

Not all of the company's shareholders supported Bryan's new business strategy. In early 1998 Mario Gabelli, a money manager based in Rye, New York, whose group controlled more than $290 million of Media General's Class A stock, requested an opportunity to nominate new members to the company's board. In Gabelli's opinion, the company needed to halt its acquisitions and capitalize its cable holdings to get back into the black. The Bryan family still owned the majority of Media General's Class B stock, however, which gave it greater power in board decisions, and Gabelli's request was ultimately denied. In certain respects, Bryan's strategy seemed to be working; Media General's stock reached an all-time high in March 1998.

The company continued to keep busy throughout the following year. In June 1998 it sold off its Kentucky newspapers, acquired in the Park Acquisitions deal, for $254.8 million, and in July it reorganized its publishing division to establish a stronger focus on community newspapers in Virginia and North Carolina. In April 1999 it sold its Fairfax County cable TV holdings to Cox Enterprises for $1.4 billion, officially exiting the cable industry. Much of this money was reinvested the following December, when Media General purchased Spartan Communications for $605 million. The acquisition added 13 South Carolina television stations to the company's holdings, ten of which were CBS affiliates--making Media General the second largest CBS affiliate in the country.

Immediately following the Spartan Communications purchase, Mario Gabelli entered the scene once again, with a proposal to establish a new rule that would prevent Media General from making acquisitions worth more than $25 million without the unanimous approval of the board. He petitioned to have this proposal included in the next proxy statement to the shareholders; the board's majority refused his request. In February 2000 Gabelli again attempted to nominate two new members to the board, but because his letter of intent failed to explain his interests in the nomination, as required in the company's bylaws, his nominations were once again ignored. In May 2000, all nine of the company's current directors were reelected.

Media General once again ran into hard times toward the end of 2000, when its third quarter earnings fell below expectations, causing a dip in the company's stock. The acquisition of Spartan Communications, however, had increased Media General's share of the region's broadcast television market to 30 percent, and its long-term goal of becoming a major media outlet in the Southeast remained firmly in place heading into the 21st century.

Principal Competitors: Cox Enterprises, Inc.; Gannett Co. Inc.; Knight-Ridder Newspapers, Inc.

Chronology

• Key Dates:

• 1879: Bryan family forms Dispatch Co.
• 1896: Dispatch Co. acquires Richmond Leader.
• 1903: Richmond Leader merges with rival newspaper to form News Leader.
• 1937: Dispatch Co. establishes its first AM radio station.
• 1940: Dispatch Co. is renamed Richmond Newspapers Inc.
• 1964: Richmond Newspapers begins three-year modernization program.
• 1966: Richmond Newspapers goes public and acquires a majority interest in the Tribune Co.
• 1969: Media General, Inc. is formed as a holding company for Richmond Newspapers and the Tribune Co.
• 1982: Tampa Times stops publishing evening edition.
• 1992: News Leader ceases publication.