Cowles Media Company

1903–1998

Until the late 1990s, Cowles Media Company stood as one of the nation's leading independent newspaper publishers. That status ended in November 1997, when the Cowles family, which owned more than half of the firm's voting equity through a trust, surprised many observers by agreeing to sell the company to Sacramento, California-based McClatchy Newspapers Inc. for $1.4 billion. In an effort to recoup some of the purchase price, McClatchy planned to divest the Cowles Enthusiast Media Inc. and Cowles Business Media Inc. subsidiaries to Primedia Inc. for $200 million in January 1998. Another subsidiary, Cowles Creative Publishing, included affinity books and magazines for do-it-yourselfers and outdoor enthusiasts. McClatchy hoped to divest this division as well.

The spin-offs would leave McClatchy with Cowles's "crown jewel," the Minneapolis Star Tribune. Ranked among America's top 20 metropolitan dailies, the "Strib's" 387,300 daily and 678,000 Sunday circulation had generated an estimated 66 percent of Cowles's total revenues. In addition to being Minnesota's largest newspaper, the Star Tribune's trophy case included a Pulitzer Prize and three Robert F. Kennedy awards. The acquisition, which McClatchy expected to close by the end of March 1998, made the California firm one of America's top ten newspaper companies, with a daily circulation of 1.4 million.

Early 20th-Century Foundations

For most of its history the family enterprise had existed as two separate companies that shared board members and heritage. A banker by trade, founder and namesake Gardner Cowles formed the Register & Tribune Co. in 1903 to acquire Iowa's Des Moines Register for $300,000. Sons Gardner "Mike" Cowles, Jr., and John struck out on their own in the 1930s. John's business, the Minneapolis Star & Tribune Co., came to dominate that city's newspaper market through the purchase of three publications: the Minneapolis Star, an afternoon daily; the Minneapolis Journal; and the morning Minneapolis Tribune. Mike spearheaded the creation of Look, a photojournalistic magazine along the lines of Life, in 1937. The family also added radio stations to its growing media conglomerate during the Depression. Over the ensuing decades the family added a number of less significant and less successful media holdings, including community newspapers, magazines, and broadcasters throughout the Midwest.

John Cowles's 1968 retirement proved a watershed in the history of the family business, for as Time magazine noted in a brief obituary of the media magnate, "The Minneapolis Star & Tribune Co. [then] began a long decline." When he ended his career, the Cowles companies--Iowa's Register & Tribune Co. as well as the Star & Tribune Co.--were ranked among America's ten best. But by the early 1980s the family media empire was on the verge of oblivion.

Decline of Star & Tribune Co. in the 1970s

This heavy debt load, coupled with rising interest rates, shrunk the Iowa company's net income from $8.6 million in 1978 to $423,000 in 1981.

1971–1983

Son John Cowles Jr. captained the Minneapolis firm's plunge. The Harvard-educated heir soon earned a reputation for having more intellect and ambition than business acumen. Over the course of the 1970s, John, Jr., guided the Star & Tribune's acquisition of one-third of book publisher Harper & Row, 50 percent of Harper's magazine, and perhaps most disastrously, the morning Buffalo Courier-Express (New York) in 1979. Harper & Row struggled to break even throughout the decade, Harper's lost $3 million in the late 1970s, and the Courier-Express bled $25 million in red ink before John Jr. shuttered the paper in 1982.

Turning his attention to the two Minneapolis newspapers he had inherited, Cowles found them chronically overstaffed. Profits were squeezed by the twin demons of inflation and recession. Though revenues increased from $159.7 million in 1979 to $237.7 million in 1982, the Minneapolis company's net income declined from $12.2 million to a measly $747,000 during the period. John Jr. plowed millions into the struggling afternoon Star, then opted instead to cut costs. An early retirement program softened the impact of massive staff reductions at both the Star and the Tribune. In desperation, John Jr. merged the two Minneapolis papers in 1982 and renamed the company Cowles Media. The marriage eliminated more than 100 employees, but even that move was not enough to stop the earnings slide. That October, the company slashed another 75 people from the payroll, prompting Strib editor Charles Bailey's resignation. A month later, John Jr. canned publisher Donald Dwight and installed himself in that capacity.

Amid all this upheaval, members of the Cowles family (who through a trust and board membership controlled a majority of the privately held companies' voting shares) flirted with the idea of merging the Minneapolis and Iowa publishing entities (which already had cross-shareholdings). Instead the family-dominated board voted unanimously to oust John Jr. and elect his cousin, David Kruidenier, chairman of the Register & Tribune Co. (R&T), to Cowles Media's chief executive office in January 1983.

Decline of Register & Tribune in the 1970s

Kruidenier's record at R&T was not much better than that of his Minneapolis cousin. In 1971 he, too, had inherited a profitable, cash-rich newspaper company. An acquisition spree included the Jackson (Tennessee) Sun, an Illinois television station, and two Madison, Wisconsin radio stations. While these purchases proved successful, the 1978 acquisition of McCoy Broadcasting, a broadcaster with a television station in Honolulu and two stateside radio stations, pushed Register's debt over the $40 million mark. This heavy debt load, coupled with rising interest rates, shrunk the Iowa company's net income from $8.6 million in 1978 to $423,000 in 1981. The decline culminated in a pretax loss of $1.6 million in 1982, the company's first in its eight decades under the Cowles family.

Having gained control of both of the Cowles family enterprises, Kruidenier began to retreat from his earlier diversification strategy, divesting $17 million in broadcasting and publishing properties and merging the two flagship Iowa newspapers in 1982. Kruidenier managed to squeeze a meager profit from R&T in 1983 before coming under a hostile takeover organized by two of his own lieutenants, Register president Michael Gartner and publisher Gary Gerlach. In cooperation with Dow Jones & Co. (publisher of The Wall Street Journal), these two board members brought a $112 million bid for the Des Moines newspaper and its assets. The proposal placed the entire Cowles family empire in jeopardy, for a sale would put 14 percent of Cowles Media under Dow Jones's control. At the same time, dissident shareholder Kingsley Murphy Jr. put his 17 percent stake in Cowles Media up for sale.

1983–1997

The threat was diffused early in 1985, when Gannett Co. brought a $200 million offer for the Des Moines Register, the Tennessee newspaper, and two Iowa weeklies. That March, Murphy sold his stake in Cowles Media to The Washington Post Co. for an estimated $5 million. Acting as an investor, not an acquirer, The Post increased its Cowles holding to more than 28 percent by the mid-1990s, while Gannett retained its 14 percent interest.

Successful Rediversification: Late 1980s and Early 1990s

Strib publisher Roger Parkinson, who had been promoted to that position in 1983, oversaw the mid-decade construction of the paper's Heritage Center printing plant at a cost of $110 million. The publisher also positioned the Star Tribune as the "Newspaper of the Twin Cities," expanding its editorial, advertising, and circulation reach into St. Paul. Expanded business, suburban, and sports coverage widened the paper's "news hole" and special telephone and fax services diversified the paper's access points and brand equity. Over the course of the decade, Parkinson reduced employment by about 250 through early retirement packages. Parkinson resigned in 1992 and was succeeded by Star Tribune editor Joel Kramer.

In 1985 Kruidenier was succeeded as president and CEO of Cowles Media by David Cox. Over the course of his more than a decade at the helm, Cox was able not only to return the company to a pattern of growth and profitability, but also to rebuild its peripheral interests. After divesting Montana and South Dakota newspapers, the parent company formed Cowles Business Media Inc. in 1990. With an emphasis on publishing, direct marketing, travel, information technology, and telecommunications, the CBM roster would grow to include Cable World, Folio, Catalog Age, and American Demographics. By the mid-1990s CBM boasted more than one dozen magazines, on-line services, newsletters, and related conferences and organizations. Cowles Magazines Inc. (later Cowles Enthusiast Media) focused on niche and special interest publications like Southwest Are, Fly Fisherman, Vegetarian Times, American History, and Doll Reader. By 1997 this subsidiary would include more than two dozen magazines with a combined circulation of three million. Cowles also formed a video division in 1993 to produce programs based on its special interest magazines for cable television. Concepts included the Wild West, Military History, and American History in general.

Cowles Creative Publishing was spun off from Cowles Enthusiast Media in 1997 to publish affinity books and series for the do-it-yourself, recreation, and "home arts" markets. These publications were often produced in cooperation with companies like Singer, the sewing machine manufacturer, and the Black & Decker tool company.

1997 Acquisition by McClatchy

1988–2007

The 1997 fiscal year (ended March 31) saw Cowles surpass the half-billion revenue mark and achieve record earnings of nearly $30 million. Perhaps sensing a high water mark for newspaper company valuations, the Cowles family put its Midwest media empire up for sale that September. Rivals for the paper reportedly included The Washington Post Co., which already owned a 28 percent stake in Cowles, Gannett Co., with another 14 percent share, the Chicago Tribune Co., the New York Times Co., and McClatchy Newspapers Inc. McClatchy surprised many observers by bringing a $1.4 billion winning offer, a bid 50 percent higher than financial analysts had predicted. The megadeal ranked third among newspaper purchases up to that time.

Controlled for five generations by the McClatchy and Maloney families, the company had gone public in 1988 but continued to be majority owned by the clans. By 1997 McClatchy was a decentralized group of ten daily newspapers and 13 community papers in California, Alaska, the Pacific Northwest, and the Carolinas.

The widely publicized deal came with several strings. McClatchy agreed to honor the Cowles family's philanthropic obligations to the tune of $3 million per year through 2007 and took on CMC's $90 million debt obligations. In total, the acquiring company shouldered $1.3 billion in long-term debt. Though the Cowles family required that McClatchy purchase the entire media group, the latter company quickly arranged to spin off virtually everything but the Star Tribune. Early in 1998 McClatchy announced its plan to sell Cowles Enthusiast Media and Cowles Business Media to Primedia Inc. for $200 million.

Investors showed their disapproval of the deal by sending McClatchy's stock down 14 percent on the day after the agreement was made public. A few of the negative influences on the newspaper industry included declining readership, especially among the young, correspondingly decreasing circulation rates, and the escalating price of newsprint, which rose by nearly one-third in 1995 alone. Nonetheless the acquiring company's CEO, Gary Pruitt, hailed the purchase as "a rare opportunity for McClatchy to obtain a quality newspaper while adding geographic diversity in a premiere growth market." Moreover, Folio (a Cowles publication) noted, "McClatchy has made its reputation by paying a premium for quality newspaper properties and improving profitability to get the number to make sense." One way to improve profitability was to cut labor costs, and the new parent company expected to eliminate about 40 executives during the merger.

McClatchy expected to close the Cowles acquisition by the end of March 1998. The addition of the Star Tribune to its roster of newspaper properties would increase the California firm's revenues to nearly $1 billion, making it one of America's top ten newspaper companies with a daily circulation of 1.4 million. After the divestments, McClatchy expected to rename the subsidiary as the Star Tribune Co.