Paper Profits

PET PROJECT: The arts center includes an 850-seat theater that will be home to the Seaside Music Theater, founded by Tippen Davidson and managed by his daughter.

Family values

U.S. District Judge John Antoon II has the difficult task of determining fair value. During a nine-day trial in his Orlando courtroom in December, Cox and the
Davidsons painted widely divergent pictures of the paper's role and value.

There was no shortage of irony on both sides: The Davidsons had to argue that the paper they've nurtured isn't really very valuable -- they say Cox's shares are worth only $29 million. Cox executives, even as they questioned the Davidsons' stewardship, had to argue that their shares have soared to a value of some $145 million.

Cox, of course, bases its estimate on how profitable the News-Journal would be if it were run like public newspaper companies. Newspaper appraiser Owen Van Essen, an expert witness hired by Cox, said the paper should earn a profit margin of 28% -- the unweighted average of public companies he surveyed, Van Essen says -- rather than its average 12%. "You'd be surprised," he testified, "by how significantly that number could be ratcheted up without readers noticing."

Such statements made it easy for the News-Journal's lawyer, Bruce A. Hanna of Daytona Beach, to portray a battle of a family-owned newspaper against a corporate Goliath that would sell its soul. "How many News-Journal employees would have to be fired to suit you?" he roared at Van Essen.

In fact, trimming payroll is often the first order of business when a family paper goes corporate. Last year, for example, on the day that Paxton Media took possession of North Carolina's Herald-Sun in Durham after buying it from a family, the company dismissed nearly a quarter of the staff. The News-Journal's valuation trial came at the end of a year in which more than 2,000 newspaper jobs were cut in response to rising costs and declines in circulation.

News-Journal Publisher Georgia Kaney says she thinks it's no accident that her newspaper's circulation is growing -- counter to national and statewide trends. "We are convinced that one significant, and ultimately sufficient, cause of the decline of newspapers will be the cheapening of the newspaper in the temporary pursuit of a profit margin," she says.

While ruthlessly corporate in the courtroom, Cox has a reputation for above-
average news investment and quality. And if the trial highlighted the bottom-line fixation of corporate newspapering, it also exposed the incestuous power a family-owned paper can wield in a community.

Members of the News-Journal's board of directors -- Tippen Davidson, his daughter, Julia Truilo, Kaney, and her husband, Jonathan Kaney, who's the paper's lawyer -- all were involved in the non-profit corporation formed for the purpose of building what's now called the News-Journal Center, which was set to open last month. When one of the Volusia commissioners didn't vote as promised, Jonathan Kaney called him "a dead man walking."

Now 80, Tippen Davidson makes no apologies for his decades of spending corporate funds on the arts. He's lived to see Daytona's "sex, sand and suds" reputation begin to give way, and the performing arts center has helped sparked revitalization in the nearby downtown historic district.

Davidson still has the moxie he showed in inviting the symphony to town: When Cox executives first complained about the News-Journal Center deal, he wrote them they could have read about it in the newspaper. He even hit them up for a donation, with possible naming rights to a "significant element of the building."

The prevailing economics of the newspaper business will likely catch up with the Davidsons one way or another, however. Unless Judge Antoon puts an extremely low value on Cox's shares, the Davidsons will likely have to find a new investor or borrow heavily to pay off Cox. In the end, they may have to operate a leaner, more Cox-like paper to make good on the debt.

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