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Paper Profits

CENTER SUPPORTERS: Publisher Georgia Kaney and CEO Tippen Davidson in the News-Journal Center. The newspaper paid $13 million for naming rights to the center.
In the mid-1960s, an International Wire Service reporter covering spring break in Daytona Beach declared the place a haven for "sex, sand and suds." The moniker appeared in newspapers and magazines around the world, and it stuck.

Along with other city leaders, Tippen Davidson, then general manager of the Daytona Beach News-Journal, which his father and grandfather had purchased in 1928, was desperate for his community to be known for something more. Passionate about the arts, he brainstormed a campaign to write 100 letters to the top cultural institutions in the world, inviting them to Daytona.

Receiving only one encouraging response, he used the newspaper to bankroll an unlikely visit: To the racy town where cars zoomed on the hard-sand beaches as well as the Daytona International Speedway, Davidson brought the London Symphony Orchestra in 1966. And to this day, every two years, the symphony pays a two-week visit to Daytona in a clash of cultures that has violinists visiting biker bars and bikers taking in Brahms.

To Davidson, now CEO, president and co-editor of the News-Journal, that's the proper role for a newspaper. The News-Journal, he says, "has worked long and hard to counter the downscale image that is projected by the rowdier aspects of special-event tourism in our community," such as Bike Week, Spring Break and the Daytona 500.

Such paternalistic gestures were typical for newspapers when they tended to be family owned. But a wave of consolidation that began around the turn of the 20th century has seen ownership shift into the hands of chains. By 2002, 69% of daily newspaper circulation was owned by the 22 largest newspaper groups.

The ninth-largest daily newspaper in Florida, the News-Journal likes to brag that it is the only large family-owned daily in the state, but that is not entirely true. The Davidsons bought majority ownership in 1928, but a little less than half of the shares remained with a partner who sold out to a competitor. He eventually sold to Perry Publications, owners of the Palm Beach Post. In 1969, Cox Newspapers bought the Post, and with it 47.5% of shares in the News-Journal.

The paper "has worked long and hard to counter the downscale image that is projected by the rowdier aspects of special events in our community," Tippen Davidson says.Executives at Cox, a 42-newspaper conglomerate with $12 billion in revenue, were never thrilled with the Davidsons' management of the News-Journal and over the years tried to buy out the family. The Davidsons always refused.

Until 2004, Cox decided it could live with the dividends the Davidsons generated -- about $25 million since 1969. But then, in a journalism trade publication, Cox executives read a short article critical of Tippen Davidson. The article charged he had unethically squeezed members of the Volusia County Council to cough up more money for a new performing arts center. The article mentioned that the News-Journal was paying some $13 million in exchange for naming rights, nearly half the cost of the $29-million center.

For Cox executives, it was the final indignity in a partnership in which they say they were routinely ignored. They say the Davidsons never told them about the $13-million expenditure, that it was way out of line with the paper's overall balance sheet and an illogical use of marketing money. In May 2004, Cox sued the News-Journal and its directors, alleging they had slighted Cox's financial interest. Tippen Davidson, the lawsuit says, "has operated the News-Journal Corporation as a virtual personal fiefdom."

The News-Journal failed to get the suit dismissed. It then exercised an option to buy out Cox, setting up a fight over the "fair value" of Cox's shares.

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.