Central Newspapers, Inc.

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Central Newspapers, Inc.

135 N. Pennsylvania Street
Indianapolis, Indiana 46204-2400
U.S.A.
(317) 231-9200
Fax: (317) 231-9208

Public Corporation
Incorporated: 1934
Employees: 4,500
Sales: $470 million
Stock Exchanges: New York
SICs: 2711 Newspapers; 6719 Holding Companies Nee.

Central Newspapers, Inc. (CNI) is one of the 25 largest media companies in the United States. CNI and its subsidiaries publish and distribute popular newspapers in Indiana and Arizona, including the Indianapolis Star, the Indianapolis Business Journal, the Phoenix Gazette, and the Arizona Republic. The company also owns an interest in a newsprint mill in Usk, Washington.

The first edition of the Indianapolis Star was published on June 6, 1903. Among its contents were general stories on promised tax cuts by national politicians, reports of bad weather and serious flooding, stories on environmental damage to local waterways caused by manufacturing wastes, baseball scores, and charges of local political fraud. Other news in this first issue, however, was more reflective of the sensational journalism of the period. For instance, in one story, young William Hulyert, of Lawrenceburg, Indiana, was found buried up to his neck in clay in his backyard; a “voodoo woman” had reportedly buried Bill in an effort to cure his measles, and passersby were alerted to the boy’s plight when a pig chewed off Bill’s ear, and he screamed for help. Another article told of Anna McDonald, of Fort Wayne, who was suing the Poor Housemaids of Christ for $5,000, as a hot water bottle applied to her foot while she was under anesthesia had roasted off her flesh. Such stories proved popular, and citizens clamored for daily regional newspapers during the early 1900s, setting the stage for the entrance of the media moguls that arose throughout that period.

The Indianapolis Star remained the sole source of statewide news in Indiana until the Indianapolis News commenced publication in 1934. Publishers of the News hoped to benefit from the growing popularity of newspapers and the demand for an alternative viewpoint to that offered by the Star. The News and Star both increased subscribership during the 1930s and 1940s. Boosting readership during that period were: a drop in the cost of printing and distributing newspapers, which was largely the result of automation and new printing technologies; swelling urban populations; rising U.S. literacy rates; and the increasing influence of national and overseas events on the lives of many Americans.

Achieving a lock on the Indianapolis regional newspaper market, Central Newspapers Inc., incorporated in 1934, purchased the Star and the News in 1945 and 1948, respectively, under the direction of owner and publisher Eugene C. Pulliam. The Pulliam family would eventually dominate one other U.S. newspaper market, that of Phoenix, Arizona. Active in the Phoenix market since the 1930s, CNI published The Arizona Republic and the Phoenix Gazette. The Arizona Business Gazette was added to CNI’s holdings in the late 1980s.

During the 1940s, a holding company, Central Shares Inc., was formed for the sole purpose of owning stock in CNI and was controlled by members of the Enid Goodrich family. Although CNI’s newspapers dominated the market in Indiana and Arizona throughout the mid-1900s, CNI and the Pulliam family kept the company’s financial and historical data private throughout most of the century. Because CNI was privately owned and all voting (class B) stock was held by the Pulliams, CNI was not required to divulge sales and profit data.

Nevertheless, the holding company’s publications in both Phoenix and Indianapolis had clearly achieved a significant degree of success by the 1980s. The Indianapolis Star, for example, reached a circulation of 233,000 on weekdays and 350,000 on weekends during 1985. Weekly subscriptions that year were priced at $2.05 per week, resulting in apparent revenues of more than $500,000 each week from that publication alone. Circulation of the Indianapolis News was approximately 125,000, while sales of The Arizona Republic and the Phoenix Gazette roughly mirrored estimated revenues of the Indianapolis holdings.

When founder Eugene C. Pulliam died in 1975, after 31 years of leadership, he placed majority control of the stock in an irrevocable trust. Eugene C. was survived by his wife, Naomi, and their son, Eugene S., who became executive vice-president of CNI. The Eugene C. Pulliam Trust encompassed about 71 percent of the class B, or non-trading, stock, and Naomi Pulliam held 82 percent of all non-trading CNI stock.

In 1985, the Indianapolis Business Journal (IBJ), lacking cooperation from CNI management, sought to estimate the value of CNI’s holdings. With help from consultants at two major brokerage firms, the IBJ estimated the value of all CNI’s holdings at $746 million. CNI President Frank A. Russell commented in the September 9, 1985 issue of IBJ that “Formulas are fine.. . . But in the end, price depends on how bad the buyer wants to buy and how bad the seller wants to sell. There’s a lot of bargaining before a price is finally hammered out.” Eugene S. Pulliam declined to comment on the estimate, explaining “We don’t make our results public,” in the March 1988 issue of Indiana Business.

However, many of the answers to outsiders’ queries about CNI’s financial performance were answered later that year, when CNI went public with a stock offering. According to the Pulliams, the purpose of the offering was to create a market for CNI’s holdings and to establish its value to owners and creditors. Shares of class A (non-voting) stock, owned by Central Shares, were sold, and CNI was obligated to divulge financial data to the public. In documents filed with the Securities and Exchange Commission, CNI reported net income of $38.5 million in 1989 from revenues of $436.2 million, the largest revenue and earnings figures in its 55-year history. This represented increases from $29.3 million in net income in 1988 and $32.8 million in 1987.

However, positive earnings and sales growth belied overall newspaper industry woes. Although revenues were up, the Republic’s readership grew a meager three percent in 1989, while the Gazette’s circulation dipped five percent. Furthermore, total advertising space dropped a disheartening 20 percent between 1987 and 1989. Similarly, circulation in the Indiana market fell 1.3 percent in 1989.

During this time, much of the newspaper industry faced a prolonged battle to retain subscribers and advertisers, as newspapers were increasingly losing readership to alternative media forms. In particular, the retail industry, which was the newspaper industry’s largest advertising revenue source, was making a transition to other media forms. As a result, many publishers faced decreased earnings growth and industry consolidation.

Nevertheless, CNI entered into the 1990s poised for growth. While CNI was susceptible to many of the negative trends facing industry participants, it had several advantages over its competitors. Chief among those were demographic trends in both its geographic markets. Metropolitan Phoenix, for example, was the fourth fastest growing U.S. metro area in the early 1990s and was expected to become the nation’s 16th largest by 1997. Moreover, CNI’s irrevocable trust, established by Eugene C. Pulliam, precluded CNI’s acquisition until well into the 21st century. “We get approached every now and then,” said William A. Dyer, CNI’s former general manager, in the September 9, 1985, IBJ, “but for the most part the word is out that the Pulliam papers can’t be sold.”

In addition to favorable demographics and regional market dominance, savvy management helped CNI minimize the effects of negative industry trends. For instance, CNI moved early to capitalize on the trend toward insert advertising, in which advertisements and coupons were inserted in newspapers delivered to specific demographic niches. In 1992, in fact, CNI opened a $130 million high-tech printing plant in Phoenix capable of producing high-quality inserts and providing greater efficiency and quality for its standard newsprint activities. Similar facilities were under consideration in Indianapolis in the mid-1990s. Such new production facilities, as well as management restructuring, had allowed CNI to reduce its workforce and increase its productivity.

CNI also sought profit growth through acquisition. In its first major newspaper purchase since 1948, CNI purchased Topics Suburban Newspapers Inc. of Noblesville, Indiana, in 1992. Topics was a publisher of 15 newspapers sold primarily in the lucrative north Indianapolis market. Although CNI did not disclose the purchase price, Topics added 97,000 readers to CNI’s existing 500,000 subscriber base in Indiana. The acquisition distressed owners of smaller papers who feared CNI’s growing strength. Jack McCarthy, publisher of the Hendricks County Flier, remarked in the November 23, 1992 issue of IBJ: “Thank God we have anti-trust laws in this country. ... I have every confidence they won’t [violate anti-trust laws], but just the same, I’m thankful small businesses have laws to protect them when I hear of acquisitions like this.”

CNI sales and earnings increased throughout the early 1990s. The holding company’s revenues jumped to $420 million in 1991, $434 million in 1992, and $467 million in 1993—the result of sales growth in both advertising and circulation. Similarly, operating income climbed 37 percent during that period, to $66 million. Furthermore, net assets rose 15 percent to about $465 million. CNI’s price increases were the main factor in overcoming sluggish subscription growth—circulation for the News actually fell to 83,000 in 1994, while daily circulation of the Star remained at near-1985 levels. In addition, increased sales of Sunday editions buoyed subscription earnings.

Not all of CNI’s ventures had been entirely successful, however. For example, the company’s 13.5 percent interest in the Ponderay Newsprint Co. produced losses of $4.5 million in 1990 and $3.1 million in 1991. CNI originally invested in the plant with the intent of saving money on the cost of newsprint. However, oversupply, spurred by excessive Canadian imports, resulted in falling newsprint prices. “There’s no way we could have looked into the crystal ball and seen that happening.... It was a bad deal,” commented CNI Treasurer Wayne D. Wallace in the April 13, 1992 IBJ.

In the early 1990s, CNI demonstrated a commitment to the communities in which it operated. For example, Phoenix Newspapers, Inc. (PNI), CNI’s Arizona subsidiary, launched the PNI Season for Sharing Fund in 1993 to raise money primarily for agencies that served children, but also for the homeless, the elderly, and the hungry. The effort garnered $790,000 in contributions from 10,800 individuals, which, when combined with corporate donations, totaled $1.58 million. Indianapolis Newspapers, Inc. (INI), CNI’s Indiana subsidiary, was engaged in similar charitable and civic pursuits. “The first duty of citizenship is useful service to one’s local community, and the newspaper wants to be a good citizen,” stated the company’s 1993 annual report.

In the mid-1990s, CNI worked to take advantage of shifting demographics and evolving trends in advertising. Much of its emphasis was on tailoring its newspaper distribution system to accommodate new niche marketing techniques. Toward that end, CNI introduced Indianapolis Market Penetration and Custom Targeting (IMPACT) in 1993, which allowed advertisers to select either targeted or complete coverage in Star and News markets. Similarly, AdSnap, a multi-media marketing package, was introduced in Arizona to help real estate agents prepare print ads. Other management strategies focused on increased manufacturing productivity and quality as well as more efficient distribution.