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Below the Fold
With a corporate mindset dominating today's newspaper industry, Sentinel employees worry that the news is becoming just a way to sell ads

  Penny Press to Media Empire

E.W. Scripps and the News-Sentinel rose from meager beginnings to $197 million in annual profits

by Joe Tarr

The Knoxville Sentinel was founded in 1886 by John T. Hearn, a Kentucky newspaper publisher who happened through Knoxville one day. Hearn was surprised to find the city had two morning papers but no afternoon edition, and a saw an opportunity to start one, according to A Century of Front Pages, by Stephen V. Ash—a book produced by the Sentinel for its 100th anniversary.

The first issue was published on Dec. 23, 1886, and included the statement, "Believing that Knoxville has a future, we shall use every effort to advance the material interests of Knoxville and East Tennessee," according to Ash.

The paper changed hands a number of times before Scripps Howard bought it in 1926. Combining it with the Knoxville News, which Scripps already owned, the News-Sentinel was born. The new owner boasted that it would be "the largest and best newspaper that the people of Knoxville and the Knoxville territory have ever had," Ash wrote.

Scripps Howard—or E.W. Scripps Company, as it's known today—traces its roots to 1878, when Edward W. Scripps opened a paper in Cleveland, Ohio. Named the "Penny Press" for its price tag, the paper was targeted at the city's working population. Scripps quickly started newspapers in other cities.

Contrary to today's media environment, Edward Scripps worked in a spirit of competition. In 1907, he started United Press International wire service to challenge the Associated Press. At the time, the AP had a policy of signing exclusive deals with newspapers in each city—a practice that discouraged competing papers from starting up.

In the 1930s, the company started several radio stations and in the 1940s, it opened television stations. In the 1950s, the company branched out even further, syndicating the Peanuts comic strip. The company began offering stock to the public in 1988, although the Scripps family retained controlling interest.

In the 1990s, Scripps has moved into cable television programming—operating the Home & Garden Network (based in Knoxville) and the Food Network. In September, it will launch the Do-it-Yourself network (also based in Knoxville).

In recent years, the Sentinel's biggest competition came from the Knoxville Journal, a paper owned by Gannett—the country's largest newspaper chain. For many years, the two published under a joint operating agreement—sharing office and production facilities. The Sentinel remained an afternoon paper until 1986, when it took the morning spot and forced the Journal to become an afternoon paper. The smaller of the two papers, the Journal would have had to buy its own production facility and enter a full-fledged newspaper war had it refused to become the afternoon paper.

The Journal eventually folded in 1991. The victory gave the Sentinel a 22,000 circulation boost, and pushed it into the 100 largest papers in the country at 88, according to Editor & Publisher, a trade journal covering the newspaper industry.

Circulation peaked in 1994 at 128,000—and since then has steadily been dropping. In 1998, daily circulation was 121,900, a 5 percent drop since 1994. Sunday circulation has dropped 8 percent since '94 to 162,800.

What's happening at the Sentinel isn't an anomaly. Circulation at E.W. Scripps' 19 daily papers dropped 9 percent in the last five years and papers around the country are slowly losing readers.

John Morton, a financial analyst who has followed the newspaper industry for years, says too many different media are vying for people's attention. "Newspapers are facing increasing competition from other media, including from the Internet. The practice of becoming devoted newspaper reader as you get older has really diminished."

In 1970, 77.6 percent of all adults read a newspaper daily, according to the Newspaper Association of America. In 1997, that number had dropped to 58.7 percent.

Despite the drop in readership—and the ballyhoo surrounding mediums like the World Wide Web—newspapers continue to be the largest way of disseminating information, according to the newspaper association. More adults get their news from papers than from any other information medium.

For that reason, they continue to make an awful lot of money.

Newspapers are the most profitable of Scripps' ventures—earning the company $197 million—71 percent of the company's profits—in 1998. That was a profit margin of 22.7 percent, better than the industry average of 20 percent.

The newspaper industry in general has a profit margin two to three times higher than most Fortune 500 companies make, Morton says. The reason is that their production costs are relatively low compared to other industries, Morton says.

"It's because they manufacture most of their product and content in-house. Compare them with a department store," Morton says. "A department store buys goods from wholesalers. Wholesalers buy their stuff from manufacturers. Manufacturers have to buy the raw materials. Everyone of those levels has a profit margin built into it. By time you get to the department store, you're left with very low profit margin."

Advertising income both nationally and at Scripps papers has been climbing. In 1998, Scripps 19 papers brought in $647 million in advertising. Scripps doesn't release financial information about specific papers. But assuming that the ad revenues mirror circulation figures, the Sentinel probably brought in around $58 million, or 9 percent of the chain's ad revenue.