The past decade has not been kind to the newspaper industry. Craigslist has all but killed the classifieds, once a pillar of newspaper financial stability. Companies have slashed print advertising, reducing another revenue stream by half from a decade previous. Free content on the web has crimped circulation and newsstand sales. Add the economic downturn, and this perfect storm has killed off papers in places like Baltimore, Cincinnati, and Tucson while forcing dailies such as the Detroit News/Free Press, The Capital Times (Madison) and the Seattle Post-Intelligencer to adopt hybrid online/print models.

The same forces nearly wrote the Star Tribune’s obituary. Avista Capital Partners bought the newspaper from McClatchy, Inc. in 2007 by borrowing about $436 million, more than 80 percent of the purchase price. The paper made radical cuts, but in face of the formidable industry headwinds, the company could not service its debt. With $493.2 million in assets and $661.1 million in liabilities, the business filed for Chapter 11 bankruptcy protection in January 2009.

Industry conditions remain challenging—in May, the Newhouse-owned New Orleans Times-Picayune cut print frequency to three days a week—yet over the past two years the Star Tribune has transformed itself into a model to emulate.

The country’s 13th largest newspaper (based on daily circulation) has created new revenue streams through digital offerings while not compromising the quality of its print edition, it has cut costs scrupulously, and it has vastly reduced its debt—the latter two in no small measure due to time in bankruptcy. The paper is not thriving the way it did in its heyday—ad revenues are still falling in single digits, though that’s ahead of the double-digit industry average, and profit margins have shrunk by more than 40 percent in just under a decade—but the Star Tribune has achieved an admirable level of health in an infirm industry. In 2012’s first quarter, total revenue increased for the first time since 2005.

In early 2010, four months after finalizing its reorganization, the Star Tribune board of directors hired Mike Klingensmith—a Minnesota native who had spent 32 years working at Time, Inc.—to guide the paper out of bankruptcy. Others shouldered strong supporting roles during the tough times, but Klingensmith, Editor & Publisher’s pick for its 2011 Publisher of the Year, played the lead role in the paper’s renaissance.

It’s About Time (Inc.)

Klingensmith labors under the watchful eye of Harmon Killebrew. The poster-sized photograph of the 59-year-old’s boyhood hero looms above the publisher’s desk in his corner office on the fourth floor of 425 Portland Avenue. Ever loyal to his roots, the 1971 Fridley High graduate (he added a bachelor’s degree and MBA from the University of Chicago) hung the Killebrew photo on the wall of his Rockefeller Center office where he co-created Entertainment Weekly, was publisher of Sports Illustrated, general manager of Time magazine and CFO of Time, Inc. That loyalty appealed to the Star Tribune’s board, which wanted a publisher committed to the community, not just his own career.

Klingensmith did not need the job, he explains, seated at the conference table in his office, within sight of a blown-up SI cover of Joe Mauer, a Twins jersey slung over a chair, and a collection of Twins caps. He had taken early retirement from Time Inc. on his 55th birthday in 2008, and later began working for AdMedia Partners, a New York mergers and acquisitions advisory firm. He swivels in his chair, fidgets with a stack of papers, glances out the window at the City Hall clock tower—self-referential talk does not come naturally to the man. Moving back home and resuscitating the paper that fed him news about his beloved Twins enticed him. “The intellectual challenge of reformulating a business model for the newspaper’s future appealed to me,” he says. “So did the fact that it was important—we won’t be in a good place as a society if newspapers fail.”

Klingensmith is a level-headed, intelligent, and deliberate man with clear blue eyes, freckles, and a flock of grey curls. He did his due diligence, studying the paper’s financials, and believed “Minnesota’s Top Choice for Breaking News” had “a good shot,” he says. “I thought that newspapers have a lot more life in them than they get credit for.”

5 Goals

  1. Create digital revenue streams.
  2. Introduce digital products.
    “We have a lot of work to do on the economic model.”
  3. Shore up the balance sheet, i.e., get debt to a manageable level.
  4. Ensure stable, long-term ownership for the company.
  5. Reverse the revenue trends. “We had a glimmer in the first quarter,” he says, “but that’s one in a row.”

His timing was good. The reorganization had reduced the newspaper’s debt from $480 million to $100 million. A year into his tenure, he distributed profit-sharing checks—part of the reorganization agreement—for $1,163 to each full-time employee. That obviously made a good first impression, boosting morale that had sagged under pay cuts, a pension freeze, and retiree medical plan changes. But he had to do more than put smiles on faces for a day—he had to figure out a way to offset plummeting advertising revenues that threatened the enterprise. For that, he was qualified beyond community interest.

He started with a fresh approach, doing market research—a common practice among magazines, but one not frequently employed by regional newspapers. It may have seemed counterintuitive, even naïve, for a cash-strapped organization to splurge on market research, but the move seems to have paid off. The lessons learned influenced content—for instance, readers said they wanted more hard news than features on the Sunday front page. The feedback guided the redesign of the print and online editions. “People are saying, ‘Thank you for spending the money on this,’ because we’ve been so focused on cutting costs that very little effort has been given to research and growing the organization,” says Nancy Barnes, Star Tribune editor.

Klingensmith also imported a philosophy that they could not sell what they gave away—trading on Warren Buffett’s line—and the paper would have to convince consumers that its product had value worth paying for. To carry out this vision, he made several key hires.

To overhaul the sales force, he brought in former Sports Illustrated publisher Jeff Griffing as chief revenue officer. “There was a fundamental disconnect between what the business community perceived to be our capabilities and strengths and what they actually were,” says the high-octane Griffing, who has placed an emphasis on listening to advertiser needs and serving as consultants that suggest solutions. That has staunched the bleeding of ad revenues, which once accounted for 80 percent of a typical paper’s income (say, $400 million in 2000) but are now closer to half, say insiders. Though Klingensmith wouldn’t share specific figures, he says the Star Tribune’s advertising income was down in the high single digits in 2010, down in the middle single digits in 2011, and projects it’ll be down in the low single digits for 2012. “The rate of decline is improving,” he says. “We’re outperforming the industry average.”

1 |  |  | 

Like what you just read? To receive business news directly in your inbox each Tuesday and Thursday, sign up for our free e-newsletter, Briefcase, and be sure to join the conversation by commenting below.