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.

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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.”

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.”

Revenue from Readers

When Klingensmith took over, circulation had fallen to its lowest levels since 1982. He hired another Time, Inc. alum, Rob Gursha, as vice president of consumer marketing to work with Steve Alexander, vice president of circulation. Where the paper had relied primarily on third-party sales through telemarketers and kiosks, it began reaching out to the consumer directly through targeted direct mail and expanded subscription channels. By homing in on customers most likely to purchase its product, the paper increased its response and retention rates. The efforts have increased overall circulation (print and digital) in both the daily and Sunday editions. Notably, the Sunday paper, the most profitable edition, has increased steadily over the past two years, up 4 percent from March 2010.

Though weekday print circulation dropped 5 percent for the last six-month reporting period ending in March, two price hikes—25¢ at the newsstand and a 9 percent subscription boost—increased circulation revenue by about 7.5 percent in the first quarter. Again, Klingensmith’s magazine background paid off. He relied on market research to see what consumers were willing to spend and for what—for instance, selling digital-only subscribers the Sunday print edition for 99¢. “These things may seem simple, but they haven’t been tried in the past,” observes Ken Doctor, industry consultant and author of Newsonomics: Twelve New Trends That Will Shape the News You Get. “He’s a consumer marketer. The Star Tribune in general has done very little consumer marketing in the past.”

The biggest transition is the company’s emphasis on digital products and delivery. Klingensmith hired Jim Bernard, who had redesigned MarketWatch.com, as senior vice president for digital to lead the effort. The company’s digital portfolio now includes mobile and iPad apps, high school sports apps, high school sports websites, an upgraded mobile website, and several opt-in emails covering general news and special interest areas such as business and travel. All of these generate ad revenue and enhance subscription offerings. While the return is still low, Klingensmith “is moving to do some things ahead of the pack—that’s noteworthy,” Doctor says.

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The Strib began selling digital subscriptions in combination with print subscriptions and as exclusives. In six months, some 18,000 customers had signed up as digital-only patrons. Following the New York Times’ lead, the Star Tribune recently instituted a metered paywall that limits free monthly story downloads to 20. Digital ad revenues in May 2012 were up 30 percent over the previous year. With the possibilities for digital subscriptions extending well beyond the print edition’s target audience to snowbirds in warmer climes and Twin Cities transplants around the world, Klingensmith expects the number of digital subscriptions to triple before leveling off.

The digital rollout required the cooperation of all areas of the operation. “Mike orchestrated that beautifully,” says Mike Sweeney, chairman of the Star Tribune board. “One of Mike’s skills is how he’s melded that team.”

Klingensmith has also kept business concerns out of the newsroom. Though he cares about content and will occasionally let Barnes know if he does not like the front page, he does not meddle in the newsroom. “I don’t hear from him often,” Barnes says. “For a newspaper editor, he’s the perfect boss.”

Klingensmith came aboard with a strong editor in Barnes, who also holds an MBA, and a newsroom staff that had been reduced from approximately 400 at its peak in 2007 to 260, but had not been decimated. The core was still turning out a strong product with ample metro news, a serious sports section, and popular columnists. “Compared to some of the other newspapers around the country, they’ve been able to maintain robust staffing levels,” says Keith Moyer, Star Tribune publisher from 2001 to 2007.

Klingensmith has since reduced business-side staffing by low single digits to make producing the paper as efficient as possible. “The Star Tribune has been innovative,” Doctor says. “While they have cut newsroom staff like everybody else, they have tried to do it in such a way that they’re doing as little damage as possible to the news gathering. They’re trying to take it out of the editing and packaging.”

If increasing consumer revenue is a priority, Klingensmith knows he must not devalue the product. The price increases for print delivery and at newsstands, the metered paywall, digital subscriptions, etc., have boosted consumer revenues to 43.3 percent of total income. He sees possibilities for increased circulation, particularly of the Sunday paper, in areas like Rochester, St. Cloud, and Brainerd. He also believes there’s room to raise prices again. “We’re trying to change the nature of the subscription relationship,” he says. “We want consumers to see we deliver substantial content across platforms.”

That’s critical to offset declining ad revenues. “I think it will be successful, but the question is, can they produce good enough content, however they deliver it, that people are willing to pay for it at relatively high rates?” Doctor says. “They need to continue to cut costs as they can and devote as many of their resources as possible to content and sales.”

Klingensmith’s goal is for consumer revenues to account for half the paper’s income, though he jokes he does not want to get there too quickly (due to drops in ad revenues). He predicts the paper will be able to reach 50-50 in 18 to 36 months. Tim McGuire, former Star Tribune editor and current Frank Russell chair for the business of journalism at Arizona State University, believes the Star Tribune will get there because “There are passionate fans of the newspaper who will pay for that. . . . I think this balanced approach the Star Tribune is taking is the right one,” McGuire says. “They are not trying to be greedy; they’re settling for barely modest profits. They deserve credit for that.”

The Straight Shooter in a Labor Staredown?

Labor presents another challenge for Klingensmith. The workforce’s sacrifices kept the paper afloat, and when the Newspaper Guild’s contract expires in January 2013, the rank and file expect to be compensated for the estimated $4 million to $5 million it saved the company. “We’ve done our share,” says David Chanen, a metro reporter and co-chair of the Star Tribune’s Guild unit. “We hope in the next contract that we’ll be rewarded.”

Rather than agree to management’s new contract proposal last summer, which did not include a pay raise, Guild members voted to extend the existing contract an additional 18 months, gambling that the company would be in a better financial position. It is. The paper paid off $15 million of its debt in 2010 and plans to pay down about another $15 million this year. It did not reduce the debt in 2011 because it made a $12 million payment to employee pension funds. Employees also received a profit-sharing check of $300. But that doesn’t mean all will go smoothly. The company’s not profitable enough to restore wages to pre-bust days, so it’s anticipating tough negotiations this fall. Klingensmith has already navigated contracts with every other union at the paper. “They’re always difficult,” he says. “But we have a common goal to preserve jobs and the product.”

Klingensmith has established himself as a straight shooter with his lieutenants. “You never walk out of Mike’s office saying, ‘I wonder what he meant by that?’” Griffing says. “He’s incredibly level-headed,” editor Barnes adds. “Given all of the ups and downs around here, I admire that about the guy.”

Those Midwestern traits marked him in New York but have not held him back. “For all of his gee-whiz folksiness, he is capable of experimentation and risk,” says the New York Times’ media columnist, David Carr, a Minnesotan himself. “He’s really a good guy. I hope that counts for something in that market especially.”

Klingensmith has made an impressive debut, but his mission is not yet accomplished. The economic climate and industry conditions remain critical hurdles. But the publisher is cautiously optimistic. “I’m bullish about the future of newspapers” (in general, though also his in particular), he says. “Our position in the digital marketplace is strong. We have about a 40 percent share among media websites in the Twin Cities. The printed newspaper will be around for a long time, but even if you don’t believe that, you can see we’re well-positioned.”

That’s not a thought anyone would have expressed about the Star Tribune three years ago.

John Rosengren is a Minneapolis author. He writes occasional book reviews for the Star Tribune.