How to make money with newspapers McPhersons Media group owns an ISP and telco, says chairman Ross McPherson. ONE Australian newspaper company has just made a record profit. It owns 12 newspapers, earns $40 million in revenue, pays healthy dividends, has more Facebook users than readers - oh, and, you guessed it, it's a family business. McPhersons Media Group is based in Shepparton in Victoria and started with the Shepparton News in 1888. It's now in the hands of the fourth generation of McPhersons and owns 11 other papers around country Victoria. Ross McPherson, who I spoke to this week, is executive chairman and his brothers Chris and Paul are directors. The three of them own a third of the business each and they have a non-family chief executive, Damien Tresize. So what's the McPherson formula for success in newspapers in the 21st century? Close focus on local community Cut costs Never give the stuff away free online Take a long-term view Use social media Own an internet service provider and telco as well Most of all, understand that publishers are no longer just broadcasters, they must be networkers. Sounds simple, right? Just get on with it, Fairfax and News. But of course it's not that simple at all, and the two key parts of the formula are that there are no public shareholders to worry about and the newspapers are all local monopolies. Having said that, the McPherson brothers did see earlier than most what was happening in their corner of the business world, and moved quickly to set up paid websites and to establish internet service businesses in each community, as well as a wireless communications operation. These are now very profitable businesses that help to support the newspapers with cash as well as digital knowledge and connections with customers. In addition, an active Facebook presence collects more data on their audience and helps the management understand them. Actually, McPhersons Media came very close to being absorbed into Fairfax before the wheels fell off that particular juggernaut. In the 1970s, when Ranald McDonald was running David Syme, the McPhersons sold 25 per cent of their business to the publisher of The Age to raise capital for expansion. Not long after that Fairfax took full control of The Age and looked to mop up its partly-owned country papers as well. At that time the other 75 per cent was split equally between three branches of the third of generation of McPhersons, and Fairfax was able to increase its shareholding to 47 per cent by picking off the cousins. Ross McPherson's father Don was also trying to buy out his cousins, but Fairfax repeatedly outbid him. And then suddenly, in 1998, with a new chief financial officer installed at Fairfax in Sydney, it was decided to sell out of any businesses that Fairfax didn't control because of the corporate governance risks involved. The 47 per cent of McPherson Media was put on the market and the family bought it for half what they thought it was worth. At that point the three brothers were running the business. The family trust controlled by their father owned 51 per cent and they shared the rest equally; the trust has since vested and they now own a third each. The firm was set up in 1888 by their great grandfather Colin McPherson, an orchardist in Shepparton who had been told by a doctor to retire to a more sedentary job than picking peaches. So he bought the Shepparton News, the 12-year-old local newspaper. His son Roy took over soon after World War I, and Ross remembers him as a leather-aproned typesetter patrolling the pressroom. When Roy's son Don returned from World War II, he worked as an engineer, but took over the family business in 1960 when his father died and about 20 years later appointed two of his three sons, Ross and Chris, as joint managing directors. In 1986 they brought their brother Paul back into the business from The Age in Melbourne, where he lived and worked. Ross says they have always held to the philosophy that "families are equal; business is run on merit." That meant that if the brothers didn't agree on something, they didn't do it, which held the business back. So over the last three to four years they have moved towards professional non-family management, appointing Damien Tresize, a 20-year employee, as managing director. The other thing that worked well for the company was the severing of ties with Fairfax along with the falling out that apparently occurred between Fairfax and News, although I must admit I never knew they got on that well in the first place. Anyway, Ross says that forced them to look overseas for support and guidance and they joined the International News Media Association, where they were able to learn from newspaper companies around the world. As a result, they set up Macmedia, an ISP for local communities that is now a good cash generator and also positioned them as a digital business. They also installed wireless telecommunications infrastructure around country Victoria for farms and small towns, and bought a piece of 1500MHz wireless spectrum. McPhersons Media is now a diversified regional publishing business that also includes 12 newspapers. They thought about selling the business in 2006 after the Mott family sold the Border Mail in Albury Wodonga to Fairfax for 15 times earnings before interest and tax, which they knew would be the high watermark for regional publishing valuations, but in the end weren't really tempted. They're not sorry now, although some other newspaper businesses might be wishing they caught that train before the GFC. For the McPherson family, the digital revolution has been stimulating and rewarding and not a profit wasteland at all - mainly because they understood early that they are not "broadcasters" of information anymore, they are networkers.