After all, who could ask for a better point of comparison? Alden is the perfect industry villain, a faceless private equity fund dedicated to nothing but cost-cutting and cashflow-draining. Its corporate website contains a total of 21 words, nine of which are “Alden,” “Global,” or “Capital.” It’s run by a secretive billionaire who last gave an interview in the 1980s — the sort of person who can own 15 mansions in Palm Beach and still think: I could really use a 16th.

It’s the type of company that inspires debates over whether “vulturous” is too kind of an adjective. If you’re writing an Atlantic cover story on “Who Killed America’s Newspapers?” Alden Global Capital will hand you the murder weapon, already dusted for prints.

Gannett, meanwhile, is at least a newspaper company, one more than a century old. It’s rarely been considered a particularly good one, mind you — its reputation for cheapness and cookie-cutter products go back decades. (As The New York Times described it in 1986: “a chain of mostly small and undistinguished, though highly profitable, newspapers.”) But it was at least a familiar name, run by news people and with at least some dedication to its civil role in hundreds of communities.

When Alden attempted a hostile takeover in 2019, anyone who cared about local news was put in the unfamiliar position of rooting for Gannett. Heck, if you squinted hard enough, Gannett could almost feel like the good guy. (If only because people like to believe there is a good guy in their industry, somewhere or another.)

But “we’re better than Alden!” has its limits as a brand promise, and Gannett’s most recent annual report drives home the fact that no company has done more to shrink local journalism than it has in recent years. Let’s total up the damage — in raw numbers, if not in stories unbroken and facts not uncovered.

Vaporizing a newspaper chain in four years

While Alden failed in its bid for Gannett in 2019, it sparked a wave of newspaper industry consolidation that some had foreseen for years. Within a few months, the two largest newspaper companies in the United States — No. 1 Gannett and No. 2 GateHouse — announced they were merging. The name would remain Gannett, but GateHouse execs were mostly left in charge.

At the end of 2018 — the last full pre-merger year — the two companies had roughly 24,338 employees in the United States and 27,600 worldwide. (Gannett also owns a small group of newspapers in the U.K.) The merger closed in mid-November 2019, by which time it had about 25,000 worldwide and was diving headlong into a hunt for “inefficiencies.”

By December 31, 2019, the combined company was down to 21,255 employees in the U.S. By the end of 2020, that had dropped to 18,141. A year later: 13,800. And its most recent SEC filing reports that, as of the end of 2022, Gannett had just 11,200 U.S. employees remaining (plus another roughly 3,000 overseas).

In other words, Gannett has eliminated more than half of its jobs in the United States in four years. It’s as if, instead of merging America’s two largest newspaper chains, one of them was simply wiped off the face of the earth.

That’s a cut substantially deeper than the rate of newspaper revenue decline. Why? Well, one reason is that to get the merger done, Gannett had to take out a giant loan at high interest rates, meaning hundreds of millions in revenues have had to be redirected to debt payments. To put it in perspective: In Q4 2022, digital subscriptions at Gannett newspapers — all of them — brought in a total of $35.5 million. But the company spent more than that, $47.3 million, just on debt payments. (This may remind you of Elon Musk’s ongoing evisceration of Twitter, driven by the same sort of M&A debt.)

You can also see the shrinkage in the number of newspapers Gannett publishes. In 2019, post-merger, it owned 261 daily and 302 weekly newspapers. By the end of 2022, those totals were 217 daily and 175 weekly newspapers. Some of that decline is Gannett selling a few newspapers to local buyers, but a lot of it is straight-up closures. Last spring, Gannett shuttered 24 weekly newspapers here in the Boston area alone.

Circulation has evaporated

Per capita newspaper circulation has been declining in the United States since World War II, so it’s hardly shocking that it’s still dropping. If you’re The New York Times, you’ve been able to more than make up for the loss in print subscribers with digital ones. But for most local newspapers, digital gains are nowhere big enough to stop the print bleeding.

Still, Gannett’s newspapers stand out for the steep angle of their decline.

An important caveat up front: Different newspaper companies use different standards and make different choices in the numbers they report. And those choices can change over time. Gannett has stopped reporting some of its digital subscribers to the Alliance for Audited Media, for example. And some papers still count many more non-paying readers than others. Comparisons across papers and years are always going to be imprecise — but these are the numbers they’re reporting to the industry body.

Here are Sunday circulation numbers for (pre-merger) Gannett’s largest local newspapers, according to the company’s own filings with AAM.

Let’s compare Q3 2018 to Q3 2022:

Every Gannett paper here saw a circulation decline of at least 52%. The average drop across these papers is an incredible 67%. [See update below.] They’ve lost two-thirds of their reported circulation in four years’ time.1

How bad is that? To find out, I assembled a comparison set of non-Gannett papers in other metro areas to see how their declines compared. These aren’t outlier successes like The New York Times — they’re metro dailies, most with chain or hedge fund owners, facing the same problems as everyone else in the business.

It’s a much better showing. Take The Seattle Times: It lost 62,000 print readers over this period — but it also gained 52,000 digital subscribers, making the overall trend lines tolerable.

There are plenty of explanations for the gap — but it’s hard not to believe that Gannett’s gutting of their editorial products hasn’t been a driving factor.

And I haven’t yet mentioned the most important Gannett paper: USA Today. In Q3 2018, USA Today reported a total daily circulation of 2,632,392. In its most recent filing, Q3 2022, that was down to 180,381. (For what it’s worth, that 2018 number was artificially inflated in a few ways, including counting the subscribers of some Gannett local newspapers. A fairer comparison might be just paid print circulation: 579,692 in 2018, 134,629 in 2022.)

I asked Gannett for comment on this decline, and a spokesperson sent this statement: “Gannett continues to make tremendous progress on our strategic priorities which include a focus on increasing digital growth. We have an increasingly engaged digital audience with digital-only subscription revenue growing nearly 30% year-over-year. Digital-only subscriptions grew to over 2 million during the fourth quarter of 2022. Since the second quarter of 2022, paid digital-only subscriptions have outnumbered full access or print subscriptions.”

Death by a thousand cuts

Let me finish by looking at a single Gannett paper — the one I grew up reading, The Daily Advertiser of Lafayette, Louisiana. It’s far from the company’s most important paper — No. 109 in circulation among Gannett’s dailies — but it’s important to me; I read it nearly every day. Lafayette is a city of 121,000 and the hub of a region of half a million people.

Here’s what’s happened to the Advertiser’s Sunday circulation since 2015. (Data is from Q3 of each year and as Gannett reported it to the Alliance for Audited Media.)

2015: 26,885
2016: 23,773
2017: 20,177
2018: 14,670
2019: 10,389
2020: 8,592
2021: 6,528
2022: 3,996 (plus a few hundred more)2

That’s an 85% decline since 2015. Those numbers include both print and digital — but maybe the digital trend is better? Let’s see:

2015: 1,421 digital subscribers
2016: 1,054
2017: 1,247
2018: 1,473
2019: 1,283
2020: 1,146
2021: 928
2022: 468 (plus a few hundred more)3

Yikes. All that decline has come amid round after round of Gannett budget cuts. You can debate the direction of causation: how much the cuts were driven by declining revenues, versus how much the declining revenues were driven by the cuts. But the end result is the same either way — a newspaper that is, today, an embarrassing product.

The Advertiser reported having 17 newsroom employees in 2020 and it still had a handful of people covering hard news as recently as last year. But a combination of cuts, buyouts, and escapes left it with exactly one local news reporter by January. Its staff directory is stuffed with reporters who left months ago. There are now days when zero news stories out of Lafayette are published. The copy hole is filled by stories from wires, Gannett’s one-reporter state capitol bureau, or other Gannett Louisiana papers (all of which look like thinly reskinned versions of each other). It misses obvious stories and runs press releases and error-filled copy. Its morning email is stuffed to overflowing with stories about LSU basketball, simply because Gannett actually has someone outside the Advertiser who covers LSU basketball.

The local college team in Lafayette is the Louisiana Ragin’ Cajuns, and they had a big weekend. On Monday, they won the Sun Belt men’s basketball tournament, meaning they will go on to March Madness and the NCAA tournament for the first time since 2014.

Was this mentioned in Tuesday’s newspaper? No. Was the fact they were even playing in the conference final mentioned in Monday’s newspaper? No. Probably the single biggest local sports story in the past year, and you wouldn’t know about it reading The Advertiser. (They eventually published a story online Tuesday morning — written by a sports reporter for the Gannett-owned Pensacola News-Journal, three states away.)

Speaking as a reader (and a grudging longtime digital subscriber), it’s just an abomination of a newspaper. Lafayette residents are lucky to have a few other options. The local TV stations, while nothing special, keep up with the usual TV news basics. A local nonprofit outlet named The Current does good work, but its small size means it has to pick its spots. Most importantly, the Baton Rouge paper, The Advocate, has invested in a Lafayette edition that does more Lafayette reporting than the actual Lafayette daily paper. In the five core Lafayette ZIP codes, The Advocate actually has more print subscribers than The Advertiser does (2,598 to 1,869).

But not every community is so lucky. When the local paper stops reporting, there’s often no one else to take its place. Everyone gets a little less informed about the world around them. And Gannett has increased local ignorance at a scale no other company can match. Maybe Alden Global Capital should be giving thanks for Gannett too, not just the other way around.

—

Update, March 10: A mea culpa. I originally referred in this section to “paying readers” and “paid readership” when quoting the circulation numbers Gannett (and other companies) file with the Alliance for Audited Media (AAM; formerly known as the Audit Bureau of Circulations, or ABC). I meant it to be an umbrella term bigger than “subscribers,” since the numbers also included single-copy readers who don’t subscribe. But the vagaries of circulation reporting mean that the totals publishers report both exclude some paying readers and include some non-paying readers. (More about that later.) That’s my mistake.

I’ve also updated the 2018 circulation number for the Detroit Free Press. The paper reported a “total combined average circulation” that year of 933,926, which is the number I’d used before. But to get to that outsized total, the Freep counted not just the regular newspaper but also something called Yes! Your Essential Shopper, a weekly free shopper thrown on porches around the region. (Some consider this genre of publication more litter than newspaper, but advertisers appreciate their larger reach versus a paid daily. Many metro newspapers have similar products — though in my experience most list them as separate publications for circulation-counting purposes, rather than lump them together with the main paper.) But between 2018 and 2022, the Free Press stopped counting Your Essential Shopper as part of its circulation, which increased the scale of the decline between those years. In order to make the comparison more parallel with the others, I’ve removed the shopper’s 716,455 copies from the Free Press total, bringing it down to 217,471. That change reduces the overall Gannett circulation carnage from 77% to 67%.

1. One nerd note: During this period, AAM tweaked how it counts digital subscriptions in such a way that it could reduce their numbers. (The less generous framing would be it made overcounting harder.) But this change affected all newspapers, not just Gannett’s, and the impact was not drastic.
2. Update, March 10: Note that this 2022 number does not include a certain type of digital sub known as a digital nonreplica edition. Gannett stopped reporting those publicly in 2022. In 2021, The Advertiser reported a digital nonreplica circulation of 348, so you can probably mentally add a similar number to the 3,996 number they reported for 2022.
3. Update, March 10: The same as above: You can probably add in another 350 or so to that 2022 number to make up for the digital subscriptions that Gannett has stopped reporting publicly.

The pandemic, set on a backdrop of political and economic tumult, further injured a local news industry weakened by decades of revenue decline, ownership consolidation and cuts to production and delivery. In rural and urban communities across the country, residents have little or no access to credible or comprehensive local news and information – they live in what are called “news deserts.”

Studies show that people who live in news deserts or other locations with little local news are less likely to be actively involved in their community or participate in local elections. They are also more likely to believe false information spread online through social media and fake or fringe websites.

Through formal and informal collaborations, college journalists are helping to serve the communities where their universities are located by making sustained contributions to local media. Indeed, an estimated 10% of state capitol reporters across the nation are students. In some states, such as Missouri, students make up a little more than half of their statehouse press corps, according to a 2022 report published by the Pew Research Center.

As a researcher who studies trends in rural community journalism and a journalism professor who teaches in a region with significant elimination of local news reporters and news coverage, we decided to study these collaborations — what we call “news-academic partnerships” — often in areas that have seen local newsrooms suffer the hardest hits, as identified in the University of North Carolina’s news desert report.

For our initial research, we sent surveys to 50 people who are involved in these collaborations, either as faculty members who manage the partnership at a college and university or as journalists at a local news outlet who oversee the partnership. We got responses from more than two dozen of them and learned these partnerships are key ways to sustain local news in places where news coverage is diminishing or critical issues are going underreported.

Local connections

There is not a formal comprehensive list of collaborations between local newsrooms and college journalism programs, and there are many.

For instance, the University of Maryland’s Philip Merrill College of Journalism operates Capital News Service, which provides daily breaking and in-depth news stories by students on news stories in Maryland to partner news organizations, including television stations.

Some of these collaborations — such as ones between Franklin Pierce University and the Keene, New Hampshire, Sentinel newspaper – have existed for more than a decade. But our survey found that they have become more common over the past five years with further media consolidation and layoffs. Newer examples include the collaboration between Connecticut College and the local news site The Day.

Student opportunities

In 2019, one of us created a partnership between her beat reporting class at Endicott College in Massachusetts and Gannett, the largest newspaper chain serving communities north of Boston. That year, Gannett bought 21 publications in the North Shore region of Massachusetts with 32 editorial employees serving 22 communities — and downsized them to just 10 publications with 12 editorial personnel, Gannett staff told us.

In a class called Beat Reporting, Endicott students receive classroom instruction on finding and pitching story ideas, conducting interviews, simplifying complex information and structuring various types of stories. Each week the students are assigned to report on stories in cities and towns surrounding the college, to be published in Gannett’s local outlets. In many ways, the class runs like a newsroom, with students involved in every stage of news reporting. In addition to the professor, a Gannett editor works with students on each story, so students get the experience of receiving professional feedback as they see their story through to publication.

In early 2022, there are just nine Gannett publications employing seven full-time journalists serving that same territory. During the spring 2022 semester — the partnership’s fourth year running — 10 students enrolled in the course published over 65 news stories for those publications over the course of the spring 2022 semester. They have worked on stories ranging from environmental issues to health stories to local sports and to profiling community members with interesting stories to tell.

While the benefit to Gannett is clear here — an increase in its capabilities for a few months — students have also benefited from the partnership. Some are publishing their stories in news sites beyond a high school or college publication for the first time. In past semesters, a few students have stayed on with Gannett beyond the course to either intern or freelance for these local publications.

We hypothesize some partnerships, like this one, also benefit the communities that are served by these newspapers and websites, though that has yet to be studied. In some cases, the stories written by the student journalists would likely not have been covered because of limited capacity in the newsroom. Some community members whom students have reached out to for interviews told the students they were speaking to a journalist for the first time.

A 2019 survey conducted by the Pew Research Center found that only 21% of Americans say they’ve either spoken to or been interviewed by a local journalist, which has declined from 26% in 2016. Speaking with journalists can help build an understanding of how journalism works and increase trust in news.

Universities as partners

News-academic partnerships allow students to put the principles and techniques taught within classrooms into practice. We hypothesize that well-executed collaborations could arguably be seen as competitors to time- and resource-strapped newsrooms in the same coverage area. For now, though, it seems news-academic partnerships are just that: partnerships, and more collaborative than competitive.

We hope they might also lead to new journalistic endeavors, like the start of a new news outlet, or revival of a dying one. For example, in October 2021, the University of Georgia’s Grady College announced it would revive a nearby community newspaper that was slated to close.

However, it’s not an easy task. We have found that faculty members who seek to create or manage sustainable news-academic partnerships often find they face some of the same problems that editors at local news outlets report, such as burnout, high workloads and low pay. For instance, in a follow-up to our initial study, faculty members who oversaw a variety of news-academic partnerships reported receiving little or no additional compensation, nor a decrease in other responsibilities, such as teaching, to balance the workload.

The faculty members we spoke with also felt pressure to deliver professional-level multimedia journalism out of classrooms where students are still learning the craft, as well as the required technologies.

However, academic institutions are theoretically well positioned to sustain meaningful journalism that serves their communities, which are often outside of elite news coverage areas. Many are well funded and provide the physical and mental space for minds to build healthy skepticism and investigate complex issues in society. And many have housed public radio stations for decades, without imposing limits on editorial or financial independence. Even today, recognizing the possibility of political interference from university administrators, some stations have deliberately created policies to maintain their independence.

We think even more universities could be a source for reducing the number and size of news deserts in the U.S., and ensuring communities across the country retain a reliable source of news and information.

He added: “There’s incredible competition for people’s time and their pocketbooks and their attention, and if the Globe is not interesting, searingly relevant, provocative on a day-to-day basis, we’re simply not going to survive as a news organization.”

The panel, “The Digital Transformation of The Metro Daily,” was hosted by the Harvard Kennedy School’s Shorenstein Center on Media, Politics, and Public Policy, and was moderated by Jennifer Preston, who’s a senior fellow at Shorenstein’s Technology and Social Change Project and was formerly VP for journalism at the Knight Foundation. Besides McGrory, panelists included Suki Dardarian, editor and SVP of The Minneapolis Star Tribune; Gabriel Escobar, editor and SVP of The Philadelphia Inquirer; Michele Matassa Flores, executive editor of The Seattle Times; and Mizell Stewart III, VP of news performance, talent and partnerships for Gannett and the USA TODAY Network.

Some interesting excerpts from the panel are below. You can watch the whole thing once it’s posted here.

On pricing

On new formats

On print

On local vs. regional

McClatchy is a special case; Alden tried to buy it out of bankruptcy, but Chatham was its largest creditor and thus had an inside track. (Reminder: Chatham likes to call this moment “late-stage media consolidation,” which means the consolidation has spread all throughout your lymph nodes and it’s time to settle your affairs.)

But other than McClatchy, all of these companies have been sorted into three buckets: two big ones, No. 1 Gannett and No. 2 Alden, and one smaller one, No. 3 Lee Enterprises.

It was pretty clear this day would come. Lee is the biggest acquisition target left out there, with papers in 77 markets across 26 states — not to mention “nearly 350 weekly and specialty publications.” Adding it to its MediaNews/Digital First/Tribune menagerie should bring it close to Gannett in size, if not quite there.

Based on last year’s circulation numbers, a combined Alden+Lee would sell 7.627 million copies a day, behind only Gannett’s 8.596 million. They’d both be far ahead of the new No. 3, McClatchy, which is way back at 1.747 million.

You can read the offer letter Alden sent Lee’s board here. It hits the same notes that nocturnal Alden usually does in its rare visits to the sunlit world: “Alden Global Capital, LLC is a significant investor in American newspapers,” “committed to ensuring communities nationwide have access to robust, independently minded local journalism,” “a reaffirmation of our substantial commitment to the newspaper industry,” “scale is critical for newspapers to ensure necessary staffing and in order to thrive in this challenging environment,” blah, blah, blah.

At some previous companies that Alden has tried to acquire, there’s been resistance — from management, employees, civic leaders, or all of the above. Remember, it tried to eat Gannett in 2019, but the company successfully fought back — though that resistance pushed it into the arms of another suitor, GateHouse. Tribune reporters battled valiantly, if ultimately unsuccessfully, to keep Alden away.

But frankly, I’d be surprised if Lee put up much of a fight this time. Financing was a major question in the Gannett push; Alden is offering to pay cash here. The Tribune deal took place over in multiple stages over a longer period of time, giving opponents time to strategize; here, Alden says they want to have it all wrapped up “in approximately four weeks.”

And frankly, Tribune owned papers in big metros like New York, Chicago, Baltimore, Orlando, and South Florida, the sort of places where you can rev up some media attention. Lee’s biggest papers are in St. Louis, Omaha, Tulsa, and Buffalo. Its headquarters are in a suburban office park in Davenport, Iowa; Tribune Tower this ain’t. And, at least at this writing, Lee isn’t pushing back against Alden. It’s not commenting to media reporters, whereas Gannett was cranky from the jump.

There are still some other chains to be had, of course. Advance is still out there, should the Newhouses ever grow itchy. Hearst still has a few big metros, though newspapers are a declining part of their business. Ogden is Lee-like in a number of ways. And the newspaper business is still much more decentralized than many American industries, with hundreds of papers still owned as single units — in the lucky places, still by families with a connection to and investment in the community.

But it’s as clear as ever that Dean Singleton was thinking in the right direction back in the early 1990s. He thought there would be just three newspaper companies left standing, and he wanted MediaNews to be one of them. After this deal — and whatever aftershocks follow it, as the boards of smaller chains see themselves on the outside of a two-horse race — we’ll be left with Gannett, Alden Global Capital, and then everybody else.

And Gannett is selling — “confident that we will be able to execute on $100-125 million in additional asset sales this year” — while Alden is buying. With cash.

]]> https://www.niemanlab.org/2021/11/the-vulture-is-hungry-again-alden-global-capital-wants-to-buy-a-few-hundred-more-newspapers/feed/ 0 https://www.niemanlab.org/2021/07/usa-today-is-getting-a-paywall-whos-the-audience-for-it/ https://www.niemanlab.org/2021/07/usa-today-is-getting-a-paywall-whos-the-audience-for-it/#respond Wed, 07 Jul 2021 19:15:32 +0000 https://www.niemanlab.org/?p=194355 It was all the way back in 1996 — Whitewater! Bob Dole! a new cable channel called Fox News! — when The Wall Street Journal put up its first online paywall. It was a lonely bet at the time, with most newspapers still offering their news online for free. But as a business newspaper, the Journal was about as well-positioned as a paper could be to get readers (or, more likely, their employers) ponying up.

It was 15 years (and one false start) later when The New York Times followed suit with its own paywall. As a general-interest paper, the Times’ decision was not considered a slam dunk; there was still a ton of free competition online. But the Times is the Times, and its pitch that you pay for quality has worked magnificently in the decade since.

It was 2013 when The Washington Post launched its paywall. The Post had its own set of questions, with a still-dominant print position in the D.C. area, a huge audience in government, and what had historically been a less national outlook than the Times. But it worked out too — though it’s a question for alternate-universe theorists how it would have done if Jeff Bezos hadn’t bought the place two months later.

The last national newspaper with its articles still flapping free in the wind was USA Today, which made sense given its history and market positioning. Its decades of circulation success always rested on something other than paying readers; instead, it was bulk purchases by hotels and other places with lobbies that fueled the business. While its quality has ebbed and flowed over the years, USA Today’s pitch in a digital environment has always been tougher than what the other nationals could offer.

But today, USA Today has officially joined the paywall party. Here’s publisher Maribel Perez Wadsworth and editor Nicole Carroll:

Much of the content on USA TODAY will still be free. But you’ll find a selection of stories each day marked “subscriber only.” These will be exclusive investigations, sophisticated visual explainers, thought-provoking takes on the news and immersive storytelling.

This is a big change; our digital news has always been free. But USA TODAY was founded on boldness. Your subscription is an investment in quality journalism that’s worth paying for, journalism that strengthens our communities and our nation.

…here’s the bottom line: We are partners in this democracy. Together, we’ll hold the powerful accountable. Together, we’ll look out for the less fortunate, the marginalized. We will lean on each other for solutions that make our lives easier, better. We’ll grow together when we understand perspectives different than our own, when we meet and hear from people outside our social media bubbles.

We are proud to tell the diverse, rich story of the USA, every day. We thank you for supporting this important work.

Gannett, USA Today’s owner, telegraphed this move back in April, with what seemed like a $4.99/month price point — half of the roughly $10/month that’s become standard for local dailies (and much lower than the undiscounted prices for the Times or Journal). But now that price seems to have gone up to $4.99…for the first three months, $9.99 thereafter. You can get the Post for that price (undiscounted), so the value on offer is harder to see. Either way, I’m sure there’ll be plenty of testing around discount offers as Gannett tries to maximize digital circ revenue. For $3/month more, you can get rid of ads on USAToday.com, which are significantly more annoying and aggressive than those of their peer national dailies.

The edge USA Today has here is the hundreds of local newspapers in the Gannett lineup, for which USA Today is an umbrella brand and quasi-wire service. For example, today’s edition of my Gannett hometown daily, The (Lafayette, La.) Daily Advertiser, today includes 8 stories (including briefs) by Advertiser reporters, 14 from AP, 3 from USA Today, and 5 from other Gannett newspapers.

Personally, I would have argued for a tie-up between local and USA Today subs. People’s attachment to their local daily is far stronger than to the paper they used to read at the airport La Quinta, and local digital subs are the single most important factor in Gannett’s future success or failure. Make access to USA Today an incentive for local subscribers — “Subscribe to The Advertiser and get USA Today’s great coverage from across the nation for free!” — and you might be able to reduce churn and make it harder for readers looking to cut their monthly subscription bills. But Gannett sees it differently:

I subscribe to one of Gannett’s local newspapers. Can I access premium content on USA TODAY?

Right now, USA TODAY and local premium content subscriptions are mutually exclusive. However, there is often USA TODAY content within the local digital reading experience. That will not change and could include some of USA TODAY’s premium content.

(A Gannett exec left room in an interview “for Gannett to offer subscriptions that bundle USA Today and a local newspaper” at some future point.)

Without that local tie-in, and with a higher-than-expected price, I’m honestly not sure who the audience for a USA Today digital subscription is. That’s especially true if, as it seems, an awful lot of content will still be in front of the paywall. (“Much content remains unrestricted and accessible across all platforms. Premium content will be clearly marked ‘Subscriber only’ and will include the day’s very best articles, videos and enhanced programming to help you best understand the news guided by USA TODAY reporters and experts.”)

In the print days, USA Today had a very clear value proposition: Your hometown daily is terrible. Or, more likely: You’re not in your hometown and you want to read some national news — not local news from a place that’s not local to you. Online, it had a less distinctive but nonetheless cogent one: We’re free, unlike those other guys. And our vibe isn’t as East-Coast-elite, either. As a paid product, though, it’s now part of a giant content muddle. If you’ve decided you’re willing to pay for online news, why would you pick USA Today over the Post or Times — or over your local daily?

That’s not to denigrate the quality of the journalism being done at Gannett; my (admittedly limited) perception is that the chain has managed to pull off local-national integration better than I’d expected and used its chain-wide scale to increase its journalistic ambitions. It’s just a reflection of the marketplace for online news, which has thus far rewarded (a) premium quality and (b) local connection. USA Today’s offering seems likely, in its current form at least, to fall between those two stools.

Photo of a USA Today box by Amber Henley used under a Creative Commons license.

]]> https://www.niemanlab.org/2021/07/usa-today-is-getting-a-paywall-whos-the-audience-for-it/feed/ 0 https://www.niemanlab.org/2021/04/punched-in-the-gut-feeling-a-gannett-union-study-shows-major-gender-and-racial-pay-gaps-in-14-of-its-newsrooms/ https://www.niemanlab.org/2021/04/punched-in-the-gut-feeling-a-gannett-union-study-shows-major-gender-and-racial-pay-gaps-in-14-of-its-newsrooms/#respond Tue, 27 Apr 2021 18:22:49 +0000 https://www.niemanlab.org/?p=192507 Women journalists and journalists of color aren’t paid as well as their white male counterparts in 14 Gannett newsrooms, and journalists in unionized newsrooms are paid better than those in non-unionized shops, according to a pay equity report published by NewsGuild Gannett Caucus on Tuesday.

The caucus requested salary and demographic data from Gannett for 14 newsrooms in various parts of the country and included anonymized data about 466 non-manager employees in the fall of 2020. Its analysis found that employees of color earned a median salary of $5,246 less than white employees, a 10% pay gap. Women of color earned a median salary of $15,727 less than white men, a 27% pay gap.

Women who have worked at newspapers currently owned by Gannett for at least 30 years earned $27,026 less than men in comparable positions.

“I think it’s criminal for Gannett or any other news organizations to have pay inequity based on gender or color while these same organizations expose and condemn other industries of doing the same,” a journalist for the Sarasota Herald-Tribune said in the report. “It’s the typical do as I say, not as I do.”

“I remember the punched-in-the-gut feeling I had the moment I learned that a young male reporter with just a few years of experience had nearly the exact same salary that I had, despite my two decades as a working journalist,” a Milwaukee Journal Sentinel journalist said.

The largest gender and racial pay gaps were at The Arizona Republic, the study found. There, women’s median salary was just 61% of what men made, costing “women nearly $30,000 in median yearly earnings.” The median salary for employees of color was just 63% of what white workers made.

“The pay inequity that I experienced during my time in the newsroom was pretty much in plain sight the entire time. In 2018 and 2019, as a woman of color with a bachelor’s degree, I wrote original content and was paid less than $15 an hour,” one former Arizona Republic journalist said. “Not only were my male counterparts with similar background/experience getting paid more, there were INTERNS in the newsroom paid a higher wage than I was. The low pay continued even after a merit-based promotion in 2020. My official duties in the new position included THREE different jobs with an hourly wage that didn’t even properly compensate me for one of the jobs, let alone all three.”

A current Arizona Republic journalist said, “The company wanted to start me at a similar pay as new college graduates. Some of us journalists of color are in our 30s, yet we still can’t catch up to some of our younger, white colleagues. And when we speak multiple languages, the company benefits from our interviews and translations, but doesn’t pay us for that benefit.”

Gannett’s Chief People Officer Samantha Howland disputed the union’s findings on Monday evening in a company-wide email shared with Nieman Lab, saying that the report was “a misleading document based on outdated data alleging pay inequities on a small subset of Gannett’s more than 250 newsrooms.”

“Numerous actions have been undertaken on compensation,” Howland said in the email. “We are employing an external market-based approach which will ensure a fair review by role and responsibility level with considerations for geographic differences. This includes ongoing pay reviews and alignment, including pay adjustments. With each new hire, we continue to review and integrate our compensation and job structures and evaluate pay by job content, individual contributions, market and job level. Each function is on its own cycle to award selective increases that support equity goals and account for pay history, performance and potential. Gannett is committed to a pay structure that is merit-based, meaning that the company will continue to recognize employees for their unique contributions, abilities and skill, as well as other business-related factors.”

The study was conducted by Emily Hopkins, a data reporter for the Indianapolis Star; Andrew Mollica, a newsroom developer for the Milwaukee Journal Sentinel; Andrew Pantazi a former data reporter for the Florida Times-Union; Christopher Persaud, a data reporter for the Palm Beach Post; Justin Price, a data reporter for The Arizona Republic and; Rebekah Sanders, a consumer reporter for The Arizona Republic.

Gannett, which owns 260 local newspapers across the United States, has promised to make its workforce “as diverse as the country” by 2025 last summer. Its initiatives have outwardly focused on hiring and creating new beats related to social justice and racial inequality, but its announcement from August 2020 didn’t mention internal wage gaps.

The study also found that unionized newsrooms fare better in terms of pay compared to non-unionized newsrooms, though pay still wasn’t equal across race and gender. The authors attributed this to the fact that unionized newsrooms implement pay scales as part of their contracts.

“The gender pay gap was $7,676 in newsrooms with longstanding union contracts compared to $14,522 in newsrooms currently negotiating first contracts,” the report’s authors write. “The racial pay gap was $837 in newsrooms with longstanding union contracts compared to $6,280 in newsrooms currently negotiating first contracts.”

Just going to cite this forever: @NewsGuild looked at pay data from Gannett newsrooms and found that pay disparities for women/people of color were dramatically lower in the newsrooms that have union contracts. These are workers ***at the same company*** https://t.co/XiKeQjusey pic.twitter.com/G939f0v2nh

— Matt Pearce (@mattdpearce) April 27, 2021

Hey @LarkMarieAnton, the data was provided by @Gannett, analyzed by @Gannett data journalists & sent to the company ahead of publishing.

If you'd like to share the "critical analysis factors" (LOL) you've got our contact info.

Even better- release data for THE WHOLE COMPANY. https://t.co/R1XCyPtNcn

— Rebekah Sanders (@RebekahLSanders) April 27, 2021

Read the full report here.

]]> https://www.niemanlab.org/2021/04/punched-in-the-gut-feeling-a-gannett-union-study-shows-major-gender-and-racial-pay-gaps-in-14-of-its-newsrooms/feed/ 0 https://www.niemanlab.org/2021/04/maybe-just-shut-up-about-national-politics-if-you-want-to-reduce-polarization/ https://www.niemanlab.org/2021/04/maybe-just-shut-up-about-national-politics-if-you-want-to-reduce-polarization/#respond Thu, 01 Apr 2021 15:47:59 +0000 https://www.niemanlab.org/?p=191772 It’s Thanksgiving 2021, and thanks to the magic of vaccines, you’re celebrating it back in your hometown with your family. What a wonderful occasion — threatened only by the annual potential for you and Uncle Theo to get into fights about gun control, abortion, Donald Trump, “illegals,” and (in odd years) pedophile cannibals and the true meaning of “pizza.”

Your family is polarized about some big issues. How should you deal with it over turkey and stuffing?

Ⓐ — Spend some time in the weeks leading up to Thanksgiving watching Fox News and researching who Dan Bongino is, the better to understand your uncle’s point of view.

Ⓑ — Spend that time instead reading left-wing Twitter and preparing several dozen devastating owns with which to counter your uncle’s expected arguments.

Ⓒ — Organize a structured dialogue in which you and your uncle have uninterrupted times to express their views in a clear way, focusing on your shared humanity and the fact that you both want what’s best for the country.

Ⓓ — Just shut up about national politics and talk about, well, anything else: the weather, the weird cousin in Ohio you all hate, football, how the mall you used to hang out in is really sad now. Anything else.

Efforts to reduce political polarization in America have often looked a lot like Ⓐ, Ⓑ, and Ⓒ.

Ⓐ presumes the problem is the echo chamber. You and your uncle each consume too much news that aligns with your viewpoints, and exposure to the other side’s arguments will give you a new appreciation for them.

Ⓑ presumes the problem is a lack of facts and fact-checking. The reason your uncle doesn’t agree with you is that he’s been told a bunch of lies, and if you can only show him the truth, debate-style, you can come to a new understanding. (He thinks the same thing about you, by the way.)

Ⓒ presumes the problem is the absence of humane contact. You spend too much time around people who agree with you about everything, and that’s led you to reduce the other side to a caricature. Get in the same room with some agreed-upon ground rules and talk it out — you’ll realize it’s a person on the other side of the aisle, not an ideology.

Those are all fine and good. But what are you actually going to do if you want to lower the temperature at Thanksgiving? Probably option Ⓓ: You’re probably just going to shut the hell up about national politics. It’s the one subject that gets everyone’s motor revving, so just talk about something else.

Some new research out this week suggests that, for all the high-minded good intentions behind those other strategies, shut the hell up about national politics can actually reduce political polarization — not just at a dinner table, but in an entire community.

That’s according to a new short (68 pages) book called Home Style Opinion: How Local Newspapers Can Slow Polarization. (It’s free to download until April 21, so grab that PDF.) The authors are LSU’s Joshua Darr, Colorado State’s Matthew Whitt, and Texas A&M’s Johanna Dunaway. Here’s the abstract:

Local newspapers can hold back the rising tide of political division in America by turning away from the partisan battles in Washington and focusing their opinion page on local issues.

When a local newspaper in California dropped national politics from its opinion page, the resulting space filled with local writers and issues. We use a pre-registered analysis plan to show that after this quasi-experiment, politically engaged people did not feel as far apart from members of the opposing party, compared to those in a similar community whose newspaper did not change.

While it may not cure all of the imbalances and inequities in opinion journalism, an opinion page that ignores national politics could help local newspapers push back against political polarization.

The local California paper in question is The Desert Sun, the Gannett paper in Palm Springs. On June 7, 2019, executive editor Julie Makinen announced the opinion pages would be “taking a summer vacation from national politics”:

For the month of July, we’re taking a break from all the machinations of Washington and putting the focus back here at home.

That means no columns, no cartoons and no letters about the president, Congress, the Supreme Court, etc. Have a burning opinion about any of those things? Save it up, we’ll get back to that in August.

Why this recess? Let me explain.

Earlier this year, a trio of university researchers from Louisiana State, Texas A&M and Colorado State published a fascinating — and troubling — study that found that the ongoing extinction of local newspapers across the nation contributes to political polarization…

We all know that national news coverage these days has an intense focus on the partisan war in Washington. According to the research study, published in the Journal of Communication, folks who have lost their local newspaper or have given up on it turn to national news outlets. Then, they apply their (increasingly hardened) feelings about national politics to their local city council or state legislature.

The result? More partisanship close to home.

So, as an experiment, for 31 days, the Sun ran opinion pages focused entirely on local issues. No national columnists, no Trump takes, nothing.

For some of you, this may sound like a horrible diet: What will I do for a month without Marc Thiessen, or Leonard Pitts? What will we talk about, if not Donald Trump and Nancy Pelosi?

Well, let me gently suggest there’s lots more to discuss: How about homelessness in the Coachella Valley? The state of our schools? Our unfunded pension liabilities?

Of course, it doesn’t have to be all about problems. The op-ed pages are also a forum for highlighting the good in our midst.

Darr, Whitt, and Dunaway — who you may have figured out were the “trio of university researchers” Makinen was referencing — then tracked political polarization among Palm Springs-area residents before and after the all-local month. As a control, they did the same for those in the circulation area of another California Gannett paper, the Ventura County Star, which ran its opinion pages as usual.

Was the Sun able to follow through on its commitment? Yep. Nationally syndicated columnists disappeared; about half of their usual space was given over to syndicated opinion from California, including from the nonprofit CalMatters. “Mentions of President Trump, who normally dominates the news, essentially disappeared”: Only 1 percent of letters to the editor and 0 percent of editorial and op-eds included his name. (In the month before the experiment, those numbers had been 38 and 32 percent.)

The subject matter moved from something Ilhan Omar said to traffic, development, downtown revitalization, schools, and other local issues you can’t read about on NYTimes.com. Of note: Despite Palm Springs being a two-hour drive from the Mexican border, immigration as a subject virtually vanished from opinion section once people were asked to focus on local issues.

(One thing didn’t change: The Sun’s opinion pages didn’t get any more diverse in terms of who was writing pieces. “We find no evidence that localization improved gender equality or racial diversity: women continued to be underrepresented, as did Hispanic/Latino writers, who did not contribute to opinion in proportion to their population in the area.”)

Some topics moved from also-rans to mainstays; local arts moved from 4 percent to 28 percent of published letters to the editor. Editorials and op-eds focused much more on education and environmental issues. The share of pieces that mentioned either the Democratic or Republican Party fell by 60 percent.

One unexpected change: When the subject matter got more local, the authors writing became more corporate. Before the experiment, about three-quarters of op-eds had been written by opinion journalists. Moving to local dropped that to one-third. Who filled the gap? Executives from local companies and local elected officials, mostly. In a way, that makes sense: There isn’t a pool of local opinion journalists waiting to be pulled into service, and more specialized local topic matter favored people whose jobs connect with those topics in some way. But it’s worth noting that emphasizing local can easily mean emphasizing local elites.

So — the Sun pulled off the experiment. What impact did it have on polarization? The researchers focused specifically on affective polarization, which basically means thinking the other political party is filled with a bunch of dumb idiot mean jerks, not that you actually have policy disagreements. (That’s issue polarization.)

Those surveyed in the Desert Sun’s circulation area didn’t, as a whole, become less affectively polarized versus those in the Ventura County Star’s. (One opinion section can’t fix the world, people. And obviously not everyone in those cities reads the paper.)

But they did find significant evidence of reduced polarization in three specific subgroups: those who prefer to get their news from the local newspaper over other options; those who have higher levels of political knowledge; and those with higher levels of political involvement. (There’s quite a bit of overlap among those groups — they’re much more likely to have been exposed to the revamped opinion pages than others.) “The divergent changes in affective and social polarization across our two communities, while positive in all cases, show how The Desert Sun Opinion page experiment slowed polarization in Palm Springs.”

A complicating factor here is that affective polarization actually went up in both cities over the span measured. (National politics was still a thing! People were still getting plenty of news from other sources! Donald Trump was still tweeting!) But polarization increased less in Palm Springs in these groups than it did in Ventura.

Is the effect size huge? Nah.

Taken together, these results corroborate the claim of Iyengar et al.: affective polarization is tough to change, and large shifts in this metric are unlikely. It would strain the bounds of credulity if we observed dramatic decreases in affective polarization in Palm Springs as a function of a one-month experiment by a single news source, especially when limited to the opinion page. However, we observe a consistent pattern across our three conditional models: in each case, affective and social polarization rise less in the treated Palm Springs community. This dynamic demonstrates that local newspapers can slow polarization by adjusting the focus of their opinion page.

(The study didn’t look this, but I’d wager ten bucks that shifting a paper’s news pages from national to local would have a similar depolarizing effect.)

Oh, and here’s one other thing that’ll appeal to the suits: Web traffic to the Sun’s opinion pages nearly doubled in July 2019 compared to the year before.

Newspapers across the country have spent time evaluating the future of their opinion sections. Some have dropped editorials entirely; others decided to skip an endorsement in the 2020 presidential race, judging that the cost of angering one-half of their readers wasn’t worth the moral clarity. In Palm Springs, the opinion editor during the experiment, Al Franco, took a Gannett buyout last December; the position’s being filled now thanks to nearly $60,000 raised by a new local nonprofit, the Coachella Valley Journalism Foundation.

(It should go without saying that more local opinion is likely to make local foundations and philanthropists see the section as something worth supporting financially. I doubt those donors’ intent was to cover George F. Will’s syndication fee.)

When local editorial boards shrink, it’s tempting to fill the void with more nationally syndicated columnists, more national politics. These findings suggest that may do more polarization harm than good, and that investing in local opinion pages means investing in local civic culture.

Local newspapers are uniquely positioned to unite communities around shared local identities, cultivated and emphasized through a distinctive home style, and provide a civil and regulated forum for debating solutions to local problems. In Palm Springs, those local issues were architectural restoration, traffic patterns, and environmental conservation. The issues will differ across communities, but a localized opinion page is more beneficial for newspapers and citizens than letters and op-eds speckled with national political vitriol. When national politics was removed from The Desert Sun, the space filled with state and local concerns, and afterward people did not feel so far apart from one another. In Makinen’s words, if we want to help local newspapers continue to make American democracy work better in spite of the existential crises they face today, “let’s talk about home.”

]]> https://www.niemanlab.org/2021/04/maybe-just-shut-up-about-national-politics-if-you-want-to-reduce-polarization/feed/ 0 https://www.niemanlab.org/2020/10/covid-19-has-hit-newspaper-companies-hard-but-revenue-at-fox-news-and-local-tv-companies-rose/ https://www.niemanlab.org/2020/10/covid-19-has-hit-newspaper-companies-hard-but-revenue-at-fox-news-and-local-tv-companies-rose/#respond Thu, 29 Oct 2020 19:24:59 +0000 https://www.niemanlab.org/?p=187278 The economic consequences of Covid-19 have not been distributed equally. It turns out this is true for news organizations, too. A new Pew Research Center report finds that the pandemic has hit some media sectors — namely, newspapers — much harder than others.

Comparing second-quarter reports between 2019 and 2020, researchers found advertising revenue at newspaper companies fell an average of 42%. Meanwhile, TV news — and one major network in particular — fared much better.

Total ad revenue across major cable news networks remained steady, but a closer look reveals the pandemic-related downturn has impacted each differently. The Pew Research Center found that though ad revenue for MSNBC and CNN declined by 27% and 14% (respectively), ad revenue at Fox News increased by 41%. It’s a reminder that the country’s most-watched channel — despite a series of sexual misconduct scandals, sharp criticism for downplaying the pandemic, and the high-profile desertion of advertisers from Tucker Carlson’s show — remains very, very profitable.

Ad revenue for nightly news shows on network TV also rose for an average of 11 percent across ABC, CBS, and NBC. Unusually for a presidential election year, average ad revenue for network morning news shows dipped — though only by a comparatively minor 4%.

Among publicly traded local TV news companies, ad revenue dropped an average of 24%. Researchers found, however, that rising retransmission fees “more than made up for the losses.” Predictably, political ad revenue was up compared to 2019, though three of five local TV companies had seen higher political ad revenue for the same period in 2018.

Looking at the advertising revenue losses at the six publicly traded newspaper companies collectively owning more than 300 newspapers reveals year-over-year losses that have only accelerated during the pandemic. Digital ad revenue — which dropped 32% between 2019 and 2020 — “offered little relief,” the report concluded.

Because newspaper circulation revenue declined less sharply — an average of 8% — three of these six companies now earn more revenue from subscribers than from ads. It would have been considered “an unthinkable state of affairs a decade ago,” the report notes, “when overall ad revenue was two-and-a-half times higher than overall circulation revenue.”

“This pattern was similar for all six newspaper companies analyzed here, with even the least-affected company, Gannett, showing a 35% decline in ad revenue year over year,” the authors added. (The six publicly traded newspaper companies studied were Gannett, The New York Times, Tribune, McClatchy, Lee, and Belo.)

Overall, these losses are steeper than those newspapers endured during the Great Recession, when second-quarter ad revenue declined, on average, 11% in 2008 and 30% in 2009.

]]> https://www.niemanlab.org/2020/10/covid-19-has-hit-newspaper-companies-hard-but-revenue-at-fox-news-and-local-tv-companies-rose/feed/ 0 https://www.niemanlab.org/2020/08/almost-every-gannett-newsroom-agrees-diversity-is-critical-to-telling-stories-its-staff-demographics-show-theres-a-lot-of-work-to-be-done/ https://www.niemanlab.org/2020/08/almost-every-gannett-newsroom-agrees-diversity-is-critical-to-telling-stories-its-staff-demographics-show-theres-a-lot-of-work-to-be-done/#respond Thu, 20 Aug 2020 17:59:41 +0000 https://www.niemanlab.org/?p=185519 On Thursday, Gannett, the parent company of USA Today and more than 260 daily local news outlets in the United States, pledged its commitment to diversity, inclusion, and parity in all of its newsrooms.

On Wednesday, the company had published its workforce demographics, along with its intention to “make its workforce as diverse as the country by 2025 and to expand the number of journalists focused on covering issues related to race and identity, social justice and equality.” In the entire company, here’s how diversity breaks down:

On Thursday morning, nearly every newsroom in the USA Today Network published some kind of demographic census that took stock of its newsroom’s current staff diversity online and in print. This is the first time that USA Today and all local Gannett newsrooms have published a diversity census for their readers, alongside community demographic data. Across most of the newsrooms that released data, newsroom staffs and leadership were whiter than the communities in which they operate. The release of Gannett’s diversity data follows diversity reports from news outlets like The New York Times and The Washington Post.

Maribel Perez Wadsworth, president of news at Gannett Media and the publisher of USA Today, wrote on Thursday that newsrooms that aren’t representative of their communities can’t fully understand their needs and interests. From that column:

I want to acknowledge the gaps in these reported demographics. They do not completely represent our diversity nor do they quantify fully how far we must yet go to be truly representative. Specifically, these numbers fail to capture sexual orientation or gender identity. These statistics have not been previously incorporated into our human resource reporting or in the U.S. Census.

Gannett is committed to creating a culture where every employee feels safe, included and championed for their full identity. This week, the company announced important steps to expand our demographic data to be more inclusive by providing employees the opportunity to be heard and voluntarily self-identify as diverse in ways beyond race and ethnicity, such as identifying as LGBTQ.

In addition to setting this important parity goal, we are making significant investments in our coverage of race, equality and social justice.

By the end of the year, we will have created 20 national and 40 local jobs focused on social justice, disparities and inclusion to augment our coverage of race at the intersection of every critical institution, including education, health care, criminal justice and the environment. More than a third of this investment will come from incremental hiring, and the rest will result from a reprioritization of existing reporting and editing resources.

These new hires and jobs serve to underscore our commitment to diverse staffing and news coverage at USA TODAY and our local newsrooms. And it’s a commitment that starts at the top.

Many local newsrooms published one story with a graphic illustrating its census (some newsrooms made their charts embeddable but others did not) while others opted for a few paragraphs outlining their statistics. Executive editors separately published letters to readers about their commitment to improving their coverage and newsroom diversity.

Michael Kilian, the executive editor of the Rochester Democrat and Chronicle, included some interesting information in his column about what’s worked in his newsroom:

• We increased the percentage of our content of interest to diverse audiences from only 3% in the early fall of 2019 to as high as 25% earlier this summer.
• We cut in half the percentage of routine crime stories, while creating more content about communities’ responses to issues. Since February, we are producing more content of interest to diverse audiences than we are creating traditional crime content.
• Most important, we’ve begun getting substantial news tips from our new partners and contacts. Over time, such news tips help reporters point themselves in a direction toward creating relevant, authentically told stories.

Here’s a sampling of diversity reports from some Gannett newsrooms across the country:

The Arizona Republic:

The Asbury Park Press:

The Pueblo Chieftain:

The Fort Collins Coloradoan:

Florida Today:

The News-Press and the Naples Daily News:

The El Paso Times:

Gannett has launched a Diversity Advisory Council, which will be led by CEO Michael Reed and director of inclusion, diversity and equity LaToya Johnson. Gannett’s new job postings also went live today:

At @USATODAY, we're adding jobs to our news, sports, investigations, entertainment, money, opinion and audience teams. Here are some of those new positions

— Gannett | USA TODAY NETWORK (@usatncareers) August 20, 2020

A full list that links to each newsroom’s census can be found at the end of Wadsworth’s column.

Maybe not this photo. pic.twitter.com/uiksZdgKLo

— Andrew Villegas (@ReporterAndrew) August 20, 2020

The Detroit Free Press released its diversity numbers.

Its staff (of 92) is 12% Black.

In total, it’s staff is 28% people of color.

Nearly 70% of the people who work for a newspaper reporting on a city that is 80% Black are White.

Let. That. Sink. https://t.co/TIkVr40OU9

— alex. (@Alex_Washington) August 20, 2020

Damn. Good on @DandC for recognizing this and *actually doing something about it* https://t.co/d5qkXKXd3z pic.twitter.com/3THhQWthIm

— Caitlin Dewey Rainwater (@caitlindewey) August 20, 2020

“As a Latina and the daughter of immigrants, it pains me that people of color are so often treated with indifference and contempt by the news industry,” said Cristina Silva, national enterprise editor and co-chair of the USA TODAY Diversity Committee. https://t.co/vKOyl9UxZK

— Jose de Jesus Ortiz (@OrtizKicks) August 20, 2020

]]> https://www.niemanlab.org/2020/08/almost-every-gannett-newsroom-agrees-diversity-is-critical-to-telling-stories-its-staff-demographics-show-theres-a-lot-of-work-to-be-done/feed/ 0 https://www.niemanlab.org/2020/08/it-continues-to-be-very-good-to-be-the-new-york-times/ https://www.niemanlab.org/2020/08/it-continues-to-be-very-good-to-be-the-new-york-times/#respond Wed, 05 Aug 2020 15:38:25 +0000 https://www.niemanlab.org/?p=185196 Last year, I outlined what I considered to be the four major milestones a newspaper must eventually reach for its transition to a truly digital company to be successful. They are:

• Making more revenue from digital sources than from print.
• Making more revenue from readers than from advertising.
• Achieving net revenue growth, with digital dollars rising more quickly than print dollars are falling.
• Having more digital subscribers than print subscribers.

This morning, The New York Times became the first American newspaper I’m aware of to reach all four. (I only know of one international newspaper, the Financial Times, that beat them to the title. The Guardian would also be there if it had a true paywall rather than remaining free to all online.)

The Times today reported Q2 2020 results and, for the first time, a majority of its revenue came from digital: $185.5 million, versus $175.4 million from print. It had already reached the other targets — more reader revenue than ad revenue, more digital subs than print subs, and net revenue growth — in recent years.

(A brief self-pat on the back: In February 2019, I wrote that, “given the trendlines in print and digital, it won’t be too long until it hits that 50 percent tipping point — I’d guess Q2 2020.” If you put money down on that prediction, I’ll be happy to take a cut of your winnings.)

The Times also hit yet another strong quarterly subscriptions number, adding a record 669,000 new digital subs in Q2. In 2016, the Times set a seemingly ambitious target of having 10 million digital subscribers by 2025. If it keeps adding new subscribers at this quarter’s pace, it would hit that number by early 2022, three years ahead of schedule.

(Another brief aside: Remember when some people thought the Times’ digital subscription success was just attributable to a one-time “Trump bump” tied to the shock of his election? Well, the Times added 583,000 digital subscriptions in all of 2016; it added more than that in just the past quarter. When Trump took office, the Times reported having 1.853 million total digital subscriptions; today it has 5.7 million.)

All of this is, as usual, great news for the Times and a reminder of the yawning gap between it and America’s local newspapers. Gannett — the nation’s largest newspaper chain by far, with more than 250 U.S. daily local newspapers, USA Today, and another 140 local news brands in the U.K. — has about 863,000 digital subscribers in total. The New York Times adds that many digital subs roughly every four months.

And while the rest of the American newspaper business struggles to match the Times’ subscription success, it’s unfortunately likely to share in the Times’ advertising pain. By far the worst number in today’s report was the utter collapse of ad revenue in the second quarter, driven by COVID-related shutdowns and the economic downturn.

Ad dollars were down an astonishing 43.9 percent in Q2; that included drops of 31.9 percent in digital and 55 percent in print. Given that most newspaper companies are more print-reliant than the Times — meaning greater relative exposure to the “55 percent” in that equation versus the “31.9 percent” — other newspaper earning reports are likely to be U-G-L-Y ugly. The 40-plus percent drop in advertising I estimated from McClatchy’s bankruptcy numbers may well prove to be too conservative. (Gannett and Lee Enterprises will announce its Q2 earnings tomorrow; Tribune Publishing will do so later today.)

Back to the Times. It will likely recover some, maybe even most, of those advertising losses in whatever future quarter American life returns to some semblance of normalcy. But the longterm decline in advertising dollars will continue. The digital subscription engine the Times has built will continue to protect it, though. The magic of a NaaS business — news as a service — is that the marginal cost of each additional subscriber is minimal. Having 10 million subscribers doesn’t cost the Times twice as much as having 5 million subscribers. That potential for up-cycling profits will buoy the business for years to come.

Right now, the Times has $756.7 million in cash on hand — up almost 10 percent so far in 2020 — and has no outstanding debt. Its recent acquisitions have been smallish in size; it paid just $8.6 million for the audio company Audm in March, and its recent purchase of Serial Productions cost about $25 million. It has the capacity to think at larger scales now.

(For context, all of Gannett is currently valued at just $212 million; the Times could buy Gannett three times over and still have cash on hand. Note: The Times should not buy Gannett, three times or one time.)

All of that is why I argued what I did in my open letter to incoming Times Co. CEO Meredith Kopit Levien, who assumes the role in a little over four weeks. The gap between the Times and the rest of American newspapering has exploded, and every trend line suggests it will only keep growing. If the Times cares about journalism beyond its walls, I hope it starts treating the health of the broader ecosystem as a key part of its mission going forward.

Fish-eye photo of The New York Times building by Torrenegra used under a Creative Commons license.

]]> https://www.niemanlab.org/2020/08/it-continues-to-be-very-good-to-be-the-new-york-times/feed/ 0 https://www.niemanlab.org/2020/05/in-rhode-island-the-states-largest-daily-no-longer-has-any-opinions-of-its-own/ https://www.niemanlab.org/2020/05/in-rhode-island-the-states-largest-daily-no-longer-has-any-opinions-of-its-own/#respond Tue, 12 May 2020 20:42:39 +0000 https://www.niemanlab.org/?p=182768 It is not news that Gannett, by far America’s largest newspaper chain, is cutting costs. (“Newspaper Cuts Costs” is perhaps the most banal headline of the past two decades.) The central argument for its November acquisition (brand and all) by GateHouse was that it would be able to cut $300 million or more in annualized costs via the alchemical magic of synergy.

As I noted today on Twitter, Gannett CEO Mike Reed said his newly merged company had 24,000 employees in November; last week, on an earnings call, Reed spoke instead of his “nearly 20,000 colleagues here at Gannett.” (As well as “our progress on the integration and realization of synergies.”)

Those cuts have taken many forms, but at The Providence Journal, one stood out. The newspaper — by far Rhode Island’s largest, about 10 times the size of any non-Gannett daily in the state — announced that it would no longer publish editorials. Here’s executive editor Alan Rosenberg:

We reached a milestone in Monday’s Journal, without saying so.

We published what may well have been the last Providence Journal editorial.

It’s a decision that we don’t make lightly. But it’s been coming for a long time…

[After the partisan newspapers of the 19th century,] most newspapers abandoned partisanship in their news pages, but kept the idea that they should speak out, in their editorials, on what they perceived as the best interests of their community and country.

But in doing so, they inadvertently undermined readers’ perception of a newspaper’s core mission: to report the news fairly. Our goal in news stories is always to learn, and reflect, the facts of a situation, then report them without bias. Reporters’ opinions, if they have them, have no place in our stories.

But when the newspaper itself expresses opinions on those same subjects, it causes understandable confusion. Readers wonder: Can reporters really do their work without trying to reflect the views expressed in their employers’ name? Can they cast a skeptical eye on a politician their paper has endorsed, or a generous eye on one it has opposed?

The answer is a definite “yes” — but my email since I became executive editor shows that many just don’t buy it.

This is compounded by today’s atmosphere of hyper-partisanship. People who oppose a particular official or candidate are infuriated by any editorial praise of him or her; people who support them are outraged by any criticism. None of which has anything to do with our reporters’ work.

And all of which gets in the way of what’s really important: our journalism…

So for now, at least, we’re done with editorials. I can’t bind my successors, but for the present The Journal will not run them, or endorse candidates at election time.

I say this with no disrespect to Rosenberg, who I’m sure is doing the best with what he has to work with, but: Horsefeathers!

Back in the real world, the Journal just laid off its editorial page editor in a round of Gannett cuts. That editor was Edward Achorn, a former Pulitzer Prize finalist for Commentary and had been at the paper for two decades. (The Journal’s editorial-page staff had around 11 people when he started; the newsroom had about 300 staffers altogether.)

Although I have produced pages through Monday, Friday was my last day at The Providence Journal. It has been my tremendous honor to have served the people of Rhode Island on these Commentary pages for nearly 21 years, fighting political corruption, advancing reform and defending our hard-won freedoms, particularly the First Amendment. Along the way, I was privileged to be named a Pulitzer Prize finalist for Commentary and to win the Yankee Quill Award for lifetime achievement in New England journalism and many other prizes.

Expressing ideas is often a difficult task, subjecting one to personal attacks or worse. But I can never forget the extraordinary kindnesses I received. I feel wonderfully blessed to have won the friendship and support of readers as well as leaders in business, government, and religion here, and to have edited the work of superb journalists and writers, including our intrepid corps of letter writers.

We have seen a retrenchment in editorials and endorsements at a few other papers, like my alma mater, The Dallas Morning News, which decided it would stop endorsing a candidate for president. (Does all of this have anything to do with the fact print newspapers’ older audiences are more likely to support Donald Trump, someone who almost no American newspaper was willing to endorse in 2016? I have my suspicions. “Why anger some of our best customers?” someone at corporate likely asked.)

But the Journal abandoning editorials is a scale of retreat that may be unique in the United States: a state’s dominant paper, in its capital city, volunteering to abandon one of its most significant roles — with no rival paper in a position to take its place. Sure, Rhode Islanders may not need the Journal to know who to vote for president or senator. But for races lower down the ticket — state legislature, city council, ballot initiatives, school board — an editorial board provides an important civic function.

(Not least in a state like Rhode Island, where politics is dominated by Democrats — they hold 99 seats in the General Assembly, versus 14 for Republicans — and traditional partisan attachments aren’t as useful a heuristic for voters.)

The change was stark enough to draw this fiery opinion piece from Howard G. Sutton II, the ProJo’s publisher from 1999 to 2014.

There is an unwritten protocol that the publisher emeritus stays sanguine regarding the future of the enterprise and silent on newspaper issues.

The Providence Journal recently announced that it was discontinuing the publishing of editorials. This is clearly a corporate cost-cutting measure thinly veiled as eliminating any confusion readers might have between a newspaper’s editorial stance and factual reporting. Apparently, the newspaper of record does not think that its readers are insightful enough to discern the distinction between news coverage and editorializing.

This is an affront to Rhode Islanders that causes me to break tradition and speak out.

For 15 years, I had the privilege of being the publisher of The Providence Journal. With that stewardship came the responsibility of overseeing the editorial position of a venerable, statewide newspaper of distinction…

Reporters are the heart of a newspaper and the editorial pages are its soul. The Providence Journal has lost its soul…

The Journal’s editorials stepped on plenty of toes. But change for the better is not possible without offending someone. The loss of this voice for the people of Rhode Island is a sad chapter in the storied history of The Journal.

I fear that the story is nearing its conclusion. Bang the drum slowly. Play the pipe lowly.

It was less than three months ago that the Journal highlighted Achorn and the importance of a strong editorial section.

My role is important because people, they see news fly by them. And I say, “Wait a minute. This story is important. Let’s discuss it.”

I think for that reason, the editorials in The Providence Journal, particularly in matters of the state government, are important because they make people stop and look at what’s happening. It’s easy to be overwhelmed by the news. Sometimes you need someone to make sense of it.

I covered Washington. I covered the Massachusetts State House. I covered local governments. I think that experience helps me explain better to readers what is important.

I think it’s very important for The Journal, as an institution, to stand up and fight for the people of Rhode Island.

(The Journal also laid off a 30-year sports writer as well as newsroom legend Janet Butler, who had worked there for 50 years.)

The heart of our newsroom was laid off today. Janet Butler was retiring in Sept after 51 years. She compiled food notes, fundraisers, people in business and other columns. Janet Butler has worked behind the scenes for 50 yearshttps://t.co/zr2BQalgp0

— Gail Ciampa (@gailciampa) April 27, 2020

Last year, we wrote about The Boston Globe’s efforts to invade Rhode Island — stationing reporters there and adding more coverage. Here’s how Globe editor Brian McGrory put it then, diplomatically: “We saw opportunity in Rhode Island, where quite honestly great newspapers like the Providence Journal were seeing significant cuts and that market is particularly engaged in news.”

The Globe has only three reporters stationed in Rhode Island. But who knows — a few more rounds of Gannett cuts and the Journal may get close to that coming from the other direction. As of January, it reportedly had fewer than 15 news reporters left.

Photo of downtown Providence by JJBers used under a Creative Commons license.

]]> https://www.niemanlab.org/2020/05/in-rhode-island-the-states-largest-daily-no-longer-has-any-opinions-of-its-own/feed/ 0 https://www.niemanlab.org/2020/04/newsonomics-poison-pill-swallowed-whats-next-for-reeling-gannett/ https://www.niemanlab.org/2020/04/newsonomics-poison-pill-swallowed-whats-next-for-reeling-gannett/#respond Wed, 08 Apr 2020 15:37:16 +0000 https://www.niemanlab.org/?p=181823 Sixty-three cents. That’s all it took to buy a share of Gannett at market close yesterday.

The entire company — valued at $18.5 billion-with-a-“b” 15 years ago when it owned TV stations but many fewer newspapers, not to mention $823 million-with-an-“m” as recently as January — is today worth just $88 million. Gannett — the largest chain in the nation, delivering 25 percent of the nation’s daily newspapers each morning — now trades at 12 cents below the frozen level of its bankrupt peer, McClatchy.

The company’s board has prescribed a poison pill, announced Tuesday, as one stopgap treatment for its woes. It seemed to work at first; Gannett’s stock price shot up 57 percent, briefly even touching $1. But the optimism faded as the day went on, and GCI ended the day a few pennies below where it had started.

The company’s market value can’t fall much lower, mathematically speaking, but the questions about its future continue to multiply. Why did the stock fall off the cliff? Why the poison pill? What’s the next step with Apollo Global Management, the private equity firm to which Gannett’s owes nearly $1.8 billion-with-a-“b”?

In this new saga of Consolidation Games action, worlds are colliding: the worlds of supposed merger synergies, of coronavirus-driven shutdown, and of federal bailouts. They’ve combined to confront this new company with challenges that seem overwhelming.

Like all newspaper companies (and to some extent all media companies), Gannett has been battered by COVID-19’s assault on ad revenues. In the second quarter, sources tell me, Gannett will be down at least 30 percent in ad revenue, a number that parallels the overall losses industry-wide. (Some publishers continue to report projected losses as high as 60 percent, but 30 to 50 percent is the range most agree upon.) That’s for April; May is now expected to be similar, and at the moment, there’s not much reason to think June will be very different. It adds up to an unimaginable Q2 of losses for great majority of local newspaper publishers.

This pain coincides, ironically enough, with perhaps the most intense period of readership — and appreciation — by local news audiences in recent memory. But the irony has faded quickly as publishers, their employees, and soon their readers confront the resulting ratcheting down of the local news business.

The new Gannett board faces its own unique challenge, since the company is in the middle of what was proving to be a gnarly restructuring, prompted by the merger between the No. 1 (“old” Gannett) and No. 2 (GateHouse) newspaper chains. That’s a restructuring of organization, technology, staffing, and most intractably, culture. As one might expect, reports even pre-virus found a lot of ongoing pushing and shoving for position, with new second-in-command Paul Bascobert having a tough time putting the new pieces together.

It was that restructuring that provided the financial justification for the massive merger. (The deal closed in November with Gannett shareholders getting $12.06 per share — $6.25 in cash and the rest, now notably, in stock.) Gannett CEO Mike Reed has publicly promised the market $300 million in “synergies,” or cost savings. A number much closer to $400 million had become an internal target, sources tell me.

Now the company has announced $100 million to $125 million in additional cuts, first in the form of last week’s announced pay cuts and furloughs. That’s on top of the earlier $300 million-plus.

Let’s look at the action in progess. (Mike Reed declined to comment for this piece.)

Start with the pill. A poison pill is an attempt by a company to prevent or dissuade a hostile takeover by declaring that, should such an event occur, something terrible would happen. The pill in this case gives existing shareholders the right to buy shares at a 50 percent discount should a raider start buying shares in a takeover effort.

Financial observers describe it as a curious move here. We’ve thus far seen no efforts to buy up Gannett stock — quite the opposite, actually. It’s possible that such a buy will be signaled by SEC-required filings in the days to come, but it hasn’t yet been detected.

How desirable is Gannett, anyway, even at a share price perilously close to corporate pocket change? (Jeff Bezos just bought a house that cost almost twice as much as Gannett is worth.) $88 million plus a premium of 10-20 percent seems awfully cheap for a publisher that reaches the doorsteps of a quarter of the American newspaper reading public — many of them voters.

Of course, behind that purchase price lies the outsized debt any buyer would face. The deal makers, led and managed by Fortress Investment Group, took on that debt in what now seems like a case of extremely bad timing. In late February, Gannett announced it had paid down $45.2 million of its $1.8 billion loan from Apollo, a loan with an 11.5 percent interest rate at a time when the Fed is pushing rates as close to zero as possible.

Any Gannett buyer would have to pay off Apollo, or at least make a new deal with it. Who might want to, or could? Even the one player still active in newspaper M&A — Heath Freeman of the dreaded Alden Global Capital — would seem a long shot to put that deal together. The risk in the newspaper business has only gotten riskier.

But it’s unlikely even vaunted risk-taker Leon Black, Apollo’s founder and CEO — and a man Bloomberg recently called “the most feared man in the most aggressive realm of finance” — could imagine the COVID-inflicted damage Gannett has taken.

(That said, here’s a bit from that Bloomberg profile: “Black built his company, Apollo Global Management Inc., by buying struggling businesses with huge piles of debt at bargain-basement prices, imposing austerity measures on the staff, and extracting huge dividend payments and management fees. Many of Apollo’s most lucrative deals have been from companies other firms wouldn’t go near…’We’ve actually made our most money during recessions…Everybody else is running for the doors, and we’re backing up the trucks.'” Sound familiar?)

So, how able will Gannett be to keep making payments to Apollo and keep the business operating?

That’s a cash flow analysis that will change depending on the shutdown’s length and depth. This lost second quarter will eviscerate anticipated profits. In addition, Gannett and all publishers will find it increasingly difficult to collect on some first-quarter-run advertising payments; many advertisers are on life support themselves, unable or unwilling to pay their bills. Small businesses ask publishers like Gannett to “accommodate” them, given the extraordinary circumstances.

Given all that, sources tell me that Reed and Apollo are talking about a similar kind of accommodation that would ease the financial pressures on Gannett.

Apollo is in the catbird’s seat here. As Gannett’s chief lender, it has first call on the company should it be unable to meet its contractual obligations. Beyond the payments themselves, the Apollo loan includes a number of fairly standard covenants that put clear limits on the company’s spending and debt issuance. (You may remember that Gannett was not allowed to issue a shareholder dividend in Q1 because Apollo wouldn’t allow it “in line with our credit agreement.”)

In this deal, Gannett could find itself running afoul of “gross leverage ratios” — essentially how much cash flow it’s generating compared to the debt it has on its books. Violating covenants can provide lenders the ability to make demands on the borrower.

There are contracts, and then there’s the world of the moment. If Gannett’s financial fortunes worsen — as an economy stays shuttered or sputters through soft opening after soft opening — does Apollo really want to push for control of the company? Right now, it’s a passive player, as one financial observer puts it, “but it’s clearly in charge of the capital structure.”

Apollo continues to be one of the most active PE companies in and around news media. After failing to acquire Alden’s Digital First Media in 2015, it bought Cox’s local broadcast properties last year. Just a week ago, it dropped a bid to add to its broadcast holdings, abandoning talks with big player TEGNA, the broadcast offshoot of the Gannett split of 2015. Clearly, it’s got more appetite for the media business right now than most of its brethren. But how much does the barren landscape of local newspapers still offer Apollo a business case for ownership?

Down the road, we could see both the “D” and “B” words arise. Default, on the loan obligation. Bankruptcy, as in Gannett’s inability to go forward given the twin pressures of its debt and advertising depression.

Those aren’t the words being discussed right now, most observers believe, but they could well lie ahead. Chatham Asset Management, long McClatchy’s major lender, will become its major shareholder — and thus controller — when the company exits bankruptcy, likely this summer. That sort of prepack bankruptcy is one plausible scenario that could be forced by Apollo — but only one.

There’s another “D” word that Gannett has already acted on: dividend. Dividends have been pivotal in propping up publicly traded newspaper stocks over the past several years. Even if investors didn’t believe a newspaper turnaround was likely, they knew that predictable dividends would pay out quarterly cash. Last week, assessing the immediate damage, Gannett took the quick step of suspending its planned Q2 dividend, a sign of its duress.

Why did Gannett shares tank to less than a dollar over the last week? A big part of it is that cessation of the dividend, financial observers say. Institutional funds, which had been holding shares for their dividend payouts, began to abandon it. Some had to, given the rules of their funds; others just thought it was a good time to get out.

Open at the stocks app on your phone and check out the next ring of descent in the financial hell of public newspaper businesses. Bankrupt McClatchy is frozen at 75 cents, no longer a creature of the market. Gannett closed yesterday at 63 cents. Lee Enterprises, too, has dropped like a stone, to 85 cents, just a few months after buying Berkshire Hathaway Media. Only Tribune Publishing, because of its likely merger with Alden Global Capital’s MNG Enterprises in the next few months, has maintained any significant value at $7.37 a share — and that’s still down by almost half in six months.

The end of publicly traded newspaper companies will soon be upon us. They may have seemed like a great idea 15, 25, or 35 years ago, but it’s now mostly private owners of financial capacity and vision who seem to stand a chance of finding a way forward for local news.

What about the federal bailout, you may ask? Gannett is too big for the now-chaotic Small Business Administration loan-to-grant program, which is limited to companies with fewer than 500 employees.

It will be eligible for the Treasury program, whose regulations are still in progress. There it will face intense competition. Unlike the SBA program, which is intended to spend taxpayer money, the Treasury program is intended to make, or at least not lose, money — much like the Great Recession’s politically maligned but economically successful TARP. Gannett’s case may be hard to make on that question, especially in the longer term. Plus, bailouts are inevitably influenced by politics. Given this administration’s war on the press, how much will that further disadvantage Gannett and other larger newspaper companies? We don’t yet know.

Admid all this drama, Gannett welcomed a new chief financial officer Monday. That’s a tough job to walk into, but Douglas Horne’s most recent experience may make the challenge seem more reasonable. Horne left his post in November as global controller for the We Company, parent of commercial real estate leasing firm WeWork. The euphoric rise and spectacular collapse of WeWork — now embroiled in a major public fight with its funder Softbank — has been quite a story to behold. So maybe he’s the one person for whom Gannett’s current crisis will seem relatively tame.

]]> https://www.niemanlab.org/2020/04/newsonomics-poison-pill-swallowed-whats-next-for-reeling-gannett/feed/ 0 https://www.niemanlab.org/2020/03/newsonomics-tomorrows-life-or-death-decisions-for-newspapers-are-suddenly-todays-thanks-to-coronavirus/ https://www.niemanlab.org/2020/03/newsonomics-tomorrows-life-or-death-decisions-for-newspapers-are-suddenly-todays-thanks-to-coronavirus/#respond Tue, 31 Mar 2020 15:27:12 +0000 https://www.niemanlab.org/?p=181523 As local newspapers’ businesses hit the skids, they’re finding themselves careening right now into a future they’d thought was still several years away.

“We are all going to jump ahead three years,” Mike Orren, chief product officer of The Dallas Morning News, suggested to me last week.

At least. Ask an American newspaper exec a few weeks ago what they thought 2025 would look like, and they’d tell it you it would be much more digital, far less print, and more dependent on reader revenue than advertising. Some of them would have told you they think they had a plan to get there. Others, if they were being candid, would have said they didn’t see the route yet, but they hoped to find one in time.

The COVID-19 crisis has clearly accelerated that timeline — and may have ripped it to shreds altogether, depending on how long the shutdown lasts and how deep the resulting recession gets.

Make no mistake, though: Many of the decisions being made right now and in the next few weeks will be permanent ones. No newspaper that drops print days of publication will ever add them back. Humpty Dumpty won’t put the 20th-century newspaper back together again. There can be no return to status quo ante; the ante was already vanishing.

Will these decisions “save” the local press, as we’re bombarded with stories of systemic, perhaps irreversible failure in North America, the U.K., and Europe? One way or the other, these are now existential decisions that can no longer be avoided or postponed.

Right now, publishers are combing through Friday’s federal bailout legislation, “trying to determine if they qualify, for how much and when the money might be available,” David Chavern, CEO of the News Media Alliance, told me Monday. “That is going to take at least a several more days (if not a bit longer) — and I assume that some of these publishers are holding off personnel actions until they know the answers.”

Gannett, now by far the largest local news chain, has already announced pay cuts and furloughs, in both the U.S. and U.K. But all publishers, big and small, are now considering their options. Those include layoffs, rapidly eliminating several days of print publishing, reducing their ad sales staff, and questioning their need for large central offices as remote work becomes a workable norm.

All of those ideas have been discussed for years. But now they have to make decisions they’d hoped could wait a few more. The decisions they make, and how they can act on them, will tell us a lot about how much of the local press is left — and how much isn’t — come 2021.

That’s an internal view. Of course, local newspapers operate in a broader media world — including local public media, local TV, and local startups. In some larger cities, public radio stations are taking audience (and sometimes talent) from the dailies. Local commercial TV stations are feeling advertising pain too, but they still have more capacity to sustain themselves — and grab future market share. “They’re expanding more in digital and in social,” says TV business expert Bob Papper, who tracks the industry closely. That’s true even after Michael Bloomberg’s one-man subsidy of local TV ran its course.

Then there’s the nascent independent local press, from VTDigger to Berkeleyside, Charlotte Agenda to The Colorado Sun, The Memphian to MinnPost. Many of these green shoots are finding a little more sunlight — but they’ll be the first to tell you that it’s a tough road replacing their town’s flagging ancestral dailies. Meanwhile, amidst the carnage, some schemers and dreamers are strategizing about what they see as the detritus of a daily industry, waiting to be bought out or taken off by a new generation of local news builders. They’re early in that process; that’s a story for another day.

Let’s step back for a moment and consider the larger society in which local news — and all of us — now all operate. The double whammy of virus terror and economic calamity has made real a whole host of underlying issues — from generational equity to the ragged safety net, affordable child care to cramped housing, the entire panoply of inequities baked into our society.

Perhaps this will be merely a short bout of home detention followed by a fast, v-shaped economic recovery. Maybe these issues will dissolve quickly in the public discourse. For tens of millions, though, they will remain ever-present, defining their lives and their possibilities.

How will the local press of the 2020s cover these realities of life on the ground when we return, blinking, into the sunlight? Will journalism at all levels be strong enough to contribute the deep reporting and analysis that that intelligent fixes require? Will a society shocked by American incompetence in the face of an enemy find its future aided by the press it deserves and requires? Or will a nation of emptied-out newsrooms be unable to meet the moment?

As I wrote Friday, the biggest problem in America isn’t (yet, at least) newspapers going under. It’s ghost papers, strip-mined by ownership, disguised as news sources but actually offering very little in the way of local news or community leadership. The press, whatever its form, finds itself in a classic position: Lead, follow, or get the hell out of the way.

In the shorter term, though, the set of life-or-death questions local newspaper companies face right now is fairly clear.

• Will we keep seven days of print publishing?
• What does it mean to run a mainly reader revenue-driven business?
• How do we find the right people with the right skills to run a digital business?
• How many journalists will our new business reality allow us to pay?
• Will we still expect journalists to report to a central office every day?
• What do “advertising” and “events” look like?
• Should we merge or sell?

So let’s look at each of these more deeply to see what a prematurely arriving 2025 means to readers, journalists, newspaper employees, and publishers.

Nearly every publisher has looked at this question — and nervously stepped back, ever since Advance Local stepped out way ahead of the crowd in 2012. Their compelling fear: Would ending seven-day print be a final breaking point for the habits for decades-long subscribers — the ones now paying $400 to $1,000 a year for home delivery? How many of these customers wouldn’t even transition to a lower price point for some print and more digital? How many would, like so many newspaper subscribers before them, just go away?

McClatchy provided one of the best and most watched dress rehearsals in the trade last year. Last summer, I wrote about how the company began its program of dropping print Saturdays for a single weekend edition — something the Europeans did successfully ages ago. Now McClatchy’s little experiment has become the standard across the entire 30-title chain. And its results are clear.

“The retention from digital Saturdays has been nearly total,” Sara Glines, regional publisher for McClatchy’s Carolina properties, told me Monday:

We lost less than a dozen subscribers in each market, in some markets less than a handful. Digital activation went up immediately. E-edition usage went up on Saturdays. In today’s coronavirus environment, those digital activations have gone a long way in bringing more readers to our digital platforms for breaking news and updates. Miami Herald and El Nuevo Herald were our last markets to launch digital Saturdays. Their first digital Saturday was March 21. It went just as smoothly as all other markets.

How well does McClatchy’s Saturday strategy translate to the broader industry? We know the lessons:

• Communication: Talk to readers early and often about why day-cutting is happening.
• Move relevant features and news into other products, digital or print, that make sense to readers. Reconfigure the Sunday paper into more of a week-in-review, stronger-in-features product.
• Set new pricing that customers think is fair.

But those essential-to-execute guidelines only tell us so much. Dropping Saturdays saves publishers some money — but not that much. With as much as half of their ad money evaporated by COVID-19, publishers will need bigger savings — which means cutting more days.

Readers who might easily adjust to the logic of a weekend paper might also think that saying goodbye to Monday, Tuesday, Thursday, and Saturday, all at the same time, is too much. If it’s too much for readers, and they drop their subscriptions entirely, then the local news business spirals downward even more quickly.

If it works, though, it can save a lot of money.

A huge portion of newspapers’ budgets remains tied up in manufacturing: presses, paper, ink, trucks, and all the people who handle them. (These are the often forgotten newspaper employees, the ones who realize their jobs are going away, but nonetheless like the idea of that happening in 2025 more than 2020. Let’s not forget them.)

“There are so many variables,” one veteran of the trade told me:

Most important: Do you outsource printing or not? If you do, then you can usually cut days and save money. If you own your own presses, it’s harder to manage. Pressmen don’t work just two days. What does it do to your distribution network; can they afford to operate just two days a week? Do you have an agreement to print and distribute other papers like The New York Times or USA Today?

That reckoning — to in-source or outsource — has led to much more regionalized printing, like The Columbus Dispatch being printed 175 miles away in Indianapolis. Those longer distances lead to much earlier editorial deadlines, which means missing late news or sports — often resulting in a print product that’s 36 hours behind the news we read on our smartphones. That’s part of this unending spindown of the newspaper industry.

What’s the 2025 business view here? Expect that most surviving dailies will offer as robust a Sunday print product as they can, and digital through the day, through the week. Or maybe it’s Sunday and Wednesday, for midweek print advertising, depending on individual markets. Or maybe the big Sunday paper shifts back to Friday or Saturday to capture more weekend reading and shopping. Done well, a publisher that shifts from seven days to a couple can expect to retain 75 to 90 percent of existing print advertising. But publishers have been properly wary of that ripcord now dangling in their corner office.

We’ve already seen several titles, most prominently the Tampa Bay Times, announced radical day cuts, within this crisis, and we’ll see more. The question is how many more, and how many days will they be cutting? Even in relatively prosperous California, major publishers are planning to drop Saturday print by early next year, knowledgeable sources tell me.

What does it mean to run a mainly reader-revenue-driven business?

The national news brands offer the best-practice playbooks here.

Business intelligence forms the foundation of their business, with an ever-evolving understanding of how to win — and keep — paying subscribers. That intel has then led to newsroom staffing expansion. They’re creating a virtual flywheel of more and better content and services to readers, who then pay for subscriptions and build a new — bigger — business.

For the locally oriented companies, though, that model is daunting. Do they have the will, capital, time, and talent to apply proven lessons?

How do we find the right people with the right skills to run a digital business?

Going digital (doesn’t that sound odd in 2020?) means committing to a business run by people with digital skills, and not enough publishers have truly done that. Time’s now up. As I noted in my start-of-the-decade Epiphanies piece: “The brain drain is real. What’s the biggest problem in the news business? The collapse of ad revenue? Facebook? Dis- and misinformation? Aging print subscribers? Surprisingly, over the last year numerous publishers and CEOs have confided what troubles them most: talent.” That truism makes the accelerated movement to “digital” even tougher.

How many journalists will our new business reality enable us to pay?

Some smaller chain newspapers were already down to the most skeleton of product-producing staffs, pre-COVID-19. We’ll now see tested the question of how low on staffing they can go — just to get a product out. The more important question, though, is: How many people do they need to produce something readers will pay for?

Will we still expect journalists to report to a central office every day?

Having learned that they can produce the news almost entirely remotely (other than printing and distribution), how much will news organizations want to reconfigure their workspaces to generate savings out of reduced office space?

“We’re 100 percent remote,” says Mike Klingensmith, publisher of the Star Tribune. “Nobody is in our office. I don’t know how we are doing it. Everyone may figure out we don’t need an office after all.”

About 20 percent of newspaper employees work in the physical business of print, manufacturing, and distribution. For the rest, this small unthinkable is now thinkable.

What do “advertising” and “events” look like?

Publishers have continued to make and re-make their ad priorities, staffing, and skills as The Duopoly and digital have forever changed the nature of advertising. This crisis — with some portion of that missing advertising likely never to return — will prompt more rethinking. How much inside sales versus how much outside? How much branded? How much direct versus programmatic?

The events business is also a big question mark, as Josh Benton explored last week. O’Reilly Media deciding to end its big event business was shocking. I agree with the sentiments of Rafat Ali, founder of travel B2B leader Skift: “If we ever give in to the idea that face-to-face events will be over, then we should also give up on the idea that people will travel again. We might as well give up on, well, everything.” Rafat-like, and as ever, to the point.

He expresses a global POV; let me add a local one. The future of the local press is in a deep and authentic relationship with its readers and communities. And that means people in close contact, post-coronavirus. Events of all kinds will be a major part of that future for the successful.

Will we have to merge or sell to stay in business?

The Olympics may have been pushed to 2021, but The Consolidation Games is going ahead as scheduled, virus schmirus. In fact, there’s good reason to believe this crisis is accelerating an M&A process that had already been moving fast.

Share prices for publicly traded chains have dropped dramatically, with Gannett floating just below $2 Monday. When GateHouse bought Gannett — just over four months ago! — this was the deal: “$12.06 a share in cash and stock, based on New Media’s Friday closing price, with a promise of $6.25 in cash and 0.5427 of a New Media share for each Gannett share.” From that to two bucks is quite a fall.

Depending on the duration of this crisis, Gannett’s shares are likely to rise eventually. But its big question remains the $1.8 billion in debt — at 11.5 percent interest — that it took on to make the merger work. Will Gannett be able to keep on schedule with those payments — while, you know, actually operating the company — if the ad exodus extends into summer or fall?

It’s not just future earnings that these companies need to worry about it. It’s also collecting on what’s already been sold, on ads that have already run.

“One of biggest issues is cash flow,” one news industry financial veteran told me. “What if all those SMBs [small to midsize businesses] don’t pay for January and February ads? Even if they have cash, they don’t want to cut checks. Even places like Macy’s may just not pay for January inserts.”

(Here we meet one of the great players in any crisis: attorneys. “In this whole mess, expect full employment of lawyers arguing ‘force majeure’ as a reason not to enforce contracts businesses want to get out of,'” that finance source continued. Is a pandemic an Act of God? It’s a legal “gray area.”)

These are more than abstract concerns. Metro publishers have already told me about major advertisers asking for givebacks and “accommodations.”

Some, including me and much wealthier investor Leon Cooperman, have long doubted Gannett’s ability to pay off that five-year loan while continuing to pay a hefty dividend to shareholders and keep enough people in its newsrooms with the cash flow it could expect.

This crisis only makes those doubts grow stronger.

It’s way too early to mention the “D” word — default — though it is being brought up offline.

Now consider the other drama that’s been submerged in the virus crisis. What will become of Alden Global Capital’s essential takeover of Tribune Publishing? It’s likely more “logical” — in terms of profit maximization — than it was before. Sources tell me a merger between Tribune and Alden’s MNG Enterprises is likely to be announced before the June 30 that is so pivotal in Tribune’s future.

One financial source tells me the deal will be a mix of cash and stock: “Tribune is the acquirer. That would leave them with more liquid security, a big beneficiary of all the synergies. Tribune can fit it into their balance sheet, since it has little debt, with no problem.” (At the moment, Tribune debt stands at $37.6 million.)

Tribune has already begun to look more like Alden’s MNG, notorious as the industry’s most aggressive newsroom shrinker. Tribune has been cutting costs, reducing management positions, and searching for efficiencies wherever it can find them. This current crisis only adds impetus to that work.

In that scenario, Tribune properties — in major cities like Chicago, New York, Baltimore, and Orlando — will probably begin to look more like MNG papers The Mercury News and The Denver Post. Newsrooms cut to be the bone. Disinvestment from what Alden has always seen as a largely mythical digital future.

Financially, it’s a strategy that has worked for Alden. Enough older subscribers have accepted its higher pricing, and it’s found just enough buyers of its minimal digital products to keep the profits coming.

While its numbers aren’t as good as what I reported two years ago, its top properties still throw off (or did pre-coronavirus) margins of more than 20 percent. That’s unheard of among nearly all other publishers.

So what will this crisis mean to Alden and its president and chief dealmaker, Heath Freeman? “Heath could use this to run the table,” one observer said.

It’s easy to see why and how that indeed might be possible. Look at what the chain landscape may be by summer. McClatchy, one of the now lonely “independent” chains, will emerge from bankruptcy in four to six months (unless virus-driven delays lengthen the process). At that point, controlling owner Chatham Asset Management will look at its options.

One will be merging with the new Alden+Tribune.

Another, maybe, would be turning to Gannett. That would require a larger financially rejiggering, though, with lender Apollo a key player.

Either way, given the deep declines the industry faced pre-COVID, plus the unknown toll going forward, we could well see this reality: four hedge funds and private equity firms controlling a majority of America’s daily press as 2020 rolls on into darkness.

Chatham, Apollo, Alden, and Fortress Investment Group (which holds a contract to manage Gannett through 2021) may well get to decide amongst themselves how to divvy up the properties that deliver the local news most Americans get.

That’s not the picture Seattle Times owner Frank Blethen has in mind as he has launched his “Save The Free Press Initiative” in December. But it’s a reality we may all soon face.

This extreme moment is forcing publishers’ hands. Undoubtedly, some may look back on the other side of COVID-19 and say: “That worked well. We should have done it earlier.” Others will wish they’d had more time to think about jumping.

If publishers’ can still see any water in the glass at all — it seems to be emptying day by day — they might invoke Rahm Emanuel’s timely advice about the Great Recession at the start of Barack Obama’s presidency: “You never want a serious crisis to go to waste.”

This is a crisis. This is serious. And there’s no time left to waste.

]]> https://www.niemanlab.org/2020/03/newsonomics-tomorrows-life-or-death-decisions-for-newspapers-are-suddenly-todays-thanks-to-coronavirus/feed/ 0 https://www.niemanlab.org/2020/03/the-newsonomics-of-the-mnuchin-money-and-the-bailouts-impact-on-americas-press/ https://www.niemanlab.org/2020/03/the-newsonomics-of-the-mnuchin-money-and-the-bailouts-impact-on-americas-press/#respond Fri, 27 Mar 2020 14:42:31 +0000 https://www.niemanlab.org/?p=181426 Is that a light at the end of the tunnel? Or just the Mnuchin Express coming for the newspaper industry?

The $2.2 trillion CARES Act will likely become law at some point today. It’s a bailout that has got local news publishers and their trade groups scurrying; they’re eyeing two big pieces of it. As details continue to emerge and regulations await writing, we can begin to understand what in this legislation might make a difference to the beleaguered news industry.

(It’s important to understand, though, that much of the information about the bill, not to mention its future implementation, is still fragmentary.)

Publishing companies with fewer than 1,000 employees will turn to the $300-billion-plus allocation for the Small Business Administration. (Estimates for the total range from $349 billion to $377 billion at the moment. Yes, could be a $30 billion rounding error.) SBA will now be able to approve “loans” of up to a million dollars, up from the current limit of $300,000. Even better, these low-interest loans (4% interest max) can be turned into grants so long as payrolls are maintained. (What does “maintained” mean, exactly? That’s detail still to come; SBA is supposed to aim to have its new regulations in place within 15 days.)

Much of America’s daily and weekly press can benefit from the new SBA program. The main idea: Keep payroll in place for the current workforce. It is a program aimed squarely at the onrushing second quarter.

Publishers will be able to apply the money to rent and utilities as well, says Danielle Coffey, senior vice president and general counsel for the News Media Alliance, who has been poring through the legislation.

Already, publishers and their trade groups — notably News Media Alliance and America’s Newspapers (the result of the recent merger of Inland Press Association and the Southern Newspaper Publisher Association) — are combing through the legislation, determining the key points that will inform publisher decision making.

Those publishers, along with many other small business owners, will soon visit (physically or digitally) the SBA-approved banks that will review and distribute the funds. Those banks themselves are sure to be overwhelmed.

Those loans will be a lifeline for some publishers, as society’s great disappearance has taken as much as half of advertising revenue (maybe more!) from the press in shockingly short time. Will this SBA lifeline be enough to make a difference? Certainly, the size of a local news enterprise determines how far hundreds of thousands of dollars can go. Certainly, though, no one can be sure. Barring a major Easter surprise, no one expects this lost ad business to come back big or come back strong. But a million dollars buys one important thing for smaller companies: time.

Between SBA loans and a paycheck protection provision, it’s believed that the most a sub-1,000-employees company could receive would be 2.5 times its average monthly payroll, not to exceed $10 million.

These smaller companies provide vital news across the vast reaches of the country. But the reality is that most of the country’s newspaper readers are now served by dailies owned by larger companies.

Companies with between 1,000 and 10,000 employees graduate into a larger and wildly competitively pool, already dubbed the Mnuchin Fund by some. Treasury Secretary Steven Mnuchin has been given a checkbook of around $454 billion to help these employers.

Who can qualify? Basically, other than airlines, air cargo, and security companies — all of which are covered under other parts of wider bailout — it’s everyone into the big pool. Hoteliers, big restaurant companies, retailers of every kind…and newspaper chains. “It’s very unformed,” says David Chavern, CEO of the News Media Alliance, which represents the largest newspapers, mainly metros and chains, in the daily newspaper industry.

What will the Mnuchin rules be? No one yet knows, as the press raises comparisons to the last crisis’ TARP legislation. That’s the bailout that, some pundits believe, both saved the country from a depression and spawned a political revolt that determined much of the politics of the next decade. (Well described in brief on The New York Times’ The Daily’s Thursday podcast.)

“There are a lot of unknowns, and there will be more restrictions,” sums up NMA’s Coffey succinctly. Among the questions: How much money goes to which companies, on what terms, and with which requirements?

Such decisions are always knotty, contentious, and inevitably political. The financially driven consolidation of the newspaper industry (amply covered here since January 2019 as The Consolidation Games) should complicate what will already be complicated decision making.

(And hey, at least we know The Consolidation Games won’t be postponed a year because of COVID-19.)

New Gannett, the largest newspaper player by far, has been in the process of achieving $300 million in “synergies” between its former GateHouse and Old Gannett halves — largely by reducing headcount. Almost all daily newspaper companies have been laying off employees for years, as their revenues have dwindled. How will regulations take into account declining companies in a distressed industry — whose work still produces the bulk of local news that Americans get?

All these companies still supply vital journalism, but how much will a bailout support that journalism as compared to the maintenance of sometimes significant profit margins? Will it distinguish between a family-held daily that’s reduced its profit substantially to maintain a larger newsroom and a private-equity-owned daily that’s done the opposite?

Is this money for the owners, for the journalists, or for the communities they serve? That’s a major question to watch closely.

Both at the trade groups and in executive offices, newspaper people begin to try to divine what’s likely to happen with the Mnuchin money and beyond.

NMA has been in full swing on these issues ever since the severity of this crisis became clear. Why didn’t NMA try to get a specific piece of dedicated bailout money, as the airlines ($60 billion) did?

“Our lobbying was limited,” says Chavern. They were told they couldn’t, along with all other beleaguered industries. There’s “essential” and then there’s essential. (And then there’s “essential,” like germ-spreaders Michael’s and the Guitar Center.)

Instead, the trade associations began work in several areas:

• Making sure news publishing was defined as “essential.” The lockdown quickly prompted on-the-fly definitions of which businesses were sufficiently “essential” to be allowed to stay open. With the federal government taking its on-again, off-again position of leadership in this crisis, NMA worked with various jurisdictions and state publisher associations to ensure that journalists could continue working — and delivery people could throw papers.
• Outlining a “public service ad” initiative that could serve dual purposes. As the federal government communicates policy, such as the evolving CDC guidelines, it could place a steady stream of ads in newspapers — as well as other media — to get the word out. It’s a proposed twofer: (1) offer factual information more widely and (2) provide support for news media as they endure unprecedented ad revenue loss.

It’s more than an abstract idea. On Wednesday, Justin Trudeau’s administration announced that Canada would spend $30 million on such ads. “To ensure that journalists can continue to do this vital work, our government is announcing new measures to support them,” he said. (Publishers quickly cried too little, too late, pointing to the coronavirus-driven loss of as much as two-thirds of their ad revenue.) “They’ve done that in Europe, too,” says Chavern. Expect the NMA and America’s Newspapers to push for a sum in the nine-digital range.

How much should anyone be concerned about the tried-and-true American line between government and press?

“There’s a lot of apprehension about the independent press and the government getting too close,” Chavern acknowledges, but notes this would be an ad buy — not unlike the still-significant “legal ad” business that’s been in place for hundreds of years. Importantly, newsrooms themselves wouldn’t be involved in the program.

“We’re focused on the next piece of legislation,” says Dean Ridings, CEO of America’s Newspapers, which represents hundreds of newspaper companies, with more emphasis on small and medium titles. Even as the ink isn’t even dry on this bailout, business generally expects another one — and is laying plans to get a piece of that pie.

Photo of Treasury Secretary Steven Mnuchin addressing the press outside the White House March 13, 2020 by Keegan Barber/The White House.

]]> https://www.niemanlab.org/2020/03/the-newsonomics-of-the-mnuchin-money-and-the-bailouts-impact-on-americas-press/feed/ 0 https://www.niemanlab.org/2020/02/newsonomics-in-memphis-unexpected-news-war-the-daily-memphians-model-demands-attention/ https://www.niemanlab.org/2020/02/newsonomics-in-memphis-unexpected-news-war-the-daily-memphians-model-demands-attention/#respond Thu, 20 Feb 2020 18:15:07 +0000 https://www.niemanlab.org/?p=180054 At first blush, it looks a bit like an old-fashioned newspaper war. (For our younger readers: Long ago, some cities had two or more strong newspapers that fought each other for scoops, talent, readers, and advertisers. Really.)

In Memphis, two newsrooms — each with about three dozen journalists — slug it out, day after day. They both know it’s possible, maybe even likely, that only one will be still standing in a few years.

What’s happening in Tennessee’s second-largest city, given our times of media high anxiety, also takes on the tone of a morality play, a quizzical dot on the landscape of ghost newspapers and deserted communities. Is Memphis an outlier, or is it a sign of what’s to come in the 2020s?

Quietly, The Daily Memphian — an ambitious local news site launched in 2018 — has shaken up the local news landscape in Tennessee’s second largest city.

“I really think that the presence of The Daily Memphian has been a good thing for the market, and it’s been a good thing for our journalists,” says Mark Russell, the executive editor of the incumbent daily newspaper, the Gannett-owned Commercial Appeal. “I think readers are benefiting from it every single day.”

The “newspaper” war even comes some good trash talk. “I think that competing with The DM has been wonderful for Memphis, wonderful for our journalists and theirs,” Russell continues. But…

“Eric Barnes, Andy Cates, and even some of their columnists have said things in the media and said things publicly that have just been, I’ll call them — call it what it is, outright lies. Because they’re describing The Commercial Appeal and our commitment to Memphis and whether we’re controlled by Nashville. And they know it’s a false narrative. And they keep repeating it. They’ve let up a little bit lately, as I’ve called them on it. But I think for almost a full year, that’s all they talked about, how the CA was ‘not committed to Memphis.'”

The Daily Memphian’s very name shows who it aims to compete with. It’s digital only, meaning of course that it publishes news around the clock. The “Daily” part? It calls out to a group of once-loyal print newspaper readers who might be willing to try out a new alternative.

The Commercial Appeal, founded in 1841, went through a decade of cuts that opened the door — and the community’s wallets — for The Daily Memphian. “We launched our online news source as a direct response to the cuts and consolidation that Gannett imposed on our local paper,” says Barnes, the Memphian’s CEO.

Across the United States, there are local newspapers in various rates of decline — some being stripped quickly for parts by hedge fund owners, some fighting fiercely against the tide through smart business strategy and commitment to their communities.

And across the United States, there are hundreds of local news news sites working to find their own niche in the news ecosystem being born.

But it’s still rare to see old and new compete at something that approximates a level playing field. The local daily, no matter how shrunken, nearly always still has a significantly larger newsroom than the biggest local digital startup. That’s one big reason the battle in Memphis is worth watching closely: If current trends continue, it’s a preview of the sort of competition we might see in lots of other American cities in the coming years.

Eric Barnes, 51, is a former president of the Tennessee Press Association who has been on both sides of the newsroom/business wall during his career. He had a hand in launching community papers in Nashville and Knoxville, led weekly papers, and ran the Nashville Ledger business-and-politics paper for 15 years before the Memphian launched.

“Before that, we did city guides and city directories and business directories and coffee table books,” he says. “Our company was based here in Memphis, but we worked around a couple hundred markets around the country. Then I was at a small business magazine up in New York and a reporter in Connecticut. I also host a show here locally on our PBS station, which I’ve done for nine years.”

While the Memphian serves a metro-sized audience, Barnes applies lessons from his experience with smaller community papers. “Being in the Press Association and getting to know a lot of community-level publishers, small-town publishers, was extremely helpful. The way in which they got hit, everybody in the industries got hit. But they often were slower to go to the web because they didn’t have the money, so they didn’t give away as much. I mean, they kept their print alive. They stayed closer to their communities. I think there are a lot of lessons.”

One lesson: “We are a paywall-driven, subscription-based news source,” says Barnes, who believes reader revenue is the absolute key to getting to break-even.

The Daily Memphian has assembled 11,600 subscribers in the 18 months since its launch in September 2018. Those subscribers initially paid $7 a month, a price now increasing. (It’s currently $10.99/month or $99/year.)

That will add up to more than $1 million in annual revenue, and it’s matched by roughly the same amount in advertising. On one hand, $2 million is a lot of revenue. On the other, the Memphian’s current budget is about $5 million.

That’s the story of this one-of-a-kind play in U.S. replacement journalism: It’s about scale. Scale of ambition. Scale of newsroom. And scale of revenue, the elusive elixir of digital news.

A controversial funding runway

The Daily Memphian has so far raised $8.2 million — $6.7 million of that before launch, the rest since. The goal is to get to break-even or better by 2023. “We’re on track,” Barnes says. “I’ve said publicly before that our goal is to get 20,000 to 25,000 people signed up by Year 5 at a [monthly] rate of around $10.”

“I get what The New York Times, Washington Post, and Wall Street Journal are doing,” says Cates, who led the Memphian’s fundraising campaign and chairs its board of directors. “We believe we are a model for how the Fourth Estate can flourish in middle America. We’re in Siberia. We don’t have national funding, Google or Facebook.”

The CEO of RVC Outdoor Destinations, Cates is a prominent civic booster who gets credit for helping bring the NBA’s Grizzlies to Memphis from Vancouver in 2001. Just as people think that metros need sports teams, they need far older civic institutions — newspapers or the digital equivalent. “For a community to be healthy, it must have a healthy newspaper,” Cates told me. “We tried to buy the CA, and thank god we failed.”

That said, The Memphian’s unorthodox and opaque fundraising strategy has been controversial among many both in the bubbling new news landscape and in Memphis. Transparency in funding has become a mantra in the nonprofit news movement, and there the Memphian is lacking.

“Give or take, the original $6.7 million was all raised anonymously, which caused some consternation with journalists and INN [Institute for Nonprofit News],” says Barnes. “I get all that. Even though I carry the CEO title, I have spent most of my life as a journalist one way or another. Locally, there were a lot of questions: Are they going to have bias? Are they going to carry an agenda?”

(At launch, Cates told Poynter that “he hopes that the [anonymity] will avoid the appearance that local high-rollers are treated with deference in Memphian stories.” Keeping the high-rollers anonymous doesn’t typically help with conflict-of-interest worries.)

Barnes says the money was all local and from “many different funders — it wasn’t one funder.” Now, he says, “I don’t ever get asked a question locally” about funders. He says he’s “felt or experienced absolutely zero donor pressure on the newsroom. The board — which is fully public — has high-level, strategic expectations of the operation, including the newsroom. But they’ve not in any way dictated stories that should — or, and this is arguably more important, should not — be written.”

Proudly paywalled

That’s not the only point of some controversy around the Memphian and money. Its paywall, powered by Piano, limits non-subscribers to three stories per month. That’s down from five at launch.

“In the middle of the summer, we started tagging roughly one story a day as subscriber-only, so you have to subscribe to read that,” says Barnes. “That’s done well for us in terms of converting and reinforcing the people that we’re a paid site.” Reducing from five to three stories a month didn’t bring “a huge impact negatively or positively. We’re not quite sure where we go from there. I mean, the business part of me would love to say it was one free or two free, but it’s a balancing act.”

Barnes says the organization plans to test Piano’s new “intelligent paywall” tech going forward. He cites both the Google News Initiative Audience Lab and the Facebook Local Subscription Accelerator as helpful. “They bring doable advice and guiding, best-practice principles. And to both their credit, they are not pushing Google or Facebook to drive traffic or subscriptions.”

Not many local news startups use paywalls — especially nonprofit ones. But for The Memphian, it’s fundamental to its strategy, even as others advocate open access as a civic good.

“We’ve gotten some pushback from some of the other nonprofit news organizations whose mission is free and open content that should be available to everyone. I love that. I mean, I’m an NPR fan. I’m a fan of local PBS, but we just looked at it and said: We don’t want to constantly fundraise. We don’t want to be a drain on the Memphis community, the philanthropic community.”

To counterbalance the paywall, the Memphian is free when accessed in schools and libraries. Those “with limited means” can apply for financial assistance. Some of the Memphian’s journalism also leaks beyond the paywall via local TV and radio partners. “Memphis has a big poverty problem, and we want to figure out how people who can’t afford it can get it,” Barnes says.

But he’s happy to defend charging. “Let’s value the news, let’s charge a fair rate for it. Let’s say our content is worthwhile and try to undo the, what, 15-year disastrous experiment of giving away local and national news for free. People have paid for news for decades, if not ever long. So why wouldn’t we find ways to have people who can afford to pay for it?” Eventually, subscribers are projected to provide about two-thirds of the Memphian’s revenue, with sponsorship and advertising making up the rest.

Are those ad sales motivated by the Memphian’s mission? “Less than 10 percent has been people saying, ‘Hey, we just want to support you to support you.’ We try not to sell that way,” Barnes says. An advertiser’s monthly spend is often in the $500 to $1,000 range. “It’s not terribly expensive to dominate one of our sections or to dominate our business coverage. They have a very strong presence on our email editions or our business coverage or sports coverage.”

So who is in the audience that those advertisers want to reach? The site’s readers do skew a bit older; “it’s traditional newspaper readers who are desperate for a local source, a locally based news publication, paper or not, a news publication,” Barnes says, getting in a few punches at the CA.

The audience also skews toward higher education levels (almost 70 percent have a college degree) and higher income (overindexing at incomes of over $100,000).

That’s in Memphis — the second-poorest large city in America, behind only Detroit. Of the 50 largest U.S. cities, Memphis ranks No. 47 in the share of its residents with at least a bachelor’s degree. And among large U.S. cities, only Detroit and Baltimore have a higher African-American share of its population.

In none of those measures is The Daily Memphian particularly representative of its city, say some critics. At launch, it faced criticism from people like Wendi C. Thomas, a former Nieman Fellow and founder of the local news site MLK50, for having a staff that’s 80 percent white in a city that’s 63 percent black. (The Memphis metro area overall is roughly 50/50 white/black.) They point to a leadership that is overwhelmingly white, and the staff diversity count of 21 percent people of color, 40 percent female. Of its four regular columnists, all are men and three are white.

The Memphian, for its part, is stands by its own record of diversity and of reaching out more widely in its first two years of existence. Its board is majority female and 33 percent African-American. Its new audience development and digital directors are both women; the new head of advertising is African-American; the new executive editor is Latino. “Since launch we’ve gotten more — not less — diverse,” says Barnes.

Beyond that, Barnes says the Memphian has made major inroads in engagement on the news product itself with its diverse communities. “We have two dedicated reporters to north and south Memphis, historically black and under-covered areas. We have a commitment to diverse stories across all reporters and beats. And we have none of the constant crime blotter coverage with the parade of mug shots and shallow, fearful coverage — coverage that has done major damage to black communities nationally. But we do cover policing, criminal justice, justice reform, the local DA, juvenile justice center, a series on the impact of childhood trauma on the brain, and more.”

In the criticism and on the ground, we can see the contentiousness of journalism change. Some may say that it’s one thing to see on-the-surface power imbalances in a decades-old institution that is struggling to adjust to new realities, it’s another to see it in an organization that’s born fresh and new in 2018.

But these are knotty questions. How much should ambitious startups be faulted for finding the early reader revenue from the often-expected sources of more affluent consumers? Further, an important question. How soon should their overall staff makeup resemble their communities covered?

It’s true that Memphis is one of the least digitally connected cities in America. As of 2018, 48 percent of residents have no broadband connection at home — the second highest rate of large U.S. cities, again behind only Detroit.  But of course, we know that, with very few exceptions, digital-only news startups are the only ones to have a chance to find new success in the 2020s. Beyond all the other challenges of reseeding the news deserts, can we rightly expect news startups themselves to deal with broadband neglect? It’s also instructive that the Memphian has already taken early and substantial initiatives, with more planned, to get free access to communities and individuals that can afford to pay for it.

So some paint this picture: anonymous wealthy funders; leadership that doesn’t look much like its community; a digital outlet in a city with limited connectivity; a hard paywall in one of the country’s poorest cities. They say new startups, eventually replacing traditional daily newspapers, are unlikely to be oriented toward a mass audience as what came before.

But it’s far too early to draw that conclusion. The Daily Memphian may be a Rorschach test in what is such a contentious start-up news movement. Critics inside Memphis, and out, can point to numbers they don’t like. The Memphian itself can rightly claim to be doing something that I haven’t seen getting done anywhere else in the country: a high-quality, at-scale, news replacement with a real business model bent on making its way forward with earned revenue.

Much as discussion about its particulars is warranted, and gets the context it deserves, we cannot lose track of that hugely important fact.

The “newspaper” war

While not much has been reported nationally on this competition, big themes emerge for all who care about future of local news in North America and beyond.

First and foremost, The Daily Memphian aims to be a replacement news company — the primary supplier of local news and information for its area.

Metro Memphis has a population of about 1.35 million, a sprawling area that spreads into Arkansas and Mississippi. Roughly half of that population resides in Memphis proper. Unlike the vast majority of hard-working news entrepreneurs planting seedlings in growing news deserts, the Memphian’s model is built on achieving a scale that can try to match the city.

It now pays a newsroom of 34 — the same number of journalists, more or less, remaining at Gannett’s incumbent Commercial Appeal. Another 12 business-side staffers join them. In addition, the Memphian pays more than a dozen regular freelance contributors.

As of December, the newsroom is led day-to-day by Ronnie Ramos, who left a job as executive editor of Gannett’s Indianapolis Star for the Memphian. That move in and of itself tells us lots about the changing momentum in Memphis.

There’s plenty of newspaper DNA in the rest of the Memphian’s staff. (It covers sports, runs restaurant reviews, even runs obituaries — a mix of content much closer to a print daily’s than what you might find at a lot of local nonprofit news sites.) It hired “10 to 15” of its staffers from the Commercial Appeal. And that hiring changed the CA a lot as well.

“We had to go out and get new players for almost every major position,” says CA executive editor Mark Russell. “And we did that and we got better.” The newspaper’s staff is now younger, more digitally savvy, and more diverse — 33 percent people of color now versus 19 percent before the Memphian began hiring people away. (Russell is black; Barnes and Cates are white.)

Memphis’ story is a lot like that of metros from coast to coast. The circulation losses of The Commercial Appeal tell quite a story, underscoring not just a loss of readers but the widening market vacuum that The Daily Memphian is rushing into.

For the third quarter of 2019, The Commercial Appeal reported a Sunday paid circulation of 52,000 and a daily circulation of 29,000. Just three years earlier, those numbers stood at 103,300 Sunday and 67,000 daily. That’s basically half of its paid base of readers gone in three years.

On digital subscriptions, the CA’s numbers have moved in the right direction. It counts 10,063 in that category now, up from 4,045 subscribers three years ago.

The major circulation declines result from changing reader habits, to be sure, but also from Gannett’s cuts to the newsroom and its pricing-over-volume circulation strategy.

By some remembrances, the Commercial Appeal counted about 200 journalists in its newsroom 20 years ago. That’s more than five times the 37 in today’s.

The Daily Memphian’s founders say its birth grew out of the regionalization of the daily press, but the Commercial Appeal disputes the degree of that regionalization. In 2015, Gannett bought the Knoxville and Memphis dailies as part of its Journal Media Group acquisition. Gannett now owns six dailies in the state, with Nashville the largest. Over time, the Tennessee Network developed, a trend we’ve seen all over the country as regional clusters of newspapers looked for headcount reduction and efficiencies.

“You could regionalize backend design — that’s one thing, fine,” Barnes says. “Centralize your accounting. Okay, that’s fine. But you can move [only] so much decision making out of the local markets before it is [no longer] really the Memphis Commercial Appeal.”

Especially since Memphis and Nashville don’t really get along. (For evidence, see this map of NFL fan bases, which shows Memphis’ Shelby County actually has more fans who root for the Dallas Cowboys than for the Tennessee Titans over in Nashville.)

“Everywhere I’ve ever lived, Tennessee, New York, Connecticut, Washington, Oregon, Alaska — I mean, Eastern Washington hates Western Washington, right? I mean, upstate New York and downstate New York are totally different,” Barnes says. “The idea that you can do these sort of regionalized papers…I’ve never lived in a place where that would work.”

Russell’s retort: “It’s a cheap, easy comparison to make when you don’t want to talk about journalism. Let’s talk about journalism. Let’s not talk about this Nashville vs. Memphis thing. It’s kind of a familiar trope though to people here because people in Memphis and people in Nashville don’t like each other.”

Russell wrote his own column in November to respond to the “centralization” charges, “setting the record straight.”

“What I say about that is that the people in Nashville have their hands full making decisions in Nashville,” he says. “And if you think about that logically for a minute, if you’ve worked in a news organization, you know it is hard to control your own organization in your own city, much less one that’s three hours away that you don’t have familiarity with the people, the places, or the issues of the context. So that’s ludicrous on its face that someone in Nashville making decisions here.

“It’s a short trip to the editors, including me, who are in the market, who know this market, who are working hard every day to produce a good report online and in print…Tell me who in Nashville is staying up late like me, reading content and up early reading content. Tell me who in Nashville is out in the community meeting with community leaders and neighborhood leaders every day. No one. They’re not here. They’re in Nashville doing the same thing I’m doing here. And that’s the way it should be.”

Its delightful to hear a bit of trash-talking by head-to-head news competitors. Reminds me of my days in the Twin Cities 20 years ago, when our Saint Paul Pioneer Press took on the larger Star Tribune.

Even with the head-to-head competition, Russell remains evenhanded in his view of the Memphian. “I talk to readers every single day,” he says. “And what I hear from readers is that they see the Memphis being stronger than it’s ever been. And that’s primarily because we now have a competing publication, and they see that the Commercial Appeal has improved since we lost those staffers. They see it every single day. And they see the DM being a really viable, strong news store.

“So you’ve got two heavyweights going at it on important issues. Readers have found the benefits of that: We’re going to have far better coverage of primary topics like government, the environment, demographics, investigative coverage. They’re going to get better coverage overall, and they have been getting it.”

The future

How long will this head-to-head competition last?

One logical question to start with: How soon could the paid readership numbers of the Commercial Appeal and Daily Memphian converge? A legacy business still transitioning from print to digital — and now owned by a megachain with lots of new debt to pay off — is competing with a debt-free, digital-only, deep-pocketed operation bent on growth.

This is no apples-to-apples comparison; there are many moving pieces and radically different cost structures. Then again, there won’t be many more apples-to-apples comparisons in local news going forward. This isn’t the New York Post vs. the Daily News, the Chicago Tribune vs. the Sun-Times, or even the more recent Times-Picayune vs. the New Orleans Advocate — recognizable battles between distinct competitors, but also between fundamentally similar businesses. But digital subscriptions — how many people in your community can you convince to hand over their credit card for digital access to your owrk — can be a common point of comparison.

How much are Memphis news readers reading one or the other or both?

“I don’t know,” the Memphian’s Barnes says. “I know anecdotally that people tell me that they have dropped the CA. I know other people continue to do both, and they do have some good journalists over there. I mean, they have many good journalists over there. I still read them — if not every day, I read them a couple of times a week. I think that’s true of a lot of people.”

(Again with the trash talk.)

One way or the other, given the tight economics of the local news business itself, no one is under any illusion that Memphis’ contrarian news war will last for a long time. “I’m not sure it can,” the CA’s Russell says. “It’s hard to imagine any community our size supporting two full-blown, news organizations. Even when full-blown doesn’t mean what it meant back 10 years ago…it’s hard to imagine that, it really is.”

The Daily Memphian is, like many of its startup brethren, a nonprofit. But it’s a nonprofit with an for-profit attitude, acting as a business-oriented enterprise.

“We are structured as a nonprofit under Memphis Fourth Estate Inc., but we are intensely focused on building a financially sustainable model that relies not on constant fundraising, but on earned revenue through our paywall subscriptions and sponsorships,” says Barnes.

What are his reader revenue takeaways so far? “We launched on September 17, 2018. Our original projection was 4,500 paid for the first year. We hit 4,500 somewhere in October. I mean, it was under full four weeks.” By year’s end, it was close to 6,000; by its first anniversary, it was at 10,000. Churn is relatively low, at about 6 percent annually. Today the Memphian has settled into a monthly net gain of about 300 subscribers. (The site now gets about 1.5 million monthly pageviews.)

The Memphian continues to test both annual and monthly offers, but generally avoided the “$1 for 6 months!!” deep discounting some other sites have used to draw in new subscribers.

The Memphian has clearly tapped into a substantial early paying audience — a cohort of the civically connected who were more than ready for the Memphian. The big question: What do the next cohorts look like? How big will they be, and will they represent a broader slice of Memphis’ population than its well-heeled early audience?

As The Memphian eyes doubling its subscriber base, Barnes knows the strategy will likely get more nuanced. “It’s a pretty high-income, high-educated audience, so, the [price] is not an issue for them. As we get from 11,000 to 22,000, we have to be more price sensitive, I think, with people. It’ll be tricky over the next few years.”

The Daily Memphian is providing a new value proposition to its readers. But in that offer we can see how in-progress the digital experience remains — especially perhaps for older readers. Take the site’s email newsletters. “We push a ton of email,” he says. “It works really well. We get really good open rates. But what we realized with many, many readers — particularly those who are older — they really don’t understand the difference between the email and the website. So they don’t get what’s in what. They’ll tell us, ‘Well, I’m a subscriber. I get your email edition.'”

Those emails are free to all, not part of a paid subscription. “They don’t go to the homepage, they don’t go to the navigation — they just use that email. Which is in some ways great, but creates a massive amount of confusion.”

In its first year of publishing, the Memphian published almost 7,000 stories, ran thousands of staff-shot photos, added nearly 10 weekly podcast series, and held Daily Memphian events almost every week.

It’s all those stories — buttressed by irrational fervor, best-practice business models, and more — that have always made local journalism work, and will someday again.

“It wasn’t local journalism that failed, it was the business behind local journalism,” Barnes says. “It’s a simple fact that gets lost…That’s been a driving issue for us: There is a lot of traditional local stuff that didn’t need to be thrown out the window. It was just that the business model got so wonky, broken. That was really where the problem was.”

Photo of the Hernando de Soto Bridge crossing the Mississippi River from Memphis into Arkansas by Thomas Hawk used under a Creative Commons license.

]]> https://www.niemanlab.org/2020/02/newsonomics-in-memphis-unexpected-news-war-the-daily-memphians-model-demands-attention/feed/ 0 https://www.niemanlab.org/2020/02/newsonomics-six-takeaways-from-mcclatchys-bankruptcy/ https://www.niemanlab.org/2020/02/newsonomics-six-takeaways-from-mcclatchys-bankruptcy/#respond Fri, 14 Feb 2020 16:12:49 +0000 https://www.niemanlab.org/?p=180097 What McClatchy’s Thursday bankruptcy filing lacked in suspense, it makes up for in our ability to game out the next skirmishes in the Consolidation Games, now ramping up its second season.

That massive movement within the newspaper industry — equal parts financialization and consolidation — has so far combined the No. 1 and No. 2 chains in the United States (producing New Gannett, which controls a full 25 percent of U.S. daily print circulation), Lee’s assisted purchase of Berkshire Hathaway Media, and the in-process, common-law, unholy matrimony of Alden/MNG/Tribune.

McClatchy’s filing for bankruptcy has seemed increasingly inevitable since the fall, as I raised in November. McClatchy said then it had “going concern” issue, acknowledging it wouldn’t have the ability to make pension payments due later this year. That reality produced this bankruptcy, which in turn prompts our questions about what happens next. Here are six.

How long could McClatchy’s moment of stability last?

It’s almost a 12-step moment: a company acknowledging what had been obvious to everyone around it. McClatchy couldn’t thread its way through massive debt overhead, a pension pileup compounded over decades, and a very rocky print-to-digital transition. Bankruptcy will reduce the company’s debt by a little more than half, it seems, leaving it with a much spiffier balance sheet.

McClatchy — to the surprise of many! — still produces a lot of cash. That’s why all these financial players — Chatham Asset Management here, Alden Global Capital, Fortress Investment Group, and Apollo Global Management elsewhere — find newspapers such a hospitable environment.

Note that amid all this uncertainty and chaos, CEO Craig Forman was able to announce McClatchy’s first earnings (EBITDA) increase in eight years, in its Q3 results. That increase may have only been about $869,000, and it may not be repeated in future quarters, but it also points to a much larger number: McClatchy produces more than $70 million a year in earnings.

So in a sense, this might be a brief moment of relief. Maybe the company’s employees won’t have to worry about the next looming cut for a few months.

Does Chatham want to operate or sell the company?

The McClatchy family, descendants of the company’s founder and namesake, are relinquishing control in this bankruptcy, handing the keys to Chatham Asset Management. Does Chatham want to be an operator of a newspaper company for any period of time? Or will it try to transmute its suddenly shinier asset through the alchemy of the hour, consolidation?

Both arguments can be made. McClatchy post-bankruptcy will now produce similar levels of profit but won’t have to hand as much of it over to feed massive debt and pension obligations. In that scenario, Chatham could just…happily operate the company for a while, even though the ongoing reality of double-digit revenue declines dispel any notions of longer-term stability.

As one savvy financial observer put it to me: “Chatham doesn’t have to do anything.” It’s not under the gun of financial pressure.

That said, Chatham didn’t get into this to run local newspapers. It did so for the same reasons as its financial brethren: to make more money.

Chatham CEO Anthony Melchiorre and McClatchy CEO Craig Forman — assuming Forman stays in place — both believe in the inevitability of more consolidation. Consolidation — as in the case of Gannett/GateHouse and now the increasingly virtual Tribune/Alden/MNG combo — means substantial one-time cost savings. Those offset operating declines and buy more time. “Time to transition,” they’ll all say — but it’s also more time to extract cash flow out of a business in long-term decline.

That’s how we get to my math from December. Five once-towering U.S. newspaper chains — Gannett, GateHouse, McClatchy, Tribune, and MNG/Digital First — could in short order dwindle into two.

The McClatchy/Tribune merger that almost happened in December 2018 might saved McClatchy from bankruptcy. After it fell through, though, Tribune savored its independence a little, knowing that McClatchy’s financial reorg would someday come — and that it would make it a much more appealing catch. That moment is arriving now — but it may well now be Heath Freeman and his Alden troops-in-Tribune who sketch out a deal.

For Chatham, the main question is this: Can it make more money merging with Tribune/Alden — or maybe an again restructured Gannett/GateHouse/Apollo — than it can operating independently? Somewhere in that spreadsheet formula lies McClatchy’s future.

In the short term, most don’t expect Chatham to act like Alden. In its other newspaper investments, including Canadian consolidator Postmedia, it’s acted more like a Fortress/GateHouse — that is, it’s advocated for small but targeted investments in the digital-revenue-driven future of the business. (Alden’s haughty nihilism still stands alone, dis-investing even in a digital future, most recently seen in the single-day elimination of five Tribune execs.)

How long will Craig Forman stay as CEO?

It’s been only three years since McClatchy named Forman its CEO, but those thousand days and nights have been long ones. Forman knew financial restructuring was Job No. 1, much as he focused on his print-to-digital strategy. He executed a debt extension and came close to pulling off a merger with Tribune. But the quicksand of pension obligations sucked the company under.

Will he stick around post-bankruptcy and try to prove out his digital strategy, as laid out in Thursday’s bankruptcy announcement? “McClatchy has grown its digital-only subscriptions by almost 50 percent year over year, and is now roughly evenly balanced between total audience and advertising revenues, with digital accounting for 40 percent of those revenues and growing, a much healthier distribution for an increasingly digital era. The Company has more than 200,000 digital-only subscribers and well over 500,000 paid digital customer relationships.”

If he does, will he be able to up the company’s operating revenue performance, a metric in which it’s consistently lagged its peers by several points? For 2019, the company reports a 12 percent revenue decline, including a 14 percent drop for the fourth quarter.

With McClatchy going private, we may never know if he can pull it off. But that’s clearly a metric that Chatham will care about.

Not to mention, of course, does Chatham want to retain Forman? Will he, like one-year-Tribune-CEO Tim Knight, get caught in the revolving door of knives that is modern newspaper executive leadership?

Knight — who was “streamlined” out of Tribune’s top job on Feb. 3 — was an experienced adult in a room that had had too few. He brought a relative steadiness to Tribune for almost a year, after replacing Michael Ferro protégé Justin Dearborn as CEO. Unfortunately, in the frenetic business of dailies, that era ended abruptly when he was pushed out by Alden.

Is McClatchy better off as a private company than a public one?

Yes — potentially. Given the deepening digital displacement — not just disruption — of the print-centric local news industry, public companies have a nearly impossible task in front of them. Run to the digital future — but also keep short-term-focused shareholders satisfied, showing them profits and, in some cases, handing them dividends.

Papers now privately run by deep-pocketed owners in Boston, Los Angeles, and Minneapolis, are better positioned than their public peers. They operate away from shareholder glares, they’re more patient, and they’ve made investments with longer timelines.

But on the other hand, Alden Global Capital is a private company, too. A very private one — with no public profile, little public mission, seemingly no focus on community impact and all focus on the bottom line. And with its two-class share structure maintaining family control, McClatchy was an unusual “public” company too.

Being shielded from the markets can let you do important but difficult things. Or it can let you get away with stripping civic assets to the bare wiring.

What will happen to McClatchy’s commitment to investigative reporting?

In PR around the bankruptcy, Chatham released a statement saying it “is committed to preserving independent journalism and newsroom jobs.”

That’s the sort of thing you’d expect in any big newspaper ownership announcement (save Alden’s). We’ll soon see how operational it is.

While Craig Forman has both detractors and supporters, inside the company and beyond, he has managed to keep sounding the cri de coeur for newspapers’ civic mission. And McClatchy, though depleted in newsroom strength, keeps demonstrating its chops. Most cited has been the Miami Herald’s work keeping a spotlight on the Jeffrey Epstein story, but investigative and enterprise work from veterans’ high cancer rates to climate change tracking still distinguish the company’s journalists and its long-held, family-driven zeal for the craft of journalism.

Those journalists and those newsrooms need a lifeline.

Is there any number that might finally capture the public’s attention on the loss of a mission-oriented independent press?

Is it the possibility/likelihood of two financial companies, a Fortress and an Alden, controlling more than 40 percent of the nation’s daily print circulation — and thus much of the local digital news communities get (or don’t). Or maybe three of them, adding in Chatham as a longer-term operator, having a majority?

You’d have to be an optimist to believe that there’s any new alarm bell that will elicit a significantly different public response — but we may soon find out.

Photo of the old Miami Herald building — sold with surrounding property for $236 million in 2011 to help McClatchy pay down debt and its pension obligations — in the early stages of destruction taken Sept. 16, 2014 by Phillip Pessar used under a Creative Commons license.

]]> https://www.niemanlab.org/2020/02/newsonomics-six-takeaways-from-mcclatchys-bankruptcy/feed/ 0 https://www.niemanlab.org/2020/02/in-one-move-the-dayton-daily-news-gets-to-avoid-a-private-equity-ownership-b-the-daycutting-knife-and-c-a-misused-federal-regulation/ https://www.niemanlab.org/2020/02/in-one-move-the-dayton-daily-news-gets-to-avoid-a-private-equity-ownership-b-the-daycutting-knife-and-c-a-misused-federal-regulation/#respond Tue, 11 Feb 2020 18:15:25 +0000 https://www.niemanlab.org/?p=180014 In December, I wrote about the unusual case of the Dayton Daily News — a core part of the Cox newspaper chain for more than a century, but sold a year ago to Apollo Global Management, a private equity fund of the sort that seems to be the only entity buying newspapers these days.

Apollo bought the Daily News along with a few other Dayton-area media properties Cox owned — two county-seat papers just outside town, the local CBS affiliate, and some radio stations. Normally, a city’s newspaper isn’t allowed to have the same corporate owner as one of its local TV stations — a 45-year-old FCC regulation aimed at protecting media diversity within a given market. But the Dayton newspaper+TV combo has been around since 1949, so the feds grandfathered the arrangement in. But selling to Apollo meant that old special exemption disappeared.

What to do? Well, Apollo — with all the public-spiritedness and sense of civic responsibility you might expect from a private equity firm run by a guy who hung out with Jeffrey Epstein for years — figured out a way to get around the need for an exemption. The FCC regulation only applied to daily newspapers. Federal rules defined “daily” as publishing at least four times a week. The obvious solution: only print the Dayton “Daily” News three times a week!

There are good arguments to be had about whether or not this sort of cross-ownership ban, passed in 1975, is still a good idea in 2020. (I’m of the opinion that struggling local newspapers aren’t in any position to “dominate” the market for news in anything like they were decades ago. And local TV, while facing plenty of challenges around audience loss and the switch to streaming, still makes a bunch of money. If someone wants to use local TV bucks to support local newspaper reporting, I’m game.)

But whatever your opinion on the matter, it’s clear the intention was never to somehow use federal regulation to encourage newspapers to print less often.

Well, happy day, a solution has been found, in back-to-the-future fashion. Cox is going to buy those newspapers back:

Atlanta-based Cox Enterprises on Monday announced it has reached an agreement to buy three Ohio newspapers, including the Dayton Daily News, that it previously agreed to sell as part of a deal to sell the company’s television stations.

The agreement solves a problem triggered by a recent federal court decision that threatened the ability of the Daily News, Springfield News-Sun and (Butler County) Journal-News to publish as daily papers. Cox Enterprises traces its roots to Dayton and founder James M. Cox’s purchase of what was then known as the Dayton Evening News in 1898.

“Dayton, Ohio, is a big part of the Cox DNA. It’s where our family is from and where our company was founded,” Alex Taylor, president and CEO of Cox Enterprises, said in a news release. “So, it is with great excitement that we continue publishing these papers as we have for more than 100 years.”

For those following at home, Cox Enterprises agreed to let Apollo buy Cox Media Group (with Cox Enterprises retaining a minority share in Cox Media Group). Now Cox Media Group will now sell the newspapers back to Cox Enterprises, which will retain its investment in Cox Media Group. It all makes perfect sense.

Cox used to be a sizeable newspaper chain, owning more than 20 dailies at various points, including in Atlanta, Miami, Austin, and Palm Beach. But it’s sold off everything but its largest paper, the Atlanta Journal-Constitution, in recent years, with Austin and Palm Beach going to GateHouse (now Gannett). Dayton will now rejoin that shrunken crew.

Cox Enterprises — founded by 1920 Democratic presidential nominee James M. Cox, who suffered an all-time crushing at the polls at the hands of fellow Ohio newspaper publisher Warren Harding — is one of America’s largest privately held companies, with annual revenues over $20 billion and 55,000 employees. (They’re now more likely to install cable in your condo than cover a school board meeting, though.) The price of the Daily News wasn’t announced, but it’s likely a rounding error of a rounding error.

(The last surviving child of James M. Cox, Anne Cox Chambers, died just 11 days ago at the age of 100. Before spreading her wealth among her heirs, her personal net worth was estimated at more than $16 billion.)

There will still be kinks to be worked out. The Daily News and the TV station, WHIO, “for years operated as one company in the same building…with shared news-gathering teams. With separate ownership, those relationships will now have to be either disentangled or formalized in a new business arrangement.

But all things considered, you’d rather have your local newspaper owned by a privately-held, still-family-run company that feels an emotional connection and sense of responsibility to your city than a gang of PE asset leechers. And now we know that, if the Dayton Daily News cuts its print days anytime soon, it’ll because they think it makes business sense, not because a federal regulation has been warped into forcing it.

Daytonians deserve in-depth local news coverage and I am so glad to see that the Dayton Daily News will continue to dig into important local stories every day.https://t.co/olf1hfYXCE

— Nan Whaley (@nanwhaley) February 10, 2020

The Journal-News and its sister papers up north will remain daily publications. https://t.co/evfu88Rq3c @journalnews

— Eric Schwartzberg (@eschwartzberg) February 10, 2020

Cox Enterprises buys back Ohio newspapers; 7-day publication continues. This is good news. The Dayton Daily News will continue as a daily after the old, new owners, were gonna muffle it. https://t.co/0mHZuO9Uff

— Paul Chambers (@feedingtubepaul) February 10, 2020

]]> https://www.niemanlab.org/2020/02/in-one-move-the-dayton-daily-news-gets-to-avoid-a-private-equity-ownership-b-the-daycutting-knife-and-c-a-misused-federal-regulation/feed/ 0 https://www.niemanlab.org/2020/01/turns-out-warren-buffett-wont-be-the-billionaire-who-saves-newspapers-either/ https://www.niemanlab.org/2020/01/turns-out-warren-buffett-wont-be-the-billionaire-who-saves-newspapers-either/#respond Wed, 29 Jan 2020 19:32:07 +0000 https://www.niemanlab.org/?p=179573 Circa 2012, one of the most popular lines among American newspaper journalists went something like this: “Newspapers can’t be that terrible of a business if Warren Buffett, the smartest investor in the world, wants in.”

That was the year that Buffett’s Berkshire Hathaway bought 63 newspapers from Media General for $142 million. As The Philadelphia Inquirer’s Will Bunch put it: “The fact that Warren Buffett thought newspapers were a good investment was always a huge psychic boost for journalists.”

@KevinNewmanCTV @PeteAbe If Warren Buffett believes newspapers are a potential growth area, it has to be true, right? #Optimistic

— Brent Jolly (@Brent_T_Jolly) August 8, 2013

@MChungOZone But Warren Buffett buying newspapers so must be some value there.

— Jim Naveau (@Lima_Naveau) August 3, 2013

And today is why people like Warren Buffett believe newspapers are a sound investment. #getitrightfirst #boston

— Chris VanDeHoef (@chrisjvandy) April 17, 2013

Would you bet against Warren Buffett? http://t.co/OLugl47S #newspapers

— Jasons Jukebox (@jasons_jukebox) June 28, 2012

Well, that line lost whatever punch it had retained this morning when Berkshire Hathaway announced it was selling its papers to Lee Enterprises for $140 million. Buffett famously doesn’t like selling any of his assets — his preferred time period for holding a stock is “forever” — so this one comes with more sting than other newspaper dealings.

Today only reinforces the fact that mergers and acquisitions are the No. 1 strategy of the fast-declining daily newspaper industry. Cutting costs by getting bigger is the only real plan the industry is collectively behind.

Lee’s acquisition is far smaller than GateHouse’s November purchase of Gannett — the No. 2 chain buying the No. 1, and taking its name — but it serves the same purpose: a rapid elimination of “duplicative” costs, what the British like to call redundancies. In the New Gannett case, the company aims to save $400 million or more through headcount and other reductions. Here, the savings are more modest, forecast by Lee to be in the $20 to $25 million range —appropriate to the smaller scale, with fewer newspapers sold and most in smaller markets.

Faced with unending print revenue declines — long deep in advertising and now increasing in circulation — top industry executives have identified M&A as their best strategy to remain profitable businesses in the next several years.

This is a broad, if short-term perhaps, win-win. Lee adds scale, finds “synergies,” and refinances its pesky debt, all in one deal. It will now operate 81 dailies, up from 50. The role that Lee — one of only a handful of publicly traded newspaper companies, but a small one — would play newspaper industry’s ongoing Consolidation Games was been unclear. We now have a relatively simple, elegant answer: Lee has bought time.

The Wall Street Journal headlined its piece today “Warren Buffett Is Giving Up on Newspapers.” “Warren Buffett Throws in the Towel on His Newspaper Empire,” Bloomberg put it.

Good attention-grabbers, but they underplay how much today’s sale is just the next logical step for Buffett.

Buffett commented on the industry in his first annual shareholder letter after the Media General deal, in 2013:

Newspapers continue to reign supreme, however, in the delivery of local news. If you want to know what’s going on in your town — whether the news is about the mayor or taxes or high school football — there is no substitute for a local newspaper that is doing its job. A reader’s eyes may glaze over after they take in a couple of paragraphs about Canadian tariffs or political developments in Pakistan; a story about the reader himself or his neighbors will be read to the end. Wherever there is a pervasive sense of community, a paper that serves the special informational needs of that community will remain indispensable to a significant portion of its residents.

But there was nothing about newspapers in his 2014 or 2015 letters. They popped up again in 2016 — but not in a good way. (In a section headlined “Important Risks”: “Circulation of our print newspapers will continue to fall, a certainty we allowed for when purchasing them.”) He was also saying things like:

Newspapers are going to go downhill. Most newspapers, the transition to the internet so far hasn’t worked in digital. The revenues don’t come in. There are a couple of exceptions for national newspapers — The Wall Street Journal and The New York Times are in a different category. That doesn’t mean it necessarily works brilliantly for them, but they are a different business than a local newspaper.

But local newspapers continue to decline at a very significant rate. And even with the economy improving, circulation goes down, advertising goes down, and it goes down in prosperous cities, it goes down in areas that are having urban troubles, it goes down in small towns – that’s what amazes me.

A town of 10 or 20,000, where there’s no local TV station obviously, and really there’s nothing on the internet that tells you what’s going on in a town like that, but the circulation just goes down every month. And when circulation goes down, advertising is gonna go down, and what used to be a virtuous circle turns into a vicious circle.

I still love newspapers! You’re talking to the last guy in the world. Someday you’ll come out and interview me, and you’ll see a guy with a landline phone, reading a print newspaper.

That the sale is to Lee is no particular surprise: In June 2018, Berkshire Hathaway Media largely turned operating control of its 31 dailies over to Lee. That was a first step in gaining some efficiency in scaled management. It was also a clear acknowledgment by Buffett, a longtime newspaper owner and booster for the industry, that he no longer believed the print newspaper business could be turned around. By April 2019, he was telling interviewers most of the industry was “toast.”

Buffett saw newspapers as a business that, in the hands of experienced operators, could still throw off cash — that the decline of the business could be managed both profitably and with its public service principles maintained, if still tattered by newsroom cuts. He didn’t buy the major metro papers that were taking the biggest hits; he bought papers in smaller cities where the local daily still felt connected to the community and still lacked much of the competition the bigger fish faced.

Dothan, Alabama; Florence, South Carolina; Waco, Texas; Danville, Virginia. Berkshire Hathaway’s biggest newspaper markets were Buffalo, Tulsa, and Omaha. One attempt to suss out what Buffett was looking for in a newspaper noted what most of his had in common: a circulation of 30,000 or less in a town with a population of 75,000 or less.

Buffett, a former member of The Washington Post’s board, has longstanding ties to Lee, as well as to its now-chair Mary Junck. That relationship paved the way for both the 2018 agreement and today’s sale.

As with the purchase that brought most of these papers to Berkshire Hathaway — that 2012 deal with Media General — BH managed to gain some ancillary financial benefits in the transaction.

As part of this deal, Berkshire Hathaway lends Lee $576 million. That money both finances this purchase and lets Lee to do what it’s found difficult to do over the past year: refinance its roughly $400 million in debt. That makes Berkshire Hathaway Lee’s only lender — a generally more friendly one than private equity or most others who might lend money to a newspaper chain in 2020.

Lee will pay the not-insignificant interest rate of 9 percent. Note, though, that’s significantly lower than the 11.5 percent that Apollo Global Management got to finance the Gannett/GateHouse merger. (There’s also a real estate leasing deal accompanying the acquisition.)

Berkshire Hathaway’s newspapers were always immaterial to its broader financial fortunes, of course: The Bryan-College Station Eagle doesn’t mean much to a company valued this morning at $551 billion. But Buffett’s newspaper investment didn’t turn out so bad in the end. He bought Media General’s papers in 2012 for $142 million; he’s selling his papers (which do include some additional, non-Media General properties) for $140 million today. He was almost certainly able to pull profits out of them every year in between.

He’ll make 9 percent annually on the loan to Lee. As part of the 2012 deal, he also loaned $400 million (at 10.5 percent!) to Media General, which made BH good money — including a $43.8 million in a prepayment premium. It also got penny warrants for about 20 percent of Media General’s shares, which after execution were worth about $85 million just a year later.

Warren Buffett knows how to make money, in other words — even in an industry on the way down. He’s a value investor, not a growth investor. Which makes sense, given that the original company Berkshire Hathaway — the one Buffett bought in 1965 and converted into his astonishingly large holding company — was a declining textile business based in New Bedford, Massachusetts. As he would describe that business years later:

“The northern textile business in which all of our capital resides is destined for recurring losses and will eventually disappear.” That development, however, was no death knell. We simply adapted. And we will continue to do so.

Today’s deal nonetheless reduces the number of major newspaper chains, a count now dwindling quickly. Gannett and Berkshire Hathaway have both left the scene in just a few months. (Gannett’s name lives on, but it’s ex-GateHouse people running things.) Tribune Publishing or MNG Enterprises is likely to be next, and McClatchy’s coming financial reorganization will likely make it a deal target too. Warren Buffett has found his exit; others are left looking.

Warren Buffett tosses a newspaper during Berkshire Hathaway’s annual newspaper throwing contest, May 5, 2012 (AP/Nati Harnik).

]]> https://www.niemanlab.org/2020/01/turns-out-warren-buffett-wont-be-the-billionaire-who-saves-newspapers-either/feed/ 0 https://www.niemanlab.org/2019/12/newsonomics-this-is-how-the-5-biggest-newspaper-chains-could-become-2-and-it-all-comes-down-to-one-day-june-30-2020/ https://www.niemanlab.org/2019/12/newsonomics-this-is-how-the-5-biggest-newspaper-chains-could-become-2-and-it-all-comes-down-to-one-day-june-30-2020/#respond Fri, 06 Dec 2019 19:08:48 +0000 https://www.niemanlab.org/?p=177551 Is an end in sight?

The first half of 2020 “will be the final dance of the newspaper industry,” one of my savviest financial sources told me Thursday — someone who’s been right on the money for years. “Everything will get resolved in the first half of 2020.”

By “everything,” he means the consolidation of ownership and control of the United States’ major newspaper companies. What as recently as three weeks ago were five big chains — Gannett, GateHouse, McClatchy, Tribune, and Alden Global Capital’s MNG Enterprises — could well, by the middle of 2020, be two. In sight is the big industry-wide rollup I first pointed to way back in 2011.

Because of their origins in local communities, the newspaper business historically lacked the centralization and scale of other industries. Even the “big” chains that developed as family owners cashed out in the 1970s and 1980s weren’t really that big. When Al Neuharth — “the brash and blustery media mogul who built the Gannett Company into a communications Leviathan,” according to his New York Times obit — died in 2013, Gannett owned 93 daily newspapers. That was still less than 7 percent of the nation’s total.

Why rollup now? It’s just seems so logical to executives in other industries: McDonald’s can make burgers a lot more efficiently than mom-and-pop joints in every town can.

One acid-tongued analogy has stayed with me for years. “You guys think you’re special in the newspaper business — it’s just like any other industry,” one experienced financial analyst told me mid-decade. “But it’s a distressed industry, and distressed industries get consolidated. In that way, news is just like waste management.”

Another industry insider I spoke with recently pointed forward a few years, to the middle of the 2020s: “These guys look out at their revenue projections for the next three to four years and they know what they have do.” That means consolidation is now Job One. Newspapers have all been cutting expenses, including deeply into newsrooms, for more than a decade now, especially since The Great Recession wiped out 20 percent of their revenue and ushered in a decade of red numbers on their balance sheets.

Much of the industry’s attention this week, on Twitter and elsewhere, has focused on the rumors and then news of massive Gannett layoffs, coming weeks after Old Gannett was acquired by the then-rebranded GateHouse.

We’re hearing that “thousands” of Gannett employees will be getting pre-holiday pink slips — but that’s no surprise. With $400 million or more in cost reductions to deliver, it was clear that the company would be cutting more than 2,500 jobs — likely 3,500 or more. Reports also indicate that much of Old Gannett leadership in high-ranking sales position was surprised to get the quick axe this week. A crowdsourced Google Doc is tracking the layoffs by newspaper; it currently shows more than 160 jobs lost, 33 of them in the company’s newsrooms.

But there’s a lot happening deeper in the background too. Back in January, I called the coming year’s round of tie-ups and acquisitions the 2019 Consolidation Games, and now its sequel is coming into shape. GateHouse buying Gannett seemed like the big play — and in raw tonnage, it was, combining the No. 1 and No. 2 chains. But look farther ahead.

On Monday, Alden’s pursuit of Tribune Publishing became crystal clear. The two companies publicly entered into a “Cooperation Agreement.” Cooperation is too kumbaya of a word for it; it’s really a kind of non-aggression pact, and we all know those always work out great.

In corporate parlance, it’s called a standstill. In this case, the always aggressive Alden agreed to retract its fangs — for the time being.

Alden president Heath Freeman had surprised everyone (including Tribune’s board and execs) by buying a 25 percent stake of Tribune stock from the group led by one-time Tronc chairman Michael Ferro on November 19. Then, just six days later, Alden told the SEC it had upped its stake to 32 percent.

The standstill prevents Alden from increasing its stake past 33 percent until June 30, 2020. It also, for the same period, bans Alden from launching a proxy fight — an attempt to replace current Tribune board members with its own, a tactic it tried (unsuccessfully) in its own attempt to takeover Gannett in May.

In return for that pause, Tribune enlarged its board to eight from six, letting Alden handpick the two new directors. Crain’s Chicago Business columnist Joe Cahill decried the giveaway as indefensible. His indignation is well-placed; the hometown Chicago Tribune — which has found a little stability over the last year or so after the Ferro/Tronc years — could suddenly face the same fate as the Alden-eviscerated Denver Post or (formerly San Jose) Mercury News. For Tribune, though — with its corporate life suddenly upended — it seemed like the best deal possible at the moment.

Alden, the newspaper industry’s comic-book villain, is now firmly inside the tent of one of the few big public newspaper chains not yet controlled by financial players. Not coincidentally, Tribune also carries the least debt of those chains — making it ripe for the sort of debt-piling-on that is the M.O. of players like Alden.

The 2020 Consolidation Games

So what kind of scenarios are now likely, or at least imaginable, in 2020?

While none of the companies involved in all of this intrigue will comment on the record, there’s broad agreement about what the would-be deal landscape of early 2020 looks like.

The most salient facts: Two standstills and that June 30 date.

We know about Alden’s standstill. What’s the other? Patrick Soon-Shiong, who bought the L.A. Times and San Diego Union-Tribune from Tribune in February 2018, is also standing still. Like Ferro’s bunch, he also owns about a quarter of Tribune — a stake he initially took when he was interested in acquiring the Times, but which he held onto even after he did. Back in January, he agreed to a standstill that prevents him from acting independently of Tribune’s board in most ways.

That standstill expires…on June 30, 2020, same as Alden’s.

So when the clock hits midnight, both Alden, with its 32 or 33 percent, and Soon-Shiong, with his 24 percent, will be free to vote their holdings as they wish, as well as to buy or sell more. Even the most math-averse journalist can see that, combined, Alden and Soon-Shiong will hold a majority of Tribune shares. That’s real control.

Is Alden, then, lying in wait for June 30?

It might not even have to wait that long. While its two new directors would have to recuse themselves from any Tribune/MNG merger negotiations, the Tribune board doesn’t have to wait for mid-year. Its board could appoint a special committee made up of its independent directors. That committee could then assess what’s in the best interest of Tribune’s shareholders and move to join the rollup party sooner rather than later.

In fact, don’t think of that June 30 date as the starting gun for M&A — think of it as the finish line. Or, in more newspaper-appropriate terms, a deadline. If Tribune can strike a deal with a merger partner before then, it can do so on whatever terms that it sees as most favorable. If it can’t, well, all bets are off on what happens when those standstills expire.

Who might that merger partner be? Two recent events have rearranged that chessboard.

New Gannett, absorbed into GateHouse, is fully occupied with its own big lifts: integrating two big companies, cutting everything that can be cut, and paying down the $1.8 billion in high-interest debt it took on to do the deal. New Gannett is off the rollup board — for now.

Then Tribune’s likeliest dance partner, McClatchy, stepped off the board, at least for the time being. As it focuses its attention on the financial reorganization of its capital structure and negotiates with the feds for a takeover of its pension plan, McClatchy’s appeal as a merger partner has greatly diminished. It sees the same logic in the large-scale cost-cutting a merger could provide. But it can’t do much until its own reorg is done.

How long might that take? Well, McClatchy will likely need most of the first half of the year to clear its position through voluntary reorg or bankruptcy. So, say, maybe sometime around June 30? That date will be circled on every newspaper exec’s calendar before long.

Add it up and the first two quarters of 2020 could mark the major reordering of newspaper ownership, control and management that’s been in the cards for years.

What’s likeliest? Observers put a Tribune/MNG deal at the top of the list. The biggest reason? Just the big cost cutting allowed by putting two big companies together. In recent years, there have been various non-financial roadblocks getting in the way of various tie-ups. (Do the geographic footprints fit together? How about the corporate cultures? Do they agree on strategy going forward?) But now, the imperative is cost-cutting, and that trumps all else.

A combined Tribune/MNG would become the No. 2 U.S. newspaper chain, behind Gannett. It would include Tribune’s small-in-number but metro-heavy roster, which includes the Chicago Tribune, The Baltimore Sun, the Orlando Sentinel, the South Florida Sun-Sentinel, the New York Daily News, and the Hartford Courant. MNG would add bulk, with 97 dailies and weeklies in total, including such once major properties as The Mercury News, The Denver Post and the St. Paul Pioneer Press. It has big footprints in both northern and southern California.

Most important: Who would control that combined company?

That begins a parlor game. What does Alden’s Heath Freeman really want at this point? He has milked and milked MNG through its Digital First years, making sure that when it comes to investment in the product, it’s Digital Last. Does he see a Tribune merger as a way to cash out, as further profits became harder to obtain? Or does he smell even more dairy refreshment in subjecting Tribune — already drained, yes, but not yet emaciated to Alden’s standards — to his cost-cutting discipline?

That’s one big question. Another is valuation, the fundamental question of most mergers. We know what the market thinks the publicly traded Tribune is worth — its current market cap is $444 million. MNG is a private company controlled by Alden, its majority shareholder. Observers guesstimate its value somewhere around $300 million, but it’s truly impossible to know from the outside.

A number of those who’ve been able to looked at Digital First/MNG books over the years have found some of the accounting questionable. Further, Alden has shown itself able to shift and move money between its various affiliates with the skill of a veteran three-card monte dealer — and has been sued and investigated for doing so.

Then there’s the big question of what value these newspaper brands will hold in the future if they’re shrunk even further. Or, as one company CEO put it, “How much life is left in the asset?” And how much of any deal would be cash and how much stock?

But despite all those questions, yes, Tribune could “buy” MNG. Or vice versa — recall that it was the smaller GateHouse that swallowed the larger Gannett. And one thing is clear: There’s a reasonable chance that Heath Freeman and Alden will get the opportunity to slice and dice Tribune’s papers as he has MNG’s.

McClatchy aims to mid-year

If the Tribune/MNG combo happens, that would bring those five newspaper chains we had a month ago down to three.

How might we get to two? That comes down to McClatchy. After a Tribune/MNG merger, McClatchy would again be the third-largest U.S. newspaper company — the position it held before adding Gannett to GateHouse promoted it to No. 2.

And as a standalone No. 3, struggling with the same operating economics as its peers, it would certainly like a dance partner as well. Except the dance floor is looking pretty sparse this late in the night. Not many options left. So it’s possible McClatchy’s play would be to join up with the new Tribune/MNG — or maybe even New Gannett. Either would be a level of consolidation almost unimaginable in the industry not long ago.

Of course, McClatchy would like to be an acquirer, as it almost was a year ago when it came close to buying Tribune. But its financial and strategic positions have weakened since then.

On Wednesday, Bloomberg’s Joe Nocera wrote an excellent piece on McClatchy’s challenges and CEO Craig Forman’s continued public focus on community difference-making journalism that matters.

Internally, McClatchy has its share of detractors who’ll argue that, while some of its journalism remains top drawer, the cuts its newspapers have seen aren’t that far off from those of its peers. But it’s nonetheless true that McClatchy seems like an industry outlier. It’s a publicly traded company, but its two-class share structure still gives the founding (1857) McClatchy family some control. While financial player Chatham Asset Management, its largest shareholder and debtholder, circumscribes management’s decision-making, the company stands out as an advocate of traditional journalistic values in the widening sea of hedge fund and private equity owners.

Forman, in Nocera’s piece and elsewhere, makes the case that McClatchy is leading the pack in terms of digital transition, especially in well-priced digital subscription selling.

But none of that will save McClatchy — by the time it finishes getting its internal financial house in order — from facing a vastly altered industry landscape. What choices might it still have by summer?

Five major companies could become two. Those could well both be run by investment companies with little real affection for or attachment to the newspaper business — Alden, whose sins are well known, and Fortress Investment Group, which has a management contract to run Gannett through the end of 2021. Though Fortress and Alden differ significantly in their management practices, the fact remains that both companies’ interest in the bottom line crowds out most thoughts of journalism’s role in serving its communities.

Those two companies would own probably close to a third of the daily press; New Gannett already holds a 18 percent share. Then there’s Lee Enterprises — in 50 markets, with mostly smaller properties — and the two big private companies, Hearst and Advance. Following them are a fair number of smaller chains, most of them focused on smaller newspaper properties.

So is this more Armageddon or doomsday, asks the New York Post?

We’ve got ghost newspapers, news deserts, and now an assortment of Biblical references to choose from. What sounds like Hollywood summer fare, though, comes down to one sobering word: reality.

Image of George Grosz’s 1917 painting Explosion (1917) via MoMA.

]]> https://www.niemanlab.org/2019/12/newsonomics-this-is-how-the-5-biggest-newspaper-chains-could-become-2-and-it-all-comes-down-to-one-day-june-30-2020/feed/ 0 https://www.niemanlab.org/2019/11/where-theres-no-competition-theres-no-pressure-to-do-better-local-news-is-suffering-even-in-areas-where-newspapers-remain/ https://www.niemanlab.org/2019/11/where-theres-no-competition-theres-no-pressure-to-do-better-local-news-is-suffering-even-in-areas-where-newspapers-remain/#respond Thu, 21 Nov 2019 19:19:26 +0000 https://www.niemanlab.org/?p=177112 The local news report that PEN America released this week is packed with the grim statistics you’ve seen elsewhere, including all over Nieman Lab — The U.S. has lost more than 1,800 local news outlets since 2004; many of the papers that remain face consolidation and cost cutting by profit-minded hedge fund owners (just this week…); civic engagement declines when local news does; and to make matters worse, most Americans are oblivious to the problem: 71 percent think their local news outlets are doing well financially. (However, when they’re informed that this is in fact not the case, they’re more likely to pay up.)

It’s a (not so refreshing) refresher on all that if you needed it, but the report also includes case studies of local communities; PEN enlisted journalists from those regions to write specifically about how their communities have been affected as local news declines. Here are some findings:

— Southeastern North Carolina: Jeremy Borden writes about how two communities — Robeson County and Cumberland County — have both lost local news sources. The poorer Robeson County has been more adversely affected than the larger, wealthier Cumberland County. In 2014 and 2015, the Fayetteville Observer reported frequently on a chicken processing company’s plans to open a new plant in Cumberland County. “As the company was making its play for Cumberland County, the Observer published about 170 news and opinion items that mentioned the plant,” Borden writes. “The Observer’s reporting, alongside the less-than-enthusiastic public response, were key factors in the reluctance of local officials to welcome the plant and of Sanderson Farms’ ultimate decision to build in neighboring Robeson County instead.” Robeson County has the second-highest poverty rate in North Carolina; nearly a third of its residents live below the poverty line.

The Fayetteville Observer was the largest independently owned newspaper in North Carolina for more than 100 years — until 2016, when Gatehouse bought it and rounds of buyouts began. (GateHouse and Gannett then merged this year.)

As of October, the Observer listed 19 news and opinion reporters and editors on its website. No one holds an investigative reporting title…The reductions are noticeable. Christine Michaels, head of the business association the Greater Fayetteville Chamber, says that the results of big decisions affecting the business community are usually still reported — but sometimes too late for the community to weigh in. She points out that plans for the construction of a new minor league baseball stadium in downtown Fayetteville weren’t covered until most major decisions had already been made, leaving broad swathes of the community out of the discussion. “We have a big Facebook following, a large email subscriber list,” she says, “but it’s not going to hit a broader base of the population.”

The options for Robeson County–specific news are more limited, since the Observer has also sliced its regional coverage. In some ways, its residents are lucky: They have The Robesonian, which has a circulation of 5,000 and is published 5 days a week. It has a staff of 3.5 news reporters and 2 sports reporters; its editor, who’s been at the paper for over 20 years, says he fills slots the best he can, including a lot of local crime coverage.

On a recent day, [editor Donny Douglas] was unhappy with the way the Thursday edition had turned out, taking issue, in particular, with the front-page articles: one a national wire story about a drop in the stock market — Douglas prefers only local news on the front page — and the other a press release fashioned as a news story, written by a former Robesonian reporter who now works for the county hospital system.

Douglas’s reality — a small staff that doesn’t often delve deeply into malfeasance in its pages — is not new to small-town newspaper editors. Fiona Morgan, a North Carolina–based news consultant, said many see the issue facing local media purely in terms of economics or, “‘before everything worked and now it doesn’t,’ but many community newspapers have never done the kind of accountability reporting associated with bigger newspapers,” she said. “Not all local papers see it as their role to question authority in that way. You’ve always had news deserts even in places where there are outposts. Some local newspapers have been failing to provide aggressive accountability coverage for a long time, especially in rural communities. Where there’s no competition, there’s no pressure to do better.”

— Detroit: Martina Guzmán writes about the failures of Detroit’s legacy media outlets to critically investigate the development of Detroit’s Little Caesars Arena, in which the arena’s owners, the billionaire Illitch family, “brokered a deal with the city that redirected $324 million in state tax funds, meant in part for Detroit Public Schools, to build a sports stadium in downtown Detroit.” The deal was also supposed to include “a development called the District Detroit, creating five new neighborhoods with a footprint of fifty city blocks of land in downtown Detroit, replete with residences, retail, and entertainment”; five years later, it remains unbuilt and filled with parking lots.

While local news covered the deal extensively at the time it was struck, that coverage, especially by legacy outlets, was largely uncritical. An independent data analysis conducted for the Detroit Equity Action Lab at Wayne State University [Ed. note: This study remains unpublished.], which examined more than 200 articles about the new arena published from 2013 to 2015, revealed that 80 percent of the stories by the city’s major papers and TV stations — the Detroit Free Press, The Detroit News, Click on Detroit, Crain’s Detroit Business, Michigan Radio, WDET, WXYZ, and Fox 2 News — had a pro-development slant, framing the deal as positive and offering little or no critical analysis. By contrast, articles from newer or alternative outlets with less reach — Bridge Magazine, Detroit Metro Times, and Motor City Muckraker — were more numerous, and only 3.6 percent were pro-development.

It wasn’t until 2019, when HBO’s Real Sports with Bryant Gumbel aired a damning exposé on the arena, that “every major Detroit newspaper and local television station followed up and started raising questions.”

When established local media outlets overlook volunteer and community-led efforts, they miss out on important stories. “I don’t think the Detroit media did its job vetting the details of the deal,” says Aaron Mondry, the editor of Curbed Detroit, a digital outlet focused on Detroit street life, housing, and development. “It’s a generally known fact that sports stadiums are not good investments.” Mondry points out that the inadequate coverage has repercussions far beyond this one project. “If the media isn’t doing its due diligence on some of the biggest development projects in the city,” he says, “then residents should be skeptical of everything journalists produce. If we missed that, then what else are we missing, what else are we not looking into?”

The full report is here.

]]> https://www.niemanlab.org/2019/11/where-theres-no-competition-theres-no-pressure-to-do-better-local-news-is-suffering-even-in-areas-where-newspapers-remain/feed/ 0 https://www.niemanlab.org/2019/11/newsonomics-by-selling-to-americas-worst-newspaper-owners-michael-ferro-ushers-the-vultures-into-tribune/ https://www.niemanlab.org/2019/11/newsonomics-by-selling-to-americas-worst-newspaper-owners-michael-ferro-ushers-the-vultures-into-tribune/#respond Wed, 20 Nov 2019 16:43:19 +0000 https://www.niemanlab.org/?p=177010 Is it the apocalypse, or just an unreasonable facsimile?

In a week of newspaper industry drama — GateHouse’s expected takeover of Gannett and McClatchy’s unexpected move in the direction of bankruptcy — who could write a better next act than that old newspaper vaudeville duo of Michael Ferro and Heath Freeman — the two most hated figures in the business?

Just as the ink was drying on New Gannett’s birth certificate, we learned that — really? could it be true? — Michael Ferro was exiting the industry. Rumors of his departure (and my own satire) had always come up as premature. But there it was, in his company’s own Chicago Tribune: Tribune Publishing’s largest shareholder Michael Ferro sells 25% stake to hedge fund Alden Capital. So much encapsulated in so few words.

Ferro — who had enthralled the industry in his relatively brief tenure heading Tribune, and who had brought such laughter into the world through his gift of Tronc — had pulled off a magnificent disappearing act. To his would-be peers in the industry, frequent targets of his disdain, he’s departing appropriately enough, with a signature fuck-you. Who better to sell his Tribune stake — the one his group of Chicago investors had bought at bargain-basement prices, and which, ridiculously, gave him effective control of Tribune — to than the only man in the industry more reviled: Freeman, whose Alden has become the face of bloodless strip-mining of American newspapers and their communities.

This man, once known to enjoy a trip to the Oscars, really does deserve some sort of award for theatricality.

Before we look at the implications of this transaction, let’s put it in the context of the wildest week in recent daily newspaper history.

The past few days have marked a major turning point in the fast-collapsing U.S. daily newspaper business. As this woeful decade comes to a close, financial players have taken control of much of the daily press. GateHouse, via its holding company New Media Investment Group, closed on its acquisition of Gannett, taking its prey’s name and creating a single company of 260 dailies, 18 percent of the country’s total. Who controls this New Gannett? Private equity, in the form of Fortress Investment Group. McClatchy, staring at a potential default on its pension obligations, faces either financial restructuring or a structured bankruptcy — and its primary shareholder/debtholder Chatham Asset Management is in the driver’s seat.

The Ferro-sells-to-Alden news drew the picture even more clearly. Almost four years ago, I warned of the financialization of the press — but the speed and sweep of that control by private equity and hedge funds is now breathtaking. (And of course it’s not just the newspaper world that suffers in this shift. Consider the recent Deadspin debacle, created by private equity owners who’d bought an ornery, spirited property they clearly didn’t understand.)

The impact is obvious. As America has moved from jokey indulgences in truthiness to a point where fact fights for its very life, it’s the bankers who are deciding what will be defined as news, and who and how many will people will be employed to report it.

For the Alden news, let’s start with what we know this morning:

• Alden Global Capital, led by president Heath Freeman, paid Michael Ferro’s Chicago business group its 25.2 percent stake in Tribune Publishing.
• It’s a private transaction between Ferro’s group, Merrick Ventures, and Alden. Tribune Publishing itself was not involved.
• The price: $13 a share, or about $117.9 million in total. With Tribune Publishing closing at $9.73 a share yesterday, that’s a 33.6 percent premium. (As of 10:00 a.m. today, TPCO is trading at about $10.86, an 11 percent jump.)
• Alden will get two of Tribune Publishing board seats, with the board growing from six to eight members.

Let’s ask three questions about the deal and its impact.

Was this a good deal for Ferro?

Not by historic standards. Through all of the Gannett takeover Sturm und Drang and its aftermath, Ferro told his associates he wanted — and deserved — $20 a share. Last December, Tribune rejected a McClatchy offer of $16.50 per share, with $15 of that in cash, the rest in stock.

So by those standards, $13 pales. But Ferro and his investor cohorts did well on the deal given how cheaply they bought in originally — $8.50 a share in 2016 — and considering how Ferro was able to push the limits of standard corporate governance over his tenure to accrue more wealth.

Why did Alden buy?

That’s not just a question we might have — it’s a question that Tribune’s management and board is now gaming out. The easiest guess: What’s past is prologue.

Alden’s strategy and operating practice is unapologetically cutthroat. The company’s executives believe that newspapers are on a permanent decline, headed inevitably toward a value of zero. However, there are differing opinions about how far away that zeroing-out point is, and over a long interim, smart operators can make a lot of money on the way down.

How? Milk your aging current subscribers by jacking up subscription rates — $600 or more a year for newspapers that might have fewer than a half-dozen reporters left. Invest into the business only what’s required to sustain its operation. Don’t put anything into the silliness of “digital transformation.” (This, remember, was at the heart of its case when it tried to buy Gannett back in January; Gannett, it argued, was wasting too much money trying to figure out a future in digital when it should just give up and skim as much cashflow off the top as it can.) Get rid of newspaper “editors” and “publishers” in favor of regional and lesser positions. Cut costs every which way. In a word: disinvestment.

Just this week, Bay Area journalists at MNG — the brand Alden operates its newspapers under — took to the streets to protest pay rates, saying they’d gotten only one pay raise in the last 10 years.

So is that Heath Freeman’s plan for Tribune? Will he appoint some of the company’s best and deepest cutters to the Tribune board, perhaps chosen from the failed slate of directors he put up in a Gannett proxy fight in May? Will he push Tribune, just as he tried to push Gannett, to optimize shareholder value by employing the tried-and-true Alden way? After all, it was bringing the company as much as $159 million in “profits” and the industry’s highest margins as recently as mid-2017. (At those Bay Area newspapers, Alden managed to double profits over a six-year period as the rest of the industry struggled, not least by cutting about 60 percent of its journalists.)

That’s certainly a possibility. Or — perhaps — Freeman might think that the era of easily sucking cash out of newspapers is drawing to a close. If he thinks the well is about to run dry, he might think it’s a good time to offload his assets. MNG Enterprises (née Digital First Media) has about 200 newspapers altogether, most less than daily, but including bigger names like The Denver Post (brought briefly to national prominence for a dramatic Alden haircut last year), the (formerly San Jose) Mercury News, and The Detroit News.

While Alden would have to abide by SEC rules about conflict of interest, being in both boardrooms at once can make a merger quite a bit easier. So we have to ask: What would a Tribune/MNG combination look like? The same reasoning would apply there as did with GateHouse–Gannett merger: Cut — meaning create hundreds of millions in new “efficiencies” — or die.

While that rationale is clear — and Tribune believes it, like everyone else in the industry — actually putting together the many half-broken pieces of MNG with the more conventionally managed Tribune could be a headache for ages. Determining real value, an issue in any deal, would be even harder given that Alden has managed its business far differently than Tribune. We don’t know the actual earnings of MNG Enterprises today, but we know that its strategies have reduced the market value of its assets going forward.

While there may be back-office synergies of every kind to potentially harvest, there’s little geographic overlap between the two companies. Unlike the New Gannett, which can wring more savings by combining the Gannett and GateHouse clusters in places like Florida and Ohio, a Tribune/MNG merger would bring many fewer such combinations.

While Alden now controls just over a quarter of Tribune, another quarter-interest owner could soon assert more authority. Patrick Soon-Shiong, who bought/rescued the L.A. Times and San Diego Union-Tribune from Tribune, didn’t sell his 24.6 percent interest in Tribune Publishing in the process. His standstill agreement — which temporarily ceded some of his voting authority to management — expires next year. He sparred with Michael Ferro, calling the L.A. Times under his leadership “an abused child, a beaten child”; what do you think he will think of his new Alden partners?

Not to mention that Alden owns nearly all of the newspapers in greater L.A. that Soon-Shiong doesn’t. (MNG’s Southern California News Group includes the Orange County Register, the Riverside Press-Enterprise, the Long Beach Press-Telegram, the L.A. Daily News, and seven other dailies.) In other words, his new partners in Tribune are his direct competitors back home in California.

As a hedge fund experienced in using leverage to maximize short-term advantage, would Alden advocate ladling up Tribune’s relatively clean balance sheet with a lot of debt — upping dividends, boosting its stock price, and otherwise finding ways to take more money out of the company?

Tribune is the bigger dog here, in revenues and in earnings, and that should give it some power. But it’s been thrown off-kilter by the Alden buy, which came as a surprise. (Of course.) In Heath Freeman, Tribune is dealing with someone who uses his unpredictability as leverage. Recall: Freeman so petrified Gannett’s board and management that it ran headlong into the less-objectionable embrace of GateHouse’s Mike Reed.

Will the 2020s be an age of endless vulture newspapering?

As economic inequity roils the world, from Prague to Santiago to Hong Kong, we hear increasing debate about “late capitalism,” increasing questioning of core elements of 21st-century life. Between democratic socialists in the U.S. Congress and populists in high office worldwide, something is clearly afoot in how we think about the role and responsibility of capital in democratic societies.

Within our smaller environment of news and journalism, the direction we’re headed is actually much clearer. Alden is the industry’s personification of the new vulture capitalism that has invaded what was once, not long ago, a business that cared about its mission and its civic role. There is of course much to criticize in the history of American newspapers, but they also did a fair job of balancing profit and service to their communities over the decades. Alden’s putsch-like move into Tribune is only the latest wakeup call. The old world is over, and the new one — one of ghost newspapers, news deserts, and underinformed communities — is headed straight for us.

Image taken from a mosaic representing the Last Judgment in the northwest section of the Baptistry of Saint John, Florence, Italy.

]]> https://www.niemanlab.org/2019/11/newsonomics-by-selling-to-americas-worst-newspaper-owners-michael-ferro-ushers-the-vultures-into-tribune/feed/ 0 https://www.niemanlab.org/2019/11/newsonomics-with-its-merger-approved-the-new-gannett-readies-the-cost-cutting-knife/ https://www.niemanlab.org/2019/11/newsonomics-with-its-merger-approved-the-new-gannett-readies-the-cost-cutting-knife/#respond Thu, 14 Nov 2019 17:15:58 +0000 https://www.niemanlab.org/?p=176799 You think $300 million in costs cut is a big number? Try $400 million. Or more than $400 million.

Those are the internal numbers in the air as America’s two largest newspaper chains, Gannett and GateHouse, try to land their megamerger, first announced in August.

Follow the money: When I first wrote about this potential union back in July, the estimated annual cost savings — “synergy” — to be derived from a merger was “something like $200 million.” By August, it was “$200 to 300 million.” Then it was “$275–300 million.” Now, talk has gone to $400 million and beyond, into the range of nearly half a billion dollars.

What does that mean? Almost certainly, even more reduction in headcount than had been anticipated. (Executives declined to comment on the amount the synergies they’re now eyeing.)

How much? In any room of eight people at a current GateHouse or Gannett operation, one is likely to see her job gone in 2020. One in eight would add up to 3,450 of the combined companies’ 27,600 jobs. Some observers expect that the final total to be higher than that. And the company won’t wait for the first of the year to begin layoffs: With immediate savings a priority, expect those anxiety-inducing conversations to begin right after Thanksgiving.

Those layoffs may well be on top of those already going forward in current Gannett newsrooms. As Gannett finishes its regular budgeting for 2020, its newsrooms can expect 3 to 5 percent cuts in their budgets, sources tell me.

This morning marked the penultimate go-ahead in what has been a yearlong process. Shareholders of both Gannett and GateHouse voted this morning on the merger, which will create a giant (for newspapers) company that will retain the Gannett name. (The shareholders voting for GateHouse are owners of New Media Investment Group, a.k.a. NEWM, GateHouse’s holding company.)

Both said yes. NEWM’s board went first: “Precise vote totals were not immediately available, but New Media CEO Mike Reed said that about 99% of the 75% of shareholders who voted approved the deal.” Then the results of Gannett’s vote was announced at 10 a.m.

They approved the deal despite the value of the deal plummeting since it was first announced. On that day in August, NEWM shares stood at $10.70. At market close yesterday, they’d dropped to $6.68, including a six percent decline on Wednesday alone. The deal originally valued at $1.38 billion is now worth $1.13 billion.

Why the drop? Some investors looking at the deal had hoped it would fail and thought they could catch a NEWM bounce; perhaps some abandoned the stock as the merger became a near-certainty. Perhaps you can blame McClatchy, the next largest newspaper chain, for souring the market; its stock dropped 12 percent yesterday after it announced that the IRS had denied its request for pension fund funding relief. (It’s down 22 percent since Friday.)

Or maybe it was just the accumulated toll of poor earnings reports from both GateHouse and Gannett. Or did major NEWM investor Leon Cooperman’s pooh-poohing of New Gannett’s projections — “nobody believes any of the numbers coming out” — convince others to get out? (Cooperman’s been in the news lately for other reasons.) Gannett’s USA Today reported that some “large investors in New Media appear to have sold off shares earlier this week.”

Figure that some combination of all those explanations is at play.

Anyway, life, such as it is in the daily industry, goes on. Following today’s votes, expect the deal to formally close — and New Gannett to become a corporate reality — on November 19.

Industry watchers, then, will have their eyes on the next announcement, expected on or around the next day, November 20. That’s when CEO Mike Reed and Gannett operating head Paul Bascobert will name their new executive team. Today I can offer a likely preview of who’ll ascend in the new Gannett order. Before that, though, let’s break down this megamerger as it concludes — and then take a look at what’s likely for the company that will operate 18 percent of America’s daily newspapers.

Actually, let’s start with some news: the next big newspaper M&A deal, which I can now report is (once again) in progress. McClatchy and Tribune executives are talking about merging their two companies, I’ve confirmed with several sources. While I don’t expect any imminent announcements, both companies’ executives agree that, in this rapidly deteriorating operating environment, a merger that buys time by massively cutting costs is a first order of 2020 business.

While the companies decline comment on what would be the next largest — and most logical — remaining combination, it’s clear what obstacles will need to be cleared to pull it off. Let’s call them the two Fs.

The first F: Financing. McClatchy and Tribune will argue that adding the two companies together, likely creating synergies in the $200 million-plus range, will create a less leveraged, financially healthier company. But can they get the financing to get the deal done, given the limited interest most banks are showing in the industry? And if they do, can get they get it at an interest rate of lower than the 11.5 percent that New Gannett is paying Apollo Global Capital for its $1.8 billion in financing. (Remember, the need to pay back that loan quickly is a big driver of New Gannett’s ever-increasing cuts.)

The second F: Ferro. Michael Ferro, the former Tronc/Tribune board chair, nixed the last attempt at a McClatchy/Tribune combo last December. His group still holds 25 percent of Tribune, and they could once again stand in the way of a deal.

On the ground — that gyrating retail ground in all the 38 McClatchy and Tribune markets, — revenue declines worsen, and the worries about 2020 deepen. Tribune, in last week’s quarterly earnings report, said ad revenues were down 15 percent — in both print and digital — with total revenues down 7.7 percent. McClatchy, in its earnings report Wednesday, said ad revenues were down 19.3 percent, with total revenues down 12 percent.

Worse, McClatchy has to deal with its ongoing pension plan problems, now negotiating “a distressed termination” with the federal Pension Benefit Guaranty Corporation. Though it was able to report in first gain in quarterly EBITDA in eight years, the stress on the company is clearly intensifying. It reported that the money it owes the pension “greatly exceeds the company’s anticipated cash balances and cash flow given the size of its operations relative to the obligations due, and creates a significant liquidity challenge in 2020.”

Meanwhile, Tribune announced this morning that it would begin issuing a quarterly cash dividend for shareholders. And not a cheap one: $0.25 per share, per quarter. With 36.02 million shares of stock outstanding, that adds up to about $36 million per year going to shareholders — despite the company being in the red by $9.1 million for the first three quarters of 2019. As MarketWatch notes, that’s “a dividend yield of 10.47%, compared with the implied yield for the S&P 500 of 1.92%.” That might attract cashflow-hungry investors but it also removes $36 million a year that could go toward investing in the future.

“The ability to hire and retain top talent remains one of our top priorities.”

My colleagues have to chose between keeping their job & having health care because they literally cannot afford the increases.

But yes, please, tell me about how our work is benefiting shareholders. pic.twitter.com/zrOCwEq0Tp

— Danielle Ohl (@DTOhl) November 14, 2019

Put it all together and the 2019 Consolidation Games, first previewed here in January, are set to extend into the new decade.

The megamerger will win headlines with the vote today and then the closing next week, but the focus will likely shift to the substantial head-rolling. That’s understandable, as these employees sadly find themselves joining tens of thousands of others who have departed the newspaper industry in the last decade.

The biggest question, though, is what the deal will come to mean for American local journalism, and that’s the big picture we’ll be looking out for.

We already know that the deal of Mike Reed’s career will focus first on both rapid reduction of his huge debt and the maintenance/improvement of the dividend that has sustained NEWM investment over the years. A lot of New Gannett’s cashflow will be exiting through one of those two doors. How much will remain to pay journalists and essential product people in 2020, 2021 and into 2022 — to invest in the product — is the big unknown.

How did we get here?

Last December, Gannett CEO Bob Dickey surprised his colleagues by announcing his retirement. The company was caught unprepared, with no likely internal successor in view.

Smelling opportunity, Alden Global Capital president Heath Freeman — proprietor of the shapeshifting chain MNG, successor in various ways to MediaNews Group, Digital First Media, Journal Register, and 21st Century Media — made his move. He offered to buy Gannett. Though both his intentions and access to financing remained suspect, the Gannett board and management edged toward panic. Could storied Gannett — founded 1923, the largest U.S. newspaper publisher, second to News Corp globally — be swallowed up by a hedge fund that had become the poster child for milking the U.S. press on its way toward oblivion?

As Gannett pondered its options in fighting Alden — resulting in a later board battle and more — Mike Reed smelled both opportunity and the whiff of panic. He called Gannett, offering GateHouse as a friendlier merger partner. Reed looked great compared to Heath Freeman, Gannett executives said to each other.

Lots of valuing, negotiating, and comfort-seeking followed through the year. In the end, though, that’s how private equity Fortress Investment Group has come to control and manage the biggest daily newspaper chain in U.S. history.

Now let’s consider the numbers, the people, and the decisions ahead.

The numbers

The big number is that synergy number, now sitting at $400 million or more.

Though Reed has said editorial cuts would be minimal, “there’s no way they can get that number without significant newsroom cuts,” one person very close to the deal told me. Other sources have echoed that belief. With headcount amounting to about 50 percent of total expense, most are placing the overall number of FTE cuts at more than 3,000. Some believe the number, over the next year, will come in at somewhere between 3,500 and 4,000. It’s unlikely we’ll know the actual number for awhile, and then only through extrapolation.

For a sense of scale, when this deal closes, McClatchy will be the second largest U.S. newspaper company by circulation, behind New Gannett. It has fewer than 2,800 employees in total. So New Gannett will cut more jobs — perhaps substantially more — than its biggest competitor even has.

Why has the number grown from the $275 million to $300 million first cited by Reed?

First, undoubtedly: Operating revenue keeps getting worse, quarter by quarter. And it may be that even Reed doesn’t want to bet on the highly optimistic revenue forecasts he has offered investors in his merger prospectus.

It was on GateHouse’s earning call last week that Leon Cooperman made mincemeat of Reed’s numbers. In colorful language rarely seen on the by-the-book quarterly financial result conference calls, Cooperman laid into those forecasts:

When I listen to you, Mike, on the call, I’m reminded of the deceased comedian, Rodney Dangerfield, who used to complain he gets no respect. And, so I look at page 88 of the S4, the proxy statement that came out and connects with the merger. And if I take the numbers there, the stock is presently trading at 2.7× EBITDA. And this assumption, so nobody believes the numbers, no, on the resized dividend, the stock gives 9%, you’re 2.7× EBITDA. In 2021, you’re going to fix the financing.

Nobody believes it. And I think part of the problem is Gannett’s total revenues have been declining at over 9% over the past few quarters. New Media’s revenues have been declining at around 7%. In fact, I think the Q3 was 7.9%. Post-merger, you’re projecting declines 3.5% in 2020, 1.5% in 2021 and down 0.4% in 2022. As regards margins, they’re running 11% to 12% currently. Post-merger, you’re expecting 15.6%, 18.6%, 21.3%, ’20, ’21, ’22.

Now I can understand the margin expansion stemming from the synergies, but I don’t understand how we go from revenue declines that are 7% or 8% to 3% or 4%. What is behind that and how confident they are that this is going to be the case?

(Ouch. Elizabeth Warren isn’t the only one getting Cooperman’s toughest these days.)

In response, Reed emphasized the minimizing of the part of the business going south the fastest — print advertising — and the increased focus on growth areas. He also highlighted the events production business GateHouse Live, a fast-growing, high-margin unit that will be brought as quickly as possible to Gannett markets. (“So 85% of our revenues will be driven by categories that we feel we can have either stable or growing,” he said. “So we feel very confident over the three-year period that the biggest driver of declines, print advertising, will be a very small portion of our overall business.”)

But a simple truism applies here. If you have a number to hit, it’s far easier to get there by cutting expenses than to really rely on improved revenues. Cutting big and cutting deep at the outset offers Reed some insurance. That way, he knows he’ll be able to pay off the Apollo debt and maintain investor dividends.

Despite Cooperman’s astute skepticism, he’s maintained his support of the merger.

Why? The same reason I’ve repeated throughout the year: No one loves this deal, but it is probably the best that can done now to possibly salvage investors’ stakes. That’s what I hear from those in and around it. For publicly traded, single-class newspaper companies — a species that night not survive the 2020s — it’s all about the art of the imminently possible.

We’ll learn more about this merger as numbers tumble out through 2020, in quarterly reports and SEC filings. How much will the company pay out early in the year to some of the passed-over Gannett and GateHouse executives, who’ll be deploying their golden parachutes? How many tens of millions will be paid out in severance to generate those huge cost savings?

And how does the combined company actually perform? It will take as long as 15 months to get a true apples-to-apples comparison on revenues and profits. In the interim, it’s a lot of extrapolation.

For the numbers junkies out there, the NewsGuild’s Tony Daley, a research economist, has written an exhaustive account of the GateHouse/Fortress timeline, with lots of data. The guild, newly energized by the wave of unionization spreading across digital media, issued its own denunciation of the megamerger last week, saying “journalism will suffer.”

The people

There’s the figures and facts, and then there’s the people — and the gnarlier question of culture. GateHousers pride themselves on moving fast, breaking things, and getting things done. Gannetteers point to the greater sophistication of their systems and processes and their deeper benches of talent. Expect those benches to thin quickly, given the cuts.

Already within Gannett, sources say, business managers have gotten the message and are picking up the pace. Soon they’ll see how many of them survive to work on the always-tough process of merging two companies.

Top executives will try to do what they can to reduce how long that process takes, but everyone expects it to take something like 18 to 24 months to unwind, rewind, and combine how things work. All that is an opportunity cost — potentially productive time and resources that are devoted more to internal change than external business management.

That brings us to the new top management. Sources tell me the new lineup is fairly clear, but it could still change before announcement.

We’ve already known that Paul Bascobert would become New Gannett’s operating CEO, reporting to Reed. Accepting Bascobert, who was just hired by Gannett this summer, was part of the deal to which Reed agreed. That meant that Reed’s longtime business partner, Kirk Davis, would not move into the same No. 2 post at the new company. Davis, well-liked by his management troops and respected as a leading operator in revenue performance in the industry, has decided to leave the company rather than take on a lesser position.

Surprisingly, perhaps, in a merger driven by GateHouse, a number of Gannett executives appear positioned to take big roles at the merged company. In fact, some in GateHouse find the amount of Gannett influence in the new company disappointing.

Several top Gannett executives are expected to assume similar positions in the new company, say several sources. Current Gannett CFO Alison Engel is one. (New Media currently lists its CFO as “TBD.”) In the all-important revenue leadership position, Gannett chief revenue officer/ USA Today Network Marketing Solutions head Kevin Gentzel will move into that bigger job with the new company. Similarly, Maribel Wadsworth, currently president of USA Today Network and publisher of USA Today, “oversee[ing] the company’s consumer business,” will take on a similar role at New Gannett.

From GateHouse, Denise Robbins, SVP of consumer marketing, is expected to take a similar job. Jason Taylor, who heads up GateHouse’s new ventures unit, including GateHouse Live, will maintain a similar portfolio, sources tell me.

The decisions

Given all the pressures on the companies and the industry, lots is on the table.

Early in 2020, the company will decide which of its newspaper properties to sell or swap. “Asset sales” are a key part of the Q1 agenda — though I don’t expect major sales, just some one-offs. Reed will also get cash for some of the remaining real estate that Gannett brings into the deal, much of which came with its own acquisitions over the past several years.

We do know something about what the parties have valued as they put the deal together. Gannett’s national digital ad network is one of those, bringing in plus revenue for the company, sources say. Adding GateHouse’s digital audience to that network will add scale, and scale is good. Likewise, expect to see that USA Today’s branding extended across all the sites.

Will USA Today the newspaper continue publication? At Poynter, Rick Edmonds has detailed the likely approach of its end of print. How long that’ll take will likely be the question. In the meantime, its branding, ironically, will be ascendant. And that leaves big questions about Gannett’s national journalism staff. With a large Washington bureau and USA Today’s staff, where do those journalists fit in the new company’s strategy?

We also know, as noted above, that GateHouse Live is highly valued and will be extended to Gannett properties.

But how will the various digital marketing companies of both Gannett and GateHouse be combined? And can the company find ways to improve margins in this once-highly-touted growth business that has produced disappointing cashflow for many publishers?

Bascobert has outlined a “marketplaces” strategy in his early visits to company cities. Bascobert, previously of The Knot/XO Group, has told staffers he sees such marketplaces as a new central point of rebuilding the local commercial advertising business. In the months ahead, we’ll see what kinds of marketplaces New Gannett will test.

Finally, there are the regional design centers. Gannett has operated several of them; GateHouse has largely centralized its page makeup and production work in Austin. Those centers have already eliminated lots of news production jobs at local papers. How much more can their work be rationalized, squeezed, or made “more efficient”?

In fact, that’s the all-encompassing question here. Neither of these two companies are known for excess or big spending, in their journalism or elsewhere. They’ve both already been well squeezed, for many years.

How much juice is left to extract? And when the juicing is done, what’s left for the readers? Money for journalism: That’s still the root question here.

Tens of millions have gone out to Fortress Investment over the years, and there are still tens of millions left to go, as Fortress serves out its final two-year management contract and then exits with a new package of shares worth tens of millions more. That’s money that, like GateHouse’s dividends, hasn’t paid and won’t pay for journalism.

How questionable are those payments, even within the traditional private equity world?

Take it from Leon Cooperman — as hard-boiled a capitalist as they come — who had his own comment on the matter on GateHouse’s earnings call:

I know we’re happy to get rid of Fortress, but I got to tell you, and I probably shouldn’t say this but I will say it, because that’s my nature of speaking what’s on my mind.

Basically, I was in the hedge fund business for 26 years. I only got paid when I made money for investors.

The kind of money that Fortress is walking away here with, and I know it’s not your doing. They brought this public in 2014 at $16 a share. The stock is $8.50, and they’re going to walk away with hundreds of millions of dollars. It’s just morally wrong, and they shouldn’t even take the money, given what they’ve done here.

]]> https://www.niemanlab.org/2019/11/newsonomics-with-its-merger-approved-the-new-gannett-readies-the-cost-cutting-knife/feed/ 0 https://www.niemanlab.org/2019/10/newsonomics-the-gannett-gatehouse-merger-is-really-happening-but-expect-to-see-more-than-10-of-jobs-cut-off-the-top/ https://www.niemanlab.org/2019/10/newsonomics-the-gannett-gatehouse-merger-is-really-happening-but-expect-to-see-more-than-10-of-jobs-cut-off-the-top/#respond Wed, 09 Oct 2019 18:12:37 +0000 https://www.niemanlab.org/?p=175727 The megamerger is really happening. Expect the new Gannett — the brand that will survive that chain’s acquisition by GateHouse Media — to officially take wobbly flight soon, perhaps around Thanksgiving.

Both companies, the country’s No. 1 and No. 2 newspaper publishers, say it’s full speed ahead. Independent financial analysts tell me that their data-driven analysis shows a 90-percent-plus chance the merger completes. The deal has already gotten the blessing of the Department of Justice’s antitrust division; that approval flashes a very green light to all the other newspaper chains eyeing various mergers and recombinations.

So by New Year’s Day 2020, all the companies’ news products across 265 markets will move under one giant umbrella. Never before in U.S. history have we seen a single company own and manage so much of the American newspaper business — about one of every six dailies. (Both companies are declining comment on the merger’s details at this juncture.)

In other words, it’s been a boffo opening season of The Consolidation Games, the newspaper-industry drama that’s played out in corporate offices, bank meeting rooms, and the stock market since the beginning of 2019 — and which is certain to be picked up for a second series in 2020.

Readers, advertisers, and journalists will feel the reverberations of the Gannett–GateHouse merger for years to come:

• Expect aggressive early moves to begin achieving the $300 million in cost-cutting synergies the dealmakers have claimed to justify the deal.
• More than 10 percent of the chains’ combined workforce — about 25,000 in the United States — will likely get the dreaded call from HR that their services will no longer be needed. How big a cut will that be? If the headcount reduction reaches 3,000 — which would be 12 percent of the workforce — that’s the equivalent of McClatchy’s entire employee count. And McClatchy will be the second-largest newspaper chain in America after this merger is complete.

  New Gannett CEO Mike Reed has emphasized that the coming cuts will come almost entirely outside the newsrooms. Business-side functions — from advertising to production to finance to circulation — will take the brunt of the cuts. Most of the headcount cuts will come in the merged company’s first year, but some will bleed into Year 2.

• Fundamental to those cuts is the adoption of single, uniform systems across the enterprise. Think back to the year-plus of pain that one paper, the Los Angeles Times, went through to untangle itself from Tribune/Tronc’s centralized tech platforms. Now think of how time- and money-consuming it will be to do that across those 265 markets, and you get a sense of the multiyear synergy headache upcoming.

  Gannett and GateHouse each have largely centralized their newsroom tech stacks, with each relying largely on a singular content management system. Those will merge onto one CMS. Merging the companies’ much-touted digital marketing services businesses shouldn’t be particularly difficult, several sources tell me.

  But in most other business functions, a truly motley array of systems still abound. Worse yet, few are cloud-based and run centrally, meaning that even papers using the same software for the same functions are often using different locally installed versions of it.

The calendar ahead

The date to circle on your Consolidation Games calendar is November 14. That’s the day both Gannett and GateHouse shareholders are scheduled to vote on the deal.

GateHouse’s NEWM stock got clobbered soon after the merger announcement, GateHouse down 33 percent over the next three trading sessions. It’s recovered some, but it’s still down 32 percent from the start of 2019. No one is wowed by this deal. It is a marriage of the possible, two partners without many other prospects. Given the ongoing pace of deterioration in newspapers’ operating numbers, that’s the best face even the dealmakers can put on it.

That’s also the pitch to shareholders: You’ll make more money with New Gannett than with either the old Gannett and old GateHouse. Or to put it in the financial speak of the roadshows conducted by the principals to reassure anxious investors: “Nobody has a better path to create value.” That’s shareholder value, of course.

These are two struggling companies seeking short-term salvation — enough oxygen to get a few more years down the road. Taking a $300 million whack at all the “redundancies” in day-to-day operation seems a better choice than going it alone. Sure, it’ll cost $100 million or so to cut all those jobs and rationalize all that tech — most of it in severance. But that’s far preferable, both Gannett and GateHouse believe, than a thousand smaller cuts, atop the thousands both have already made.

Will shareholders buy that argument? The share prices say yes. While there have been several shareholder lawsuits, they look like the sort of attorney-cash-ins common in these kinds of mergers. Experienced financial observers tell me they shouldn’t hold up the deal.

Both Gannett and GateHouse shareholders will get the usual independent advice. Most likely before Halloween, the two major shareholder advisory companies will weigh in with their recommendations on how shareholders should look at the transaction.

ISS and Glass Lewis are now assessing the deal, though they haven’t yet approached the principals with questions. Their recommendations can be somewhat unpredictable; recall the odd call in May to put one of Alden Global Capital’s slate on the Gannett board, a bizarre ISS recommendation during Alden’s failed acquisition try. But both are likely to see the deal logic and say, at some length and in finance-speak, “Uh…okay.”

The companies can close the transaction within just a few days of shareholder approval. Expect that to happen in November, just before or after Thanksgiving.

That’s also when we’ll see the shape of the New Gannett’s new exec team. We know that Paul Bascobert, announced as CEO by (Old) Gannett at the time of the merger announcement has been touring the company’s offices. He touts the value of the deal and the company to come, while of course spending lots of time reassuring workers who see the ax hanging overhead. At the same time, Bascobert is doing his own assessment. Together with Reed, Bascobert’s first order of business will be a profound reorganization of the company.

A new slimmer structure — much more GateHouse-thin than Gannett-like — is on the way. Streamlining is the name of the game. Heads will roll, though a few of the highly placed Gannett ones will be attached smartly to golden parachutes. Gannett CFO Alison Engel will join Bascobert’s operating team, but the guessing game is on at both companies as to which other execs will ascend — and which won’t. The biggest question: the fate of current GateHouse (operating) CEO Kirk Davis, Mike Reed’s long-time business partner in building the company.

The new company’s priorities

All eyes will be on the New Gannett, but it’s tough to say what anyone will actually see.

CEO Mike Reed says he intends to maintain the cohort of journalists now working in both companies. Still, expect some cuts, likely small, in areas like statehouse coverage or regional/statewide sports, due to new regional clustering caused when nearby papers become New Gannett siblings. We can watch whether the company reinvests such resources in the enterprise/investigative teams both companies have built and publicly promoted.

But will there be any new investment? In the product? In the newsrooms? That’s one of the big questions here. The marketplace has not rewarded either company’s products; revenues keep sliding, and subscriptions — print or digital — haven’t nearly filled the gap caused by the great print ad decline.

But the financials in this deal cry out: Repay the debt first.

As I’ve reported, Apollo Global Management may have been the only financier ready to put in the $1.8 billion it took to put this deal together. And in doing so, Apollo was able to demand an 11.5 percent interest rate — an indication of both the risk in the deal and the cold shoulder other financiers gave it.

The impact: On Day 1, the New Gannett will have a mountain of debt to pay off. And the language of the loan allow it to repay it faster than its five-year term without penalty. The faster New Gannett pays off the debt, the less interest it pays, just like any working stiff with a credit card bill. The incentives to make debt payments Priority 1 are clear.

But! Also consider that New Gannett is also promising its shareholders lots of earnings. In its filed financials, the company has painted a rather rosy picture of how it will improve those earnings — despite continuing deep ad decline and the threat of a recession that would likely further pressure revenue.

After they feed debt repayment and earnings, Reed and Bascobert will get to decide where to invest in their new company. How much will they have to work with?

The magic words here are “excess cash flow” — that’s the money the new company will have after it meets its basic obligations. If Reed’s projections will bear out, then perhaps substantial investments can be made. The history of the last few years, though, says there are significant odds against the company having enough cash to transform the business for the next decade — even if there is a strategic vision in place for how to spend it.

Mix-and-match

So where does this outsized deal leave the prospects for others mergers and acquisitions?

Everyone I’ve spoken with close to that question say to expect very little to happen between now and the end of the year.

Looking into 2020, it’s noteworthy how relatively quickly this megamerger got the DOJ green light. The department’s antitrusters could have decried the big regional domination the New Gannett will have in states like Ohio and Florida. (Both pretty important places politically.) But they didn’t.

These same regulators had objected to what was then Tronc’s attempts to buy, separately, the Orange County Register in 2016 and the Chicago Sun-Times in 2017. In each case, DOJ didn’t want one company to own two big properties in a single market (alongside Tronc’s L.A. Times and Chicago Tribune).

In Gannett–GateHouse, there is no single city that hosts papers from each company. (There aren’t that many two-paper markets left, after all.) The clusters this merger will create are more regional. So the DOJ’s Tronc-era standard didn’t apply.

(In Florida, New Gannett will own dailies in Jacksonville, West Palm Beach, Sarasota, St. Augustine, Naples, Brevard County, Fort Myers, Pensacola, Tallahassee, Gainesville, Lakeland, Daytona Beach, Ocala, Winter Haven, Panama City, the Treasure Coast, the Space Coast, and more. In Ohio, it will own Columbus, Cincinnati, Akron, Canton, and more — three of the state’s four largest papers by weekday circulation.)

The pitch to regulators by Gannett and GateHouse attorneys came down to one word: “duopoly.” As in the Duopoly, Google and Facebook, which dominate digital advertising at a scale multiples beyond what even the most mega- of newspaper megamergers could dream of. They made the case that newspapers really can’t control ad pricing in any market, even if they owned clusters of papers adjacent to each other.

It appears DOJ bought that argument. If so, as the next waves of M&A conversations roll forth, would-be buyers and sellers believe they can remove the DOJ review concern (triggered by the Hart Scott Rodino Act) from the table.

(Of course, the DOJ isn’t exactly the same animal today as it was in previous administrations. Makan Delrahim is a former Trump White House deputy counsel who was confirmed as head of the antitrust division in September 2017. In an interview with The New York Times, he “emphasized that antitrust is intended to support free markets and that the government should intervene only when necessary. A monopoly is perfectly legal until it abuses its monopoly power, he said.”)

But it’ll take more than regulatory openness to get more mergers moving quickly. Every other newspaper company sees the same kind of cost-cutting synergies Gannett and GateHouse do. But they also learned a harder lesson from their tie-up: Deal financing, when it’s even possible, is really expensive. Apollo’s 11.5 percent rate is three or more points higher than the refinanced debt other companies such as McClatchy have negotiated recently. With tight cash flow and even tighter cash flow projections, every extra point of interest has a real impact — mostly in accelerated cutting of jobs, including in newsrooms.

Right when Gannett and GateHouse shareholders are voting next month, each of the publicly owned newspaper companies will be reporting its 3rd-quarter financials. There’s little evidence any of those will meaningfully revise the narrative of unending decline. When talk turns to M&A in 2020, the warts of all prospective mates will be front of mind.

So expect that McClatchy and Tribune (which last tried to pair off in December) will dance anew. Lee Enterprises — recently challenged by activist hedge fund Cannell Capital, now the company’s largest shareholder — wants to rationalize its debt; it may welcome a partner. And then there’s always MNG Enterprises — the former Digital First Media and MediaNews Group, controlled by Alden Global Capital, run by Heath Freeman. Like the Joker, it can appear when least expected.

It’s Freeman who Mike Reed can thank for putting Old Gannett into play by pursuing it back in January. As Gannett’s board and leadership anxiously searched for an anybody-but-Heath alternative, GateHouse arrived at their doorstep bearing with flowers of friendship. It took most of the year to conquer the largest newspaper company in America — but what Freeman started, Reed is finishing.

Freeman, of course, probably still found a way to make money along the way. As of June 30, Alden owned 3.7 percent of Gannett. The best guess, say number crunchers, is that Alden made or could make (its current Gannett holdings aren’t yet public) at least a dollar a share. So figure that the Alden will take in somewhere around $4 million to 8 million on the deal — without all the hassle of buying Gannett or figuring out a future for it.

]]> https://www.niemanlab.org/2019/10/newsonomics-the-gannett-gatehouse-merger-is-really-happening-but-expect-to-see-more-than-10-of-jobs-cut-off-the-top/feed/ 0 https://www.niemanlab.org/2019/08/newsonomics-the-perils-and-promises-of-new-gannett/ https://www.niemanlab.org/2019/08/newsonomics-the-perils-and-promises-of-new-gannett/#respond Fri, 09 Aug 2019 14:08:16 +0000 https://www.niemanlab.org/?p=174253 This story was updated Friday afternoon with the news that Alden Global has taken a stake in the new Gannett.

There’s the megamerger, and then there are the numbers: $1.8 billion, 11.5 percent interest, 5 years, $300 million, 18 percent…and many more.

Investors, industry observers and wags have picked through the pieces of the Gatehouse/Gannett megamerger this week, and obsessed over those numbers. All to the question: Will this deal work?

That’s the financial/operational question here, easier to prophesize than the democratic one: What will be the impact in the hundreds of communities that are used to having one major (if flagging) daily serve their basic news and information needs?

The two — financial success and journalistic capacity — should tie together, of course. How they do is one of the great mysteries of this merger. How much money exactly will be saved, and what exactly will it be spent on?

That’s where these big numbers drive the conversation, occupying all the oxygen in the room, and obviously caused great palpitations on Wall Street.

Gannett’s and Gatehouse’s (ticker symbol NEWM) share prices both stabilized somewhat on Thursday, after the latter took a 30-percent-plus dive after the merger announcement. Both companies’ shareholders — and the same top institutional shareholders own lots of both companies — continue to reckon with the reality of the deal.

That led to some apparently premature alarm that the deal would go quickly south, but it had appeared through this week that the investors who bought in as the price took a dive supported the deal and wouldn’t oppose seeing it completed. Among the big players: Leon Cooperman, chair of Omega Advisors, continues to increase his NEWM stake, as others have sold.

On Friday morning, though, this drama took a new turn.

The dealmakers face a new — though known — fear: Alden Global president Heath Freeman. On Friday morning, Alden, through its MNG Enterprises newspaper chain, filed with the SEC, announcing a 9.4 percent stake in NEWM. The stated reason for its large purchase: “The Reporting Persons are evaluating the terms of the Merger Agreement and believe that the consummation of the Merger may not be in the best interest of the Issuer’s shareholders.”

What might Alden — which saw its hostile bid for Gannett defeated in the spring — now do?

The filing hints at loose threat: “Accordingly, the Reporting Persons reserve the right to take certain actions with respect to the Merger including, but not limited to, undertaking to vote against or campaign against the Merger and to propose or suggest strategic alternatives other than the Merger.”

What’s Alden’s real play here? It’s likely more than the spurned Heath Freeman spitting in the soup of the megamerger.

Will he come back with a new all-cash offer, if this deal continues to be met with skepticism from investors, who drove down NEWM stock by more than 10 percent again on Friday? Is he just trying to force the hand of Softbank, the parent of NEWM manager Fortress, to invest, raising the share price, and profiting Alden in the short term? Does he sense that if this megamerger goes through, his MNG Enterprises will be left lonely on the sidelines of the Consolidation Games dance hall, unable to find a suitor?

Softbank may indeed be entering the fray and supporting the deal, word on the street says. Expect numerous other moves in this chess game, which could go for months. Remember, shareholders won’t vote on the deal until late in the year, pending regulatory approval, so the jockeying could well intensify.

Meanwhile, NEWM CEO Mike Reed will be doing everything he can to save the deal. Five days after the deal was announced, a consensus has evolved: He could have done a better job to sell the story of the business synergies of the deal — and to justify the huge, high-priced debt burden the megamergered New Gannett would take on.

The question, then again, of the moment: Is this the best future for these companies?

“Look, it’s the best deal we could get,” one insider told me this week. And that, in a nutshell, sums it up. This current deal is far from ideal for either company, or its shareholders, or its employees, or its readers. And for Gannett, it’s better than being captured by Freeman.

For Gatehouse, it’s the best available alternative as the company has hit a strategic wall, its $1.1 billion-fueled acquisition-heavy strategy and good dividend no longer wowing investors. Fortress Investment Group, the money and strategy behind Gatehouse’s gargantuan growth, saw its next opportunity. It seized it — and now the private equity company will continue to manage the big merged company for the next two years, through CEO Mike Reed, its key employee (more details on that arrangement below).

As the newsprint dust settles, let’s take a quick look at the numbers and a couple of other points that now populate the industry conversation.

The Numbers

$1.792 billion: That’s the immediate financing in this deal. Led by Apollo Global Management, consider this huge sum of money a “bridge loan,” say those involved in the deal. As a bridge, it’s a costly one, set at 11.5 percent interest. Significantly, there’s no penalty for paying off the five-year note early refinancing it.

That’s a key part of the financial logic here. Apollo supplies the massive financing of this deal at 3.5 times or so the companies’ earnings; that’s a deal that doesn’t come cheap, so 11.5 percent is the best rate Gatehouse could get to get the deal done now. One reason that bigger Gannett isn’t the acquirer: it didn’t have the juice to get the financing.

That means that for the next couple of years, the New Gannett will be driven to pay off as much of that debt as possible. If it can get the debt down to two times earnings, then it can refinance at a more palatable interest rate of 8 percent or less. (That’s what McClatchy is paying in its latest refinancing.)  That would save the company millions in annual costs.

Apollo is is no stranger to the newspaper industry, and is described by those who know it as the keenest follower of the trade. While in its 2015 failed bid to buy Digital First Media, it intended to launch an aggressive digital-first strategy, its role here is simpler: financier. With its senior position in the deal, it could come to own the New Gannett if it defaults. For now, though, it will just rake in short-term dollars.

The other link to remember: Apollo and Fortress Investment Group.

“Remember, lots of banks were in on the reviewing deal,” says one significant holder of Gannett shares. “And no one would finance it.  It took Apollo and that high rate to get the deal done.”

Another said, “Without Fortress and its influence on Wall Street with the money it spreads around, this deal wouldn’t have worked.”

That’s pivotal to understand in this megamerger and to remember as we contemplate a McClatchy/Tribune merger or others. It’s really tough to get financing for an industry in such structural decline.

$300 million: That’s the annual cost savings synergy number that CEO Mike Reed is aiming for, as he announced $275–300 million as a target. Subtract $100 million or so the first year, due to lots of severance costs in reducing business side headcount and buying out of duplicative vendor contracts. Reed has emphasized that the $300 million is “only” 7.5 percent of the combined companies’ expenses, a lesser percentage than other merged companies’ executives have claimed.

That’s the big key to this deal: massive savings in combining two big companies, which then buys time for the digital transition solutions.

The savings, most observers believe, are real. The question is where do these savings go? Think Let’s Make a Deal’s three doors:

• Debt repayment. A must, of course, with that added incentive of getting the principal down for a cost-saving refi.
• Dividend: New Media Investment knows it needs its dividend to keep shareholders happy.
• Reinvestment in the business.

For a company whose revenue is only about 25 percent digital, the massive heavy lifting of “digital transformation” lies ahead. Witness the expense of those who are farther along nationally, led by the New York Times, Washington Post and Wall Street Journal. Major reinvestment in both technology and talent have led the way. The new Gannett is much closer to the beginning of the digital transformation process than the end. That’s expensive.

So, the big question: With the major savings, especially after the first year (given the cost of getting those savings), how much money will go to each door? There’s already tension between the two companies on that question, as the deal proceeds with regulators, with Reed more focused on debt reduction and old Gannett on transition, say sources.

And the bigger question behind that: What’s the New Gannett’s theory of the case? What will the largest local news company need to do and be to be successful in the 2020s? Neither Gannett nor Gatehouse has offered any big vision of what that is, or could be, even fueled by new money. We know Heath Freeman’s theory: Local newspaper companies are a lost cause, so milk them ‘til the cows are dry.  What is the New Gannett’s theory?

Is there a plan to broadly embrace cutting of print days, as much of the industry models that idea? Is the combined digital marketing services business of New Gannett its primary commercial strategy? Can it make a bigger revenue stream out of Gatehouse’s industry-leading events business? Will the USA Today Network find stronger legs — in both digital ad revenue and shared national and investigative reporting — as Gatehouse properties are added to it?

We’ve heard no grand pronouncement about reinventing local news in the 2020s. If, say, The New York Times or Washington Post were the party bringing these two companies together and offering a grand turnaround future, we’d see a story that would capture imagination.  This story, one of economy, mainly registers shrugs.

18.5 percent: That’s how much print advertising was down, year over year, in this week’s announced second-quarter financial reporting at Gannett, with overall revenues down 9.9 percent. That number multiplies the difficulty of the math of this deal. If revenue were at least flattish, CEO Mike Reed could allocate those savings more easily through the three doors.  But it’s not.

The Monopoly board on which this strategy is being executed is shrinking as the game is played.  (Even Gatehouse, usually the best performer on a same-store basis the last couple of years was down 15.3 percent in print ads and 6.9 percent overall in the second quarter. McClatchy followed the same trend on Thursday, down 18.7 percent in print ads and 12.6 percent overall.)

In a deal that is all about cash flow, the merger partners face the fact that, on an operating basis, too much cash is flowing … backward.

263: That’s the total number of current daily operations now reported by the combined companies, but expect that number to change in 2020. First, the companies have to see what they must do to win the Department of Justice antitrust division’s approval of the deal. They’ve hired attorneys with DOJ experience to expedite the process and don’t expect big issues, given that they don’t own titles that go head-to-head in the same market. The antitrusters could take a wider view of regional price domination, but aren’t unexpected to.

At least for appearance’s sake, Gannett and Gatehouse might offer to sell some properties in areas that may seem monopolistic.

There’s one more good reason for the new Gannett to sell some properties: Cash, to repay that Apollo loan. The new Gannett will focus heavily on areas where it has great geographic domination — Florida, Ohio, and Wisconsin. After those, look for possible sales of properties that stand alone in their areas and may be prized by other publishers, who can themselves “cluster” newspapers together. That’s one arena in which the 2019 Consolidation Games may play on.

One thing Mike Reed will certainly do: Sell some of the surviving real estate sitting under Gannett properties. That, too, will bring quick cash.

Beyond the intriguing numbers, here are a few more questions:

Why the two-company structure? Observers of the Seussian corporate structure outlined in the merger announcement wonder why it’s being constructed that way. A set-up for further acquisitions, perhaps?

The reality is simpler. The new Gannett’s new corporate structure looks strikingly similar to New Media Investment Group/Gatehouse’s current one, and for a good reason: Fortress Investment Group, which bred the big Gatehouse, remains in the driver’s seat of the new Gannett. It’s no accident that NEWM shareholders retain 50.5 percent of the new company’s shares, with Gannett getting the minority 49.5 percent. That enables Fortress to maintain control of the board and the company.

Fortress, which brought Gatehouse through bankruptcy and assembled pools of acquisition capital in a market hungry to sell, gets to stay in charge of the new Gannett through 2021. Fortress, now owned by Japanese conglomerate Softbank, negotiated through last weekend to get its due in this deal.

Back in 2013, Fortress began taking hold of Gatehouse Media, out of bankruptcy. Its management contract to run the new company through CEO Mike Reed, a Fortress employee who became its Grand Acquisitor, enabled it to run the table, spending more than a billion dollars buying dailies and weeklies from usually long-time newspaper owners, many of them families, increasingly desperate to get out of the business.

Then, Fortress, seeing the business run into a wall within the last 18 months, and unlikely to find new money to make smaller acquisitions, smelled money in the chaos of Gannett. Though it only owns 1.1 percent of Gatehouse, through this deal, it protects its position quite well.

In documents filed with the Securities and Exchange Commission, Fortress’s continuing role is clarified. Essentially, the new Gannett, like the old Gatehouse, operates under the parent company — operated by Fortress, with Mike Reed, the new combined company’s CEO, still an employee of Fortress through the end of 2021.

“It’s extraordinarily odd,” said one significant investor in the company, speaking of the CEO of a public company being employed by a PE firm.

Fortress took in $21.8 million for its management of Gatehouse in 2018, and stands to make a similar sum for 2019. The merger agreement adjusts Fortress’s role and finally ends it in December 2021. We can see some of the financial/contractual adjustments in the filing, but it doesn’t provide a complete picture.

We can estimate that Fortress will earn at least its $20 million annually, if not more, for the next two years. In exchange for ending the agreement, Fortress gets 4,205,607 shares of the new Gannett stock, sellable at the end of 2021. Further, it is granted options to buy 3,163,264 shares of new Gannett stock. (“These options will have an exercise price of $15.50 and become exercisable upon the first trading day immediately following the first 20 consecutive trading day period in which the closing price of the Company Common Stock [on its principal U.S. national securities exchange] is at or above $20 per share [subject to adjustment], and also upon a change in control and certain other extraordinary events.”)

“Let no one ever say that you can’t make money in the newspaper business,” one industry veteran observed this week.

And, yes, this reality: It is a private equity company that will manage — through newspaper veteran executive Mike Reed — one-sixth of the U.S.’s daily newspapers for the next two years.

How much smaller will the New Gannett be in a year? By the end of 2020, it will be likely be significantly smaller. Consider that about $75 million could be paid out in severance funds, as headcount — the big cuttable cost center of newspaper companies — gets reduced.

As we’ve noted, most of those cuts will focus on the business and production part of the enterprise. Two corporate headquarters become one at Gannett’s McLean, Virginia, location. Every division and process will be under scrutiny as surviving managers aim to cut $300 million. Fewer printing presses, fewer middle managers, elimination of redundant technologies.

Speculation has begun, of course, about who and what will survive in this process. Some think that Gannett, even though it was acquired, may exert more staying power than one might expect.

Undoubtedly, it’s going to be complex. Gannett has invested multiples of millions more than Gatehouse over the years in systems of every kind, from content management to ad serving to subscriptions management — and has more middle managers supporting them, though those ranks have seen lots of cutting in recent years. Already, some key Gatehouse managers are rankled at the perception they may lose out.

The top two executives in this new company will set the tone for all the coming cuts, and CEO Mike Reed is no stranger to efficiency management. He’s got a new partner, Paul Bascobert. Gannett named Bascobert its new CEO at the same time it made the merger announcement. The company had been courting him for awhile, and Reed agreed to take him as a #2 as the deal solidified. Alison Engel, Gannett’s CFO, will move to that job at the merged company.

Bascobert isn’t the household name that Gannett had hinted at in the long months of its search after CEO Bob Dickey announced his retirement in December. But former associates describe him as a solid, experienced executive. At Dow Jones, one of his key positions was streamlining the company, and that talent will come in handy as the next year is consumed by the most judicious cutting the company can accomplish.

Second, he’s got experience in one key area of company growth: digital marketing services. Both companies have touted their services (LocaliQ for Gannett and Upcurve and ThriveHive for Gatehouse) as routes to a turnaround future. Bascobert led Yodle, an early market services independent that competed with ReachLocal and was later bought by Gannett.

Putting together those marketing services businesses will be complex but it’s clearly in Bascobert’s comfort zone.

The big name missing from the merger announcement: Kirk Davis. CEO of Gatehouse Media and the clear #2 to Reed, Davis is his boss’ long-time business partner. Many read the absence of his name in merger announcement as a sign he’s out, though that may be premature.

Gannett’s headquarters in McLean, Virginia, by Patrickneal, used under a Creative Commons license.

]]> https://www.niemanlab.org/2019/08/newsonomics-the-perils-and-promises-of-new-gannett/feed/ 0 https://www.niemanlab.org/2019/08/newsonomics-the-gatehouse-gannett-newspaper-megamerger-could-be-announced-as-soon-as-tomorrow-morning/ https://www.niemanlab.org/2019/08/newsonomics-the-gatehouse-gannett-newspaper-megamerger-could-be-announced-as-soon-as-tomorrow-morning/#respond Sun, 04 Aug 2019 15:32:08 +0000 https://www.niemanlab.org/?p=174050 As I reported here two weeks ago, the two chains have both grown more comfortable with a combination that will produce an unprecedented giant in American daily journalism. The combination — which parties say will take the Gannett name and its headquarters outside D.C. in McLean, Virginia — produces a company that will likely own and operate 265 dailies and thousands of weeklies across the country. That’s more than one-sixth of all remaining daily newspapers. It will claim a print circulation of 8.7 million — dwarfing what would become the new No. 2 company, McClatchy, and its 1.7 million. Its digital audience will claim a similarly outsized lead, helpful for selling national advertising.

(Of course, scale is relative. The merged company would control an unprecedentedly large share of American newspapers. But those newspapers, even when bought in bulk, are far weaker than they were in the industry’s glory days, with shrunken revenues, circulation, and influence. And no matter how big its combined digital audience, the new company’s share of attention will still be no match for Google, Facebook, and the lesser nobility of digital advertising. It’s a very big slice of a much smaller pie.)

As the company that has achieved the long-sought rollup of the daily press, the new Gannett will exert a profound impact on the news industry itself, hundreds of communities, millions of readers and on the very future of the craft of journalism.

This merger produces a new cascade of questions. The first: What are the next dominoes this transaction sets up in the consolidation of the newspaper industry this transaction? Eyes are focused squarely on McClatchy and Tribune, though both Lee Enterprises and MNG Enterprises — the latest name for the collection of papers owned by Alden Global Capital — are also drawing attention. Back in January, I dubbed the industry-wide urge to merge the 2019 Consolidation Games, and this deal certainly sits atop the medal podium just past mid-year.

The deal itself still looks to be along the lines I outlined two weeks ago — designed to generate $200 to 300 million in annual cost savings in an effort to give them more time to “figure out their digital transition,” as they like to say.

GateHouse, through its New Media Investment Group (NEWM) holding company, is the acquirer. That’s surprised many observers, given Gannett’s greater circulation, cash flow, revenue, and market cap. But New Media — led by the industry’s grand acquisitor, CEO Mike Reed, and having the deal energy and resources to bring the financing together — is squarely in the driver’s seat.

Gannett’s shareholders (with 114 million shares outstanding) will receive $6 or more per share in cash, plus shares in the new company, adding up to a price in the $12 range. That’s a little more than a dollar over Gannett’s Friday closing price of $10.75, but it’s four dollars a share more than the $7.90 Gannett was at before investors learned the deal was likely and speculated the price up.

(My efforts to reach both companies for official comment this weekend were unsuccessful.)

But there is one new big player in this story: Apollo Global Management, the private equity firm which will lead the financing of the merger, sources tell me. Apollo’s name had been heard around the industry for a while, most prominently four years ago when it came close to buying what was then branded as Digital First Media from Alden. That deal fell apart at the last minute over price. (If you’ve seen Apollo in the news lately, it was likely in the context of its founder distancing himself from the sexual predator Jeffrey Epstein after a financial relationship spanning more than a decade.)

In this deal, Apollo is supplying much of the money to get the deal done, with financing that sources tell me could approach $2 billion and a major debt service to match in 2020 and beyond — limiting how much any cost savings can be invested into newspapers’ future. Financing in the merger must both pay off Gannett shareholders partly in cash and essentially refinance both companies’ debt. That debt, after cash on hand is subtracted, amounts to about another $1 billion. In its would-be DFM deal in 2015, Apollo saw itself as a strategic consolidator with a game plan throw the switch from print to digital more rapidly. (It’s worth re-reading my story Thursday on newspaper companies’ increasing plans to stop printing their products seven days a week.)

Mike Reed will be at the reins of the new company as New Media acquires Gannett. (“Acquisition” and “merger” are roughly synonymous terms in this transaction.) This deal represents his ascension to the top of the trade, reinforcing what he told Nieman Lab readers last year in lengthy interview: The rollup of the newspaper industry is inevitable. Reed built the GateHouse behemoth out of bankruptcy with strong financial backing, including lower-cost access to capital from the Fortress Investment Group. For its efforts, Fortress has already been rewarded well, taking in $21.8 million in management fees and incentive payments alone in 2018. Dealmakers in this merger face the financial reckoning of buying out Fortress’ contract; that’s been one of the last sticking points in final valuation talks, say sources.

So what will this new company, a supersized Gannett, look like? Don’t expect an unveiling of the daily operating head of the company (presumably someone reporting to Reed) when the deal is announced. Instead, sources tell me they’ll point to further announcements down the road as it moves through the regulatory approval process.

Will the feds quickly approve the deal?

The agreement does indeed require federal approval, with a HSR (Hart–Scott–Rodino) review for antitrust purposes ahead. Department of Justice antitrust review is unlikely to prevent the completion of the deal, but it could take it through some unanticipated turns. Tronc/Tribune found itself stymied by DOJ’s antitrust division in two deals — one for the Orange County Register, the other for the Chicago Sun-Times — a couple of years ago. Those two cases focused on claimed monopolistic limitation in regard to advertisers and/or subscribers in a single market. (In these cases, from uniting the L.A. Times with the Register or the Chicago Tribune with the Sun-Times.)

But GateHouse and Gannett’s holdings, as numerous as they are, may not be considered as competing head-to-head in any single market. The big question is how DOJ will look at the substantial regional clustering of properties this deal would bring. In south Florida and in Ohio, for instance, the regional clustering of Gannett/GateHouse papers would be profound. But it’s that sort of clustering there in many places across the country that drives the cost-saving synergies that form the entire financial purpose of the deal.

(In Florida, a combined company would own dailies in Jacksonville, West Palm Beach, Sarasota, St. Augustine, Naples, Brevard County, Fort Myers, Pensacola, Tallahassee, Gainesville, Lakeland, Daytona Beach, Ocala, Winter Haven, Panama City, the Treasure Coast, the Space Coast, and more. In Ohio, it would own Columbus, Cincinnati, Akron, Canton, and more — three of the state’s four largest papers by weekday circulation.)

Will DOJ take a stand on such regional clustering? Will it find that print advertisers could be priced unfairly? Will it make an argument that the continuing spikes in the price of a print subscription is unfair to those print readers who remain? One fundamental determination: Do weakened newspapers, even if merged, really still have the ability to dominate a market to an extent that would be unfair?

Also: Since this is the first deal to create a truly national newspaper company footprint, might DOJ consider national market domination along the same lines?

Neither GateHouse nor Gannett expect such review to be a major stumbling block. Failing that kind of unexpected outcome, expect the new company to be ready to set up shop by January.

If DOJ expresses concern within its first 30-day review period, the new Gannett could agree to sell off a few titles in contested locations. It’s also quite possible that Reed has already anticipated such sales, both to satisfy DOJ and/or to reduce the debt necessary to get this deal done. Other newspaper chains would likely be interested in buying individual properties that could help them cluster.

Watch the dominoes

Will this announcement push others back to the merger table?

Close observers of the industry now expect the Tribune board to feel more pressure to make a deal. Tribune, along with its past pursuer McClatchy, is one of several companies set to report earnings this week. With the GateHouse/Gannett deal, Tribune loses a potential dance partner. Tribune/Tronc had a long and often bitter battle to tie up with Gannett (a deal semi-negotiated last summer). That presumably leaves it turning its eyes back to Sacramento, where McClatchy will likely be prepared to pitch another iteration of a deal.

McClatchy may well be able to shave a dollar or two off of its rejected December offer and get a deal done. The continuing stumbling block, sources say: Michael Ferro, whose group still controls a quarter of Tribune and who nixed the December deal. Both companies’ need consolidation for the same reasons Gannett and GateHouse do: cost savings to buy time.

(Observers noted McClatchy’s recent filing of a “waiver” request with the IRS to put off payments into its underfunded pension fund and wondered whether it is a sign of financial weakness. That filing indeed indicates tight liquidity, though that barely counts as news for McClatchy, which has been managing down/deferring its still-substantial debt pile of $816 million. While these tight finances do point to the short-term value of merger, they don’t likely indicate an imminent issue. History will note that McClatchy, unlike GateHouse and Tribune, never declared bankruptcy in the aftermath of the Great Recession. Neither did Gannett.)

Then there’s Alden. As I wrote earlier in the year, it probably stands to make some money off its supposed hostile takeover attempt of Gannett in January, depending on how much Gannett stock it retains. Alden president Heath Freeman, vilified as he is in the press, appears to have worked a successful strategy. Did he ever really intend to buy Gannett, as clumsy as his effort ended up being? Or did he just want to put it in play — as he clearly succeeded in doing — to make some money on the Gannett share holdings he had?

So what does Alden do now with its MNG papers — especially in California, where it owns more than 20 papers, including in San Jose, Oakland, Orange County, Long Beach, and Riverside? Will it find a new partner, or some other way to exit the struggling business? And then there’s Lee Enterprises, itself dealing with debt-refinancing issues and maybe another company to add to the would-be consolidation mix.

Where will the $200 to $300 million in synergies come from?

For the journalists inside what will become the new Gannett, and for their readers, the immediate future is hard to chart. Financial realities drive this deal — and that means cutting. We’ll hear the two companies talk about synergies in that $200 to 300 million range. How do those numbers work?

At the low end, “figure $200 million minus $100 million the first year,” explains one savvy financial insider. “It will cost them about $100 million in severance-plus to get the savings they want. Then there’s a savings of $200 million net a year.”

But wait: That might sound good if newspaper revenues were stable. They’re not, expected to drop another 5-plus percent in 2020 and likely continued decline after that. That could add up to another $100 million vanished from top-line revenues in 2020.

Where will the synergistic efficiencies come from? In order, consider these the sources:

• Corporate and shared services. Two big public companies turned into one can save tens of millions in costs. Finance, HR, technology, and more offer lots of cost savings as two systems become one.
• Old iron, the rationalization of printing, production, and distribution facilities. Already underway all across the industry, this deal enables the next efficient mapping of the old means of production. (And, yes, that means still earlier deadlines for those print readers, with 36-hour-old news becoming a front-page standard.)
• Ad and digital marketing services combinations. Expect cuts and a combination of both traditional ad sales forces and those in the companies’ newer digital marketing services (Gannett’s LOCALiQ and GateHouse’s ThriveHive and UpCurve) that both companies have pointed to as growth drivers.
• Vendor savings. Gannett is already the industry’s savviest buyer of newsprint and ink. More scale means even better materials pricing.
• And yes, newsrooms. Both companies understand how thin their editorial staffing has become and how that complicates the sale of digital subscriptions. But expect more editorial consolidation as well. Regional clustering — another big movement I’ve covered — will mean more consolidation of top regional editorial management positions, and the companies have two major shared design/editing operations to combine in some form.

Let’s remember: These synergies are the point of the deal. But the financing required to put the deal together means paying off a lot of debt — up to that $2 billion number. That could cost the new company something in the neighborhood of $150 million or more in annual debt service, given the high rate of interest Apollo has likely extracted in its term sheet. That annual payment will significantly constrain the new company’s ability to invest in its future — remember, that “digital transition” they keep talking about.

As this deal get finalized and then dissected — by the market and by those who care about local journalism — we’re left with this point from one in-the-fray source to ponder: “If executed well, this company will be much more likely to lead to the further rollup of the industry.” The further rollup.

The merger of GateHouse and Gannett is not the checkered flag at the end of the race. It’s more of a starting gun.

]]> https://www.niemanlab.org/2019/08/newsonomics-the-gatehouse-gannett-newspaper-megamerger-could-be-announced-as-soon-as-tomorrow-morning/feed/ 0 https://www.niemanlab.org/2019/07/newsonomics-its-looking-like-gannett-will-be-acquired-by-gatehouse-creating-a-newspaper-megachain-like-the-u-s-has-never-seen/ https://www.niemanlab.org/2019/07/newsonomics-its-looking-like-gannett-will-be-acquired-by-gatehouse-creating-a-newspaper-megachain-like-the-u-s-has-never-seen/#respond Thu, 18 Jul 2019 21:37:35 +0000 https://www.niemanlab.org/?p=173538 The deal isn’t yet finished. But I’m told by multiple sources that there are no major stumbling blocks left to negotiate in a megamerger between the United States’ two largest daily newspaper chains — Gannett and GateHouse. It’s increasingly likely to happen, with an announcement by summer’s end. That’s despite absolute public silence from the companies involved.

A combined Gannett and GateHouse would create a superchain that owned and operated more than one-sixth of all daily newspapers in the country — a prospect I first reported on in mid-May. The merged company would control 265 dailies with a combined daily print circulation of about 8.7 million. The next largest newspaper chain in print circulation is McClatchy, well behind at about 1.7 million.

Gannett and GateHouse executives (and their bankers) continue to put the deal together. The hard issues have been gamed out, like which company’s shareholders would get a majority of the new company; so have many soft issues, like cultural fit between both companies’ leaders. Over the months that they’ve been talking, the comfort level has grown, I’m told, and that’s what increases the chances of an announcement in the relatively near future.

Call it maybe the only deal that can get done in this environment of newspaper companies in decline. Their leaders have spent the last few years — 2019, especially — sketching out nearly every possible corporate marriage, all in a quest for enough cost-cutting to buy a little more time. The hunt for scale seems to be ending with a merger of No. 1 and No. 2.

Regulatory review would follow the announcement, with the newly merged company likely to start life by early 2020. And of course, that’s only when the laborious, time-sucking work of combining management teams, tech stacks, and corporate (and editorial) cultures begins.

These are the deal dynamics coming into focus:

• GateHouse, via its parent company New Media Investment Group, would be the acquirer — even though it’s the smaller company by market cap, cash flow, and revenue.
• NEWM would then own both GateHouse — the operating company for its 156 daily newspapers and more than 300 weeklies — and Gannett, with 109 dailies and more than 1,000 weeklies and niche publications. The merged company would then take on a unified brand. That could be Gannett, with its longer history and national USA Today brand. Or it could be a new name altogether. (Not TEGNA, that’s taken.)
• With investors currently granting its earnings a higher multiple, GateHouse shareholders would likely get a majority of the combined company’s shares.
• The Gannett board, I’ve learned, would likely be content with its shareholders getting a cash payment in the neighborhood of today’s $7.90 closing share price. The premium would be paid in shares.
• Fortress Investment Group, which manages New Media/GateHouse by contract, will play a still-being-worked-out role in the transaction. Currently, Fortress takes an annual management fee out of the operation. In 2018, it took out $21.8 million in total — based on a basic management fee of $10.7 million and the rest an incentive payout based on GateHouse’s net income. Will Fortress continue to play a role in a merged company? Gannett’s board is unlikely to feel comfortable with that, and that’s one of the issues still to be tackled. According to its management contract, Fortress can be bought out of its agreement. That, though, will cost one year’s fee, or about another $10.7 million (in addition to whatever it’s earning for calendar 2019) and an additional buyout of its incentive fee.

Meanwhile, Fortress’ marketplace heft could be integral to getting the deal done at all. That’s why several industry observers say this may be the only big industry deal that can make it to the finish line in mid-2019.

Throughout the first six months of what I’ve called the 2019 Consolidation Games, industry sources have been reminding me (and I’ve reminded you) that obtaining financing for any major newspaper transactions remains fraught. Who feels confident about any daily newspaper financial projections for 2021, much less 2023? So, Fortress — with its own capital, its standing in financial markets, and its newer Softbank ownership — may be able to bring a deal to financial conclusion where others would stumble.

The logic of the deal

The thinking isn’t hard to understand. This isn’t about building a digital news juggernaut ready and eager to blaze a new chapter in American journalism. Despite the unprecedented scale on offer, you won’t hear any talk of building a “Netflix for news” or a “New York Times for local.”

Simply put, these companies’ leaders think a megamerger buys two or three years — “until we figure it out.” The “it” is that long-hoped-for chimera of successful digital transformation. Gannett and GateHouse, like all their industry brethren, look at ever-bleaker numbers every quarter; the biggest motivation here is really survival, which in business terms means the ability to maintain some degree of profitability somewhere into the early 2020s.

If the deal gets done, the parties will, of course, cite the synergies of the deal — all real, all likely inflated to some degree, as they are in nearly all mergers. Figure those savings could add up to something like $200 million over the next two years, though some are putting the number higher.

“Two CFOs, two legal counsels, two sets of technology, etc.,” one savvy observer summed up the targets of this and other attempted deals. But will it also mean more newsroom cuts? Both Gannett and GateHouse management have done their share of newsroom cutting, and both realize the damage those cuts — and further ones — do to the products they try to sell to subscribers, print and digital. But they have cut, and they will continue to cut, to make the numbers they think they need to make.

One thing you don’t see in that quote above is “two CEOs” — a cost one expects to get halved in a corporate merger like this. That’s a curious wrinkle here. Mike Reed serves as CEO of New Media Investment Group; his longtime business partner Kirk Davis serves as CEO of GateHouse Media. Meanwhile, Gannett doesn’t currently have a CEO, and hasn’t since Bob Dickey retired earlier this year. An announcement of that new CEO had seemed close for months — only to be delayed. Has Gannett abandoned that hire, given the imminence of a GateHouse deal?

Apparently not. Gannett is still apparently proceeding with its hiring of a well-known industry figure, who’ll be considered a twofer, sources tell me. The new CEO, Gannett would expect, could lead the company forward in the runup and workthrough of a merger. Or, if the merger failed, he could operate the company.

The obvious question: Who’ll run the merged company? Would Reed move to chair of a new board? Would Gannett’s new CEO or Kirk Davis ascend to lead this behemoth of a newspaper chain?

The synergies extend beyond cutting, though cutting is where the financial analysis begins. Consider the matchups:

• Both companies’ properties are concentrated in smaller to mid-metro communities. Gannett owns a number of metros (Phoenix, Indianapolis, Detroit, Nashville, Milwaukee, Cincinnati), and GateHouse’s assembled a few too (Columbus, Oklahoma City, Providence, Austin). But their core properties are in smaller markets.
• Both companies have focused on building local agency advertising-plus services and believe more scale may help profitability.
• Gannett touts the success of its USA Today national digital ad network; a merger would add more scale to its offerings.
• Both companies have regionalized huge portions of management and daily production work — editors overseeing multiple properties, regional design centers handling layout, centralized printing and unified tech backends. While that makes for a cultural fit, it also of course means there are probably fewer cost savings left to be squeezed out of even more regionalization.

“Regionalization” really should be a key word here. “Local” news is rapidly coming to mean “regional” news. Readers in print and digital too often now get “local” news out of places 50 miles away, just as long as the daily’s corporate parent also owns those news operations down the road. And I’d expect to see a lot more regionalization out of this merger.

The fall of the house of Gannett

There’s the deal here, and then there’s the spectacle.

Little GateHouse — historically a minor and frankly not journalistically well-regarded newspaper company — ascended from the ashes of a 2013 bankruptcy. As part of that process, Fortress Investment Group invented New Media Investment Group as a holding company, and GateHouse has been on an acquisition rampage ever since.

CEO Mike Reed, who I interviewed for Nieman Lab last summer was able to use Fortress-assembled pools of capital to play the industry’s timing well. A disciplined buyer, he found smaller newspaper owner after smaller newspaper owner, all of them ready to get out of the business as ad fortunes sank deeper and deeper.

The day it came out of bankruptcy less than six years ago, GateHouse had 78 dailies. Today it has 156, by far the most of any chain.

For much of that growth spurt, investors liked what they saw in NEWM, which offered a good-sized dividend. GateHouse’s own performance and strategy hit a wall over the past year, but with this merger, Reed has apparently pulled a new rabbit out of his hat.

Business is always all about timing, and the timing here is fascinating. Gannett has been on its heels since 2016, when it tried a hostile takeover of Tribune, which then Tribune (and soon Tronc) chairman Michael Ferro used to blow Gannett’s house backward. It reached a point of maximum weakness last December, when CEO Robert Dickey announced he’d retire in May and it became clear the company — facing sad financials — had no plan in place to succeed him.

Smelling blood, Alden Global Capital, the trade’s bête noire, struck, making a hostile (maybe even unusually hostile) bid for Gannett at $12 a share. Gannett successfully resisted the Alden push, which apparently ended when shareholders voted down Alden’s alternative board director candidates in May.

But Alden had pushed Gannett into play, as I reported throughout the spring. Forced to defend itself against Alden, Gannett slow-walked its hiring of a CEO and hired Goldman Sachs to explore “strategic options.”

With that exploration — and with the overriding logic of consolidation driving the entire newspaper industry — entered GateHouse. Over the past several months, the two companies’ executives, boards, and bankers have found themselves increasingly charmed by the prospect of putting the two companies together.

It’s remarkable that Gannett — for the past decade, the clear big dog of the local newspaper industry — isn’t the acquiring party here. While its board will have a say in the structure and leadership of the new company, its status has clearly fallen. The silver lining for the top remaining Gannett executives, some of whom will see this as an excellent time to depart? Change-of-control provisions in their contracts will provide some very silky golden parachutes after a sale is completed.

But remember: This deal isn’t quite done yet. What could intervene? Financing could still prove impossible to obtain. Alden could come back with an all-cash offer higher than $8 — but could it finance it? Could a Gannett/Tribune marriage — the subject of multiple failed proposals, as recently as last year — be resurrected? Sources say that’s unlikely — Ferro is still Tribune’s largest shareholder, and he and Gannett have not played well together — but consider it possible.

If this deal concludes, it will certainly earn the gold medal in the 2019 Consolidation Games I’ve covered all year. It’s one big answer to the question of what’s the survival strategy for top newspaper chains. At the same time, though, it poses another big question: How will — or can — the rest of the big players respond? Will Alden, Tribune, McClatchy, and Lee find new and complex ways to mate?

Or can they? The gap in scale between them and a merged GannHouse would be larger than ever, and money is already tight. Even companies with some of the industry’s best balance sheets are currently having trouble refinancing debt, several financial sources tell me. Even with the best deal logic, would financing be available to pull off any other mergers in the industry’s second tier? And where does this all leave the many, many smaller players — the private regional groups, the lone family papers still standing? The top end of the newspaper food chain is getting a lot bigger, and the effects will be felt all the way down.

]]> https://www.niemanlab.org/2019/07/newsonomics-its-looking-like-gannett-will-be-acquired-by-gatehouse-creating-a-newspaper-megachain-like-the-u-s-has-never-seen/feed/ 0 https://www.niemanlab.org/2019/05/newsonomics-the-potential-gatehouse-gannett-merger-shows-more-scale-is-still-the-newspaper-industrys-real-strategy/ https://www.niemanlab.org/2019/05/newsonomics-the-potential-gatehouse-gannett-merger-shows-more-scale-is-still-the-newspaper-industrys-real-strategy/#respond Thu, 30 May 2019 23:22:13 +0000 https://www.niemanlab.org/?p=172203 Call it megaclustering.

If a GateHouse/Gannett merger — rumored for weeks, today reported as a deal in some stage of progress by The Wall Street Journal — becomes reality, about 1 of every 6 daily newspapers in the United States would be owned by a single company. Totaled up, 267 dailies would fall under a single ownership and management. That’s an unprecedented concentration of control in the history of the American press.

(Back in 1977, The New York Times wrote with concern about the growing concentration of newspaper ownership, pointing to Gannett’s 60 dailies as the most of any chain in the country. The United States had 1,756 daily newspapers back then, and Gannett owned about 1 of every 29. Times change.)

Megaclustering is a notion I first wrote about two years ago as I looked at the possibility of a GateHouse + Gannett + Digital First Media combination. And that’s still a combination that could tumble out of today’s consolidation talks.

Of course, a Gannett/GateHouse merger isn’t a done deal, and talks aren’t even all that advanced. Today’s Journal story drew new attention to the potential hookup, which I’d pointed to a couple of columns here at Nieman Lab within the last month. Such a merger would win the championship ring in the 2019 Consolidation Games, the prime driver of newspaper strategy in 2019. Merge, buy, or sell — they’re all routes to cutting costs in this abysmal advertising climate, one way or another.

There’s no small irony that this sort of merger might well be counted as a success by Alden Global Capital, the cut-to-the-bone newspaper company that poured gas on this round of negotiations by saying it wanted to buy Gannett in January. But Alden never supplied certain financing for the deal, and many believed it just wanted to put Gannett into M&A play, so it could profit off the 7.5 percent stake it already owns in the company.

Gannett won the battle to stave off Alden. But in play it plainly is.

Industry observers like the shape of this potential deal. The financial coming attractions:

• The matchup between the Gannett and GateHouse maps. Both companies have looked keenly at where their newspapers mesh or overlap, and some enterprising data-viz creator could help all us play along at home. With 267 dailies — plus lots of weeklies and niche publications — we could all see how closely the GateHouse and Gannett dots match up. The more match, the greater the synergies. Speaking of which:
• Synergy savings. “$40–50 million in back office duplication,” one financial observer told me. Distribution, printing, and ad sales would all get regionalized. Not to mention more “regionalized” reporting. Last week, I detailed the combination of GateHouse’s own layoffs of 200 or so and launching of regional investigative teams. That’s part of a continuing trend — and one that could be supercharged by this merger. “Local” newspapers get increasingly regionalized in their journalism as well as in all their business functions. In this big a deal, such financial synergies would be probably be touted in the $125–$175 million range. Of course, the costs — massive severance and related “closing” costs — are usually soft-peddled in the synergy-selling business. Still, the savings are real, and they are the big driver of this deal.

In effect, these two companies — and their peers, including Tribune, McClatchy, Lee, and Alden Global Capital’s MNG Enterprises — have all run into the same wall in mid-2019. They’re trying to make their companies more digital, and less reliant on print, but they have little available cash to invest in those changes. The never-ending depression in print advertising — it’ll be down another 10–15 percent this year, similar to the past couple of years — has made their transformation math next to impossible. While they’re laying off staff, they know they can’t do that forever without seeing even deeper losses in print circulation.

So M&A is only route that offers big short-run savings. Do any of these publishers have a grand plan to really turn it all around, to make daily publishing once again — after a decline of now more than a decade — a growing business? No. But they hope consolidation can buy them time — maybe two years or so — to survive and keep pushing “transformation.”

So what are the odds on this deal happening?

We can now say Gannett + GateHouse should be a better bet than Gannett + Tribune, another combination that’s been the subject of off-and-on talks.

Gannett + GateHouse would be a bigger company, which makes it more attractive, and the synergies between the two chains’ markets — both concentrated on mid-metro-sized properties and smaller — makes more sense than combining with Tribune’s larger markets.

But as I’ve noted throughout all the various consolidation moves and dekes this year, logic is one thing — valuation is another.

How much value does each company really bring to the deal? That will be the argument. In recent years, GateHouse has generally gotten more credit from the market, a valuation based on a higher earnings multiple. Gannett currently trades at 4.5× its EBITDA enterprise value, while GateHouse/New Media still fetches 7×. That could be a sticking point in finding a mutually suitable formula.

Both companies, like most of their peers, have seen steady declines in share price. Value investors (and everybody else) are increasingly souring on the staying power of newspaper earnings.

The markets didn’t have much of a reaction at all to today’s Journal story. Gannett’s share price popped up when the market thought Alden’s interest in buying it was real. But now it’s back down under $8 a share, and it barely moved today: closing up 1.5 percent after a brief 5 percent spike on the Journal report. GateHouse, traded under its owner New Media Investment Group, has also had a terrible time of it of late, down more than 50 percent since last July to around $9. It was up 4 percent today.

So we get to the banker questions: What’s the price of GateHouse “buying” Gannett? How much of that is in stock, how much in cash? As the Gannett board undoubtedly burns up its conference lines, the numbers guys — Goldman Sachs represents Gannett — run the spreadsheet formulas over and over.

Gannett, remember, doesn’t even have a CEO right now. Bob Dickey retired earlier this month, as he’d announced last December, and Gannett’s board still hasn’t named a replacement — a task it had high on its list as soon as the board fight with Alden ended two weeks ago. Is its hesitance announcing a new top boss — one who would presumably get a golden parachute in the neighborhood of $10 million if the company were sold — part and parcel of GateHouse talks?

That could well be.

GateHouse’s Mike Reed — described in the trade with phrases like “disciplined operator” and “great dealmaker” — could emerge as CEO of the merged company. He’s a 30-year veteran of the news business. In our long interview at the Lab last year, Reed laid out in detail his strategy for GateHouse. If Gannett is merged into it, expect Reed to double down and combine the digital marketing businesses of both companies and emphasize events business expansion.

If — a big if — this chip falls into place, then the Consolidation Games will move into a next round. Might then McClatchy and Tribune — having found little other companionship on the mating market and the bar closing soon — restart talks that failed in December? And what about Alden? Might if pick up any papers a Gannett + GateHouse might have to dispose of for antitrust concerns? What other plays might it consider?

Finally, the important question: Is this good for journalism, or for the communities that daily journalism serves? That’s what we should care about most in all of this, and it can get lost.

This move — like the other consolidations batted around so far this year — is financially strategic. It is not journalistically strategic. Both these companies have been executing various editorial strategies — some patchwork, some earnest, some with real community-serving potential — and both are severely hobbled by declining editorial budgets. This kind of consolidation would buy some time. How that time, and the money saved, gets reinvested into a longer-term solution to local journalism’s woes remains a hanging question. Still required: More capital and a better vision.

]]> https://www.niemanlab.org/2019/05/newsonomics-the-potential-gatehouse-gannett-merger-shows-more-scale-is-still-the-newspaper-industrys-real-strategy/feed/ 0 https://www.niemanlab.org/2019/05/newsonomics-gannett-turns-back-alden-but-its-just-a-hiccup-before-the-big-rollup-in-the-sky/ https://www.niemanlab.org/2019/05/newsonomics-gannett-turns-back-alden-but-its-just-a-hiccup-before-the-big-rollup-in-the-sky/#respond Thu, 16 May 2019 19:22:10 +0000 https://www.niemanlab.org/?p=171876 It seems like a return to status quo ante. But the ante may have changed.

No surprises: Today, Gannett shareholders officially rejected Alden Global Capital’s amateurish efforts to win board seats and push the country’s biggest newspaper chain by revenue to sell itself.

Over the last month-plus, Alden — using the name of its MNG Enterprises, as in MediaNews Group, a moniker it now prefers to its previous Digital First Media — pivoted repeatedly. Seeing its failure on the horizon, it reduced the number of board members it was recommending. Its PR army maintained its fusillade of Gannett-baiting correspondence, which Gannett’s own forces answered. (Do remember that PR jobs now outnumber journalism jobs 6:1, that ratio growing annually.) But all of it, as I’d previewed, stank of failure.

But that other scent remains in the air: the sweet aroma of mergers and acquisitions, the coming consolidation of the newspaper industry.

The 2019 Consolidation Games aren’t just about Gannett, of course, as we’ve assiduously covered this year. Borrowing from Paul Simon: “Everybody’s buy and sell / And sell and buy / And that’s what the whole thing’s all about.”

This hostile Alden attempt to takeover Gannett appears defeated at this moment, as did McClatchy’s bid to takeover Tribune in late December. Those were whiffs, but the thinking of industry executives remains dominated by the inevitable merging of the big chains.

“This is all going to take some time to sort out,” one CEO in the midst of the action told me last night as the results of the Gannett election became clear.

So the question of the day, of course: What now?

Are we back to where we were before, back before Alden’s Heath Freeman sniffed fear and disarray in the Gannett leadership ranks as CEO Bob Dickey announced his retirement?

Not really. Alden, despite today’s immediate failure, has successfully thrown Gannett into play. While its board rejected Alden’s offer of $12 a share — an “offer” never fully backed up by certain financing — expect that a new offer of $13 or even $13.50 a share migh well succeed. Pushed by Alden, Gannett retained Goldman Sachs, and that opens is up to plenty of new M&A potential — more today than yesterday.

Gannett’s share price — which first took its big tumble three years ago when its attempt to seize Tribune Publishing flopped — is down to the $8.75 range today. The market had recently priced in Alden’s expected lack of success; it was at $9.75 the day before Alden’s offer in January and spiked to near $12 shortly after it.

So $13 starts seeming pretty good. And given even a $9 share price, a cash-and-stock offer could be successful, with the shares serving as a potential upside.

But one would have to be optimistic for that the upside. Take a look at this one-year share price change chart:

Gannett down almost 24 percent, Tribune down 35 percent, McClatchy down 76 percent. “Optimistic” may be the wrong word; “settling” and “getting out” might be better characterizations.

So how soon might Gannett buy, sell, or merge? Perhaps Alden could back with a new bid — though its comments on losing the fight suggest otherwise.

One thing we know is that Gannett is now, after this nasty fight, about to hire its next CEO. Presumably he (and it is expected to be a he) will check two boxes Gannett has wanted to check: (1) a name that the industry will recognize; (2) digital business credibility.

Will that next CEO be next operational leader for a company that badly needs new strategy and better execution? Or will he be Gannett’s chief dealmaking officer in the Consolidation Games? Given all the uncertainties, the CEO’s golden parachute should be eye-popping — maybe in the ballpark of Tronc’s small Air Force.

Throughout the Gannett/Alden war of words, Goldman has been working in the background. Among the prime tasks is valuing what a combined Gannett/Tribune would look like — an exercise the two companies rehearsed last summer, though with no public performance. Quite simply, how much would each company’s shareholders get in the deal?

That’s the other ante. How much cash will it take to buy one of these companies? Given the industry’s dismal trajectory, how much financing can be obtained? Each new valuation must reflect the most recent public financials, plus whatever access these companies’ give potential suitors to their data rooms. (Alden found a “closed” sign on Gannett’s.)

This month’s Q1 reports only reinforce the bloodbath of decline industry-wide. Tribune yesterday announced it was down 8 percent in same-store revenues (after doing some gymnastics with its reported figures). That’s losing $1 out of every $12 in one year — a number that parallels its peers and has been remarkably consistent the past two or three years.

And yet: “Adjusted EBITDA increased to $21.3 million, up $12.8 million year-over-year.” Operating expenses were down 6.5 percent, and that of course means fewer journalists doing journalism.

Therein lies this larger M&A push: Where else can any of these companies get big (if short-term, think 2 or 3 years) savings to slow their downward spirals?

Print advertising remains down double digits across the industry, and digital advertising — even if you include “marketing services” — is newly weakened in the face of Google and Facebook’s 77 percent share of local digital ad revenue. “It’s been growing for six years,” one top revenue exec told me this week. “This year, it’s struggling.” Local digital subscription revenue is the one operational area the industry looks to for growth.

As Tribune continues to assess who it wants to sell to, or buy, or merge with — McClatchy continues its search for a partner. And, as I noted a month ago, even GateHouse — the past few years’ go-go acquirer, amassing 145 titles — is now reassessing its own strategies. Those plans haven’t turned the company around. Will it remain a standalone company (known formally as New Media Investments, Inc.)? Or will it participate in a grand industry rollup that some have prophesied for years?

GateHouse may be more cash poor than in years past. But it is still backed by giant Fortress Investment Group, which was itself bought in 2017 by supergiant Softbank. The capital is there. Does anyone there see enough profitability in owning one-sixth of all America’s daily newspapers — which is what a GateHouse + Gannett marriage would produce?

Mostly, that’s a question of sheer investment potential. At what price — given all the somber forecasts for the years ahead — does anyone feel comfortable putting down a bet? Certainly, Alden — able, willing, and apparently eager to ride the print newspaper industry down to its end — will be a buyer at some price. (Word is that its execs were checking out other, smaller potential acquisitions as recently as last week.) But is there anyone else?

If we do see big mergers, who will run the companies that result, with what strategies? And — big question — will they have enough capital to execute on their vision of a digital transformation?

Familiar story. New chapter. All today’s news does is turn the page.

]]> https://www.niemanlab.org/2019/05/newsonomics-gannett-turns-back-alden-but-its-just-a-hiccup-before-the-big-rollup-in-the-sky/feed/ 0 https://www.niemanlab.org/2019/04/product-teams-have-taken-national-news-organizations-by-storm-whats-happening-locally/ https://www.niemanlab.org/2019/04/product-teams-have-taken-national-news-organizations-by-storm-whats-happening-locally/#respond Mon, 29 Apr 2019 14:32:22 +0000 https://www.niemanlab.org/?p=170804 When you’re trying to pilot a newsletter/build out a membership program/tweak the calls to action on your news organization’s website, it often helps to have one person (or team) in charge of making those calls — and not overinflate your own to-do list. Enter: the product manager, the role emerging in newsrooms of all sizes as the business-tech-editorial tricorn.

In a nutshell, journalism is now firmly a product that needs humans to carry it out. The deep integration of a distinct product role — something that shares characteristics of both editorial and business-side — is a years-old story at many of national news organizations, like The New York Times, The Washington Post, The Guardian, Vox Media. And more have rightfully built out teams of product thinkers fiddling with the sites, goals, and strategies to get there — because, well, they can afford to.

Bu the story is different in local news. Nonprofit local news startups tend to put as much money as possible toward editorial, which leaves the business side underresourced. And product often gets shortchanged the same way, whether nonprofit or for-profit.

At the local level, product management is still mostly done by people in non-product roles who may be overly (but nobly!) multitasking. But distinct teams have emerged in some of the local newspaper chains, digital nonprofits, and more, often driven by reporters who’ve transitioned to product roles and leadership that’s prioritized hiring for it.

“Product managers are the ones trying to think holistically and bring people together on how to move forward with a big idea,” Becca Aaronson, Chalkbeat’s director of product, said. “Anyone in a newsroom can do product thinking. It’s really about trying to think holistically about the needs of the audience, the mission and business interests of the organization, and technically how you’re going to get things done and bringing that together in a holistic way to create a comprehensive strategy for your organization.”

So…easy peasy, right? Aaronson transitioned from being a health reporter at The Texas Tribune to a senior developer/designer to the Tribune’s first product manager over a span of nearly eight years. She joined Chalkbeat last July and is coleading a course at the Knight Center on product thinking in newsrooms. (Which starts today — it’s not too late to sign up!) She followed out a path co-pioneered by others in newsrooms: shifting from data-driven stories to data that could help point to more revenue streams, audience engagement, and hopefully a stronger organization.

“The must-have new hire for publishers,” Digiday called product managers in December. The New York Times has been consistently hiring for product roles, data from Thinknum Media shows, with as many as 40 open roles since July. While Vox Media has usually had one or two product manager openings at a time over the past few years, product-related openings hit a high of 12 in early 2019.

Nieman Lab’s year-end predictions packages have for years brought forth arguments for the importance of product teams, including a 2016 duo conveniently followed by a report on best practices in product management. (It was a theme this year, too!)

But in many newsrooms, still, there isn’t enough bandwidth to plan out a strategy for the next month, let alone a quarter or a year. Thinking ahead gets shunted aside for more immediate needs, especially in underresourced local newsrooms. What can smaller newsrooms learn from product managers at local outlets that can fit product into their teams? How can national teams see the influence of their work in local product squads?

One outlier is the Lenfest Local Lab, a team of five product managers, designers, and engineers experimenting with new products geared toward local innovation. We’ve shared their findings in these very webpages, but the Lenfest Local Lab’s aspirations are higher than what product managers are dreaming of in local newsrooms today. (Again…money.) But the products built in local newsrooms are unique in their power to, well, make the most of being local.

For example: McClatchy’s Sports Pass, a sports-only digital subscription, is a product launched last fall highlighting local sports journalism in 10 of its 30 markets.”It’s about changing McClatchy’s approach to the customer and recognizing there are certain customers who are interested in topics where we can offer a product that better suits their need,” said Leanne Gemma, the chain’s director of product leading a team of soon-to-be 20. (She entered journalism as a product manager from the software world: “McClatchy has a business of working in silos — product is helping to pull that together.”)

Sports Pass launched in just one week, remarkable in regular product timelines, to catch on at the beginning of football season. “That’s a big deal. That [agility] is exactly what the media industry needs to be doing to survive,” Gemma said. And so far the $30/year (or $2.50/month) option is not “cannibalizing” regular subscriptions, she added.

McClatchy’s product is trying to increase its relevance to readers this year and Sports Pass is one part of that. The product team is currently working on payment flexibility (PayPal, credit card-less options, Subscribe with Google, etc.) and content pertinence to deepen reader relationships. Simultaneously, as a chain, Gemma’s team is balancing relevance across 30 markets and newsrooms of quite varying sizes, from The Sacramento Bee to the Belleville News-Democrat. So when building a newsletter template, for another example, they will build in automated curation that can be adjusted based on how much time a larger or smaller newsroom might have to add to it.

Gannett’s 15-person consumer product manager team faces a similar challenge in creating products for 109 sites. “We’ve grown the organization quite a bit, in part as an acknowledgment that one size does not fit all when we think about the scope and shape of the markets we serve,” Kara Chiles, Gannett’s senior director of product management, told me.

The team is currently focusing on consolidating its niche sites and native apps, such as incorporating a series of smaller sports apps in the Cincinnati area and adapting it for Packers News (Gannett has 11 papers in Wisconsin, including in Milwaukee and Green Bay). They are also testing newsletters in local markets to get at broader audiences using templates for event coverage with the Coachella-area Desert Sun and The Tennessean in Nashville. And since USA Today is national, too, Chiles said they can play around with national products and see what works locally, like a new recirculation feature.

“We’re trying to create great experiences for both our friends in the newsroom and our audiences whom we never meet,” Chiles, who started out in editorial like Aaronson, said. “But for local in particular, it feels like it has much passion and cause. We’re trying to give our audiences relevant information through the devices in their hands.”

Over at the chain-free Minneapolis Star Tribune, Amy Sanders has been working in product for around 10 years; she’s now part of a team of six. “We used to think of it as the divide between consumer and commercial. The lines are blurred now because it’s tied to subscription sales and advertising,” she said.

But the small team allows for small, smart fixes: A four-person mini-team spent a year working on a different product tweak each month a few years ago. “At the beginning of each month, we said, what would we like to do? We think of the impact it would have, we do A/B tests and shared results, and moved on. In a year, we were able to focus on rebuilding our navigation system, improving recirculation, and getting more traffic,” Sanders said.

Her current priority is email, overseeing a portfolio of 25 newsletters including the recently added home-and-garden Floored. Working with an editorial colleague, they drilled down their goals and Floored ended up with a format of five visually-driven stories sent out each Saturday morning — bucking their popular weekday traffic in favor of “an audience who might want to look at it on their phone when they wake up,” Sanders said. Its open rate is 50 percent.

Aaronson, The Texas Tribune’s first product manager, helped build out that organization’s membership program and website redesign to highlight its events, sponsorships, and donation opportunities. She’s trying to replicate that at Chalkbeat, which recently launched membership across its seven bureaus (and at the national level). Since Chalkbeat focuses on education, the product themes are a bit more unified across its network than a newspaper chain, but as local outlets, they can focus on more intimate products between reporters, teachers, and parents.

Specific product teams can significantly contribute to local newsrooms — though chains and networks seem to have the most resources to centralize it. But that doesn’t mean this type of work can’t exist in smaller newsrooms.

“A lot of local newsrooms think doing this work is beyond their capability because they don’t have the resources to hire a product manager or build out a team,” Aaronson said. “I’m of the belief that this job of product thinking needs to take many shapes and forms in newsrooms, whether it’s a managing editor or reporter who approaches their work in a way where they’re thinking about it in a way that provides value.”

Illustration by Oksana Grytsyuk used under a Creative Commons license.

]]> https://www.niemanlab.org/2019/04/product-teams-have-taken-national-news-organizations-by-storm-whats-happening-locally/feed/ 0 https://www.niemanlab.org/2019/04/newsonomics-the-newspaper-industry-is-thirsty-for-liquidity-as-it-tries-to-merge-its-way-out-of-trouble/ https://www.niemanlab.org/2019/04/newsonomics-the-newspaper-industry-is-thirsty-for-liquidity-as-it-tries-to-merge-its-way-out-of-trouble/#respond Thu, 18 Apr 2019 14:38:33 +0000 https://www.niemanlab.org/?p=170808 “People think nothing is happening, but that’s the farthest thing from the truth. Everybody is talking to everybody.”

That’s the best quick summation I can offer of the first few months of what I called 2019 Consolidation Games back in January. That line, offered last week by one newspaper chain CEO, is echoed by his peers.

The early-year big industry game-changing questions seem unchanged:

• Will Gannett successfully fend off the seemingly inept armored assault of industry heel Alden Global Capital? Is Gannett’s aim to hire a new “name” CEO part of that defense?
• Will Tribune ever find someone who wants to buy the company or merge with it — at a price it’s willing to accept?
• Will McClatchy make a new effort to convince Tribune that it’s its last best hope?

These are all questions — involving 4 of the 6 largest newspaper chains in the country — that are all still much in play. But now you can add several new ones.

Where is GateHouse in all this consolidation action? It’s smaller than Gannett in revenues, but it owns 145 (mostly smaller) dailies, more than Gannett’s 109. Could America’s two largest chains find companionship in each other, bonded by their lonely finances?

What does the unending decline of print advertising mean for this universal urge to merge?

And what will the liquidity crisis in digital media mean for the wider publishing trade? Digital news assets are seeing their valuation drop, not just their colleagues born of print. That’s the reason there are so many would-be sellers — and so few buyers.

Parched

Let’s first consider that liquidity crisis, as explained by one of the few buyers out there these days, Bustle Digital Group CEO Bryan Goldberg.

“It’s a broken market. Not just in terms of prices we’re getting on assets — it’s a broken market in terms of just sort of a liquidity crisis. That’s how I describe it now: There’s just sort of a media liquidity crisis that’s driving prices to be even more nonsensically low. But there’s just going to be beneficiaries of that. I mean, that’s the nature of the market, right?” Which market? “I kind of view it like the real estate market in Florida was in 2010.”

So as new money dried up for ventures like Mic and The Outline, Goldberg saw specks of gold where others wouldn’t pan. He bought the remains of the failed millennial-oriented Mic for about $5 million and The Outline for a lot less than that. He’ll harvest Mic’s work for feature video through his expanding group of mainly women-oriented websites. With The Outline, he brings in founder Josh Topolsky, who’ll launch a tech vertical for Bustle later this year.

Last fall, he bought the rights to (but not the baggage of) Gawker for a mere $1.5 million; it’ll relaunch, probably in later summer. (It’s had some birthing pains.)

Goldberg was close to snagging an even bigger prize this month. As Univision tended the embers of its Gizmodo Media Group fire sale, Bustle was in the mix, but it wouldn’t exceed private equity Great Hill Partners’ $40 million bid. Great Hill, with serial entrepreneur Jim Spanfeller heading the operation, will now attempt to rationalize the diverse toy set of GMG, deciding what to keep (everyone says Lifehacker has the most value) and what to sell to other companies who may want to merge a vertical or two into their own products.

(How much of a fire sale was GMG? Univision had bought the assemblage of sites for more than $165 million three years ago, and it had hoped to get at least $100 million for them when it put them on the market last summer, after an internal Univision meltdown.)

In that wider digital media sphere, consider BuzzFeed’s and Vox Media’s recent cutbacks and reorientation. They no longer have the access to capital like from early investors like NBC Universal, now loath to double down given the universal damage to ad-supported publishing wrought by Google and Facebook. The 2017 fire sale of one-time high-flyer Mashable — for $50 million, about one-sixth of its top-end value circa 2015 — alerted us to the beginning of this end, one of the first signs of this liquidity crisis.

It’s the same liquidity crisis that afflicts local news, from the smaller players to the largest.

Jim Brady’s Spirited Media, even with some improving financials, couldn’t raise enough money to continue on and sold off its last site last week, Billy Penn to WHYY. In local, the entities swooping in with capital have often been public media outlets — along with Billy Penn, Denverite (Colorado Public Radio), LAist (KPCC), DCist (WAMU), Gothamist (WNYC), and New Jersey Spotlight (WNET) have all been snapped up as text-centric, cheap-to-experiment local journalism extensions.

And as we return to the Consolidation Games, any merger must be able to find financiers with stomachs strong enough to fund it. Liquidity, liquidity, liquidity.

As we get further into 2019, I’ve spoken recently to a number of newspaper executives, and none say they can hope for anything better than a 4 percent decline in revenues, year over year. That’s the best-case scenario. And that means more and more cuts — despite even the least civic-oriented publishers now realizing that more newsroom cuts further depress subscription revenue, deepening the downward financial spiral.

The last few years of this is why all the chains are focused on mergers. The simple logic: Take two corporate headquarters staffs and turn them into one. Centralize every operation and cost center they can think of. And then project tens or hundreds of millions of dollars in “savings” over the next two or so years.

They’ll be the first to tell you that this strategy won’t save them — but it’ll buy some time.

They don’t want to think about what else they may have to do, but severely cutting back days of print is more than a whisper in the industry. And they all wonder how, if a recession comes, they’d manage to stay profitable.

Toward a May showdown

May 16 — the date of Gannett’s annual meeting — is the date that might reignite the M&A engines.

Before then, Gannett could make a big splash and announce a high-profile CEO to replace retiring Bob Dickey. It was Dickey’s announced departure — without a successor being named — that opened a door for Alden, via its MNG Enterprises, to take on the already-weakened company.

As it happens, Gannett is quite close to finishing its search and picking its next chief executive. But I’m told don’t expect that naming until after — probably soon after — May 16.

In the meantime, the PR squads of both Alden and Gannett send out regular releases bashing each other, setting up the battlefield. At that May 16 meeting, shareholders will vote on Gannett’s board of directors. In its proxy battle, Alden has proposed its own slate of directors (“on the Blue Proxy Card”), opposing Gannett’s chosen list.

Gannett’s Wednesday release: “Gannett Sends Letter to Shareholders Highlighting Eight Highly Experienced, Independent Director Nominees. Questions How MNG’s Highly Conflicted Nominees Could Fulfill Their Fiduciary Duty to Gannett Shareholders.” Gannett is right there’s a prima facie conflict here: Each of Alden’s board nominees has some tie to Alden or its owned Digital First Media. But then again, isn’t bald self-interest the sad lingua franca of 2019?

That would seem to make it easy for Gannett to make the case to its shareholders that Alden’s self-serving slate wouldn’t have Gannett shareholder interests at heart. The suspicions go even deeper, though, as to Alden’s real intent. Those who know Alden and its strategy of harvesting of newspapers’ real estate suggest this dark scenario: Even if Alden wins the Gannett board vote, they might not actually buy the company. They could just use their board control to sell off the real estate owned by all those Gannett papers across the country — and make a killing.

Alden, for its part, repeats this mantra: “MNG ENTERPRISES FILES SHAREHOLDER PRESENTATION ON ITS 41% PREMIUM PROPOSAL FOR GANNETT AND GANNETT’S MISGUIDED AND FAILING OPERATING STRATEGY.” (While Gannett tends toward title case, Alden’s MNG seems to prefer ALL CAPS.)

Gannett remains mildly optimistic that it will win the May 16 battle, but it knows that a good chunk of the votes will be swayed by two proxy advisory services. Institutional Shareholder Services and Glass Lewis will both issue analysis to institutional shareholders on the board director choices. Given Alden’s offer of $12 a share, in a down newspaper market, Gannett is nervous about those forthcoming reports. Could institutional shareholders, who own significant chunks of Gannett stock, decide to take Alden’s money and run? (Just seven largest institutional investors collectively own 52 percent of Gannett shares.)

That is, of course, they believe the Alden offer is “real.” As the parties have publicly bickered — echoing the once-thought-to-be-unseemly public cockfight between Gannett and Michael Ferro’s Tribune in 2016 — Gannett has repeatedly said that Alden hasn’t proven it really has the money to complete the $1.3 billion deal.

Alden recently provided an opinion from Oaktree Capital Management saying that Oaktree was “highly confident” that the financing could be arranged. Curiously, Oaktree didn’t say it would actually provide any part of the financing — just that it’s “highly confident.” We don’t know how much Oaktree was paid for that oblique opinion. But however much it was, it’s just more “newspaper money” getting thrown into the financial engineering pot.

(Those of us inflicted with memories of Tronc drama will remember Oaktree’s on-again, off-again supporting role as the company that frequently complained about Ferro’s self-dealing and planned to file a lawsuit over it. That complaint grew louder and louder until…Ferro bought Oaktree out for $56 million — an easy way to buy silence.)

Just yesterday, Alden — easily the most loathed operator in a less-than-loved industry — took another blow. The Washington Post reported that the Department of Labor is investigating Alden’s handling/mishandling of employee pension funds. Alden had invested nearly $250 million of Digital First Media employees’ pension funds into its own businesses — a possible violation of ERISA, which requires prudent and diversified handling of pension funds. (Gannett’s USA Today was happy to write about it too.) The Post reported that “90 percent or more of some MediaNews Group pensions was invested in two Alden funds based in the Cayman Islands.”

Of course, such allegations aren’t new. Julie Reynolds’ in-depth reporting on the documents tumbling out of a lawsuit filed by Alden investment partner Solus turned up a spate of similar questions. But news that the feds are now involved can’t help Alden’s reputation with Gannett shareholders.

Let’s take one final trip down the Alden/Digital First Media/Journal Register/MediaNews Group memory road — many names for many iterations of one company. One smart observer has noted that the company has changed how it appears on its newspaper websites. “Copyright © 2018 Digital First Media” has been replaced by “Copyright © 2019 MediaNews Group, Inc.”. “Digital First Media” — the so-ironic-in-retrospect moniker that once-high-flying CEO John Paton gave the company after its double-bankruptcy birth at the end of 2013 — has been swapped for MediaNews Group, one of those two companies that later formed DFM. For a chain best known for milking print — and providing relatively little investment for digital — that’s probably a better choice than Digital Last Media. In fact — full circle — one of Alden’s central contentions about why Gannett management has to go is that it has overinvested in “digital.” (Cue the image of Slim Pickens enjoying his final descent in Dr. Strangelove.)

The ground has also recently shifted under GateHouse, formally known as New Media Investment Group. CEO Mike Reed has threaded the needle more successfully than most of his peers. He’d been a savvy buyer of properties, at good prices, and investors had liked his transformation model, which focuses on centralization and local commerce. (He explained it here at the Lab last summer.) But though GateHouse’s 2018 performance was at the high end of the industry — a revenue decline of only 5.3% — Reed failed to meet his flat target of 0 percent revenue change year over year. Investors believe the bloom is off the GateHouse rose, and they’ve taken its share price from $19 last July to under $11 now.

Given all that, GateHouse’s ability to keep growing — buying more newspapers from smaller and family chains that want to sell — is now limited.

So might Plan B for GateHouse — and its managing partner, Fortress Investment — be a merger with Gannett?

Let’s just say for now that it wouldn’t be surprising if the idea has been broached.

Desert photo by David Rosen used under a Creative Commons license. Newsboy photo (1915) by Lewis Wickes Hines.

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