by Nancy K. Herther
(Click here to read Part 1.)
In her 2016 book The Rise of a New Media Baron and the Emerging Threat of News Deserts, Muse Abernathy makes the issue – and the cause — quite clear: “Over the past decade, a new media baron has emerged in the United States. Private equity funds, hedge funds and other newly formed investment partnerships have swooped in to buy — and actively manage — newspapers all over the country. These new owners are very different from the newspaper publishers that preceded them. For the most part they lack journalism experience or the sense of civic mission traditionally embraced by publishers and editors. Newspapers represent only a fraction of their vast business portfolios — ranging from golf courses to subprime lenders — worth hundreds of millions, even billions, of dollars.”
“Their mission is to make money for their investors” she continues, “so they operate with a short-term, earnings-first focus and are prepared to get rid of any holdings — including newspapers — that fail to produce what they judge to be an adequate profit. The rise of this new media baron coincides with a period of immense disruption and distress for the entire newspaper industry. With profits and readership declining dramatically, every newspaper publisher is grappling with an uncertain future, and many worry about their paper’s long-term survival. As a result of these dynamics, many smaller cities and towns could lose their local newspapers and with them the reliable news and information essential to a community’s economy, governance and quality of life.”
THE IMPACT OF HEDGE FUNDS
Hedge funds have been busy acquiring newspapers – large and small – since 2010, leading to massive restructuring, staff reductions, and moving quickly to a digital-first model making makes the print editions less essential to many readers who believe they can get adequate coverage over the internet. However, the hedge funds have created the greatest criticism and concern in the news industry.
There has been criticism even from the business presses. Institutional Investor reports that “hedge funds don’t make good owners of newspapers.” Noting that “since 2010 hedge funds and private equity firms have been targeting legacy media companies. The investors acquire newspapers at low prices, then cut costs in the hope of selling at better multiples. But the state of the news business hasn’t improved, leading some firms to continue making cuts, leaving fewer and fewer reporters in place.”
Writing in a recent Forbes opinion piece Michael Posner reports that “the Digital First playbook calls for instituting drastic cost reduction and layoffs in hopes of goosing profits in the short term. Local coverage suffers; investigative ambition withers. As experienced journalists head for the exits, readers and other citizens lose a check against government and corporate misdeeds,” in a commentary titled Hedge Funds And Newspapers: A Bad Mix.
Gannett’s USA Today ran a feature on the eventual death of the Denver Post, noting that “In a cost-cutting move last year, the DenverPost relocated from the city’s downtown, where the newspaper had been based for more than a century, to quarters in its printing plant in a neighboring county. Reporters and editors found that their new workplace had the feng shui of a run-down casino, with no windows to let in sunlight and a constant ambient hissing from the presses.”
“But they hoped the move represented an end to the bloodletting that had occurred at the newspaper since hedge fund Alden Global Capital took over in 2010, one of the paper’s senior news editors noted in the article. Yet, “layoffs and turnover had left only about 100 journalists in the newsroom, a third of its staff during the paper’s heyday. That hope was dashed a couple of months after moving offices, when it was announced 30 more positions would be cut. It was then that Ryckman (Larry Ryckman, then Senior News Editor of the Denver Post) came to believe that the firings would only end when the newspaper closed for good…What would follow was a newspaper mutiny, including editorials slamming its own ownership, allegations of censorship and mass resignations.”
Gannett’s article concluded that “journalists and industry insiders familiar with Alden regard its methods of acquisition and management of distressed newspaper properties as a particularly ominous force in the industry in which staffs are decimated and properties sold off for investment elsewhere at the expense of a newspaper’s prospects for long-term survival.”
A year ago, the Denver Post folded under Alden Global leadership – but not without a plea from Post staff in an editorial to their community:
“Alden has embarked on a cynical strategy of constantly reducing the amount and quality of its offerings, while steadily increasing its subscription rates. In doing so, the hedge fund managers — often tellingly referred to as “vulture capitalists” — have hidden behind a narrative that adequately staffed newsrooms and newspapers can no longer survive in the digital marketplace. Try to square that with a recent lawsuit filed by one of Digital First Media’s minority shareholders that claims Alden has pumped hundreds of millions of dollars of its newspaper profits into shaky investments completely unrelated to the business of gathering news.”
THE “SERIAL KILLERS OF AMERICA’S NEWSPAPERS”
American syndicated columnist Jim Hightower uses this phrase to describe the role of hedge funds in today’s media landscape. The SEC defines hedge funds as groups that “pool money from investors and invest in securities or other types of investments with the goal of getting positive returns. Hedge funds are not regulated as heavily as mutual funds and generally have more leeway than mutual funds to pursue investments and strategies that may increase the risk of investment losses. Hedge funds are limited to wealthier investors who can afford the higher fees and risks of hedge fund investing, and institutional investors, including pension funds.”
Hightower describes them as “the worst enemy of America’s local and regional newspapers… a new breed of fast-buck hucksters who’ve scooped up hundreds of America’s newspapers from the bargain bins of media sell-offs. The buyers are hedge-fund scavengers with nondescript names like Digital First and GateHouse. They know nothing about journalism and care less, for they’re Wall Street profiteers out to grab big bucks fast by slashing the journalistic staffs of each paper, voiding all employee benefits, shriveling the paper’s size and news content, selling the presses and other assets, tripling the price of their inferior product —then declaring bankruptcy, shutting down the paper and auctioning off the bones before moving on to plunder another town’s paper.”
Since the 2008 financial crisis, hedge funds have taken over many local and regional papers claiming to do so to “help save local newspapers by making them profitable again.” However, analyses by Bloomberg and others point to another, more onerous intent: To “starve them to the point that they collapse.”
MINNESOTA’S OLDEST PAPER – AND ONLY PAPER FOR THE CAPITOL CITY IS NEXT
In Minnesota, the state’s oldest paper – and the only press in the capitol city – the St. Paul Pioneer Press (PiPress) was also brought into this cycle of death. Hal Davis, a retired PiPress editor, describes the process this way: “It started in 2010, when Media News Group, which owned the PiPress, was bought out of bankruptcy by hedge fund owner Alden Global Capital. The current status was described in this article: Many years of cutbacks, layoffs, buyouts even as the hedge fund made a $10 million profit on the newspaper in 2017 – a 13 percent margin.”
“Mike Burbach, the editorial page editor, added the title of editor in 2011, replacing Thom Fladung, who became managing editor of the Cleveland Plain Dealer. Burbach has presided over the paper’s decline in staff since then. Besides the buyouts of Guild-represented staff, the company has laid off at least one senior editor, Amy Nelson, features/arts editor. She’s now communications manager at Northrop. Layoffs came in the early years, then buyouts, with layoffs threatened if not enough folks took buyouts.”
“To those familiar with Alden, the original plan was to suck the properties dry and perhaps sell the husks. Their first task was to combine two newspaper chains, Media News Group and the Journal Register Company. Media News had larger papers, like the Denver Post. The Journal Register Company had smaller papers, like the Kingston, N.Y., Daily Freeman. It announced a pivot to digital news over print, set up a digital newsroom in New York to feed the member papers’ websites, and called the effort Digital First Media. The effort didn’t last. The New York newsroom was closed. That may have been the first large, noticeable sign that the strategy had tanked. The name Digital First Media continues.”
NO END IN SIGHT
“The business model that sustained local journalism for two centuries has been demolished in less than two decades,” Muse Abernathy explains. “Given the tenuous financial situation confronting local newspapers today, many will not survive. The stakes are high, not just for the communities that have lost newspapers — or are living with the threat of losing a local newspaper – but also for the entire country. It will take a concerted and coordinated effort among numerous interested parties – concerned citizens, community activists, philanthropists, universities, classroom educators, policy makers, journalists and various industry groups – to address the business and journalistic challenges that must still be surmounted if we are to have a robust news ecosystem.”
Nancy K. Herther is Sociology/Anthropology Librarian at the University of Minnesota, Twin Cities campus.