Hedge Fund Vultures Swallowing Local News Whole
McClatchy, a major news publisher, the latest to throw in the towel.
It started as a family business in 1857, publishing a four-page newspaper for its Sacramento, CA, neighbors. In time, McClatchy went on to control 30 newspapers nationwide, including the Sacramento Bee, the Kansas City Star and the Miami Herald.
Last Thursday, Feb. 13, McClatchy, $700 million in debt, filed for Chapter 11 bankruptcy protection, the latest news enterprise to surrender to Wall Street financiers. In other words, if the bankruptcy plan is approved, McClatchy will be run by Chatham Asset Management, a private equity company whose loyalty to journalism is, uh, questionable.
Notably, one publication in Chatham’s stable is the National Enquirer, which gave Chatham unwanted attention during and after the 2016 presidential election. Nevertheless, Chatham is regarded favorably to other “cut-and-slash” Wall Street owners, who tend to make immediate cuts to newsroom budgets and personnel. We shall see.
Newspapers Fighting to Compete with Facebook, Google
The future seems bleak for local newspapers, which are fighting to survive in the digital age. From the Bureau of Labor Statistics: From 2001 to 2016, the number of people employed by the newspaper business declined from 412,000 to 174,000…a 60% drop. Circulation for all newspapers nationwide decreased by approximately 50 million copies in the last 15 years.
Ad revenue is on an irrevocable downward trend. This should be obvious to anyone who owns a smartphone. More and more people get their news and information from Google, YouTube and Facebook, free from the burden of assembling newsrooms and paying journalists.
Warren Buffett: Most Newspapers are “Toast”
A symbol of how bad it is: Celebrity investor Warren Buffett, a self-described “newspaper addict,” recently announced that he is giving up the news business by selling his 31 newspapers to Lee Enterprises for $140 million.
The buyer, Lee Enterprises, is no private equity firm. It is a traditional publisher based in Davenport, IA, with a portfolio of 46 daily papers in 21 states. Leave it to Buffett to sell his prized newspaper collection to someone in the news business. (Lee is is girding to fight off a hedge fund which recently purchased 6% of its stock.)
Bleeding Newspapers Dry
Well, why would a private equity financial firm be so interested in owning enterprises in an industry in steep decline? The playbook: Buy a vulnerable newspaper with cash flow at a ridiculously cheap price, raise subscription and newsstand rates, and bleed its assets–layoffs, buyouts, drastic cuts to health insurance and pension funds plans–to boost short-term profits.
When every last profit is squeezed out, sell it for its real estate.
Perhaps the worst offender of this assault on journalism is New York City-based Alden Global Capital, whose president Heath Freeman is called by the Daily Beast, “the Gordon Gekko of newspapers.” It’s not hard to understand why.
Since 2007, Alden Global Capital is said to have shown the door to 3,000 reporters and editors throughout the country. Its buying spree has hollowed out journalism from coast-to-coast: The Boston Herald, San Jose’s Mercury News, the Denver Post, Akron, St. Paul, Orange County, CA, Dearborn, MI, Reading, PA, Trenton…all Alden. A well-deserved moniker: “the grim reaper of newspapers.”
Freeman manged to squeeze the last profits out of newspapers quietly until 2018, when employees at the Denver Post openly revolted against their hedge fund overlord. The Post published a series of editorials describing their plight (the playbook) and concluded, “We call for action. Denver deserves a newspaper owner who supports its newsroom. If Alden isn’t willing to do good journalism here, it should sell the Post to someone who will.”
The Post’s declarations are ongoing and have awakened the spirit of journalists across the country. But at the Denver Post, nothing has changed.
The World’s Greatest Newspaper
While ignoring the pleas from Colorado, Alden has come up with a new target: the Chicago Tribune. The self-proclaimed “world’s greatest newspaper” was founded in 1847 and is still the most read paper in the Great Lakes region.
Its erroneous headline, “Dewey Defeats Truman,” has its nostalgic place in the American psyche.
This past December, it was made public that Alden Global Capital increased its stake in Tribune Publishing to 32%, making Alden the largest shareholder. After some wrangling, Alden was allowed two seats on the Tribune’s board of directors. In return, Alden promised not to increase its stake or attempt to gain control of the company until mid-2020.
Here we go again.