Opinion: Don’t rely on private equity to save the newspapers

The hedge fund Alden Global Capital has carried out massive layoffs at the Denver Post (see above) since the takeover of parent company Digital First Media in 2010.

Prior to joining PitchBook as a financial writer, Adam Lewis worked as a sports reporter for seattlepi.com and as a freelance writer for several other media outlets. His family has owned a community newspaper company in Washington State for three generations.

Private equity firms have always touted their ability to turn around struggling companies. But if the results of municipal and community newspapers across the United States are any indication, PE stores and similar private investors should stay away from the newspaper industry. The two just don’t mix.

The public is starting to take notice. Private equity recently took public relations in favor of aggressive cost-cutting measures at its media properties, with The New Republic earlier this month publishing an article titled ”
Finance is killing the news. “Last week, the Institutional Investor trade publication piled up”
When hedge funds try journalism, “which excoriated the financial industry for valuing quick turnaround times over developing long-term revenue strategies.

On a broader level, it’s surprising why a private equity firm would be interested in buying a newspaper, given the financial challenges of the media industry and its core philosophy that values ​​public service. as much as the profits. Print advertising revenue has declined every year for the past decade, as Facebook and Google have taken over a digital ad space that has generally failed to make up for the demise of the print classifieds section. . With most newspapers outside of the New York Times and Washington Post still struggling to adapt to an online subscription model, this leaves city dailies and community weeklies scrambling to make up for lost revenue.

Don’t expect private equity firms to provide answers.

Rick Edmonds, a media analyst at the Poynter Institute, a nonprofit journalism school, was not at all impressed with the financial results of the PE-backed newspapers.

“They hit a big payday every now and then,” Edmonds told PitchBook. “But some of [the newspapers] are like treating patients. … They are too far to get there. ”

Even so, PE firms and other alternative investors continue to emerge as potential newspaper owners.

Earlier this month, Apollo Global Management reportedly emerged as a potential buyer for Tronc (fka Tribune Publishing), the ill-reputed owner of legacy print publications including the Los Angeles Times, Chicago Tribune, and Baltimore Sun. Others who would be interested include Gannett, the largest newspaper publisher in the United States, and Japanese telecommunications giant SoftBank, which bought GateHouse Media-backer Fortress Investment Group in January for $ 3.3 billion.

Reports surfaced after billionaire Los Angeles doctor-turned-entrepreneur Patrick Soon-Shiong agreed to buy the LA Times and San Diego Union-Tribune owned by Tronc in February for some $ 500 million. The LA Times, in particular, would have been the most prized item of any Trunk sale due to a Sunday circulation of over 700,000 copies.

Fortress, Alden Global plays the villain

These potential buyers of PE should be alarming. For the worst buyer’s mold from a newspapers perspective, look no further than Fortress, the operator of publicly traded acquirer New Media Investment, which serves as the parent company of GateHouse Media. Controlled by secret Fortress CEO Wes Edens, the company’s aggressive tactics carried out through its subsidiary GateHouse have been widely featured in a
damning report in American Prospect, which detailed miserable working conditions in New Media / GateHouse / Fortress newspapers that suffered cruel cost-cutting policies including massive layoffs and no-raise employees for a decade. Edens, meanwhile, reportedly grossed nearly $ 55 million in annual compensation in 2016.

GateHouse’s strategy follows PE’s buy-and-build model: gobble up cheap newspapers with the help of debt, consolidate operations, then lay off employees. The company, which did not respond to an interview request, recently went on an acquisition spree,
with 12 transactions concluded since the start of 2015, according to the PitchBook platform.

This will likely mean more job losses for an industry that has already lost more than half of its workforce since 2001, according to the Bureau of Labor Statistics. With fewer editors, reporters and photographers available to serve as the backbone of traditional news publications, the average consumer and journalist suffers.

Still crazy? Don’t blame PE companies entirely. By design, the top priority of private equity is to fulfill a fiduciary duty to LPs, including noble financial entities such as pension funds and university endowments. Companies rarely have a connection to the communities in which their newspapers serve, and therefore no vested interest in holding the powerful to account, which is a top priority for newspapers.

“It’s hard to explain to your old reporter who sees jobs disappearing in the newsroom, but if you all agree and really don’t care if Denver has a good newspaper – or any other journal type – in five years you can drastically reduce the expense base, not invest in content management systems and the like, ”Edmonds said. “And you can get some money out of it for a while.”

Digital First Media has taken the buy-and-purge philosophy to extremes since hedge fund Alden Global Capital bought it out of bankruptcy in 2010. Faced with the same financial pressures as the rest of the media industry, the company would have eliminated two out of every three jobs and piled on debt. The company also allegedly redirected hundreds of millions of dollars of Digital First revenue to its own separate failed investments, according to a recent lawsuit by stakeholder Solus Alternative Asset Management. Among the more egregious claims: Alden took nearly $ 250 million from workers’ pension funds and invested it in other subsidiaries backed by Alden.

Digital First did not respond to a maintenance request.

“I’ve never come to terms with the idea that people who don’t know anything about publishing are going to come in with fresh eyes and do a much bigger job,” said Edmonds. “If Alden has any (newspaper experience), I don’t know. And I don’t think they do.

Earlier this month, the Denver Post editorial board made the extraordinary decision to call on Alden to sell the paper after a newsroom that once had 250 employees was reduced to less than 75.

Overall, Digital First, backed by Alden, is one of the largest chains in the country, with more than 90 newspapers, including The Orange County Register and The Pioneer Press of St. Paul, MN. This means that more layoffs are coming from a group that cares more about profit margins than producing a decent product.

Edmonds echoed the idea that Alden’s lack of connection with readers, or even his own employees, defined the company’s ownership regime.

“I think local readers appreciate a newspaper that is locally owned and a publisher or owner who has a presence in the community,” Edmonds said. “Part of the problem with the guys at Alden Global is that they wear this secrecy fetish to the point where you not only don’t expect to see them coming into the newsroom, but you know you couldn’t. reach if you wanted to. ”

Discover our previous potential coverage Apollo-Tronc Offer.

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