“How did you go bankrupt?” Bill asked.
“Two ways,” Mike said. “Gradually and then suddenly.”
–“The Sun Also Rises,” Ernest Hemingway
In the Democrat and Chronicle’s ceaseless struggle to adjust to shrinking newspaper revenues, last week’s events may one day stand out as a key turning point between “gradually” and “suddenly.”
As most in Rochester know, the D&C is owned by Gannett, a publicly-traded company that owns USA Today and over one hundred local newspapers. In 2015, Gannett split into two separate public companies, forming a company called TEGNA to take control of its TV broadcast and key digital assets, while the publishing and newspaper assets remained under Gannett.
Some analysts at the time thought that the split was meant to ensure that Gannett’s struggling newspaper business did not act as a drag on the value of its more exciting TV assets. Upon its split, the new Gannett ended up as a much smaller company, holding on to divisions that were less valued by public markets (on the day of the split, TEGNA was valued at $4.35 billion while Gannett only at $1.6 billion). And since the split, Gannett’s value has shrunk by about 20 percent, while the S&P 500 gained roughly 30 percent in the same period.
Additionally, the split into two companies and some of its recent acquisition activities have hurt Gannett’s net income. In recent years Gannett’s net income fell by about 97 percent, going from $210.7 million in calendar year 2014 (before the split) to $6.9 million in 2017. And while net income began to creep up in 2018, at the end of last year Gannett announced that it was lowering its full-year revenue and profit guidance for 2018. Then, in December, it announced that its CEO was retiring in May 2019.
As a smaller, less profitable company in search of a new leader – and operating in a deeply troubled industry – Gannett was ripe for the hostile buyout offer that arrived on Jan. 14 from Digital First Media, which is owned and controlled by hedge fund called Alden Global Capital. In journalism circles, Alden is often called by a different set of names, including the “destroyer of newspapers,” a “vulture capitalist…sucking money in full vampire-squid mode,” and “America’s most hated newspaper company.”
Alden has earned this reputation due to its practice of forcing relentless and deep job cuts at the many newspapers it has acquired to maximize profits. Given that this industry is one where nearly everyone (including Gannett and the D&C) regularly downsizes its staff, it takes some very deep job cuts to earn Alden’s singular reputation.
One noteworthy example is Alden’s purchase of the Denver Post. Despite the fact that its staff had already shrunk from over 250 to under 100 employees, Alden ordered the Denver paper to cut another 30 people by July 2018. The staff finally rebelled, writing a scathing editorial against Alden. The editorial garnered national attention, as did the protest organized by journalists a month later outside of Alden’s headquarters in New York City. But the layoffs moved forward, and Alden has continued to operate as before across its newspapers.
After Alden’s Jan. 14 letter announcing its hostile buyout bid, the stock market reacted positively. Investors bid up the shares of Gannett by over 20 percent, anticipating that Gannett may have to take Alden’s offer. But just in case Gannett turns it down, Alden also has a Plan B. Having bought more than 7 percent of Gannett’s shares on the open market, Alden is preparing to become an ‘activist shareholder’ by running its own slate of alternative board candidates to try to take control of the company.
It may seem that this column is headed toward leveling a blistering critique against Gannett’s management, or of the unfettered “vulture capitalism” represented by Alden. But it isn’t. Perhaps Gannett could have done a few things better, but the severe and persistent downturn in local newspaper revenues has been a major challenge for all in the industry. And while hedge funds and corporate acquisitions sometimes wreak havoc on communities (e.g., the hundreds of Rochester jobs lost at Bausch & Lomb when it was purchased by Valeant), a robust investment market – on balance – helps many companies to grow and add jobs.
Perhaps rather than hoping to find newspaper owners that don’t try to maximize profits, we should reconsider how local newspapers are organized and “owned” in the first place. Not every organization should be subject to the persistent demands of stock markets or the whims of private control, especially when those organizations perform functions that underpin key aspects of our society.
For instance, private-equity firms are not able to buy up surgery centers and order them to perform medically unnecessary operations to boost profits. Nor could they buy up public libraries and museums and sell off most of the books and paintings. As a society we have made sure that there are regulatory and structural impediments to such abuses.
To protect local journalism, the best structural mechanism appears to be forming local newspapers as nonprofit organizations with a wide membership. Further, to avoid conflicts of interest and to enable newspapers to “speak truth to power,” these nonprofit newspapers should not take too much money from any single company and should take no financial support from government. And by last count, at least 270 nonprofit news organizations have formed across the country in recent years.
At this point you may be asking: Wait, isn’t this a very self-interested column for the Rochester Beacon to run? Absolutely. Especially in the sense that this story so neatly illustrates the very concern that brought many of Rochester Beacon’s founders together, and why we chose to organize as a nonprofit.
But, just because this column happens to be self-interested, that does not make its points any less true or the potential future of the D&C any less daunting. Moreover, the D&C is clearly quite conflicted in telling this story objectively. And the Rochester Business Journal has its own complex relationship with this topic. In 2016 the RBJ was bought by GateHouse Media, an aggregator of numerous local newspapers across the country. Its practice of buying newspapers and cutting numerous jobs often gets GateHouse lumped in with Alden as an owner you don’t want (two long-time RBJ staff members, who were laid off by GateHouse after the RBJ acquisition, went on to cofound the Rochester Beacon).
More importantly, if Alden has its way, the D&C will soon contain fewer local stories and employ fewer local reporters. How many reporters can a newspaper cut and still be considered a true newspaper? How few resources can a newspaper have and still discharge its responsibilities of informing the public and holding the powerful accountable?
Unfortunately, we may find out soon – and quite suddenly.