“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.
See today’s article in the Washington Post: https://www.washingtonpost.com/lifestyle/style/cancel-in-protest-or-stay-with-a-local-newspaper-thats-being-strip-mined-for-profits/2019/01/27/90fe140a-201a-11e9-9145-3f74070bbdb9_story.html?utm_term=.bfc801cfd596
Alex should have disclosed that some years ago he served on the D&C’s volunteer Board of Contributors – local folks who wrote essays published in the D&C and participated in D&C Editorial Board meetings. His views, thus, were considered in the D&C’s editorial stances.
Thank you for creating the Rochester Beacon.
I’m heartbroken by the decline of newspapers. We need objective reporting on the work of government, business, organizations, neighborhoods, etc… to keep them honest. Scary.
Very pleased to have found you, with good writing and familiar names I have missed.
Best wishes. Ill keep reading!
Come on, the protections afforded by investigative journalism are written into the Constitution. In our lifetimes, can you remember a moment when we have needed them more?
The nonprofit alternative is exceptionally smart. Who’s going to take the lead to make it happen for Rochester?
Nonprofit news is probably the future. D&C reporters are imploring us to subscribe to “save” the paper. It’s increasingly clear, however, that our subscription dollars are not invested in the product, but lining the pockets of shareholders and executives.
The relationship between for-profit news outlets and readers has been corrupted with clickbait, layoffs and biased editorial decisions. I hope the Beacon takes off.
fewer local stories means greater irrelevance… i can only obtain local news from local sources, and if gannett cuts even more local coverage, they’ve severed any need for existence they may have had.
I wish Gannett, or whatever cannibalizes it next, would just leave town. Rochester would have been better off if it had left long ago. I moved from Buffalo to Rochester in the mid-90s, and was appalled at the time at the poor quality of the D&C compared to the Buffalo News (no paragon of great newspapering, just far better than D&C). This was well before the internet started decimating local newspapers. As for the Rochester Beacon growing into a new community news organization, it would need quite a transformation to do that, but I’m not against making a try at it; someone or some organization needs to if this community is to ever thrive again. Real investigative, speaking-truth-to-power reporting should be at the heart of it, and I see few signs of that in the Beacon. Also, Beacon’s stance is pro-business, which is certainly not representative of the community, so there’s quite a bit of work to do there. Reporters who can get out into all our communities and report on what’s happening in them all — it’s quite a task, but critical for a healthy society. In the meantime, I’ll shed no tears if D&C just gives up and quits. Its insistent infantilizing of its readers has wreaked enough damage already.
The print papers having been at a tipping point for years but I think they’re near extinction, as much as I hate to say it. Fortunately, a variety of online media are stepping in to take up the slack, including the Beacon and several local blog-type sites that do not appear to be business ventures. For print pubs like the D&C, who do not seem to understand best practices for web content (clean pages, limited pop-ups, a clear and simple navigation structure, etc.), the end may come with something as mundane as auto dealers pulling full page ads as they realize no-one looks at them.
I still wait for a well-designed, easily navigable local news site that could stand as a model for other communities. I hope the Beacon finds its way to something like that. It could be done by building a WordPress template for a general news site and open-sourcing it, along with a business structure. WordPress and Google recently announced they are building a news platform. I’m curious to see what they come up with.