Column: Gannett / GateHouse merger is sick for the future of local news

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The merger of the major Gannett and GateHouse Media newspaper chains, which emerged last Tuesday, will create a “more sustainable” and “more sustainable” news enterprise “with deep deep roots and national scale.” T

This is the optimistic view of Michael Reed, CEO of the New Media Investment Group, a parent of GateHouse, on 14 November after the discussions were approved by the shareholders in both companies.

This would be expected, as the news business could use optimization news these days. Perhaps there are grounds for optimism, since the “new Gannett”, as Reed brought together, will be at its height on a national scale, creating the largest newspaper chain in the United States, including 263 daily news organization. t

Since 2008, there has been no one year of revenue gain in the newspaper industry as a whole.

New industry analyst Ken Doctor

But there may be as much reason for the suspicion. The economic environment of local news is still becoming more dissatisfied as print advertising and struggling management exit to raise digital advertising and subscription fees enough to tackle the handful.

Advertisers have many online platforms to reach customers, and most of the remaining newspaper readers in the aging demographics do not receive much attention from digital carers.

“Since 2008, income gains in the newspaper industry as a whole have not been one year,” says Ken Doctor, a veteran industry analyst. This has provided a strategy for “ongoing cost cutting for more than ten years in local news.” The cuts have come in the form of rows by average scores of companies or hundreds of workers at the time.

The Gannett may not be merged and the GateHouse may change from the trend; Reed has said that he expects to “break” $ 300 million into “synergies” from the combination, but it may be difficult to do so without more contraction in the labor force. Earlier this year, GateHouse reported more than 60 employees (the company would not disclose the actual number but called it “irrelevant”) and Gannett apparently knocked out a few hundred.

The private equity firm, Alden Capital, owned the Orange County Program, Denver Post, San Jose Mercury News and more than 90 other publications and is known as a payroll payroll passenger, a large proportion of the public who made public announcements of wholesale plundering. local news resources – for good reason, Alden's publications cut twice the rate of industry as a whole.

(Alden announced on Tuesday that the largest shareholder of Tribune, the former owner of The Times, through the total 25.2% share of former Tribune chairman, Michael Ferro, was getting $ 13 share or $ 117.9 million. .)

But public companies like Gannett, GateHouse and McClatchy Co. cannot. escaping the economic challenges of the industry.

McClatchy based in Sacramento, a chain of 30 newspapers including the Sacramento Bee, Miami Herald and Kansas City Star, can be another canary in the coal industry's news mine. McClatchy reported a loss of $ 304.7 million on income of $ 167.4 million in the third quarter ending September 29. The majority of the loss was attributable to the write-down of the company's news assets.

But the company reported long-term debt of more than $ 700 million. McClatchy said that such finances were so weak that he would not have the cash or cash flow to make a minimum contribution of $ 124 million to his pension fund next year and he was negotiating the possible takeover of the plan. the Pensions Benefit Guarantee Body of the government.

McClatchy's excellent condition sought a merger partner. In December, the firm offered $ 16.50 per share to Tribune, owner of Chicago Tribune, New News Daily, Baltimore Sun and Hartford Courant, and former owner of The Times. But the offer was only the $ 20 claimed by Ferro, who was the largest shareholder at Tribune.

That said, both companies may be well suited, as Tribune's large market newspapers would have a balance on a smaller metro newspaper stable.

In addition, the best balance in the industry could be at Tribune, having paid most of its long-term debt to the proceeds from the purchase of The Times and San Diego Union-Tribune for $ 500. million by Dr. Patrick Soon-Shiong. These discussions closed in June 2018; Soon-Shiong is still the main shareholder of Tribune, with 24.4% of the company as of 20 March.

In fact, Doctor confirms that talks are starting again between McClatchy and Tribune. Both companies refused to comment on the declaration.

The most important issue that arose from the synergistic consolidation in the news industry is reflected by the acquisition spree of businesses like Alden and Gannett-Gatehouse merger than what the owners will do with any savings they will achieve. For almost any news organization looking to the future, the need is to invest in digital capabilities, as the news audience is moving into it.

GateHouse is not known for such an investment. According to a 2018 survey by Penelope Muse Abernathy from the University of North Carolina, it is the firm's practice to obtain a newspaper “copy editing and page design” instead of corporate, then replace younger reporters (and cheaper (d) reporters). “Gateway-owned newsrooms are often half the amount within one month,” says Abernathy.

Reed, who will chair the merged company, told New Media investors, the GateHouse parent, on 31 October that the merger would allow the company to pay down quickly and "give capital". return to shareholders through dividends, as well as investing for growth driven by revenue. “A notice that it is not always easy to settle to pay money to pay shareholders' dividends to“ invest for growth ”should not be escaped. ”

The increasingly popular pattern is the operation of local newspapers as sources of plunder. At GateHouse, for example, the Gannett deal will enrich the Fortress Investment Group, a private equity firm created by GateHouse and remained a major player in the company through initial public offer and bankruptcy, and currently runs GateHouse through a management contract. .

Fortress will end the management contract at the end of 2021, but it will leave the investor in New Media Leon Cooperman tasting the investors' conference as "morally wrong."

“I know we are happy to get rid of Fortress,” said Cooperman with Reed. “They donated $ 16 to this community in 2014. The stock is $ 8.5 and they will walk out with hundreds of millions of dollars. … They should not even take the money, because of what they have done here. ”(Cooperman is the billionaire investor who recently spoke to Elizabeth Warren regarding her proposal for wealth tax.)

Plunder can work as a short-term strategy to make money in an industry that remains profitable and traces a glide path until it is destroyed. “Financial players like Fortress and Alden are making significant money on the way down,” said Doctor. "They see the way down as close to inevitable."

In the news business, however, is its self-compliance strategy. Public companies such as Gannett and McClatchy put that death. They put severe cuts on some of their local publications and cut back on physical delivery – McClatchy plans to end the publication of every newspaper on Saturday by the end of next year, although it will launch new articles online. However, they have invested in investigative reporting and other efforts at national level, as well as digital initiatives.

As traditional revenues continue to decline – and at a faster pace – these companies find themselves bright. The move to digital news requires potentially more difficult resources to come from. Meanwhile, Doctor says, they are trying to buy time through contraction even as their final destination is not clear.

“After two more years of this,” said Doctor, “what kind of products will be left in local communities that readers think is worthy of a digital donation? What is your strategy after the cost of cutting? ”

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