GateHouse opens its wallet and sharpens its knifeMake no mistake: The New Media playbook has been executed well. As one savvy industry insider observed to me: “It’s the same plan as Tronc and Gannett — they are just far better and more disciplined at making it work.” That fact shows up in the fact that on Tuesday, NEWM could report a 2016 overall revenue decline of only 2.5 percent for “same store” (that is, excluding the contribution of newspapers newly acquired) revenue. That’s a better performance than its peers. We can credit GateHouse with two key growth initiatives. Its Propel local marketing services business grew 69 percent in 2016, to $53 million. Its fast-growing GateHouse Live events business, headed by Jason Taylor, will produce about $15 million in revenue, as this year’s number of events in its top 25 markets grows from 120 to 240. It’s unclear how much stamina NEWM’s investors will have for the strategy, though. The company reported a more-than-50-percent drop in both net income and earnings-per-share for 2016. Those numbers have knocked about 5 percent off the share price this week. While the company’s $800 million market cap is impressive, with fewer newspaper properties, it could claim a $1.12 billion valuation in early 2015. Is the bloom off this fast-growing flower? In this ever-toughening local newspaper environment, even New Media Investment Group walks a thin tightrope, further proving that single-class public companies serve the needs of transitioning news efforts poorly. I asked New Media CEO Mike Reed and COO Kirk Davis for comment on the annual results and their 2017 plans, but received no response. What’s clear, though, is that the company plans to extend its strategy — buy more papers, monetize those readers better through Propel and other initiatives, and continue to cut, cut, cut those newsroom staffs. New Media has spent $735 million buying newspapers in the past four years. It’s the king of the diminished roll-up hill, especially as Gannett, chastened by its failed bid to buy Tronc last year, reconsiders what kind and scale of acquisition may match its new circumstances. (The 2017 deadline has passed for any Gannett effort to offer up an alternative slate for Tronc board directors, as it would have liked to have done last year. So the chances of a Gannett/Tronc deal seem to have gotten even smaller.) As recently, as three weeks ago, New Media bought five daily Dix newspaper properties in northeastern Ohio. Those add to its impressive reach: 19 million people through 564 community print publications, 489 websites, 476 mobile sites. Though its outdated site leaves out acquisitions made years ago, the company now owns more than 130 dailies. That’s about a tenth of all the 1,375 dailies in the country. New Media has bought up larger papers in Providence, Columbus, Sarasota, and Worcester, plus chains of multiple dailies, including 24 from Halifax Media (the old New York Times Regional Newspaper Group), eight dailies from Dow Jones Local Media Group and six from Stephens Media. Now, backed with a further $130 million in raised equity, CEO Mike Reed said Tuesday the company intends to buy more. “New Media is well positioned to take advantage of more great acquisition opportunities at attractive valuations in 2017.” It’s the remaining family newspaper companies, like the 119-year-old Dix Newspapers, that are taking the money and exiting the business. In some cases, GateHouse has encircled these family operations, and then offered just enough to close a sale. At best, GateHouse puts together a cluster of newspapers — best for cost-cutting efficiency and consolidation — and takes over a newer printing operation that it can use for centralized, again more cost-efficient, publishing. Where does the acquisition money come from? As Fortress restructured, it began put together its investment pools four years ago. That money, according to Fortress, has come from three sources: cash flow from operations, equity issued to NEWM public shareholders, and a regular term loan the company put in place with banks. Institutional and mutual fund shareholders, including Vanguard, T. Rowe Price, Wells Fargo, and Black Rock Fund own at least 70 percent of the company. They find its dividend — just increased to 35 cents per quarter — attractive. There’s rich irony here: The retirement funds of those in the news industry, among many others, helps fund these New Media takeovers, which in turn result in more job cutbacks and the thinning of journalism in communities from coast to coast. Those nice dividend checks mean fewer journalist paychecks. We can do the math on what the financialization of these community papers has meant, from Massachusetts to California. By the terms of its agreement to manage the company, Fortress earned $19.4 million in compensation last year from New Media, based on the conventional private equity standards of a management fee of 1.5 percent of New Media’s total equity and “incentive compensation.” Each acquisition increases that total equity, providing a compelling rationale for more buying of newspapers. In the company’s just-filed Securities and Exchange Commission 10-K, Fortress earned $9.8 million in management fees and $9.6 million in incentive compensation, amounting to that total of $19.4 million. Given a better 2015, it generated $39.7 million total in 2015 and only $5.7 million in 2014. Both CEO Mike Reed and CFO Greg Freiberg draw their compensation from Fortress; COO Kirk Davis is a New Media employee. Critics of such management contracts point to the increased overhead they bring to news enterprises that badly need reinvestment. While New Media must allocate income to profit, as do its peers, it must also allocate money to Fortress — which, of course, would claim that it’s earning that payment. Reed noted Tuesday that the company plans to cut an additional $27 million in 2017, an amount of money not far from Fortress’ annual payout. Just since the beginning of the year, numerous GateHouse papers have cut more newsroom staff — in the single digits at smaller newsrooms as far-flung as the Springfield (Ill.) Register, Lakeland (Fla.) Ledger, Erie (Pa.) Times and Quincy (Mass.) Patriot Ledger. Those cuts follow more major cuts in the newsrooms of papers it’s acquired more recently — those papers have seen the bigger cuts, as reported to me by the NewsGuild/Communication Workers of America. That includes 40 jobs cut at the Providence Journal, a paper GateHouse bought from Belo in 2014. Word of an overall 4.6 percent budget cut across the chain is rifling through company. It’s the cutbacks at the smaller papers — the roots of the pre-Fortress GateHouse chain — that may be most telling. “All of the papers the Guild represents that are owned by GateHouse have not had their wages increased in 8 to 10 years,” says Melissa Nelson, director of collective bargaining for the NewsGuild-Communication Workers of America. In Illinois, she says, the company “added to the financial misery. GateHouse made a contract proposal for retroactive medical and dental increases or a corresponding pay reduction, if the employee so chooses. The math adds up to about a $9,000 cut” for some employees.
Why are news CEOs’ voices so quiet?The specter of Trump-related foreign ownership may be a misplaced apparition — but it shouldn’t obscure the real specter of a faster chain roll-up of newspaper ownership in America. While Fortress doesn’t own NEWM, its management drove the company’s astounding growth after the GateHouse bankruptcy in 2013. With tough, disciplined management, it worked the littered newspaper landscape with great financial acumen, acting on the too-familiar story of excessive newspaper debt and finding the attractive availability of discounted newspaper bonds. It believed in its methods to cut costs by replacing inconsistent management. And, like other buyers, it recognized that so much of newspapers’ remaining trade value is in their tangible real estate. For Fortress, newspapers — now a classic distressed industry — offered a chance for good profit, using the reliable roll-up-and-cut methodology at the root of its industry. That’s a good business story. More importantly, though, for the story of flagging local American journalism in a time of great societal stress, it’s a triumph of capital over community. The managers and the investors are the victors, the readers and the journalists the losers. Let’s be clear: Management determines how much journalism their journalism companies actually produce. As with Reed’s twin announcements Tuesday — more acquisitions, but also more reductions in staff — we see the GateHouse/Digital First Media playbook in its full application. It’s not the only playbook out there, but it’s the most used. In an industry that’s lost 60 percent of its advertising revenues over the past decade, it’s not a question of whether to cut — it’s a question of how. As we learned of the new metro-oriented change Knight-Lenfest grant last week, we highlighted a couple of newspapers companies that have also seen their share of cuts. But Minneapolis’ Star Tribune and The Dallas Morning News — locally and independently owned — have cut judiciously, foregoing some short-term profit. While the GateHouse method “works” in the short-term, like the Alden Global Capital-directed Digital First Media, it’s hard to see how it produces much of a going business, or much news, by 2022. Over the weekend, Knight Foundation veteran Eric Newton asked a profound question on Twitter: “Have news media CEOs said anything about a president who loudly accuses their people and companies of dishonesty?”
It’s a hell of a question. New York Times CEO Mark Thompson sparred with Trump on his year-end call, but Newton’s point is right on: “There are CEOs of major media companies (and companies that own media companies) employing many tens of thousands of workers who are being called dishonest. If the president attacked any other industry, what would the response be?” The answer, of course, isn’t singular. To be sure, there’s a chill in the air, and courage isn’t easy to come by. It’s more than that though. As 12-decade-old newspaper companies get sucked up and shrunken by financial managers sending what seem to be outrageous profits as far off as Tokyo, the whole notion of newspaper executive leadership has ebbed away. “Publishers” may have to run two to three (or more) newspaper titles, and they’re judged not by their community participation but by the monthly revenue totals. A world of community leadership — as uneven as it really was over the decades — has been quickly eroded. And if you’re the CEO of one of the chains, you’re probably far more interested in the increased chances of “cross-ownership.” In the laissez-faire regulation environment taking shape under Trump, newspaper publishers and local broadcasters may well — for the first time — be able to combine their enterprises. That’s a lot of new potential profit — and another potential reason for news industry leaders to keep their mouths shut. For those searching out nefarious conspiracy in the news media ownership world, this initial GateHouse conspiracy story may be a disappointment. They can, instead though, turn their eyes to another visitor to Trump’s tower, one month after Softbank’s Masayoshi Son. On Jan. 12, Randall Stephenson, CEO of AT&T and would-be acquirer of CNN through its in-progress Time Warner purchase, paid a visit. Given the president’s promotion of CNN into the ranks of “very fake” news and his senior advisor Jared Kushner’s recent brash critique of the station to Time Warner execs, that’s a different sort of handshake to watch.
Have news media CEOs said anything about a president who loudly accuses their people and companies of dishonesty?— Eric Newton (@EricNewton1) February 18, 2017
Photo of Donald Trump and SoftBank CEO Masayoshi Son at Trump Tower December 6, 2016, by AP/Andrew Harnik.