About 10-15 years ago, at a time when pharma stocks were in the tank and there were a lot of pipeline problems, I remember thinking that some enterprising investor might step up and do a leveraged buyout of one of these companies, sell off the pipeline, eliminate R&D completely, slash and burn the corporate office, and run the business off for cash as a purely sales and manufacturing operation.
Nobody ever did that, but it has happened in other industries. One of them is the newspaper business. Enterprising investors have figured out that they can buy these papers on the cheap, sell off the real estate, gut the newsroom, and just milk the business for cash until the inevitable end game. As an example of how this works, tronc CEO Michael Ferro had the newspapers he owned pay his firm a huge consulting fee ($5 million per year) equivalent to 60-70 reporters salaries. In essence, he was gutting the newspaper simply to send cash upstream to his company (and presumably himself).
Journalists hate this, understandably.
Another example comes out of Denver, where reporters are protesting the hedge fund that owns the Denver Post.
Since Digital First Media took over the papers, the union’s membership, which includes reporters, photographers and other employees, has declined by about 70 percent, Mr. Ross said. The Daily Times, which once had 125 union members, now has just 25. The Trentonian has 20.
Of those who remain, many work under demoralizing conditions, he added. The Trentonian’s building, Mr. Ross said, had no hot water for so long that the union filed a complaint with the Occupational Safety and Health Administration. Rats scamper about. Employees at the Norristown paper no longer have a building of their own and must work either from Pottstown’s offices or out of their homes.
Despite Mr. Ross’s belief that Alden Global Capital would consider an offer, it is not clear how willing the company is to sell any of its papers. The hedge fund generally buys publications at a low price — it recently bought The Boston Herald for roughly $12 million — with the goal of extracting as much profit as it can, for as long as it can. A sale might provide a quick infusion of cash, but it would deprive Alden Global Capital of future returns.
This is the reality of private equity finance that few libertarian types want to acknowledge. It’s often more personally profitable for funds to deliberately gut a declining business and manage it for cash than to try to fix it. These specific firms are devouring our economy and communities, not doing a positive service. (As Dan Rasmussen pointed out, as a rule all private hedge funds actually do anyway is load up corporate balance sheets with debt).
I happen to agree that a strong local paper is important to a community. I’ve written on the importance of the decline of local media many times.
But as I listen to these hurt, outraged reporters talk about what is being done to them, I again can’t help but notice how little sympathy they’ve shown for workers in other industries that have suffered restructuring. Are they willing to do anything to help America’s manufacturing industries or workers? They are more likely to say get used to it – the jobs are never coming back. Or how often do they reject Silicon Valley disruption (or even that coming from firms in their hometown) when it affects businesses other than their own? How many journalists in thriving cities are really worried in their guts about the fate of struggling post-industrial places?
The truth is that like much of manufacturing, the newspaper business is dying because of technical innovation, except for the handful of most prestigious national outlets like the New York Times. There’s no bringing back the glory days. Does that mean journalists should give up and go take retraining classes?
I for one am glad they are fighting. I don’t want to see newspapers go away. I think they are important to local communities. But they aren’t more important than the other industries that were lost. I hope in trying to fight back against the social media giant and hedge funds that are devouring their own industry, these reporters will take a broader look around at what has been done to many others – and maybe gain some newfound sympathy for those in other industries on the receiving end of similar trends.