Beautiful City

When Papers Like The Denver Post Cut Staff, Critics Say Hedge Fund Owners Profit

Copies of The Denver Post stacked on a table in the Colorado Public Radio newsroom, March 19, 2018.

The hedge fund that owns The Denver Post, the Boulder Daily Camera, and several other local newspapers around the country has come under criticism after the Post announced another round of layoffs. Colorado’s largest newspaper will employ about 70 journalists after the cuts — a fraction of the 300 on staff at its peak.

Hedge funds invest in newspapers with an eye towards cutting them, according to news industry analyst Ken Doctor, who spoke with Colorado Matters.

"The newspaper industry in the United States has lost more than half of its size in the last ten years, overall. Down by about 60 percent. But if you cut enough, week after week, month after month, year after year, you can still take in profit margins," Doctor said.

The owner of the city’s remaining newspaper, Alden Global Capital, has done just that, according to Doctor, who said the hedge fund makes about 20-25 percent profit margins.

Doctor, who writes the blog Newsonomics and is affiliated with Harvard’s Neiman Journalism Lab, said he has spoken privately to several current Post executives about the paper’s uncertain future.

"The question will be at in 2021, with however many people are left in The Denver Post newsroom creating the product that it can create at that time, will it be still be profitable? If it’s not profitable you turn out the lights, I was told, or you sell the remnants to some local group of civic business people, for whatever you can get out of it and you get out. And the point is, you’ve made enough money up to that point that it’s okay to turn out the lights or do a remnant sale," Doctor told Colorado Matters.

For now, Denver Post editor Lee Ann Colacioppo told Colorado Matters the paper will still be able to cover news vital to its readers with the reduced staff.

Read The Transcript
Ryan Warner: You’re back with Colorado Matters from CPR News. I’m Ryan Warner. Before the break, we heard from the editor of the Denver Post talking about forthcoming layoffs in the newsroom. Now, why does a hedge fund like Alden Global Capital invest in newspapers in the first place? Ken Doctor is a news industry analyst affiliated with Harvard’s Neiman Journalism Lab. His blog is called Newsonomics, also the name of a book he wrote, and he’s on the phone. Welcome to the program, Ken. Ken Doctor: Good morning. RW: What is the incentive for a hedge fund to get into the newspaper business? KD: It’s exactly as we would expect. It’s money. So this company, and a few others, got into the newspaper business, which had long been a brotherhood of really a relative few companies after the great recession. In that recession newspapers lost about a fifth of their business, and then you had more than a dozen bankruptcies of bigger companies. You had a lot of distressed debt out there of remaining companies, and out of all that restructuring you had companies like Alden say "This is an opportunity to make a lot of money." And so they were able to get into a business, and just as Lee Ann was talking about a couple of minutes ago, it’s just a business to them, like any other distressed business, and they saw the opportunity to make a lot of money, and they have, and they continue to today. RW: That’s what I don’t understand. How do they make a lot of money in an industry that has been so widely seen, in and outside, as flagging, as dying? KD: So they make their money by cutting more. All these companies, the newspaper industry in the United States has lost more than half of its size in the last ten years, overall. Down by about 60 percent, but if you cut enough, week after week, month after month, year after year, you can still take in profit margins, and Alden, through Digital First Media, which is the holding company here, in many markets, is making 20 to 25 percent profit margins. So while on the surface, it seems absurd that you would have this kind of flagging business, and such a sign to consumers and citizens, lots of money continues to flow in every quarter to Alden Global Capital. RW: I suppose that some will be wondering are these thirty cuts at the Denver Post lining the pockets then of Alden Global Capital, to whom again we reached out but did not hear back from. KD: Of course, they are. The communities, I’m in Northern California, and they’re very strong here, Northern California, and they have some major properties in Southern California as well. All of these have been way cut back, at the same time that subscribers have been priced up. My local paper, for instance, I got a note in the mail last week saying it was going up 22 cents every day. They’re cutting the product and here, and we’re in a small community, we’re paying more than $500 a year for a small paper that has four reporters in the county. With that kind of profit margin, more than a hundred dollars to your point, is going in the pockets of Alden Global Capital. The arithmetic really is that simple. RW: I have heard this described as harvesting cash. Cutting these businesses. Taking that money for your own profits, but eventually that’s going to lead to a gutted out newsroom, and a product, presumably, no one wants, so it doesn’t sound like a long term business strategy. KD: Right, it’s not. It is a short-term, or shorter-term milking strategy. I’ve been writing about this for several years, and that’s what it is. When I first started reporting it now five, and seven years ago, it seemed surprising to me too. If you look at it, it’s not that unusual for other kinds of industries that have been distressed. So the question that you’re raising, which of course is a vital one for Denver and Colorado, what is the Denver Post in 2021? I have talked to people who work at that company, the executives, of course privately and confidentially, and I’ll ask them that question, and there’ll be the silence, and then they will say "Well, you know there is no plan." The question will be at in 2021, with however many people are left in the Denver Post newsroom creating the product that it can create at that time, will it be still be profitable? If it’s not profitable you turn out the lights, I was told, or you sell the remnants to some local group of civic business people, for whatever you can get out of it and you get out and the point is, you’ve made enough money up to that point that it’s okay to turn out the lights or do a remnant sale. RW: Now- KD: It is something that is heart-rending, but it is actually the business strategy. RW: This leads naturally to the question of whether there could be a buyer arranged for the Denver Post that might be more mission-driven, maybe more connected to the Colorado community. As we said before the break, there are calls for the governor to get involved. The Denver Newspaper Guild is saying there ought to be another owner. Likelihood of that happening and of Alden saying, "Sure, we’ll sell to you"? KD: The likelihood is very complicated, and it’s all financial here. It is important to note, Alden tried to sell the whole company two years ago, actually to another private equity company, and that fell apart at the end over about $30 to $50 million dollars, relatively small amount of money. Since then, they have sold some significant properties in Salt Lake City, in New Haven, and even the Berkshires in western Massachusetts. They’ve let it be known that many of their properties are for sale at a price that is four and half times their annual earnings. So very clear to the newspaper brokers. The Post, however, I am told, is more complicated. The Post has major pension liabilities that go with it, and because it is one of the major remaining papers of Digital First Media, it makes a substantial allocation to corporate. So, part of that money, part of that profit, is going to pay the headquarters’ expense of Digital First Media. That complicates the selling and doesn’t make it as simple as "pay me four and a half or five times my annual earnings." That’s the hang-up here and we would presume that is the hang-up also with Philip Anschutz in terms of we’ve long known he wants to buy the Post, of what the price will be, given the financial complications. RW: This is the Colorado billionaire who has made money in many different ways throughout time, but most recently, I suppose, in entertainment. KD: Right. RW: Listen, Alden Global Capital is often vilified, accused of enriching itself at the expense of community newspapers. But you said that it bought The Post at a pretty down time, economically. Ought we to think of Alden Global Capital as something of a hero in this story? In other words, what might the Denver Post be had they not stepped in? KD: There have been in many other communities others who have stepped in. There’s for-profit single public companies and, interestingly, in places like Minneapolis and in Boston, there have been very wealthy people who have stepped in and recognized the civic mission. If you take, for instance, the Twin Cities, which is similar size to Denver, there you have a robust daily newspaper with more than 200 people in the newsroom and it is taking a smaller profit margin of less than 10% and it’s stable. Because it moved in in a similar time period, actually, as to when Alden took over and reinvested in the paper and believed in both the paper as a business and as a mission. So there are plenty of contrary examples and somebody else would have stepped in had Alden not. RW: Had Alden not. Whether they would be mission-driven, of course, is impossible to know. KD: Right, yeah. It depends which billionaire you get. RW: I guess, to wrap up, we talked a bit about the paywall that the Denver Post put up and there was at least hope that that would stop the bleeding. If not, maybe regrow the newsroom. Lee Ann Colacioppo, the editor of the Denver Post, talked about Alden making the investment so that the paywall was possible, though of course that allowed them to potentially reap more revenue. But do paywalls work? Is the paywall the savior to flagging newspapers? KD: We’ve seen it be in fact the savior of the New York Times. We look at nationally, the Times, the Journal, the Washington Post, even the Financial Times, huge success of paywall and really their future is assured at this point. On a regional level, more tepid results, but in other places, in Boston and Minneapolis I mentioned, and some others, it has really helped. It has helped buffer all of the advertising losses, which continue. The problem in Denver and at papers that have been cut so much is really that value proposition. The Denver Post is late as are DFM papers in bringing to market a paywall and then of course the product that people are getting is a lot less than three years ago if they had been asked to pay then and that money had been taken to bolster the newsroom. So, and I’ve talked to editors about this recently and they wonder, privately, talk about other papers in metro areas, is there enough of a newsroom presence left, enough content, that readers are really going to buy these digital subscriptions if they’re now being offered them. That’s the big question. Is it too late to make a big difference in a place like Denver. RW: You talk about DFM, Digital First Media. Thanks for being with us. That’s Ken Doctor, he’s a news industry analyst, affiliated with Harvard’s Neiman Journalism Lab. His blog is called Newsonomics. Also the name of a book he wrote.

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