01 coverEvery city and town needs and deserves a strong and committed local daily newspaper. For nearly 100 years, The Fayetteville Observer has served this community and was hailed as North Carolina’s oldest and most respected continuously privately owned daily newspaper – until it sold to private equity newspaper conglomerate GateHouse Media in 2016. Though it remains the oldest newspaper in North Carolina, it is no longer privately owned, nor, as many residents will attest, does it relate to the community. After the acquisition and a short honeymoon with the Fayetteville community, GateHouse Media started doing what it does best – dismantling the company.

In December 2017, Robert Kuttner, co-founder and co-editor of The American Prospect magazine and professor at Brandeis University’s Heller School, co-authored an excellent article explaining in vivid detail what is taking place in hundreds of cities, towns and communities across the country. The article, “Saving the Free Press From Private Equity” was co-authored by Hildy Zenger. Hildy Zenger is not her real name since she works for a newspaper owned by the private equity firm GateHouse Media. She is a talented writer who gives us an up-close-and-personal perspective of the havoc and carnage created by GateHouse Media as it and other private equity companies employ “scorch and burn” policies.

What follows is an account of the plight and devastation experienced by the newspaper industry and how it relates to what happened to The Fayetteville Observer and how it affects the community. What is happening to our daily newspaper is, sadly, happening in hundreds of cities and towns across the country. However, many communities with vision, dedicated leadership and a strong sense of American democracy have been able to rebuild this valuable conduit of truth, fairness and accountability in government. I hope we are one of them.

All excerpts from “Saving the Free Press From Private Equity” are referenced and reprinted with permission. Read the entire article at: prospect.org/article/saving-free-press-private-equity.

Monopolistic arrogance caused daily newspapers to ignore a changing industry. The advent of digital media has created a huge challenge for printed newspapers. Social media showed up on the scene about the same time as the 2008 recession and was followed by the private equity industry. These merciless Pac-Man-style companies began buying up newspapers that fell victim to the recession. They had no interest in news, media, publishing or communities. All they were interested in was massive layoffs, selling off assets and skimming off profits until the newspapers finally went out of business or filed for bankruptcy. They made huge profits. It’s sad for the victim newspapers and even sadder for American democracy.

Cities and towns have always depended on daily and weekly newspapers for local news and unbiased investigative reporting. Without accountability, the business of local, state and federal governments becomes veiled in secrecy. Without the media, without reporters, without the press, the Fourth Estate cannot serve as the lynchpin of truth and honesty, keeping the executive, legislative and judicial branches of government in check.

Saving the Free Press From Private Equity

Local dailies and weeklies are in a slow death spiral. They missed the digital rendezvous. … Operating losses cause owners to lay off staff and shrink content, further depressing readership and ad income, leaving little to reinvest in digital. Local web-only media are feisty in a few places, but no substitute for a robust newspaper, whether print, web or a blend.

It is here that GateHouse Media enters the Fayetteville community as the private equity player. Private equity has been gobbling up newspapers across the country and systematically squeezing the life out of them to produce windfall profits, while the papers last. Robust civic life depends on good local newspapers. Without the informed dialogue that a newspaper enables, the public business is the private province of the local commercial elite, voters are uninformed, and elected officials are unaccountable.

There are many private equity firms in the industry, but the most vicious and merciless one is GateHouse Media.

The malign genius of the private equity business mode … is that it allows the absentee owner [GateHouse Media] to drive a paper into the ground but extract exorbitant profits along the way from management fees, dividends, and tax breaks. By the time the paper is a hollow shell, the private equity company can exit and move on, having more than made back its investment. Whether private equity is contained and driven from ownership of newspapers could well determine whether local newspapers as priceless civic resources survive to make it across the digital divide.

… The Bastrop Daily Enterprise in the northeast corner of Louisiana was founded in 1904, part of a small family-owned chain. The newspaper did a thriving business, with 30 employees and $1.5 million in annual revenues. “We served our communities, won awards for our reporting, and made good money for the owner,” says a former staffer. … Then the Enterprise was bought by GateHouse Media, the newsroom was gutted, and all operations were centralized by the new corporate owners.

“Now they’ve got maybe eight people,” says this former employee. “They’re lucky if they’re doing $600,000 gross. I remember what these papers used to be. It’s unrecognizable.” Few citizens of Bastrop, however, know the reasons behind the wasting of the Enterprise because no one has reported on it.

Sound familiar? Let’s talk Fayetteville.

The Fayetteville Observer, founded in 1816, had been owned by the McMurray family since the 1920s and is the oldest North Carolina paper continually publishing. … The paper has a daily circulation across 10 counties and had been profitable and well-managed. But family members, getting older, decided it was time to sell. Charles Broadwell, whose grandmother had been board chair, was the last family member running the paper. He engaged newspaper brokers to find a buyer. GateHouse, the biggest of the private equity players, took over the paper in 2016, making deep cuts in the newsroom and the business office, and moving the copy desk to their regional center. They raised the subscription price for a shabbier product. “It was like walking around at my own funeral,” Broadwell says.

While newspapers will never be the money machines that they were in the glory days, they may yet endure as core institutions of American democracy. Zenger’s newspaper, with a circulation of under 10,000, has been pillaged in classic private equity fashion. Its pre-GateHouse staff has been cut by 70 percent, and those who remain have not had a raise in almost ten years. The paper had its own in-house production and printing operation and had won design awards, but GateHouse shut down and sold the press and fired the entire production staff. The paper is now laid out hundreds of miles away in Austin, Texas, along with most of GateHouse’s 770 papers. The printing is done in another city, at a GateHouseowned shop, by harried press workers who are under constant pressure to cut costs by reducing quality.

It doesn’t stop there.

Editors must send all the content, page by page, to the GateHouse design center via a cumbersome, laughably outmoded software interface and then wait, often for hours, to see what the pages look like on their computer screens. They are not allowed to speak to the designers, who can be contacted only by email. The designers follow strict rules that make creative layout solutions virtually impossible. Gate- House wages are so low and working conditions so high-pressured and unpleasant that turnover among layout staff is constant – so mistakes are rampant.

Although GateHouse management claims to be aggressively pursuing a “hyperlocal” digital ad strategy, its newspapers’ websites – all with close to identical design – are stunningly ugly, hard to use, and filled with dated, soft feature stories of zero local interest. Its subscriber services – all outsourced – are Eulogy for the Fourth Estate? by BILL BOWMAN COVER STORY GateHouse MediaTM What is happening to our daily newspaper is, sadly, happening in hundreds of cities and towns across the country. WWW.UPANDCOMINGWEEKLY.COM FEBRUARY 21-27, 2018 UCW 15 even worse. At Zenger’s office, the editors get calls from readers who are having trouble with their subscriptions and can’t reach anyone for help. “Sorry,” the editors have to say. “There’s nothing we can do.”

Cost-cutting measures at GateHouse are absurdly draconian, ranging from the fact that editorial staffers don’t even get complimentary subscriptions to having to buy their own coffee for the office machine. “Next, it will be the toilet paper,” says one staff member, only half-joking. … Within a decade the newspaper had lost 40 percent of its circulation and over 50 percent of its advertisers.

The ruthless miserliness of GateHouse management has two effects: It destroys the newspaper’s capacity to do its fundamental job of covering the news, and it makes for miserable employees. “Everybody I know in the leadership of the corporation were financial people or ad directors,” says the editor of a GateHouse-owned paper. “They were never journalists – never covered a story in their life. This corporate stuff is killing local newspapers. I’m sweating bullets hoping some bean counter doesn’t say we’ve got to get another 17 percent profit out of this. How much more can these people cut? It becomes harder to do the right thing – to cover the city council meetings and find out what really did happen – when you had five people in the newsroom, and now you’re down to two.”

It’s worth noting that GateHouse and other corporate predators are managing to destroy a oncerobust tradition of independent journalism without having to tell editors and reporters what to write or not write. “Eight hundred of us [from local papers] were on a call yesterday with [GateHouse CEO] Kirk Davis,” one GateHouse advertising manager said recently. “We gained nothing from it – a total waste of time. ‘I’ve got your back,’ he said. ‘I hope you’ve got mine. I’m crazy about all of you.’ I wanted to throw up.”

So, despite having cut costs to the bone, the private equity parent is, for now at least, able to take out profits in the range of 15 percent to 25 percent of revenue. Papers that don’t hit this mark can be sold for scrap or closed. GateHouse owns more newspapers, currently in 36 states, than any other media conglomerate: a mix of dailies, paid weeklies, and free “shoppers,” mostly in small cities, but also a few bigger city papers like The Providence Journal, the Worcester Telegram & Gazette, and The Columbus Dispatch.

The model is simple. Buy a newspaper on the cheap, often from a legacy chain like Gannett or from a family owner whose siblings and cousins want to cash out.

Last August, GateHouse purchased another 11 dailies and 30 weeklies from the Morris Publishing Group based in Augusta, Georgia. Its most recent move is to buy the Boston Herald, for just $4.5 million in cash. GateHouse announced on the same day the 171-yearold daily filed for federal bankruptcy protection. GateHouse’s bid was conditioned on voiding all of the paper’s union contracts and discarding all legacy pension, health (insurance) and other obligations to Herald workers. Major layoffs in the newspaper’s 120-person newsroom are a certainty.

With private equity, it’s about squeezing out the 20 percent, and anything goes. Use it up, sell it, or just kill it. The profit is the product.

Between 2012 and 2016, according to the Bureau of Labor Statistics, all newspapers lost 24 percent of their workforces. But at a sample of 12 papers owned by Digital First Media, the layoff rate was more than half, according to a tabulation collected by journalists who worked for DFM papers. As quality drops at these papers so does circulation. And though ad revenue is down, many local businesses continue to advertise because they actually value the print newspaper and want to be seen in it.

In Southern Pines, North Carolina, The Pilot has been a family-owned paper for nearly a century and has been owned for 21 years by its current publisher, David Woronoff and family members. Editor John Nagy wrote a signed article for the paper last January bemoaning the fact that one North Carolina paper in three is absentee-owned, and that others had folded. “Folks in those communities regularly call us, asking us about buying their local paper. … They’re tired of a 12-page paper with no news, and they look at our 40-page, all-local product with envy.”

Woronoff got a call offering to sell a group of five other local papers that had been stripped down as they repeatedly changed hands over a decade. Woronoff took a good look at one, the Richmond County Daily Journal. “It’s maybe eight pages a day, six days a week,” he says. “They sold the building, sold the press; they might have two people in the newsroom. There is no kind of innovation that can come from that environment. There is nothing left. If he just handed me the keys, I’m not sure I’d take it.”

Woronoff has strengthened The Pilot by developing other lines of business that are logical outgrowths of the newspaper. He now publishes four glossy monthly city magazines in nearby communities and operates a digital agency for the newspaper’s customers. He also publishes telephone directories, and even operates a local bookstore. These profitable enterprises provide a revenue stream that strengthens the newspaper, which now accounts for only 35 percent of total revenue.

Follow the Money

Wes Edens is the CEO of Fortress Investment Group, a private equity firm which controls Gate- House Media and extracts generous management fees from it. As a rare hybrid of private equity operators controlling a publicly traded company, Fortress has to make financial disclosures to the Securities and Exchange Commission and the public, and shareholders get to vote on directors and bylaws. Public filings with the SEC revealed, for instance, that Fortress, as managers of GateHouse, had taken out $19.4 million in management fees and “incentive compensation” in 2016, and $39.7 million in 2015. As newspaper financial analyst Ken Doctor observes, these payouts are not far from the $27 million in operating expenses that GateHouse expect(ed) to extract from its papers during 2017. The money from the cuts goes straight to the private equity absentee owner and its executives. The New York Times reported Fortress CEO Wes Edens’s total 2016 pay as $54.4 million, including an $11.6 million bonus.

This public information gives some leverage to another player, the News- Guild (formerly the Newspaper Guild), the union that represents employees at 17 GateHouse properties. The Guild, after extensive research, concluded that the tightly-knit controlling group headed by Fortress CEO Edens was profiting at the expense of ordinary shareholders and that the strategy of bleeding newspapers dry was unsustainable over time.

The NewsGuild is now in collective-bargaining talks with GateHouse management. With management on the defensive, the union may be able to extract raises and better working conditions for employees at unionized GateHouse papers who have not had raises in a decade.

Fayetteville/Cumberland County needs and deserves a strong, quality daily newspaper. For 22 years, Up & Coming Weekly has proudly served as the community’s weekly newspaper. Without a local TV station, consistent coverage of local community news, events and government meetings becomes necessary to restore and preserve the core institutions of American democracy.

There is some good news. In some small towns, citizens are finding ways to take their newspapers back. The independent local weekly in the central Massachusetts town of Harvard, with 6,500 residents, was bought by GateHouse. The corporation did its usual hatchet job on the formerly beloved Harvard Post. But a group of civic-minded citizens got together and started a competing weekly, the Harvard Press, modeled on the old Post, with extensive coverage of town boards, schools, and community life—and a notably quirky and detailed police blotter. Within six years, they put the GateHouse paper out of business.

Can this happen here? You bet. Our community is one of the fastest growing in North Carolina. Here, business and economic opportunities abound. Our local elected officials need to stay at the top of their game, guiding and managing our city and county government’s resources and opportunities. The local newspaper will define our community’s brand and tell our unique story. We must focus on the positive, and for heaven’s sake, never stop seeking out and demanding the truth.

A very special thanks to Robert Kuttner and Hildy Zenger and The American Prospect for allowing us to share their article and research with our readers. “Saving the Free Press from Private Equity” can be accessed online at prospect.org/article/saving-free-press-private-equity.

Thank you for reading Up & Coming Weekly.

 

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