A combination of bad business decisions and bad luck means the biggest names in the newspaper business are facing a crisis far worse than the slow-but-certain decline brought on by the internet era. As COVID-19 wreaks havoc on the economy, two of the biggest newspaper chains in the United States, Gannett and McClatchy, are being choked off from life-sustaining ad revenue, while they were already struggling to cope with other challenges.
For the past two decades, these stagnant newspaper companies allowed internet innovators and digital news rivals to move in and compete for news on an even basis. Rather than adapt, they ignored the threat and continued operating with expensive editorial staff, legions of reporters, and a daily print deadline. Meanwhile, competitors swooped in with flat organizational structures, no printing costs or deadlines, and low overhead. The digital-only competition siphoned off readership and consequently, the lion’s share of newspaper advertising budgets got spent elsewhere.
None of the executives at these huge newspaper firms would agree they haven’t innovated. Indeed, they’ve spent millions buying up other internet companies in an effort to inject life into their operations. But they refuse to change their overall business model, keeping a stovepipe organizational structure with layers of out-of-touch editors managing a shrinking number of reporters, even as they pumped breaking news onto Twitter and social media sites just to stay relevant.
As the cash flow dries up, and coronavirus mops up any remaining pools of cash, these legacy media dinosaurs find themselves at the mercy of Wall Street hedge fund managers, creditors, and bankruptcy courts. Industry observers think it may be curtains for McClatchy and Gannett:
The end of publicly traded newspaper companies will soon be upon us. They may have seemed like a great idea 15, 25, or 35 years ago, but it’s now mostly private owners of financial capacity and vision who seem to stand a chance of finding a way forward for local news. (Source: NiemanLab.org)
Only weeks ago, McClatchy thought it’s biggest problem, aside from perpetually shrinking ad revenue because of the internet, was the fact that reporters in its newsrooms all over the country, including the Miami Herald, were unionizing in a bid to save their jobs. It turns out, that’s a small problem that other papers have already figured out how to solve by assigning nettlesome union reporters to hyperlocal beats nobody else wants to cover. After all, there are plenty of motivated writers looking for work who aren’t interested in forking over union dues.
But before McClatchy could copy that strategy around the country, the company declared bankruptcy, and that was before coronavirus wrecked the economy. We can only guess what the carnage looks like on McClatchy’s balance sheet now.
A similar story is playing out at rival Gannett, which publishes more than a dozen newspapers in Florida alone, including the Tallahassee Democrat, the Pensacola and the Daytona Beach News Journal, and Florida Today. That company merged with GateHouse Media less than six months ago, a deal leveraged by a $1.8 billion loan financed by private equity firm Apollo Global Management.
Calling that deal a case of bad timing would be an understatement. Gannett is the largest newspaper publisher in the country, owning more than 100 daily newspapers and 1,000 weekly newspapers. It’s stock price yesterday valued it at less than $1 per share, giving it a market value of $128 million. At the time of the merger and loan, it’s market cap was valued at over $800 million.
Regardless of the stock price, the more immediate problem for Gannett is the inability to make a payment on that $1.8 billion loan, which will come due soon. That, in turn, could trigger a number of actions, including the very strong possibility of a bankruptcy filing – just like McClatchy.
The media landscape has been in a massive consolidation mode for the past few years, but this latest economic meltdown will transform America’s local newspapers in ways that were not contemplated even a few months ago. While these newspapers have resisted change for more than 20 years, the ultimate legacy of coronavirus could usher local newsrooms into the hands of real innovators who will have more freedom than ever before to cut costs, shake up editorial staff, and restructure them for the future.
Correction: an earlier version of this story referenced Tribune Publishing as the owner of the Los Angeles Times, which the story also noted is furloughing reporters due to a drop in ad revenue related to coronavirus. Tribune Publishing has not owned the Los Angeles Times for several years. The Capitolist regrets the error.
The local newspaper (Gatehouse) home delivery monthly subscription cost was increased by over 50% in February to an untenable $46/mo.
Brian, thanks for your column and you hit the nail on the head. The publishers dilly-dallied while Rome was burning and now they’ll have to pay the price for little innovation or willingness to radically change their business model. In some respects, I’m not going to be really concerned because frankly, the major dailies in Florida are out-of-sync with the political realities of Florida consumers of media content. By that, I mean that the newspapers are to the far left in their reporting and editorializing while Florida is a centrist electorate that tends to be slightly to the right. So, the demise of newspapers will be just punishment for their relentless propaganda that they spew every day. Good riddance, I say and let us all seek out the news source that we most trust, whatever that may be. For example, I’d much rather read the Capitolist every day than the Tallahassee Democrat, and more and more, I’m leaning in favor of dropping my Democrat subscription that I’ve had for the last 37 years.
Of note, Tribune Publishing no longer owns the Los Angeles Times, so while their ad evaporation is devasting, it is to the bottom line of their new owner, not Tribune.