A business ought to make a profit if it’s properly capitalized and wisely run. If it is neither, it fails. Today, the Minneapolis Star-Tribune filed for bankruptcy under Chapter 11, joining the Tribune Co., publisher of the Chicago Tribune and the Los Angeles Times, in the red-ink tank.
With assets of $493.2 million and liabilities of $661.1 million, the Strib, as it’s commonly known, certainly qualifies as undercapitalized. (Yes, we know: Declines in print advertising revenues had a great deal to do with this.) Wisely run? Less than two years ago, then-owner McClatchy Co. sold the Strib to a private equity group, Avista Capital Partners of New York, for $530 million.
So what does a gaggle of “seasoned professionals” — whose Web site says its “Global Partnership Strategy of focus, collaboration and expertise in business and investing—will enable us to do more than just make ‘good buys’ in today’s market … and supports management and enhances operational performance, creating real value” — know about newspapering?
Apparently not much, according to Robert G. Picard, a media economist of note:
The bankruptcy filings of the Minneapolis Star-Tribune and Tribune Co. are cast by many as a sign of the continuing decline of the newspaper market. However, it is noteworthy that neither firm is owned by a company with a newspaper heritage, but by firms in the newspaper business primarily for financial gain. The Tribune’s owner is from the real estate business and the Star Trib’s is from private equity. [emphasis added]
Gazillionaire Sam Zell bought the Tribune Co. in 2007 for $8 billion but only put up $300 million of his own money, saddling an employee partnership with debt for the rest. Now, Tribune has nearly $13 billion in debt. Its journalistic flagships, the Tribune and the LA Times, have had substantial personnel losses and enjoy far less journalistic clout under Zell’s “leadership.”
Mr. Picard notes the special relationships newspaper executives have had with the communities in which they operate:
Newspaper companies have long played special roles in communities, exercising social and political influence, and promoting corporate responsibility, accountability, and community standards. Publishers and editors have typically sat with the other civic leaders on boards and committees of chambers of commerce, community development organizations, foundations, and local offices of the United Way and the Better Business Bureau.
The roles and influence of newspaper executives were founded on their standing in the community and of perceptions of their respectability, community interest, and fiscal dependability. Newspaper publishers and editors would loathe any hint of financial instability or impropriety that would mar those views. The reputation of the newspaper and its brand were inextricably linked.
That relationship, frankly, has been soiled for decades as newspaper management became far more concerned with satisfying investors than serving the public interest. That began long ago when investment bankers asked Al Neuharth, then Gannett Co. CEO and founder of USA Today, how to spell “Gannett.” Mr. Neuharth aprocryphally replied: “M-O-N-E-Y.”
Wall Street discovered newspapers had higher profit margins than any other industry. Newspapers were generating margins exceeding 25 percent. So Wall Street bought newspapers to make money — not necessarily to produce great journalism in the public interest. Over time, demands for higher profit margins increased, because large institutional investors wanted the highest short-term returns.
Imagine what newspapers might be like today if, in the ’60s, ’70s, and ’80s, newspapers, either family-owned or chain, had addressed their absolutely lousy pay scales and modernized their physical plants far more than they did. Imagine what they’d be like if experienced newspaper people (and that includes advertising and circulation folks) had continued to run newspapers. Imagine what they’d be like if in the early ’90s bright, newspaper-knowledgeable executives had not laughed at the infant World Wide Web and recognized it as an opportunity rather than a threat.
Mr. Picard points out the consequences:
Newspaper companies have survived depressions, recessions, war, and all kinds of economic uncertainty in the past. They did so because they were financially solid companies with equity structures and balance sheets that allowed them survive very uncomfortable financial circumstances. Companies like the Tribune Co. and Star-Tribune are based on weaker foundations and come from cultures in which bankruptcy to reduce debts or abrogate contracts — hurting local businesses and their own employees — is just another business tool. [emphasis added]
Modern equity-focused executives, as newspapers continue to feel investor pressures from declining returns, refuse to admit the flaws of their short-sighted management. They continue to insist that the newspaper will be as good as ever. Here’s Chris Harte, publisher of the Strib, on its bankruptcy filing:
We intend to use the Chapter 11 process to make this great Twin Cities institution stronger, leaner and more efficient so that it is well positioned to benefit when economic conditions begin to improve. [emphasis added]
Huh? “More efficient”? (Code for “return to higher profits for investors.”) “Well positioned to benefit”? For whom? (Code for “return to higher profits for investors.”)
Just once, why couldn’t a newspaper executive say this:
Our bankruptcy filing is partly the result, of course, of dwindling print advertising revenues. But, I admit, we’ve made some bad decisions as managers. To maintain investor dividends, our short-term focus blinded us to the necessity to improve the product. But to maintain those investor returns, we laid off and bought out the people who would best be able to improve the product. That was kind of dumb.
Not likely to happen, of course. But Mr. Picard, in an analysis he wrote last August, notes that the newspaper industry actually is in good shape:
If one rationally looks at the industry, however, one sees that it is fundamentally sound, but that a unique, financially golden period in its history is ending. It is that change which is creating the bulk of the turmoil in the industry, but the biggest problem is that those working in the industry have short memories about the newspaper business and don’t remember it any other way.
The generation leading newspapers and newspaper companies today has only experienced a period in which extraordinary growth of advertising increased newspaper revenue across the nation. That growth, combined with the development of local monopolies, created a period that enriched papers highly. This, of course, created great interest in investors and produced capital that allowed public companies to grow and acquire papers, driving up newspaper prices and the value of newspaper assets.
Today, the conditions that drove the growth of the past 3 decades are ending, wealth is being stripped from the industry, investors are losing interest, and publishers are struggling with negative and low growth.
The Times (literally) are a-changin’. Stay tuned.