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Sept. 7, 2011, 10:30 a.m.

A wave of consolidation? Some context on MediaNews, Journal Register, and Alden Global Capital

East and West Coast companies link up: Is this the beginning of a hedge-fund-driven set of mergers in the troubled newspaper business?

The big newspaper news this morning is that two of the nation’s largest remaining chains, Journal Register Co. and MediaNews Group, are executing something like a merger-without-merging. Journal Register is creating a new company, Digital First Media, which will “manage” both chains. The two companies will maintain separate boards, but JRC CEO John Paton will take over as boss of both. (Here’s Paton’s blog post about the move.)

Throughout 2011, we’ve been telling you about the dance between MediaNews, Journal Register, and a key third party not mentioned in the press release: Alden Global Capital, the hedge fund that is perhaps the most important little-known player in the publicly traded newspaper sector. Alden has specialized in buying up pieces of distressed or bankrupt newspaper companies; as our Martin Langeveld reported in March, Alden has made substantial investments in Gannett, McClatchy, Freedom, Tribune, PostMedia, Philadelphia Media, and Media General. But its most pivotal stakes are in MediaNews and Journal Register, which Alden bought outright earlier this summer.

As Martin — a former MediaNews Group publisher — and Ken Doctor have been reporting for months, the signs have all been pointing in the direction of Alden-driven consolidation — initially between JRC and MediaNews, but potentially expanding to other chains where Alden and its hedge-fund peers have an interest in cost-cutting and economies of scale. In other words, in a few years, we might be looking back on today’s announcement as the beginning of a wave that radically changed the U.S. newspaper industry.

To understand these issues, get the background and context from these three articles from Martin and Ken.

Jan. 21, Martin Langeveld, “The shakeup at MediaNews: Why it could be the leadup to a massive newspaper consolidation”

Strategic geographic consolidations, if operationally led (one hopes) by someone of Paton’s caliber, could be a potent force for the rejuvenation of the industry, including a renewed focus on what, after all, is the principal product and potential strength of all three companies: local journalism, along with Paton’s strong emphasis on digital-first, print-last thinking…

…Alden’s ultimate interest is in earning a strong return on its investments, not in the future of journalism, so its strategy is at heart a financial one. And, yes, consolidation will come at the cost of jobs.

But Smith also knows that the only way to win his big bet on the future of newspapers is to turn them into nimble, modern digital news enterprises, and even Singleton (who rarely touches a computer) seems to agree.

July 18, Martin Langeveld, “Alden Global Capital drops a shoe: Is the Journal Register acquisition prelude to more consolidation?”

JRC, with Alden backing, could now become an east-coast consolidator by scooping up other newspapers and newspaper groups — perhaps even acquiring the East Coast holdings of MediaNews, papers in Pennsylvania and New England which, although dear to the heart of chairman Dean Singleton, are mostly a distraction to its Denver-based, California-centric holdings…

It’s not hard to imagine an east-west strategy, with newspaper properties flowing into a western-U.S. consolidation led by MediaNews and an eastern grouping led by JRC. Even without mergers, there are places where Alden could encourage strategic partnerships between companies it owns or has invested in — for example, between JRC and the Philadelphia newspapers…

Nostalgia for “local newspaper ownership” notwithstanding, the market will push owners into sales and mergers until there are just a few major owners of newspapers across the country.

July 21, Ken Doctor, “The newsonomics of U.S. media concentration”

Hedge funds — which bought into the industry through and after 14 newspaper company bankruptcies — are having their presence felt. Most recently, Alden Global Capital, the quietest major player in the American news industry, bought out its partners and now owns 100 percent of Journal Register Company. Alden, with interests in as many as 10 U.S. newspaper chains, apparently liked the moves of CEO John Paton. Paton’s digital-first strategies have more rapidly cut legacy costs than other publishers’ moves, and moved the needle more quickly in upping digital revenues…

You can bet that Alden’s move is just one of its first. Sure, as a hedge fund, it may just be getting JRC ready to sell; hedge funds don’t want to be long-term operators. Before that happens, though, expect the next shoe to drop: consolidation…

So this is how our time may play out. Smart, digital-first roll-ups align with massive consolidation. It’s time to get our heads around that. That won’t necessarily mean that Alden, or other hyper-private owners, keep the new franchises. Their goal probably is to sell. But to whom, with what sense of public interest?

POSTED     Sept. 7, 2011, 10:30 a.m.
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