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March 18, 2016, 11:30 a.m.
Business Models

Newsonomics: In Southern California’s newspaper chaos, is anyone really speaking for the readers?

Well-intentioned antitrust actions by the Department of Justice are likely to deliver two newspapers to a company with a record of milking papers for profit through deep cutbacks.

William Baer, assistant attorney general in charge of the antitrust division, had already bluntly told all involved in the Freedom Communications newspaper bankruptcy auction that Tribune Publishing should stay out of the bidding. He sent an email two days before the auction was to begin.

Baer said that Tribune’s attempt to buy Freedom’s Orange County Register and Riverside Press-Enterprise raised “serious issues.” “If Freedom selects Tribune as its purchaser,” he wrote, “the division will exercise its antitrust law enforcement responsibilities to ensure that the transaction does not deprive newspaper readers and advertisers in these areas of the benefits of competition.”

So, of course, Freedom’s representatives went ahead on Thursday morning and chose Tribune Publishing’s $56 million offer for the two papers and the valuable real estate nested around the Register. That prompted Baer to file an antitrust lawsuit against Tribune on Thursday, accompanied by a 21-page memorandum detailing his concerns about “monopoly.” (I’ve detailed the week’s madness most recently here.)

All attention now turns to Monday’s bankruptcy court hearing, as Tribune decides whether to press on with its bid, given the suit. Also in court will be Digital First Media, which will make a renewed effort to convince U.S. Bankruptcy Court Judge Mark Wallace to let it take the bankrupt newspapers, with its $45 million to $50 million bid payment partially assuaging Freedom’s long list of creditors.

It’s hard to believe I’ve been covering the Southern California newspaper meltdown for at least seven years now. Sam Zell, who had taken control of the Tribune Company in an investing coup (which curiously foreshadowed Michael Ferro’s similar seizure of Tribune control this January), took Tribune into bankruptcy in December 2008. It was to be the five-year bankruptcy from hell, a classic among the more than a dozen daily newspaper companies we saw post-recession. Given the current straits of newspaper financials, we may soon see that set of bankruptcies as a mere prologue.

As Southern California, a region of more than 18 million people, moves toward one kind of newspaper consolidation or another, we can see it as a ground zero of the mess daily newspapering has become. Freedom Communications now emerges from bankruptcy for the second time; the Tribune and its L.A. Times have been through one round, as has Digital First Media. Everyone involved in this week’s circus can call itself bankruptcy-experienced. Further, we’ve witnessed a remarkable cascade of characters involved in the L.A. tragicomedies. Consider the larger-than-life characters traipsing through the newspaper landscape. One-time Freedom CEO Aaron Kushner reprised a Music Man role in his entertaining flameout. Tribune contributed not only Zell, but then, in rapid fire-order, CEO Jack Griffin, who just found himself executed in the Michael Ferro coup — with Ferro’s swaggering tenure itself promising more larger-than-life drama ahead. And we can’t forget what looked briefly like the dawning of a would-be golden age of newspaper re-engagement, led by L.A. Times publisher Austin Beutner, until he, too, succumbed to internal politics.

Everyone is shell-shocked. Count among them the remaining newspaper staffers, the communities that have seen great whipsawing and greater reduction of coverage, and the individual readers. As in many cities, the civic-minded readers try to hold on, keeping their subscriptions up, much as they decry the constant decline in the kind, excellence and volume of the news they get, in print or on their phones.

Against that understanding, I’m trying to make sense of the DOJ antitrust action. On the one hand, I’m totally sympathetic. Readers have been screwed, and it seems like the feds are trying to stand up for them. On the other, newspaper readers are today likely only to see their news coverage further diminished as likely collateral damage of DOJ’s attempt to represent the citizenry.

From the DOJ suit:

Competition for readers of English-language local daily newspapers in Riverside [and Orange] County would be substantially reduced or eliminated and newspaper readers in Riverside [and Orange] County would be likely to pay higher prices and receive lower levels of quality and service.

Given the nature of antitrust, much of the action is based on pricing. If TPUB proceeded with the acquisition, it would become an essential daily-newspaper monopoly from Ventura County to the Mexican border, a north-south stretch of about 180 miles. The DOJ believes that advertisers — those still finding value and customers in print — would be priced up. Further, subscriptions could be priced up as well, given the narrowing of choice.

I have no doubt that there’s some substance to those concerns, but both seem tangential to the big question sitting smack in the middle of the auction: Is it healthy for a community — or in L.A.’s case, at least four big cities (and dozens of smaller self-identifying communities) — to be served by one news company? Predictably, the DOJ action has elicited howls of anachronism from those well versed in digital media. How silly is it, as newspapers gurgle for dear life, to still consider them “monopolies”? Surely, they say, the days of monopoly are long gone, thanks to the web.

They’re not wrong, of course. The Internet printing press is an amazing thing. But figure that a Tribune/Freedom combination, including daily journalists in San Diego, Orange County, Riverside, and greater L.A., would number something less than 1,000. That’s still a huge number — and one that still sets much of the news agenda of the nation’s second largest region. So, the DOJ may be using an old tool — opposing pricing domination through monopoly — to attempt to address a real contemporary issue.

That wouldn’t be surprising: The law and regulators have never been able to keep up with fast-paced change of digital competition, which has allowed first Google and now Facebook to become incredibly market-dominating forces in our time. But the old rules don’t apply to the new players — which markets are they really in? regulators puzzle — just to the old players.

So how potentially dangerous is it to have one company, like Tribune Publishing (with its own future and leadership values newly unknown) directing close to 1,000 journalists in southern California? Consider that newspaper editors still decide what’s news, what their reporters will cover — and what they don’t. That point was newly driven home to me a couple of weeks ago, as Digital First Media’s Bay Area News Group (which itself dominates Northern California, having consolidated all the region’s major dailies with the exception of the San Francisco Chronicle) announced a “rebranding.” In a story headlined “Bay Area News Group announces newspaper re-branding,” the paper described how it would move to two daily editions, changing some long-time daily nameplates like the Oakland Tribune into weeklies. The “story” was all sweetness and light, focused on, you guessed it, better serving readers.

In fact, readers may see a few improvements, but one big fact was omitted: BANG is cutting as much as 20 percent of its newsroom workforce, first offering buyouts to those over 60 with 20 years of experience. In total, somewhere between 33 and 43 newsroom jobs will be gone. How did the story miss that fact? It instead said:

The initiatives announced Tuesday will include a modest reduction in staffing in certain areas, some of it through buyouts in the newsroom, and expansion in others. Ryan said BANG will continue to be the region’s dominant local news organization when the changes are complete?

BANG papers missed the truth because a reporter didn’t write the story. Instead, the business side of the paper apparently wrote it, but published it in article form. What would have been a basic violation of the daily news trade is now commonplace — and uncontested. As I cover the trade, more and more journalists are fearful of covering their own companies fairly. That’s bad enough, but it portends a much larger issue. One news organization, without much print-based competition, can more easily succumb to all kinds of political and financial pressures, in deciding its coverage, or lack thereof.

Quite ironically, the chief beneficiary of the DOJ’s hard line will probably be Digital First Media, through its local Los Angeles News Group subsidiary.

During the lively discussion I had Thursday morning with astute L.A. and news industry observer Larry Mantle on his KPCC program AirTalk, the long-time host brought up this key question: Won’t the DOJ’s action make it more likely that the newspaper company that has hollowed out many of its local newspaper newsrooms, from Long Beach to Pasadena to San Bernadino, will get the Register and the P-E?

The answer, unmistakably: Yes. Only three newspaper bidders showed up to buy Freedom newspapers. The first, led by Freedom’s management group, owns a less-than-stellar record of newspaper management itself, and besides has now been pushed out of the auction for other reasons. That leaves Tribune Publishing, with the big DOJ target on its back, and Digital First Media, controlled by private equity company Alden Global Capital. While Alden is the only one of the competing bidders with deep pockets, it’s not attempting to buy the papers in order to invest in them. In fact, as we watched Alden’s attempt to sell DFM last year and the cuts that followed, I identified the company strategy of “milking its properties,” a phenomenon now spreading across the country (“Do newspaper companies have a strategy beyond milking papers for profit?”) As with Tribune’s interest, DFM’s Freedom buy is all about regional cost consolidation, and improving profits, even as staff gets cut back further and further. Some have asked, then, who to root for in this fractious auction process. That’s a bit like asking Republican voters which of their 2016 candidates they feel great about.

Even with Tribune’s aims at regional consolidation, the standards of the L.A. Times — over the years, even through cuts — still trump those of DFM’s papers most of the time. But, in applying this fairly blunt antitrust tool, the feds most likely will deliver the readers and advertisers of Orange County and Riverside to DFM. While the Department of Justice may be aiming to represent readers’ interests in southern California, the journalistic result will likely be disappointing. Then again, given the trajectory of change, newspaper ownership change may be the new weather of southern California: If you don’t like it, just wait a year or two for new owners and managers to arrive.

1890 map of Southern California by Rand McNally via Norman B. Leventhal Map Center.

POSTED     March 18, 2016, 11:30 a.m.
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