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July 9, 2015, 11:15 a.m.
Business Models

Newsonomics: Do newspaper companies have a strategy beyond milking papers for profit?

At Digital First Media, America’s second-largest newspaper chain, it’s hard to discern a larger plan — beyond painful cutbacks to boost profits.

Two months ago, Digital First Media’s deal to sell itself to Apollo Global Management collapsed (“Apollo withdraws from DFM deal, Paton leaves”), and its founding CEO (and would-be industry leader) John Paton said he would leave the company. Now, as of July 1, he’s gone. New CEO Steve Rossi, who moved up from the No. 2 position, has taken complete control, and we can begin to see the outlines of what the post-Paton DFM will look like. Alden Global Capital, DFM’s main owner, has also assumed more authority, selling off 10 DFM properties to Gannett. (Gannett and partner Stephens Media relinquished their 15 percent or so of the company in exchange.)

The post-failed-sale DFM has intensified its focus on profit growth, which means still more rounds of job cutting across the company. That company — “the second largest newspaper group in the United States” by circulation — now runs 65 dailies and many weeklies. As such, its current strategy deserves scrutiny, both for the industry and for its readers and employees. It’s not easy to get a clear view: Company leaders declined to comment, and word has gone out throughout the company that staffers shouldn’t talk to the press — or even, if it can be avoided, report on their own job cuts.

Here we have a cautionary tale: What happens when newspaper owners try to get out of the business, but can’t find a suitable buyer? Digital First is unlikely to be the last company in that situation. In talks with numerous people in and around Digital First Media, this is the story I’ve found, still unfolding:

  • While its chosen name is “Digital First” — formally attached to it when its two parts MediaNews and Journal Register combined into one company at the end of 2013 — the company has cut much of its technology staffing and development vital to being “digital first.”
  • After the failed sale, Alden Global Capital president Heath Freeman has upped the pressure for greater profits and payouts to Alden. Given continuing declines in print revenues — around 7 to 8 percent a year — that’s meant new rounds of staff cuts across the company. The latest round looks to have included as many as 150 full-time positions, many of them editorial. That might save the company $9 to 10 million a year, after severance costs. In its pitch to would-be buyers, DFM’s profit margin ran at 10 to 12 percent. That target number has since increased, with speculation within the company that it may be as high as 20 percent. That high a target, though, seems unlikely, requiring as much as another $100 million in cuts.
  • AdTaxi, one of DFM’s more successful digital-first products, is moving to the center of its overall digital ad sales efforts across the country, a number of sources say. Its success in offering digital marketing solutions, across the country and overseas, offers some hope for making up part of the company’s deep print ad losses.
  • The big riddle about the current cost-cutting: the lack of a longer-term strategy for success and stability. Even CEO Rossi’s most trusted execs ask him what the 2018-2020 plan will be, given the shorter-term focus on maximizing profits. Is there anything more to the strategy than milking the company as much as possible?

To be fair, these questions of strategy and end games (“Newsonomics: On end games and end times”) are nearly universal in the struggling newspaper trade, worldwide. Public companies — ranging from McClatchy, with its recent high-profile redesign, to Gannett, with post-spinoff changes — represent one way to address these existential questions. Meanwhile, the new set of private companies, in Boston, Washington, and Minneapolis, lay out longer-term plans based on targeted reinvestment. The question for DFM: Is there a plan to make the company’s news delivery, in digital and/or in print, stable and sustainable by 2018? Rossi declined to comment on the company’s strategy or recent cuts, as did Alden’s Heath Freeman.

By all accounts, Alden is calling the shots, and like any owner, that is its right. But the damage being done to civic readers’ understanding of their own communities is incalculable. Great stories — like the Torrance Daily Breeze’s 2014 Pulitzer-winning series on school district corruption, or The Denver Post’s 2013 Pulitzer for the Aurora theatre shooting coverage — stand out among DFM newspapers’ achievements, though they’re just the tip of an iceberg. Despite regularly seeing colleagues lose their jobs and wondering about their own futures, hundreds of journalists do their jobs. They and their readers — many of us in the dozens of communities less well served by DFM that we were five years ago — bear the brunt of the company’s many twists and turns.

Say what you will about John Paton’s five-year DFM leadership — and the guy has many industry detractors — he had a plan. In plotting out a print-to-digital transformation, three-year plans helped define both the strategies and the budgets they needed, as the old MediaNews Company was merged with old Journal Register Company, both out of bankruptcies. Today, DFM execs and those at the company’s properties point to the absence of a roadmap — or at least a known roadmap — to get from today to a better tomorrow.

In fact, much of the Paton plan has been thrown in reverse. Central to any digital transformation is a centralization of technology, as newspaper companies’ many startup competitors, from Google to Vox Media, have proven over 20 years. DFM had established three centers, two of them tech- and content-based, and now all three are either greatly reduced or gone. Project Thunderdome, the Jim-Brady-led effort to create much national digital news and topical content out of New York City was the first to go, and acrimoniously (“The newsonomics of Digital First Media’s Thunderdome implosion (and coming sale)”). Then, the Denver-based digital product/tech center MNGi (or MediaNews Group interactive) saw its 120-person staff cut about in half last year, and has seen further losses since then. More recently, DFM’s Fairless Hills offices outside Philadelphia, which supplied centralized business services to many of the former JRC dailies, has been all but dismantled, with most of its 40-person staff gone, some back to local properties and others RIF’d.

Budget-cutting drove that massive decentralization as DFM prepared itself to be sold. Would-be buyers would not appreciate a lot of “corporate cost,” it was said, and, the company’s EBITDA had to be bolstered. In the wake of the unsuccessful sale, decentralization has meant that the bigger properties, like the San Jose Mercury News and Denver Post, once again drive more of their own individual digital strategies, while many of the company’s dozens of smaller dailies find themselves running on automatic. They had cut digital staff they had to contribute to the centralization — but those jobs largely never came back with decentralization. What’s that mean to the readers? In some cases, news just doesn’t make it onto smartphone news products, leaving “Local News” pages blank.

While the centralization’s effectiveness was hotly (and fairly) debated, what’s now resulted is described by most as more of a patchwork than a plan. This next prism change is cultural, geographic, and, of course, driven by internal politics. There’s the quick baton pass from the charismatic John Paton to Steve Rossi, the financial guy. There’s the movement from east to west, as Paton’s northeast headquarters has been dismantled, with administration more centered in Denver and the Bay Area. Then there’s that decentralization, which favors the bigger papers — which strained under the attempted nationalization of work — over the smaller ones. All of this could well presage a move to sell off the smaller dailies — largely former JRC, largely east of the Mississippi. I believe we’re likely to see at least some, if not a lot, move to other owners within a year.

The company will also see other further consolidation efforts. In the Bay Area, where its Bay Area News Group still operates 10 daily titles, 4 websites and 20-plus weeklies, it’s clear that the DFM plan is to streamline to two major dailies and one Bay Area website, according to a recent Mercury News memo.

The cuts

There’s Alden’s Heath Freeman — and then there’s The Daily Freeman.

While the New York City-based Alden aims to take out more profit, The Daily Freeman — found 104 miles due north in upstate New York — just lost five newsroom positions, reducing the staff to 12, a 30 percent cut.

Head another 100 miles or so up I-87 to DFM’s Troy Record and The Saratogian: Six editors and reporters, with a combined 150 years of experience at those papers, just took “voluntary buyouts,” as the paper had to make a budget cut in the neighborhood of $300,000. Those leaving included both an executive editor and editor. Then, as I was writing this column, it was announced that its longtime Troy/Saratoga publisher Mike O’Sullivan, had taken a “voluntary buyout” and was immediately replaced by a single publisher who will oversee four DFM dailies in the area. (Barbara Lombardo, the papers’ long-time executive editor, who leaves the paper on July 23, wrote the article on O’Sullivan’s departure.)

That means that these papers have lost the following positions within the last month or so:

  • publisher
  • executive editor
  • editor
  • sports editor
  • chief photographer
  • copy editor
  • sports reporter
  • digital editor
  • city editor
  • assistant sports editor
  • photographer

Drive 100 miles west to Oneida, and the Daily Dispatch lost a couple of journalists. In Brattleboro, Vermont, one editor has left, leaving a question as to whether she’ll be replaced, with two other layoffs taking place. In Connecticut, at least several newsroom cuts have been reported.

In suburban Philadelphia, the News Guild reports 12 jobs cut via buyout.

Then, in Michigan, Washtenaw Now (yes, it does sound like a National Lampoon title) just closed. The weekly came into being just a year ago, as DFM merged six weeklies and cut staff. It’s always hard to know what may have happened from afar, but it’s significant that most weekly papers across the country are faring better financially than dailies. They’re closer to community and to advertisers, though forced corporate meshing of them may have taken the life out of this one. Responding to a publisher’s Facebook farewell on the Washtenaw closure, one reader replied: “Why would she say Milan Township and Manchester Township, and not just Milan and Manchester? To me, it’s an indication she doesn’t even know the geography of the communities once served by local journalism.”

In Saint Paul, the Pioneer Press just took buyouts from nine long-time staffers, whose combined work experience at the paper totaled 280 years.

Lastly, there’s The Denver Post, a big DFM daily working on a more slender margin. Twenty newsroom jobs have been cut, plus 10 more in other departments, as part of a budget reduction of as much as $1.5 million.

All totaled, as many as 150 jobs may have been cut within the last month or so, dozens in newsrooms, in addition to cuts in advertising, circulation, and other departments. While the words “voluntary buyout” are emphasized in such stories, I’m told not all were strictly “voluntary.”

Word of the latest buyouts and layoffs is rolling around the country, among employees and the quickly growing roster of alumni. As one veteran of DFM’s Thunderdome project put it, “It’s staggering to imagine layoffs in some of those places. We’re talking newsrooms that were deserted when I was there a year or two ago, whole sections of them shut down, with empty desks. I can’t imagine what it must be like now.”

It’s not just the job cutting that gives pause, of course. U.S. newsrooms have shed more than 20,000 in the last 10 years, and DFM properties have cut their fair share of those. At least some of those job cuts, though, fit into a wider plan, cutting “legacy” positions but adding back retooled digital ones. That may be personally tragic, but it’s at least understandable.

In taking a more active ownership role, Alden’s Heath Freeman has been asking a key question: “What do all those people do?” So DFM editors now draw up reports justifying what newsroom staffing remains. What journalists do, and how do they do it, remain fundamental questions of 2015. Both Mercury News editor Dave Butler and Denver Post editor Greg Moore have recently written memos (Butler’s, Moore’s) to staff which ask a lot of good questions about today’s craft of local journalism — though they’re mostly print-oriented and ask numerous questions other news organizations have tackled for years.

One editor told me that a young, talented reporter had recently left a DFM paper after reading one of those memos, believing her company was out of touch. The issue of morale grows daily within the company. Glassdoor, the workplace review site, skews negative for many companies. But the thread running through the DFM reviews provides more detail on a lot of what I heard: a workplace in constant flux, with uncertain goals and uneven management.

Let’s be clear: DFM and nearly all — perhaps all — of its papers are profitable. As the company was offered on the market, profits ran to about $125 million a year overall. In fact, profit margins at some of the smaller papers — even as they cut further — reach into the low 30s.

That forces a fundamental question: What’s the purpose of these papers? Is it to serve communities and make money for their owners — or, increasingly, only the latter?

Beyond that public service question — one deeply embedded in the business of American journalism — is the business value destruction being done. The level of cutting we’re witnessing makes these businesses less vital to their readers’, communities’, and advertisers’ lives. That’s an issue that stretches beyond DFM to the wider industry, as executives peer beyond the budget tangle of 2016 into the broad digital future.

Photo of a dairy barn in Fair Oaks, Indiana, by AP/Michael Conroy.

POSTED     July 9, 2015, 11:15 a.m.
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