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May 24, 2019, 2:55 p.m.

Newsonomics: GateHouse’s new round of layoffs fits the sad logic of the coming consolidation

Laying off about 200, hiring about 30: In the short term, cost-cutting and mergers are just about the only plays in the playbook.

Today’s editorial managers find themselves in the lemonade business. Their assembly line of lemons keeps gaining speed, and they have to constantly find new recipes to make lemonade out of thinner and thinner ingredients.

On Thursday, GateHouse — a.k.a. New Media Investments, or NEWM — unleashed a new set of layoffs in its newsrooms. While the company won’t offer a specific number, expect about 200 GateHouse newsroom employees out once all the termination dust settles; that’s among its 158 daily (and more than 300 weekly) publications coast to coast. This restructuring, one of the largest in recent GateHouse history, sees layoffs beginning now and continuing over the next couple of months, as the News Guild finalizes negotiations on layoff terms in the roughly 20 newsrooms it represents.

Layoffs, of course, are no stranger to the newspaper industry. After reaching an apex of 56,900 newsroom positions in 1990, numbers have dwindled, most emphatically after the Great Recession of a decade ago. How many jobs are left? No one knows; there’s no real census anymore, but we can figure something north of 20,000 — in a nation with 70 million more people and many more problems than in 1990. With this layoff, GateHouse joins Gannett, Tribune, McClatchy, MNG Enterprises (the former Digital First Media), and almost everyone else in the industry in cutting staff. Some do dramatically — as Alden’s MNG did in spring 2018 to great but short-lasting national alarm. Others do it incrementally. Rarely do companies announce the numbers or talk much about the reasons or strategies involved in the restructuring.

In this case, we can gain a little insight into these cuts — and the lemonade making in progress with the expanding GateHouse chain.

Certainly, these changes are first and foremost about expense reduction. And in that expense reduction, a major push to eliminate jobs it sees as “non-content producers.” I asked Bill Church, the company’s senior vice president of news, what kinds of job titles those were on Thursday: “Mid-level editors, assistant city editors, librarians, copy editors, designers, cartoonists.” (A crowdsourced spreadsheet documenting the layoffs mostly aligns with that list.)

“We try to focus as much as we can on content creators — reporters, photographers and obviously, trying to hold onto really strong digital talent, which we’ve been able to do fairly routinely in the last couple years so,” he said.

GateHouse, already at the industry’s vanguard moving editorial design and production from a local to a regional responsibility, will do more regionalization. And it will do some hiring along with the cuts: 30 or so journalists brought in to work in investigative/data teams, deployed regionally.

“We’re really excited about that,” Church said. “We’ve got a little bit of history in Florida, and so we’ve expanded both our national data teams, which is based in Sarasota, but also launching a true Florida investigation team. And we’re very quickly going to announce a team based in Austin — that’s going to be a regional team based out of the Statesman to really look at issues across Texas and the West.”

Do the math: 200 jobs gone and, according to GateHouse, about 30 new ones created. On net, GateHouse will pick up some salary savings, do some restructuring of its business, and intend to do more investigative/enterprise work. As has been typical in the industry, there will be fewer layers in the editorial process and more focus on reporting.

“We’ve spent the last couple years really looking at what’s been happening in the industry,” says Church. “Reading everything we can. Any time that we come across a data point, we analyze it and see, you know, where does GateHouse fit? And then also really understanding, you know, what are the changes that are taking place in the industry.”

Out of that work has come has come what it calls the Accelerator Team Model. GateHouse launched it in a message to company leaders on May 15, and I obtained a copy of the strategy.

The ATM model boasts familiar language to anyone who’s followed newsroom change in the industry’s hand-to-mouth era: “Defining audiences. Deciding priorities. Design teams. Deploying plans. Measuring success? Focusing editors on results? Learning from each other.”

GateHouse drew lessons from Table Stakes, the Knight Foundation-funded newsroom digital modernization programs now in implementation.

“We started looking at Table Stakes and how we could scale it up, really looking at audience behaviors and then understanding that there needed to be a change in how newsrooms lead and also how we’re structured,” Church said. The program was tested at North Carolina properties last fall and then expanded to a larger group in February. “We added Columbus, New England, Austin, Sarasota, the state of Kansas, Amarillo and Lubbock — so, you know, we had a good mix of both smaller newsrooms and larger newsrooms. The Accelerator Team Model, in many ways, provides a lot more support for our smaller newsrooms but also really leverages the larger newsrooms that GateHouse has acquired in recent years.” (Those bigger papers include the dailies in Austin, Columbus, Providence, and Palm Beach.)

Table Stakes is a smart program, and the newsroom manager graduates of it are clearly better equipped with digital smarts. But most of their newsrooms are still losing resources month by month. The solid effort — further funded in a recent round of Knight funding — is up against the harsh reality of unending business decline among all dailies.

Church, well respected in the trade, is a realist. “I think anytime that any company has had reductions in the past, you just sort of retool. And we just felt we needed truly a redesign of how our newsrooms operate — so that we can adapt whether you lose one person or several. And you know, part of this is focus as much as you can on the local side, and anything non-local is really up for grabs in terms of consolidation and sharing.”

Of course, that’s not far off from the strategies employed by most of GateHouse’s chain peers — it’s just another flavor.

What do these layoffs mean on the ground, in many of the medium and small papers’ communities? The pain gets both felt and reported on unevenly. Just last week, Angie Muhs, the editor of the GateHouse-owned State Journal-Register in Springfield, Illinois resigned, and that got some attention.

GateHouse does try — unlike Alden, for instance — to make small investments in some sort of a future. Its digital marketing and events business investments are examples.

That’s where these new investigative/data team allocations come from. NEWM CEO Mike Reed, who laid out his ambitious strategy to get to revenue neutral year-over-year at the Lab last year, acknowledges the direct connection between the actual editorial product that readers get and the possible survival of the business: “What can we do? We can preserve cash flow for the long-term…We need to do good journalism on less money. We need to produce content that the local market wants.”

Reed is fighting investor fatigue; the marketplace hasn’t much liked the strategy. In the first quarter, same-store revenues dropped 7.4 percent. NEWM share prices have dropped 45 percent over the past year, as value investors and others grew wary of even a go-go consolidation story in the newspaper industry. (The company even faced a rare direct shareholder rebuke yesterday, when at its annual meeting, it asked for routine “advisory” approval of the $1.7 million compensation package of Kirk Davis, CEO of GateHouse and COO of NEWM. Shareholders instead rejected it by a 3-to-1 ratio.)

To keep the stock from falling farther, Reed, like other CEOs, figures they need to maintain earnings. Given double-digit ad declines as far as the eye can see, doing so without deep expense cuts is impossible.

Cut the EBITDA, it’s easy for those outside the industry to suggest. Take some of the money you’re making as profit and use it to maintain current staffing. It’s an easy formulation, but it flies in the face of reality.

First, while moving from for-profit to nonprofit (as Paul Huntsman is now trying to do with The Salt Lake Tribune) could temporarily slow newsroom loss, even that kind of move only delays the losses to come without a real digital transformation.

Second, new entities would still need to operate these nonprofits. A GateHouse, Gannett, or Tribune can’t legally turn themselves into nonprofits; the law provides understandable protection to shareholders. Amid the deepening news decline, who has come forward with the money and the gumption to do it? Neither Penny Abernathy’s dramatic “News Desert” reporting, the Alden cutthroat action in Denver, nor The Wall Street Journal’s recent depressing graphics-laden take (spoiler alert: all trendlines point southeast) seem to make any difference.

That’s why the logic of consolidation is so inevitable. It’s why Alden pushed hard on Gannett, why Gannett and Tribune may finally mate, and why even a Gannett/GateHouse combination — the possibility of which I’ve noted recently — seems plausible. Consolidation means whacking one company’s big headquarters cost, and that savings buys the surviving CEO time to strategize forward. With a big rollup, we might, at least in the short term, see fewer newsroom layoffs. But that all depends on who the roller-upper is — and how much further ad receipts dive and how much more digital subscriptions grow.

At the same time, it’s essential to realize that even in the rollup business, logic doesn’t necessarily prevail. “It’s already late May,” one newspaper chain CEO recently told me. “It makes sense, but nothing may happen until 2020.”

So what do we make of GateHouse’s odd admixture of major layoff and investigative reporting staffing up?

It’s fine to put your best face forward, to paint the lemonade-stand in bright colors, and that’s what GateHouse is doing here. They’re promising some good lemonade. (It’s also a better face than the one it put forward yesterday, when Reed told reporters variously that the layoffs were “not material,” would actually involve the loss of only “more like 10” jobs, and “I’m sure will be misreported.” A make-up memo from Davis to staff this morning acknowledged “we made sizeable reductions to staff yesterday. This included many newsroom staff.”)

But no matter how nice the paint job may be, we can’t help but look behind the stand and see what too often looks like a newspaper version of a Potemkin village.

Photo of lemons by ray_explores used under a Creative Commons license.

POSTED     May 24, 2019, 2:55 p.m.
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