A paradox at the heart of the newspaper crisis

Phil Luciano, a columnist at The Peoria Journal Star, got a story tip recently about Caterpillar, the heavy equipment company that was based in Peoria, Illinois, for 90 years before a recent relocation to Cook County.

>> Marc TracyThe New York Times
Published : 4 August 2019, 03:08 PM
Updated : 4 August 2019, 04:52 PM

The tip seemed promising enough. But as one of only seven full-time reporters at the paper, he felt stretched too thin to do much about it.

“Who’s our Caterpillar reporter?” Luciano asked. “We don’t have one right now.”

In recent years, The Journal Star has been hit with the kind of cutbacks that have become common for newspapers nationwide as they steer a bumpy course toward a digitally focused future. The newsroom had more than 80 unionised employees in the 1990s, and now has about a dozen.

The Journal Star is still the largest paper in downstate Illinois. But after covering more than 23 counties in its heyday, it now limits itself to three: Peoria, Tazewell and Woodford.

“And Woodford’s pretty small,” Luciano said.

The Peoria daily is representative of the newspaper industry as a whole in two other respects. It is owned by a company controlled by a hedge fund — GateHouse Media, which owns more papers than any other company, according to a University of North Carolina study. And even in its reduced state, the paper is profitable.

“I know The Journal Star’s in the black,” Luciano said. “How much in the black do you have to be? That’s what drives us up a wall.”

Such is the strange state of an industry that has been part of the American fabric since the days of The New-England Courant, a newspaper started by James Franklin, older brother to Benjamin Franklin.

While readers have moved in droves toward consuming the news of the day via screen, be it desktop, laptop or phone, the revenue generated by digital ads has yet to match the money once supplied by print advertising. To stay above water, publishers have cut jobs, which has resulted in understaffed newsrooms, a thinner overall report and reader complaints.

Editor Koren Zaiser accepts a supportive hug from Clarence Meeker as the Pioneer's staff works on its final edition, in Warroad, Minn., May 6, 2019. With the distribution of its final issue, the Warroad Pioneer, which printed about 1,100 copies per week, joined roughly 2,000 newspapers that have closed in the US over the last 15 years. (Tim Gruber/The New York Times)

The numbers convey the news in stark terms: From 2017 to 2018, newspapers in the United States lost $2.4 billion in combined advertising and circulation revenue, according to the Pew Research Center. If you count the yearly revenue the industry has lost in those two categories since the prerecession high of 2005, you come up with nearly $35 billion.

At the same time, some news organisations centred on a daily paper can still turn a profit, with much of their revenue coming from the legacy product that leaves ink smudges on your hands.

The stubborn survival of print newspapers has given some publishers a way to subsidise the transition to a digital-centric revenue model. But print’s persistence often takes the form of what a study published by the UNC researchers called ghost papers — spectral incarnations of once-thick publications able to haul in cash even as they lack the deep reporting that once made them essential to their communities.

These phantoms have hung on because print revenue, while in steep decline, still brought in more than $25 billion last year.

“Most people ask the question, ‘Will there ever be a day without daily newspapers?’ ” said Ken Doctor, a news media analyst. “As if the actual printing of a product is the mark of whether you have a paper or not, as opposed to whether there’s actually anything of quality in it.”

HEDGE FUND JOURNALISM

The job of top editor has lost some of its old lustre in this era of job cuts and hedge fund ownership. A vocation that once had a dash of grit and glamour has become more administrative, with a lot of bean-counting and heartbreak.

Neil Chase, the former executive editor of the Bay Area News Group, said that the news organisation he oversaw regularly received profit targets from its owner, Digital First News — now known as MediaNews Group, a company controlled by the hedge fund Alden Global Capital. To hit those targets, he had to slash costs.

Over the past decade, the finance industry noticed that newspapers were distressed — but potentially valuable — assets that were available at bargain-basement rates, said Penny Abernathy, the UNC journalism professor who wrote last year’s report, “The Expanding News Desert.”

A paper that once fetched a price of 13 times its annual revenue could be had for one-fourth that amount. In the role of publisher, investors discovered that lowering overhead typically reduced costs at a faster rate than it drove down revenues. Many papers shrank. And their profits went up.

Jeremy Praska, lead pressman, checks a copy of the final edition of the Pioneer, Warroad, Minnesota's newspaper for 121 years, at Morgan Printing in Grafton, N.D., May 7, 2019. With the distribution of its final issue, the Warroad Pioneer, which printed about 1,100 copies per week, joined roughly 2,000 newspapers that have closed in the U.S. over the last 15 years. (Tim Gruber/The New York Times)

“Put yourself in the shoes of a hedge fund or private equity firm,” said John Longo, a Rutgers Business School professor. “Newspapers have steady, albeit slightly sinking, cash flow. In that kind of business, you can put some leverage on.”

If you ignore that the industry showing signs of ill health under its new minders has been deemed so essential to the nation that it was enshrined in the First Amendment, then these practices, straight out of the Wall Street playbook, seem unremarkable.

“They used the same notion of how they would manage newspapers as they would widget factories,” Abernathy said.

A REBELLION, AND A WAY AHEAD

Journalists at one newspaper that suffered particularly drastic job cuts — The Denver Post, an MNG publication — made news last year when they rebelled against their bosses by publishing a six-page special opinion section blasting their ownership. In the lead essay, The Post singled out the hedge fund behind MNG, Alden Global Capital.

“If Alden isn’t willing to do good journalism here,” it said, “it should sell The Post to owners who will.”

There may still be a way forward for metropolitan dailies interested in providing communities with deep coverage while also making money, one that means investing print revenues in digital growth while acknowledging that the days of 20% profit margins are long gone.

The Seattle Times, for one, has recently increased digital readership and print revenues, according to its president, Alan Fisco, thanks to the stewardship of the Blethen family, which has owned the paper since the 19th century. Referring to the paper’s publisher, Frank A Blethen, Fisco said, “The old expression Frank has used is, ‘We don’t publish newspapers to make money. We make money to publish newspapers.’ ”

A similar setup — call it the benevolent patron model — has helped turn around the fortunes of The Washington Post, owned by Jeff Bezos, the founder of Amazon, since 2013, as well as The Los Angeles Times and The San Diego Tribune, which were bought last year by biotech billionaire Patrick Soon-Shiong from Tribune Publishing as part of a $500 million deal.

Doctor, the analyst, pointed to Hearst Corp., whose papers include The Houston Chronicle and The San Francisco Chronicle, as a solid owner, because it is private and holds other assets with excellent profit margins.

From left: Publisher Rebecca Colden, Graphic Designer Jeneé Provance, Editor Koren Zaiser and her husband Rick work on edits of the Pioneer's final edition, in Warroad, Minn., May 6, 2019. With the distribution of its final issue, the Warroad Pioneer, which printed about 1,100 copies per week, joined roughly 2,000 newspapers that have closed in the US over the last 15 years. (Tim Gruber/The New York Times)

Jeffrey M Johnson, the Hearst Newspapers president, said his group had increased profitability in seven of the previous eight years while maintaining aggregate newsroom head count.

Hearst papers and The Seattle Times share a common strategy of raising prices on print subscriptions in order to subsidise investments in digital.

Does this strategy have a sell-by date? The outlook for print, after all, is poor. As recently as 1998, the Sunday print circulation of newspapers in the United States totalled more than 60 million. Last year, Pew estimated, that figure was 30.8 million.

Only a few newspapers have arrived at the safe harbour of bringing in more absolute revenue from digital than print. The Boston Globe recently reached this milestone and now has more digital-only than weekday print subscribers. Vinay Mehra, The Globe’s president, said digital revenue alone could support the company’s payroll.

The Globe, however, serves a densely populated area with a high number of affluent residents willing to shell out $25 a month for online access. A paper like The Vindicator, a 150-year-old daily in Youngstown, Ohio, is less of an outlier. It recently announced that it would cease publication Aug 31.

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