Industry Insight: Local Newspapers Could Be Crushed Under the Debt of Mega-Mergers

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Two things are more true than ever about the state of daily newspapers: the need for innovation and investment in new business models, and the stranglehold that ownership structure and financial pressures have on most papers’ ability to do either.

To rethink the business, it’s been said that newspapers need a startup mentality. That would be great if, just like a startup, they could lose money for the first two or three years of building something new.

But there are few examples of newspaper owners willing to sacrifice short-term profit for this kind of transformation.

And as the industry consolidates into the hands of a few over-leveraged companies answering to impatient investors, most daily newspapers are structurally incapable of it.

The merger of the country’s two largest daily newspaper chains, Gannett and GateHouse Media, that was announced in August was financed with a $1.792 billion loan to be paid back with 11.5 percent interest. That’s a rate you wouldn’t want attached to a car loan. How will it work out in a newspaper industry seeing double-digit reductions in advertising revenue?

The new CEO of Barnes & Noble bookstores—another legacy business that has struggled in the wake of digital disruption and the pitfalls of chain ownership—thinks the answer is local entrepreneurship.

He wants to run the company like a network of independent bookstores.

“You should do what you want; there are no restrictions on what books you stock, how you display them, what you promote. Each bookshop is quite individual,” James Daunt told the Wall Street Journal.

For daily newspapers, the equivalent might be building an “everything about something” news and information resource around the unique interests of a particular community or segment of the audience—the cannabis industry in northern California, veterans issues outside a major Army base, tourism, recreation, history, etc.

A membership model of reader revenue might work in one market, while in-person events or local merchandise are the answer somewhere else.

But an independent bookstore approach might be impossible at the 265 daily newspapers owned by the Gannett and GateHouse mashup.

Paying off that debt will require stringent adherence to profit goals. They’ll have to cut, and keep cutting, to get there. No breathing room to experiment, no capacity to invest in new things, no resources to do anything but maintain the basic things that keep what’s left of the revenue coming through the door.

And there’s an even more basic problem. There are no local publishers at many of these dailies to make decisions that might serve individual communities best. Those positions were regionalized, then regionalized further, under previous rounds of cuts that were needed to pay off previous rounds of debts and fulfill past investor profit expectations.

There are notable exceptions in the newspaper industry—family-owned companies with roots and futures in the journalism business who take a longer-term view and make room for innovation. But other chains answering to stockholders or hedge funds—Tribune, McClatchy, Lee, Digital First Media—are facing a varying degree of Gannett-GateHouse’s massive debt problem, likely to be exacerbated by further industry consolidation.

Meanwhile, the fastest-growing segment of the news industry looks a lot more like the new Barnes & Noble CEO’s independent bookstore vision.

Local independent online news organizations—with a mix of both for-profit and nonprofit business models—are springing up across the country.

VT Digger, a nonprofit online news site that started out covering statehouse news, is now Vermont’s largest news organization. Unlike Gannett’s nearby Burlington Free Press, whose staff has been cut in half since 2013, business decisions are made in Vermont, and profits are reinvested in the newsroom instead of going to pay off corporate debt and dividends.

Unless we see the unlikely entry of investors with a longer-term view, it’s difficult to see a huge percentage of local newspapers surviving the billions of dollars in new debt these mega-mergers are saddling them with. There’s reason to hope they’ll be replaced by new, upstart sources of local journalism, but every community and journalist in the path of this looming problem have a stake in hoping the companies involved find an alternative approach.

Matt DeRienzo is vice president of news and digital content for Hearst’s newspapers and websites in Connecticut. He has worked in journalism as a reporter, editor, publisher, corporate director of news for 25 years, including serving as the first full-time executive director of LION Publishers, a national nonprofit that supports the publishers of local independent online news organizations. An edited version of this column appeared in the October 2019 issue.

4 thoughts on “Industry Insight: Local Newspapers Could Be Crushed Under the Debt of Mega-Mergers

  • October 24, 2019 at 5:52 am
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    I thought your column was very perceptive. You might be interested in what we are doing in Little Rock. We are in incurring losses in 2018 and 2019 in order to try to regain profitability in 2020. We are doing this by giving all of our subscribers iPads and training subscribers, one on one, on how to read a digital replica. Thanks, Walter Hussman, Publisher, Arkansas Democrat Gazette

    Reply
    • October 24, 2019 at 8:12 am
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      I’ve been following what you are doing with great interest! I’m betting there will be a number of lessons for the industry at-large.

      Reply
  • October 24, 2019 at 10:08 am
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    A grim overview on what the newspaper industry is facing in the next few years. But let’s make sure we lay the blame at the right source, namely, the companies and ad agencies who have relentlessly pulled their ad money from newspapers and poured it by the billions into the big platforms. The same is true for once-loyal “subscribers” who now imagine that they’re getting all the news they need from the Google and Facebook “news feeds”. If there is a way forward, you may be quite correct that the only hope is in local online news sites. But they also need local financial support. So how do we go about changing the minds of the folks who apparently don’t think local journalism matters? That’s probably the $64,000 question, one that no one has been able to answer.

    Reply
  • October 24, 2019 at 12:02 pm
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    Newspapers must provide local news that people can’t get anywhere else. Then they must market like crazy the fact that they are providing local news people can’t get anywhere else.

    TV networks market their shows to the extreme. Newspapers folks act surprised when they lose subsribers after spending almost nothing on marketing.

    Newspapers other need is to increase advertising revenue from the web and app editions. See above.

    Reply

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