Today the Wall Street Journal reported that the Gannett Corporation, which owns the Statesman Journal, is ripe for a takeover.
Since the company that would make a bid for Gannett is notorious for cutting costs at newspapers it owns, I'm sure employees of the Statesman Journal aren't thrilled with this news.
Here's some excerpts from "Hedge-Fund-Backed Media Group Prepares Bid for Gannett." (If you can't access the story via that link, download this PDF file.)
Download Hedge-Fund-Backed Media Group Prepares Bid for Gannett - WSJ
MNG Enterprises Inc., one of the largest newspaper chains in the country, has quietly built a 7.5% position in Gannett’s stock and plans to publicly urge the McLean, Va., publisher to put itself up for sale, the people said.
MNG, better known as Digital First Media, will also offer to buy Gannett for $12 a share, they said, which would represent a 23% premium over Friday’s closing price of $9.75. The shares, which fell steeply last year, have been rising lately.
Closely held Digital First is known for its contentious history with the newspaper industry in part because of its penchant for slashing costs. It has over the past few years made multiple approaches to Gannett about a deal but has been rebuffed, the people said. At least one approach was made in the past month or so. It isn’t clear whether Gannett will be receptive now.
...Digital First Media’s largest shareholder is Alden Global Capital LLC, a New York hedge fund that focuses on investing in distressed companies. It became an investor in the debt of an MNG entity in 2010 after that company’s own bankruptcy and became the biggest shareholder several years ago.
Alden, founded by Randall Smith and Heath Freeman, has more than $1 billion under management. The sometimes-activist investor is known for slashing costs at its media investments through layoffs and the use of zero- based budgeting, an approach that requires operators to justify their expenses each year.
Now it may be that nothing comes of this takeover attempt. And I make no claim to knowing how hedge funds, nor the entities they invest in, operate.
That said, here's some thoughts about this possible takeover based on some of my previous blog posts about Gannett and the Statesman Journal.
It's been curious to me that in a time of decreasing newspaper popularity and declining advertising revenues, Gannett has chosen to increase the monthly Monday-Sunday home delivery subscription rate from $46 to $68 over the past 18 months or so.
That's a 48% increase in roughly a year and a half during a time when overall inflation has been running about 2% a year, so around 3% every 18 months. Thus Gannett has been asking Statesman Journal subscribers to pay 16 times more than the general inflation rate to continue getting the newspaper delivered every day.
In May 2018 I wrote a blog post called "The Statesman Journal seems to be on the track of 'How a newspaper dies.'" It starts out this way:
As previously reported, I've heard from a seemingly reliable source that the Statesman Journal, Salem's daily newspaper that's owned by Gannett, will cease being a print publication in 2019.
This would mark another milestone in the paper's steady journalistic decline, both in quantity (number of reporters and original stories) and quality (investigative reporting is minimal, especially on the local level).
Today I read a Politico Magazine piece, "This is How a Newspaper Dies," that provided some fresh insights into what is happening with the Statesman Journal. The subtitle of Jack Shafer's highly interesting story is It's with a spasm of profits.
Now, I don't know how profitable the Statesman Journal is. But what's been happening with the paper is very much in line with Shafer's analysis of the Denver Post and other newspapers owned by a so-called "vulture capitalist," Randall Smith.
As noted in the excerpt in today's Wall Street Journal story, Smith is a founder of the hedge fund that is involved in the potential Gannett takeover attempt.
I shared the core notion from the Politico piece in this excerpt:
The business-school label for tactics like Alden’s, in which you get fewer customers to pay more for less, as Philip Meyer wrote in his book The Vanishing Newspaper, is “harvesting market position.” By raising prices and lowering quality, a stagnant business can rely on its most loyal customers to continue to buy the product, allowing it to squeeze and squeeze and squeeze its customers as they croak.
That sounds bad. But I argued in the May 2018 post that it's what Gannett already has been doing with the Statesman Journal, and I assume other newspapers owned by Gannett.
So let's see how many of these criteria for "harvesting market position" by getting fewer customers to pay more for less the Statesman Journal checks off.
Raising subscription prices. Check. The Statesman Journal's Sunday-Monday home delivery rate has increased about 50% in a bit over a year. Annoyingly, new subscribers pay about 1/5 of what loyal long-time subscribers are being charged.
Lowering quality. Check. See "Devastating critique of Salem Statesman Journal by experienced journalist" and "Maybe its time for the Statesman Journal to die."
Declining circulation. Check. See "Salem Statesman Journal daily circulation in steep decline." There was a 41% drop in circulation from 2008 to 2014.
Staff layoffs. Check. See "Layoffs at Statesman Journal tied to worrisome Gannett 'newsroom of the future'."
There's probably no way to reverse the impending demise of newspapers such as the Statesman Journal. Young people aren't interested in paying to read yesterday's news, especially when it is printed on paper. And old people like me who are hooked on a daily newspaper are, sad but true, dying off.
Shafer tells it like it is.
Allow yourself to sympathize with Smith for a moment. He’s deeply invested in a stagnant industry whose primary audience is approaching its own expiration date. Think of the Denver Post and most other newspapers as your grandfather who is on dialysis, has a pacemaker and totes an oxygen tank behind him. He looks alive, but he’s overdue. Your grandfather is a pretty good stand-in for the average newspaper subscriber, too. Habituated to his morning newspaper, he’ll resist cancelling his subscription no matter how raggedy the paper gets or how high the owners jack up the price.
So if harvesting market position has been the previous Gannett business model, seemingly this would make Gannett open to being bought out by investors who have a history of doing the same thing,
Time will tell if this actually happens. If it does, likely this will bring the Statesman Journal closer to journalistic demise.