At the start of 2018, Denver Post journalists felt optimistic for the first time in years. They were about to move headquarters from downtown, where they had conducted their business for a century, to the site of their former printing plant, a 20-minute slog outside the city.
But the explicit downgrade came with an implicit hope: this was rock bottom. After several years of crushing lay-offs, cost-slashing and penny-pinching by the newspaper’s owner, it wasn’t possible to sink any lower.
However, Alden Global Capital, the New York hedge fund that owns Denver’s paper of record, had other plans. A few months after the move, Digital First Media, controlled by Alden, announced it was laying off a third of the newsroom — leaving fewer than 70 reporters to cover a population of 3m people. According to the Alliance for Audited Media, the circulation of the Denver Post has more than halved from 413,676 in 2013 to about 170,000 today.
DFM employees across the country — from San Francisco to New York — protested against their owners. “We wanted to let [the public] know. People were still blaming [the paper’s demise] on Craigslist, and the internet,” says Chuck Plunkett, former editorial director at the Denver Post who resigned last year after criticising the hedge fund in the newspaper. “But . . . Alden is what was killing us”.
More than 1,800 US newspapers, including century-old titles that made it through the Great Depression, have closed over the past 15 years, while many of those still printed are shells of their former selves, thin papers filled with wire copy and adverts — which observers have labelled “ghost newspapers”.
The Denver Post now qualifies for ghost paper status, says Penny Abernathy, chair of the University of North Carolina’s school of journalism. She estimates that between 1,000 and 1,500 of the remaining US newspapers meet that definition — many of them owned by private equity and hedge fund investors.
While Amazon founder Jeff Bezos and other billionaires have bought newspapers under grandiose notions of supporting democracy, Alden’s strategy has been simple and blatant: once it takes over a company it strips out assets and in the process extracts as much value as possible. It also charges its portfolio companies, such as DFM, fees for managing the business.
“It’s just a winding down of the business and taking profits along the way. If they end up shutting down or running them as zombie papers, they will,” says Matt DeRienzo, former editor of the New Haven Register, a daily newspaper in Connecticut sold by DFM to Hearst Corporation in October. “It’s their actual modus operandi, which is the alarming thing.”
Hiwot Nega, founder of the tech platform Clewed, and an expert on private equity investment, says such buyouts are done in a way that might extract great value for investors, but often conflict with the long-term sustainability of a business.
Alden, dubbed a “vulture” investor by critics, refuses to speak to the media or grant interviews, including to the Financial Times for this article. Yet it may soon own the majority of America’s local daily newspapers after it targeted USA Today owner Gannett, one of the largest regional newspaper companies in the US and second worldwide to News Corp. Media News Group, also owned by Alden, in January bid $1.4bn for Gannett, an offer that was swiftly rejected, with Gannett arguing that MNG is not a credible buyer. But the battle is far from over. Although Gannett has been in cost-cutting mode for decades, Alden sees more fat to trim.
The rejection has emboldened MNG, the largest shareholder in Gannett, which in a statement in January said it was planning to overthrow the newspaper group’s entire board and nominate new members “who agree that Gannett shareholders should decide for themselves”.
Local news advocates are horrified at the prospect of a Gannett-Alden deal. In the past decade and a half, the US has lost more newspaper jobs than coal mining ones. According to the US Bureau of Labor Statistics, the newspaper industry employed 174,000 people in 2016, down from 412,000 in 2001.
In recent years, the New York Times, like the Financial Times and other global titles, has convinced people to pay for its digital version, enjoying a rise in subscriptions since the election of President Donald Trump, who has criticised parts of the media as the “enemy of the people”. At the same time, billionaires with a predilection for journalism and philanthropy have bailed out not just the Washington Post, but also, the LA Times.
Neither of these business models have extended to local titles, which have historically been the main source of information for rural, lower-income communities across the US. Dean Baquet, executive editor of the New York Times, has called the hollowing out of local news “the biggest crisis in American journalism”.
With online news sites often unable to fill the gap, the decline of local news providers has consequences beyond journalists losing their jobs. Studies have found that people without access to news are less likely to vote, and the loss of newspapers overwhelmingly hits poor, less educated rural communities.
Since 2004, more than 500 rural papers have closed or been folded into another title. Some 62 per cent of voters in these rural counties voted for Mr Trump in the presidential election, compared with 46 per cent of the total population, UNC found.
Alden has an opaque corporate structure. Its website features a company logo placed over a picture of an evergreen forest. It has only 19 employees, according to SEC filings. But its influence on American journalism is far greater than that number might suggest.
From its headquarters in Manhattan’s Lipstick building, where Bernard Madoff used to conduct his business, Alden has seized on deteriorating newspapers across the country, ranging from the small Alaskan town of Kodiak to large metro areas such as Denver. The company owns almost every newspaper in Los Angeles and San Francisco, except the LA Times and San Francisco Chronicle.
Gannett, owner of more than 100 titles, has said it wants to remain independent and last week won the backing of US Senate minority leader Chuck Schumer, a Democrat from New York. “MNG has been unwilling to publicly provide relevant details regarding the proposed acquisition,” he said last Thursday. “Fuller disclosure regarding how the acquisition of Gannett would impact the viability of a free press is in the public interest.”
However, in an industry of “unending downturn . . . all bets on the conventional wisdom of newspaper ownership are off”, says Ken Doctor, a veteran industry analyst. “Anyone with the appetite and dollars to buy can, whether it’s a Patrick Soon-Shiong [the pharmaceuticals billionaire who owns the LA Times] or an Alden.”
Alden’s founder, Randall Smith, is a godfather of investing in distressed assets who has trained legions of hedge fund portfolio managers. Heath Freeman, one of Mr Smith’s protégés, runs Alden’s day-to-day operations. Neither has any long-term experience in media, only in buying assets out of bankruptcy and targeting struggling companies.
MNG did not respond to requests for comment on this story.
Alden is being sued by a DFM shareholder, Solus Asset Management, which accuses the hedge fund of funnelling profits from its newspaper business to fund other investments, including a bankrupt Mexican property developer and $86m in Greek sovereign debt. Both funds declined to comment on the litigation.
The battle over Gannett represents a test case for corporate America as it pits two opposing principles against one another: a company’s fiduciary duty to act in the best interest of its shareholders, against a newspaper’s public duty to operate in the interest of a broader constituency, which includes a community’s access to local media.
MNG stresses that Gannett is a public company and only has a fiduciary duty to act in the interest of its shareholders. “The public interest debate is interesting but it doesn’t fit with what is at stake here. MNG has put on the table an offer that Gannett must consider seriously,” says one person close to MNG’s top management.
However, Witold Henisz, a management professor at the University of Pennsylvania’s Wharton School, says Gannett adheres to a broader set of goals than maximising shareholder value and that those values would be contradicted by selling to MNG. “The idea that boards must value shareholders first . . . is a myth”, says Prof Henisz, “and may not even be in shareholders’ long-term interests.”
People close to Alden’s senior managers argue that the company is just trying to turn round newspapers that would otherwise have shut down. “They are pretty upfront about their strategy,” says one person who works closely with MNG. “Some of the actions they take to turn round newspapers are painful, but at least there still is a newspaper [at the end of it] serving the local community.”
Some journalists working for Alden-owned newspapers paint a different picture. The company has built a reputation for draconian cost-cutting: headcount at DFM newspapers was sliced from 1,766 in 2012 to 487 in 2018, according to the NewsGuild union, which represents 12 DFM papers including the Denver Post. Less than a week after buying the financially troubled Boston Herald, it cut headcount from 240 to 175.
“They looked at every single expense,” says Mr Plunkett from the Denver Post. “We used to go to Afghanistan. Now the Post has a hard time getting money to get a hotel room to cover a forest fire.”
Cost cutting in the newspaper industry is nothing new, says Mr Doctor: “All local newspapers have been downsizing at a rapid pace, but what Alden is doing is significantly more severe.”
Alden has cut jobs at a rate of more than double that of its rivals. With flat revenues and steeply lower costs, it made $159m in operating income in 2017 on revenues of $939m, squeezing out an operating margin of 17 per cent, according to documents uncovered by Mr Doctor. In comparison, Gatehouse Media, the biggest owner of local newspapers in the US, owned by Japan’s SoftBank, made only $34.6m in operating income on $1.3bn in revenues in 2017.
Gannett was separated from its faster growing broadcast business in 2015. Yet despite facing tough economic conditions in recent years its newspapers have won three Pulitzer Prize awards for stories that include one about Mr Trump’s plan to build a wall on the southern border of the country, and another on the US opioid crisis.
Its future ownership has been thrown into question during a bloodbath in the US news industry. Thousands of jobs have been lost across print and digital outlets in the past 12 months alone. The pain has spanned century-old publishers such as Gannett, as well as online operations including BuzzFeed and Vice that had been heralded as journalism’s solution to stodgy newspaper woes.
Since Alden sent shockwaves through the industry with its bid for Gannett, several theories have emerged about how this situation will play out. There is still no indication as to whether Gannett shareholders will tolerate the decision to rebuff a pile of cash from Alden.
Ronald Gilson, a corporate governance expert, says efforts by Gannett’s board to block the deal risk being overturned in a proxy fight, where shareholders could remove the existing members and replace them with people in favour of a transaction.
He suggests that Gannett has limited options for protecting the integrity of the newspapers it owns. And advises it to find a deep-pocketed buyer, like the New York Times’ Sulzberger family or “even Rupert Murdoch”.
“I don’t think there’s any other way to protect the paper,” he adds.