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Home / Articles / Views / Views /  Is Digital First prepping its newspapers for sale?
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Thursday, April 10,2014

Is Digital First prepping its newspapers for sale?

How a change in ownership may impact Boulder County and beyond.

By Joel Dyer

“Back on Twitter. Our start-up Thunderdome didn’t work out. DFM fine. Critics gleeful. Supporters sad. All I can say is: Next.”

— John Paton, CEO of Digital First Media, via Twitter, April 6

Next. If only it were that easy for the company and its 10,000 employees, or more importantly for the communities that Digital First Media’s newspapers serve.

Paton tweeted “Next” followed by a period, but a quick read of what is being reported around the country by the nation’s leading newspaper analysts makes it clear that a question mark might have been the better choice for the controversial CEO of America’s second largest newspaper chain.

It appears that what is “next” may well be a draconian $100 million cut to the company’s operating budget in an effort to prepare for the sale of all 280 daily and weekly newspapers that Digital First owns in 18 states. The properties include The Denver Post, Boulder Daily Camera, Longmont Times-Call, Loveland Reporter Herald, Broomfield Enterprise and Estes Park Trail-Gazette to name just a few of the newsgathering organizations whose reporting impacts our region (see side bar on page 14 for full list of Digital First Media’s Colorado newspapers).

The current story started to unfold on April 1 when rumors of another round of layoffs at Digital First Media began to circulate. Then on April 2, the company’s CEO John Paton used his blog to announce that the company’s Project Thunderdome was being shut down in order to go “in a new direction.”

But what new direction could there be for a company that actually chose to operate its business under the name “Digital First”? Project Thunderdome was the 3-year-old centerpiece of Digital First’s decision to rapidly convert its legacy newspaper business from what it saw as a print past to a digital future, despite the lack of any known business model to do so. Thunderdome was the company’s attempt to consolidate the national newsgathering responsibility for all of its papers into one small, high-tech office in Manhattan. It had been touted as the way of things to come, a digital revolution of sorts.

Now it’s been shut down on the heels of the company’s other major reversal on its path to digital transformation, the recent decision to erect paywalls for return visitors at its newspaper’s websites. So it came as no surprise that the business world and the rest of the newspaper industry are viewing the Thunderdome closure as a sort of death knell for Digital First and its strategy.

On April 3, Rick Edmonds, media business analyst for The Poynter Institute, wrote that “The announced shutdown of Digital First Media’s national newsroom Wednesday and the probable sale of its 75 daily newspapers later this year is a significant jolt to those who believe a viable business model for rapid transformation of legacy operations is close at hand.

“CEO John Paton’s explanation in his blog that the company has decided to dismantle Project Thunderdome ‘to go in a new direction’ barely hints at the converging economic troubles.”

In his April 2 article for the Nieman Journalism Lab, Ken Doctor, a well-known news industry analyst and author wrote, “The move [shutting down Project Thunderdome] also signals the fatigue of majority DFM owner Alden Global Capital — and that it is readying its newspaper properties for sale. They’re not yet on the market, but expect regional auctions of DFM properties (with clusters around the Los Angeles area, the Bay Area, New England, Colorado, Texas, New Mexico and Pennsylvania) — unless Alden can find a single buyer, which is unlikely.”

In his Poynter post, Edmonds further noted that two “informed sources (who declined to be quoted by name)” had confirmed to him that “the properties have informally been shopped around since the start of this year.” He added, “That is not to say definitively that a formal sales process is in place. I am also not so sure that a buyer for the whole company or a set of buyers for its component parts will be found.”

And finally, Nathan Donato- Weistein of the Silicon Valley Business Journal wrote that in an email exchange earlier this week, Doctor told him that “the timing of the sale is ‘months, not weeks or years, though the talking has begun on potential buyers.’” No one can claim to know exactly what is “next” for Digital First Media. But if the analysts are correct, what’s next will likely have a major impact on everyone living in the state of Colorado. That’s because who owns the news matters because control over the news shapes all of our lives to one degree or another.

Over the years, the Colorado newspaper landscape has been transformed from a diverse collection of competing community newspapers into a dangerously consolidated monopoly owned by first one corporate entity then another. Now, if indeed that monopoly is for sale to the highest bidder, then our access to local news runs the risk of becoming vulnerable to the same powers that have used their wealth to attempt to influence our electoral process which has resulted in serious dysfunction at all levels of government.

HOW WE GOT HERE

The idea of owning multiple papers in a region in order to obtain certain economic efficiencies is not new. It has been practiced by both large and small papers alike for decades.

Scripps, the one-time owner of the Rocky Mountain News also bought the Boulder Daily Camera, the Broomfield Enterprise and eventually the Colorado Daily as well for just that reason.

In 1967, Ed and Ruth Lehman, the owners of the Longmont Times-Call bought the Loveland Reporter Herald and in 1978 they purchased the daily paper in Caņon City. The Lehman’s would eventually add the Erie Review, Lafayette News, Louisville Times and Superior Observer. Eventually these last four were melded into what is today the Colorado Hometown Weekly.

And then there was Media News, the company owned by Dean Singleton. Media News owned The Denver Post and over time added a fair number of other dailies and weeklies in Eastern Colorado including the Fort Morgan Times, Sterling’s Journal-Advocate, the Lamar Daily News, Akron News Reporter, Brush News Tribune, The Burlington Record, Julesburg Advocate and the Estes Park Trail-Gazette.

And so the stage was set. After years of fierce competition, Scripps’ Rocky Mountain News and MediaNews’ Denver Post decided to stop competing, at least on the business side, and to operate under a joint operating agreement in 2001. This started the dominoes falling.

The two companies continued to work together rather than compete and in 2006, they formed the Colorado Publishing Company with 50/50 ownership. The new company owned the Daily Camera, Colorado Daily, Broomfield Enterprise, Fort Morgan Times, Journal-Advocate in Sterling, Lamar Daily News, Akron News- Reporter, Brush News-Tribune, The Burlington Record Julesburg Advocate and the Estes Park Trail-Gazette.

Eventually Colorado Publishing Company would change its name to Prairie Mountain Publishing.

In 2009, following its decision to shut down Colorado’s oldest daily newspaper, the Rocky Mountain News, Scripps sold its remaining interest in Prairie Mountain Publishing to its partner making MediaNews the sole owner of the 11 newspapers in the subsidiary at that time.

In 2011, Singleton’s Colorado news monopoly became complete when Prairie Mountain Publishing bought all of the Lehman’s papers as well.

While most newspaper companies attempt to find some degree of operating efficiency by owning more than one paper in the same region, no one took this philosophy of clustering to the extremes that “Lean Dean” Singleton employed.

Consider this appraisal of Singleton’s business model offered by Doctor in a 2011 post on his Newsonomics blog.

“[Singleton] expertly used OPM (Other People’s Money) to finance often complex deals, deals that the company’s 2010 bankruptcy filing only partially brought to light. If he was known as Lean Dean, he also became the Count of Clustering. Why not put together groups of contiguous newspaper titles, and then bring basic corporate principles of consolidation to them.

Consolidate advertising sales and production, circulation, finance, HR, and as much as possible, editorial across the titles, and you’ve saved lots of headcount, lots of FTEs. It was a formula that many others in the industry soon tried to copy, but Dean seemed the master of it, until time ran out.”

And time did run out. In 2010, with circulation and ad revenue shrinking in the midst of the Great Recession, MediaNews, like many of its large newspaper chain peers, filed for bankruptcy. One of those peers was the Journal Register Company.

To make an already long story shorter, the condensed version of events is that both Journal Register Company and Singleton’s MediaNews went into bankruptcy. A Venture Capital firm known for buying distressed businesses, Alden Global Capital, eventually became the controlling owner of both companies. Alden Global Capital then created an entity called Digital First Media, which now runs all of Alden’s interest in both of the newspaper companies it acquired out of bankruptcy.

So where we stand today is that the vast majority of newspapers in Eastern Colorado and along the Front Range including The Denver Post and all of the general-interest papers in Boulder County with the exception of the Boulder Weekly are currently owned by a hedge fund known for cutting operating expenses and then flipping its acquisitions for a profit if possible.

As noted by respected media analyst Alan Mutter in his Reflections of a Newsosaur blog on April 2, regarding the shutdown of the Thunderdome Project, “the clear signal is that the money guys behind the company — hedge fund Alden Global Capital — are looking for an exit. Paton, as I have noted in earlier posts, spent several years as an investment banker himself. So he was a logical CEO for Alden, but probably under more pressure than he has let on to clear the firm’s financial hurdles in a timely fashion.

“Ideally, investors in distressed businesses like Alden (a.k.a vulture funds) are looking to squeeze out costs, restructure strategically and sell at a profit after a few years. However, if that scenario doesn’t work out, they are ready to bail out sooner and take their licks. Alden has done that once already, selling its controlling interest in Philadelphia newspapers to local investors at a 50 percent loss after just two years.”

It now appears that Alden is prepping for the big flip.

PREPPING FOR SALE?

In a recent piece for Huffington Post, assistant professor of journalism at Boston’s Northeastern University, Dan Kennedy wrote, “One of the biggest problems Digital First faces is its corporate structure. Can for-profit local journalism truly be reinvented by a national chain whose majority owner — Alden Global Capital — is a hedge fund? People who invest in hedge funds are not generally known for their deep and abiding affection for the idea that quality journalism is essential to democratic self-governance. Rather, they want their money back — and then some. Preferably as quickly as possible.”

It was never clear what operating expenses Alden Global Capital was going to be able to cut from operations that had been built and run by “Lean Dean” Singleton. In many ways, Singleton was a newspaper buyer of the same ilk as Alden. That’s to say, he bought cheap and then cut expenses in every imaginable way, including editorial staff. The only difference being that he held onto the papers and wasn’t looking to sell them for a quick profit.

Even so, Digital First has managed to cut expenses at Singleton’s former newspapers over the past few years through layoffs, outsourcing some production functions to India, additional content sharing and the selling off of the newspaper’s former office buildings.

But now that it appears to be readying its papers for sale, it is taking another step down the cost-cutting road with what is being called “Project Catalyst,” reportedly a $100 million company-wide budget slash.

On April 2, the Deseret News reported that Digital First Media, which owns the Salt Lake Tribune, had given the Tribune “a mandate to trim costs” as part of “Project Catalyst.”

Tribune editor and publisher Terry Orme reportedly told the Deseret News that “the Tribune will likely attempt to navigate an estimated 10 percent budget cut by reducing syndication and newsprint costs, and if necessary, by cutting staff.”

Analysts believe that similar cuts are expected to be implemented across all Digital First papers.

Mutter describes it this way, “One DFM project, Project Catalyst, has swallowed another, Thunderdome. Catalyst is aimed at taking more than $100 million out of the company’s costs … Recent DFM cuts in Philadelphia and the Bay Area, eliminating dozens of jobs across all divisions, are part of that process. Catalyst is led by Steve Rossi, a former Knight Ridder COO, who recently moved into that same position for DFM.”

Getting newspapers ready for a sale is one thing, but selling them is another. Many analysts have noted that with Alden Global’s Digital First now owning the second largest newspaper chain in the country, it is unlikely that any one buyer for the entire chain will emerge at any price. This means that the papers have a better chance of being sold as individual papers or regional clusters, but this too is problematic.

In the past, it would have been very likely that a wealthy individual or collection of such folks would have emerged to save local daily papers in their communities. In places like Boulder, Longmont and Loveland that would have been expected, but is that still possible today?

Unfortunately, the very consolidation tactics employed by Singleton and now Digital First have blurred the picture. What exactly would a sale of the Longmont Times-Call, for instance, look like? The paper’s content is provided not only by the small remaining Times-Call staff but also by the staff of the Daily Camera, The Denver Post and occasionally other newsrooms in the chain.

The paper’s office building is already on the market to be sold and its $18 million dollar state-of-the-art printing press in Berthoud does the printing for several of the Prairie Mountain Publishing newspapers. Could a new owner untangle such a comingled operation and return it to a stand-alone enterprise? It would be a herculean task to be sure. And the same would be true for anyone attempting to purchase any individual paper from the cluster, whether it be the Daily Camera, Reporter Herald or the Broomfield Enterprise.

The current condition of the papers nearly necessitates that they be sold as a group, but at a time when most newspaper chains are unloading not adding papers, it could be a challenge.

The Denver Post is a different story. The Post is a political jewel in a purple state. With Colorado’s new status as a swing state and its recent trend of going blue still not considered an irreversible trend, the Post could find itself a target for deep-pocketed operatives.

Philip Anshutz, whose empire was built on oil, now also includes newspaper holdings including conservative papers such as the Daily Oklahoman and closer to home the Colorado Springs Gazette, has long been rumored to have an interest in acquiring the Post.

And the Koch Brothers, who have recently been rumored to have their eye on the Los Angeles Times or even the entire Tribune Chain including the Chicago Tribune, might see the acquisition of Colorado’s largest daily as a cheap way to potentially swing the outcomes of Colorado elections back to red.

Such well-heeled buyers might even be willing to purchase Digital First’s entire holdings in the region if necessary.

But all such talk is nothing more than speculation at this point. It suffices to say that finding a buyer or buyers for Digital First’s papers may be a long and difficult process in the current environment in which daily newspapers find themselves and due to the comingled condition of the papers.

THE HARDER THEY FALL

In his tweet that started this article, Paton wrote, “Critics gleeful. Supporters sad.” Again, Paton has oversimplified the issue. No one is rejoicing at the turmoil within the company, the shuttering of Project Thunderdome or Digital First’s failure to reinvent itself as an economically viable media company that had moved beyond its dependence on declining daily print revenue. Yet it’s true some people are “gleeful.”

But they are gleeful that Paton appears to have failed, that he was wrong again, not that the company is likely about to be dismantled and sold off.

Within the newspaper industry, Digital First’s CEO is often viewed as an arrogant self-promoter, long on criticism for his peers but short on actual accomplishments. He makes what many consider to be wild, unsubstantiated claims about how well his company’s transformation from print to digital revenues is going and he frequently refers to his peers in the industry as stupid, lacking in talent, misinformed and unwilling to do what is necessary to achieve success.

So yes, when John Paton flails, some people smile.

For example, Raju Narisetti, senior vice president, strategy, for News Corp, tweeted that “Shock over Project Thunderdome is classic case of media critics; Twitterati enamored by ‘digital first’ talk; not looking at economics.” He later tweeted that Digital First is “a house of newspaper cards.”

But no one is rejoicing at what these important local news organizations are facing. Communities need newspapers of record. It doesn’t matter if they are print or digital except for the fact that print can sustain their continued existence and ability to do important journalism and digital can’t, regardless of what the false profits like Paton claim as they destroy one newspaper after another.

Mutter summed it up this way in his April 2 piece. “Because venture investors favor exponential growth in audience and page views over such traditional metrics as revenue and profitability, they are content to underwrite these new digital ventures in the hopes that they will grow to the point they will merit an IPO or be acquired by a well-heeled player.”

Unfortunately for Paton, he picked the wrong vehicle and the wrong financial backers to pursue his digital quest.

Until he nuked the ambitious Thunderdome interactive publishing effort, Paton enjoyed telling fellow publishers to stop grousing about the decline in print advertising dollars and to start “stacking digital dimes.” Although Paton’s privately held company does not report its financial results, his actions clearly suggest that the dimes did not accumulate as fast as dollars flowed out of the print side of his business, which even in its dissipated state demands attention because it continues to produce the preponderance of revenues and profits for his company.”

The future of the newspapers in the region may be uncertain, but one thing is not; our communities need local daily newspapers in order to remain vibrant and democratic. There is simply no replacement on the horizon for the critical role that they play.

In the end perhaps journalism professor Dan Kennedy summed it up best when he wrote the “Digital First experiment was probably destined to end this way, as chain ownership generally does … maybe we’ll all come to understand that the best way to reinvent local journalism is at the local level, by people who are rooted in and care about their community.”

Respond: letters@boulderweekly.com

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