The murky ownership of the journalistic enterprise

Journalism, at its core, is a business. Despite notable successes of a few non-profit news sites, the business model that is and will remain the driving force behind journalism is a profit-driven one. The need to generate revenues is critical to the success of the journalistic enterprise. But this business model is undergoing a critical and ominous change. It is this change that poses a very serious threat to journalism in the United States. Yet, few recognize what is occurring and the potential consequences it has for the practice of journalism.

Historically, the practice of journalism was largely vested in newspapers and in the companies that owned them. While many of these newspaper companies expanded into ownership of television, newspaper companies were anchored in the practice of journalism. They shared similar ownership patterns, starting out as family-owned enterprises and, through consolidation, eventually became large publicly traded companies. It is not far-fetched to argue that these newspaper companies, in effect, represented the practice and business of journalism in the United States.

The buying and selling of journalism assets in the United States were almost exclusively controlled by these companies. The companies both supported and fed off the journalism enterprise. When a newspaper came on the market, the purchaser was always another newspaper company, often paying 10 to 20 times the asset’s book value. Financing these costly purchases was relatively easy as these companies not only recorded double-digit profits on a regular basis, their stock saw consistent and predictable growth. Gannett, for example, was often labeled as a ‘widows and orphans’ stock because of its consistent returns on investment.

Gannett was not an exception. For almost all of their modern history, newspaper companies were ‘cash cows’, generating large and steady returns to investors. The companies were often earning margins of 30 percent and higher. Most impressive of all, the industry was able to sustain these high rates of return year in and year out until the first decade of this century.

The financial good times ended abruptly in the first decade of this century. The newspaper industry didn’t decline so much as it crashed. And the crash took with it almost all newspaper companies. While journalists and investors – and some scholars – know about the industry’s financial catastrophe, few seem to be aware that nearly all of the newspaper companies that existed in the latter half of the 20th century are gone.

The death list includes the iconic Washington Post Company, Knight Ridder, Dow Jones, and Times Mirror. Other companies of lesser journalistic reputation that are gone include Central Newspapers, Journal Register, and Hollinger International. Others have gotten out of the newspaper business by spinning off their newspapers into separate companies (Gannett, Tribune, News Corp., A.H. Belo, and E.W. Scripps), while others sold off their newspapers (Media General and New York Times). Only two legacy newspaper companies remain largely intact – McClatchy and Lee Enterprises – and they have been teetering on bankruptcy since the mid-2000s. (While there is little financial information available for privately held companies such as Hearst and Cox Enterprises, it is difficult to imagine that these companies faired any better financially than their public counterparts.)

One overlooked result of the death of so many legacy newspaper companies is that it created a vacuum in the business of buying and selling of newspapers. Moreover, because of the financial hole many newspaper companies had dug for themselves, selling journalistic assets became a necessity. Heavy debt loads at very high interest rates forced the sale of large numbers of newspapers and often at bargain-basement prices. Into this vacuum stepped players new to the journalistic enterprise and whose goals for owning it are not at all aligned with the goals of journalism.

Historically, most of the stock in publicly traded newspaper companies has been owned by large institutional investors. These investors are driven by money and not by the quality of journalism practiced at the companies whose stock they own. These institutions were and are able to put enormous pressure on companies to improve the bottom line. Because of complex stock structure, most newspaper companies could lessen or even block institutions’ influence especially when it threatened the journalistic enterprise. And because of strong financial returns, these institutions were content to be investors. This has changed as some of these institutions now want to be owners.

Investment companies’ ownership of newspapers is well underway. In 2012, Berkshire Hathaway bought all but one of Media General’s newspapers. A year earlier, it spent US$150 million to acquire its hometown newspaper, the Omaha World Herald. Under the direction of value investor Warren Buffett, Berkshire Hathaway is commonly seen as a benign company, but its fundamental reason for existing is to make money for its shareholders.

In terms of newspaper ownership, investment firms are now the largest owners of newspapers in the United States. According to the Center for Innovation and Sustainability in Local Media, the six largest investment firms own more newspapers today than the combined total owned by the 16 largest private newspaper companies and the three largest public ones.

The largest of these investment firms are Digital First Media – owners of 455 newspapers – which is a subsidiary of Alden Global Capital, and New Media/Gatehouse which owns 205 newspapers. New Media/Gatehouse is owned by Japan’s Softbank after it bought Fortress Investment Group. To obtain US regulators’ okay for the purchase, Softbank relinquished day-to-day control of Fortress.

Alden Global specializes in buying distressed companies, stripping and selling assets while it reorganizes them. It bought Journal Register and took control of William Dean Singleton’s bankrupt MediaNews. Digital First Media has been involved in a number of controversial issues involving its newspapers. The most recent involved the news staff of the Denver Post, the only daily newspaper serving the city. Facing another round of layoffs, the news staff revolted by publishing an editorial demanding that the paper be sold to someone who cared about journalism. The editor who wrote the editorial resigned a month after its publication. This followed the firing of another Digital First Media editor for publishing a similar column critical of the company.

While legacy newspaper companies were profit driven, journalism was their core business. This is not the case with these investment firms. Their core business is serving the needs of their customers and their customers are not news consumers or even advertisers; their customers are pension funds, mutual funds, commercial banks, and so on. None of them cares about the quality of journalism. For these investment firms, newspapers are just another asset and, like any other asset, if they don’t yield a high enough rate of return, they are sold, downsized, or shutdown.

Also stepping into the vacuum created by the death of legacy newspaper companies are entrepreneurs who do not have any experience in journalism. The newspaper industry is experiencing a ‘Back to the Future’ change in individuals owning newspapers. The days of William Randolph Hearst, Robert McCormick, Joseph Medill, and Cissy Patterson, who used their newspapers to advance their own political agendas, are back as wealthy individuals buy newspapers to advance their political views. Hotel developer Doug Manchester bought the San Diego Union-Tribune and used the paper to push his own business interest and his conservative views. Billionaire casino magnate Sheldon Adelson bought the Las Vegas Review-Journal. Former members of the new staff complained that he used the paper to publish stories that benefited his business and advanced his political views. Adelson has already pledged US$100 million to Trump’s reelection campaign.

Other wealthy entrepreneurs, on the other hand, have either encouraged aggressive journalism or have taken a ‘hands off’ position to the newsroom. Amazon’s Jeff Bezos purchased the Washington Post from the Graham family and the paper has broken a number of important news stories about the Trump administration, drawing vitriolic tweets from the president. John Henry, owner of the Boston Red Sox, bought the Boston Globe from the New York Times Co. for US$70 million, far below the price the Times paid for it a little over a decade earlier. The latest entrepreneur to buy into the journalism business is billionaire doctor Patrick Soon-Shiong who agreed to buy the Los Angeles Times for US$500 million.

One very troubling response by newspapers to the financial problems they face is to outsource key journalistic functions such as copyediting, layout, and design to companies such as GateHouse. While this outsourcing saves money and may increase efficiency, it also results in newspapers losing more and more control of their own journalism. It is not far-fetched to think that the selection of news can be largely outsourced, too. It is far cheaper to fill the news hole with national and international news from wire services than with local news. In the worst case, newspapers and webpages would look the same and carry the same news and editorial content. Something similar to this is happening with television news at stations managed by Sinclair Broadcast Group.

The newspaper business is at an ownership crossroads and its future is murky. Old-line newspaper companies are no longer the major players in ownership of the journalistic enterprise. Most of the new players in the industry are not steeped in journalism but in rates of return. They are quick to sell off underperforming newspapers; cut news staff to the bone and outsource key journalistic functions. None of this bodes well for the business of news.