‘The Investment Firms Leave Behind a Barren Wasteland’

The great American newspaper ain’t what it used to be. At practically every newspaper in the country except for a fortunate few, hard times have reduced page count, eliminated news beats and resulted in the layoffs of thousands of journalists.

The hardest hit, Margot Susca reports in her new book, Hedged: How Private Investment Funds Helped Destroy American Newspapers and Undermine Democracy, have been the chain newspapers — Gannett, GateHouse, Lee Enterprises, et al. — purchased and squeezed by private equity firms like Alden Global Capital. Nationwide, the percentage of newspapers owned by private equity rose from 5 percent in 2001 to 23 percent in 2019; they include such storied titles as the Chicago Tribune, the Orange County Register and USA Today, as well as scores of smaller papers. Some papers have been reduced to zombie versions of their former selves as the new owners have shaved them down to minimize costs, depriving readers of the comprehensive coverage they enjoyed in the golden age of newspapers.

Susca, an American University professor of journalism and a former newspaper journalist, writes that these new owners have turned their backs on what she thinks is the true purpose of newspapers — to serve democracy — in their pursuit of greed. For a taste of the book, see this excerpt in Neiman Reports.

As someone who’s covered the industry’s growing travails for some time, you can detect a bit of skepticism from my questions. Is Wall Street really to blame for the fall of newspapers? By the end of our conversation, she was asking me, “Did you just brush up on your Milton Friedman?”

This interview was conducted in person and via email and has been edited for length and clarity.

Without using the dust jacket, give us the dust jacket pitch for Hedged.

The book investigates the last 20 years of ownership and investment in the American chain newspaper industry. Through entities like hedge funds and private equity firms, this investor class continues to dismantle the one institution meant to give voice to average citizens in our democracy. I ultimately reveal an industry rocked less by external forces like lost ad revenue and more by ownership and management obsessed with profit and beholden to private fund interests that feel no responsibility toward journalism or the public it is meant to serve.

How and why did newspapers become distressed properties?

Newspaper executives pressured by private equity investors chose mergers and acquisitions as the strategy to face the digital future. It stacked debt as advertising losses also mounted. But before and after the recession, investment firms and the private equity divisions of Wall Street banks created conditions that left newspaper chains hamstrung and in debt for billions of dollars after a wave of acquisitions and consolidations. Different private firms then profited off newspaper bankruptcies or debt financing.

What encouraged the private equity firms to acquire distressed newspaper chains? Why didn’t the equity crowd buy and strip newspapers before the mid-2000s financial crisis?

In the 1990s, newspaper stocks were the golden goose of any portfolio. Newspapers were steadily profitable earning margins of up to 30 percent. Why fix what isn’t broken? But that also hurt innovation, as those who could read the tea leaves wanted investment but were thwarted by those who wanted to stay sailing those calm seas. A former editor from the St. Louis Post-Dispatch told me that in 2003, he went to editors at a time they were earning 25 percent profit margins and said they would need to cut into that profit to dedicate a team to the digital transition. They refused.

This period is what UMass scholar Gerald Epstein calls “financialization,” alongside the rise of the hedge fund and private equity class. Consider between 2006 and 2016, investment in the hedge fund industry globally skyrocketed from $1 trillion to $5 trillion.

If newspapers are as commercially viable as you seem to imply, why haven’t we seen moves by investors to preserve and improve them?

I hope you didn’t come away from the book thinking my core takeaway is that newspapers are in great financial shape. The point of the book is that if private investment funds kept their paws off these papers, our local newspaper ecosystem would be better off. In 2021, the U.S. newspaper industry generated $20.9 billion in revenue with profit margins just below 4 percent. That’s down from its wonder years, but it’s hardly a knockout.

We have seen moves to protect newspapers, but this investor class is not the group taking the initiative. Advocates, philanthropists, and researchers are working diligently to find solutions and new business models to preserve newspapers, understanding after this period of overharvesting how damaging this investor class has been to the chain newspaper marketplace. The Portland Press Herald has just been purchased by the Maine Trust for Local News, an offshoot of the nonprofit National Trust for Local News. Almost a year before, the Chicago Sun-Times newspaper switched to nonprofit status and became a subsidiary of Chicago Public Media. The Salt Lake Tribune was a trailblazer when it switched to nonprofit status in October 2019. We have the Philadelphia Inquirer and the Lenfest Institute. None of these initiatives were made possible because a group of Wall Street investors sat around a boardroom table before dinner at Cipriani and said, “Let’s create better local journalism.”

Non-private equity firms like Newhouse have made similar cuts in their newspapers. Does that indicate that private equity isn’t that much of an outlier?

Calling private equity an outlier oversimplifies the role both private equity and hedge funds have played in the chain newspaper market over the last two decades, and it plays into the same tired conventional wisdom that ad losses alone are responsible for all of the newspaper industry’s problems. I also think it lets private investment funds off the hook for the severe damage they have done to the local newspaper marketplace.

Private equity investors in the early to mid-2000s pressured newspaper managers at publicly traded chains, including Tribune, Journal Register and Knight Ridder, to make disastrous decisions. Rather than choosing innovation or investing in digital or even trying to compete head on with Craigslist, newspaper chains chose mergers and acquisitions as a strategy to stave off revenue losses. As the ad losses mounted and the Great Recession hit, servicing the debt from those mergers and acquisitions was like taking a sprinkler to a raging wildfire. Then, hedge funds that specialize in distressed debt or in financing targeted the newspaper chains that were forced to declare bankruptcy. Alden Global Capital stayed on as an owner. Alden owns two chains, MediaNews Group and Tribune, which spiraled after its 2008 bankruptcy after just a year of ownership from private equity billionaire Sam Zell. Cerberus and Apollo are in the market as lenders. Chatham Asset Management bought the McClatchy chain in 2020.

Explain the concept of “overharvesting” by the equity owners of chains that you describe in your book.

Overharvesting is my tinkering with harvesting, which is a term coined by the late data journalism pioneer Phil Meyer. Overharvesting suggests that a news organization or newspaper chain exists solely to maximize shareholder profits or line private investment funds’ pockets rather than to keep citizens informed, and in the process of reaping the profits, the investment firms leave behind a barren wasteland. I certainly recognize that profit has been part of American newspapers as long as we’ve been a country, but profit in the name of democracy looks much different than profit made in spite of it.

Is the private equity purchase of newspaper chains the cause of their ruination or the effect? 

Private investment funds are directly responsible for major problems at the newspaper chains I studied for the book. That includes GateHouse, Gannett, Journal Register, Knight Ridder, McClatchy, MediaNews Group and Tribune. These funds played different roles in these chains, but the roles they played when taken together over a 20-year period proved disastrous. Private investment firms have exerted various levels of influence over corporate newspaper firms as institutional investors or managers or as part of other complex financing and debt restructuring after blockbuster mergers and acquisitions.

Conventional wisdom notes basically a two-step process as it relates to newspapers. There was a loss of internet advertising, and then newspapers fell apart. What I did with my research was use 20 years of SEC records and bankruptcy documents to map more about what was happening in the boardrooms, calling the shots before, during and after that loss of advertising revenue crunch hit the newspaper industry. It was a relatively unknown part of the equation, and it is crucial to understand how these firms’ business practices played a role.

New York City private equity powerhouse Fortress Investment Group was the longtime owner and major shareholder of GateHouse, which was, for a time, America’s largest chain. In 2019, GateHouse merged with Gannett. Despite its failed innovations, Fortress in 2020 took from Gannett $1 million in dividends plus a one-time payment of $30.4 million. Gannett CEO Michael Reed, a former GateHouse executive, in 2022 claimed the business was so bad that hundreds of reporters who covered community news needed to be let go. The year before, Reed earned $7.7 million in compensation, which was a direct pat-on-the-back from Gannett’s board. Those fees and executives’ payouts are signs of a failed system that is tainted by the ultrawealthy that uses layoffs as the ball in its pinball machine.

Investors have started treating most newspapers like they were houses built on the Cape Hatteras beach, doomed to be worth zero as market forces (like a hurricane) drove their value down. Operating from such a playbook, isn’t it rational to extract as much value out of the property as possible, making only minimal investments until the disaster finally arrives?

Did you just brush up on your Milton Friedman? I think like a scholar and practitioner of journalism and democracy, not a peddler of stocks and bonds, because once we view constitutionally protected news organizations like any other widget in a capitalist economy, then our democracy is doomed. But look around, we’re already feeling the effects of that extraction as the investor class gets richer and misinformation spreads like a virus in the void left by a weakened local newspaper system.