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    April 9, 2018, 9:31 a.m.
    Business Models

    Newsonomics: The Denver Post’s protest should launch a new era of “calling B.S.”

    This is a golden age of American protest. It’s time to stand up and fight the vulture owners hollowing out local news.

    What are we to make of The Denver Post’s ? As the paper’s editorial board, led by Chuck Plunkett, of public protest on Sunday — decrying the paper’s owner, to the social congratulations of the news world — we may have reached a new point in local American journalism’s descent into oblivion.

    Despite almost a decade of newsroom cuts, which have left no more 25,000 journalists in the more than 1,300 dailies across the country, journalists have been remarkably accepting of their buyouts and layoffs. We haven’t seen the kinds of mass strikes or work actions that have happened from time to time in Europe. We’ve seen instead an acquiescence to what’s been seen as the inevitable toll of digital disruption. Sadness, rather than spirited action, has marked the trade. That’s understandable, in part: No one wants to risk the lifeline of a paycheck for what may be futile protest. Only when the kicks in do we see such stands as the Post’s.

    By standing up for themselves and the value of their work, the Post’s journalists stand up for their community. “The Post has been an integral part of progress in Colorado,” recently resigned editor Greg Moore in one of the Post’s audacious pieces. “It helped the community heal after fires, floods, and unspeakable gun violence. It explained how we were changing politically and demographically, and it exposed corruption and malfeasance. It has provided a window and a mirror to help us become a better community.” And by standing up for their community, they stand up for themselves. This is the relationship that must be renewed. The loss here isn’t in mere journalism jobs; it’s in community knowledge and self-government.

    Even as we speculate as to where such protest may go, it’s one that must be put within its time. We journalists swim in the river of our time, even as we try to describe it from the shore.

    The Post protest against its owner Digital First Media — and ultimately the hedge fund Alden Global Capital, which controls DFM — came the same week that we recognized the 50th anniversary of Martin Luther King’s assassination. 1968 turned out to be a major inflection point in American culture. Now — in a time of red state teachers madly striking, of fast-food workers demanding $15 an hour, of #MeToo and #BlackLivesMatter activists refusing to go away — it looks like our time could represent a cultural turn of its own.

    According to a new , some one-fifth of Americans found themselves on the streets protesting in the past year — a truly astounding number.

    But it’s the Parkland students who may best symbolize whatever is changing. Amid the fiery, from-the-heart words that have transfixed a country, three continue to stand out for me. I first heard them in an NPR report from the students rallying at Florida’s state capitol, soon after the massacre at their school. “The people in the government who were voted into power are lying to us. And us kids seem to be the only ones who notice and are ,” student Emma Gonzalez said.

    “Companies, trying to make caricatures of the teenagers nowadays, saying that all we are are self-involved and trend-obsessed and they hush us into submissions when our message doesn’t reach the ears of the nation: We are prepared to call B.S.

    “They say guns are just tools, like knives, and are as dangerous as cars: We call B.S.

    “They say that tougher gun laws do not prevent gun violence: We call B.S.”

    Calling B.S. resonated with me, as it would with any journalist. That’s what the press is supposed to do: tell it like it is. We take on the virus of every age, particularly virulent in this one: hypocrisy.

    And as the local press has declined so greatly in confidence and in number — down to that 25,000 from a high of 56,900 in 1990 — the local press’ B.S. detectors are stuck in low gear. But in The Denver Post’s awakening, we see the press finally calling B.S. on the B.S. that’s been right under its nose for so long. Is the local press woke?

    Maybe it took the bare-knuckled capitalism-without-conscience behavior of Alden Global Capital’s Heath Freeman to push journalists to this point.

    While we can fete the courage act in Denver, the actions demands the question: What now?

    Will Freeman pull a Ferro?

    Just a couple of months ago, Tronc impresario Michael Ferro traded his once-flagship L.A. Times for a half-billion dollars — in part acceding to the pressure of the Times’ union organizing success. That opposition meant it would be too difficult to execute his strategies.

    Might Freeman, too, decide he’s had enough — and made enough? Alden’s 50.1 percent ownership of Digital First Media has allowed him to maximize profits, minimize investment in the future, and according to recent court documents, divert millions of newspaper profits into other (losing) ventures. Freeman has seen the declining newspaper industry as just another distressed business to be milked until its supply literally dries up.

    Certainly, the ever-increasing pillorying he’s received (, , , and numerous Newsonomics pieces as far back as 2015) would cause many a corporate leader to think twice. Maybe a business reputation wounded by that minority shareholder suit that exposes Alden’s would prompt other pause. Perhaps the of Freeman’s recent gift to Duke’s Center for Jewish Life would raise in his mind of the conflict between community values and heedless personal enrichment?

    Yet the word “vulture” — the investor epithet frequently applied to Alden, including in AndroidForMobile Lab director Joshua Benton’s and featured in Sunday’s takedown (““) — has seemed acceptable to Freeman so far.

    Though it would seem easy enough for Freeman to unload The Denver Post amid the outcry — taking a good price for it and moving on — such calculations in the post-recession financialized newspaper industry are more complex. It’s of what the Post is worth, using standard simple multiple-of-profits calculation. First, the Post’s pension obligations are substantial; Alden would want to unload those, while buyers won’t want to take them on. Second, the Post is a significant contributor to Digital First Media’s corporate overhead. Someone has to pay for the corporate leadership, and a not-inconsiderate share of it — maybe 30 percent or more of the allocated expense — gets dispatched from the Post to cover them, sources tell me. Sell off papers piecemeal and Alden’s overall profits decline.

    What a buyer would face

    “The smart money is that in a few years The Denver Post will be rotting bones,” wrote the editorial board in calling for new owners. And that raises the big question: Who might buy it if it is put up for sale? It’s one thing to run the scoundrels out of the newspaper industry, a special kind of American business to which they should never have gained entry. It’s another thing to do better with new owners.

    As usual, the newspaper game of Billionaire Bingo comes into play. Patrick Soon-Shiong takes possession of the L.A. Times and San Diego Union-Tribune soon, and we await his moves. We’ve got a wide range of bingo experience in the last few years, from Jeff Bezos’ wondrous re-ascendance of the Washington Post to John Henry’s ongoing transformation travails with The Boston Globe to Alice Rogoff’s failed Alaska turnaround. Colorado billionaire Philip Anschutz, owner of the down-the-state Colorado Springs Gazette, waits in the wings, his desire to buy the Post well on . To be a buyer, though, he needs a seller.

    Others who have bought DFM papers over the last several years each tell a familiar story: They’ve bought assets that have to be disentangled from the chain’s largely aging centralized technologies. That takes time — at the Berkshire Eagle, at the Salt Lake Tribune and at the New Haven Register — and it takes capital, patience, and a long-term strategy. But it is doable, contrary to such misunderstandings of the newspaper industry, as expressed in . “Hoping to avoid the slow trudge to irrelevance or bankruptcy, the Denver paper took the stuff of newsroom conversation and made it public in dramatic fashion,” said the Times. In fact, Alden is nowhere near bankruptcy, reaping big profits, and its increased irrelevance is self-inflicted by its greedy owners. The debate here — and elsewhere — isn’t cut or go bankrupt. The debate is whether to invest or disinvest.

    Will Freeman decide, given the combination of worsening newspaper revenues and public pressure, to liquidate his holdings overall?

    Three years ago, Apollo Global Capital — with its own plans to more rapidly transform the print business to digital — almost bought DFM, but that deal foundered at its end over price. Since then, Heath Freeman’s strategy has crystal-clear, say those who broker newspaper deals. Bring Freeman a deal that pays him about 4.5× to 5× annual EBITDA and he’ll usually entertain it. That math, in general terms — corporate overhead and pension issues aside — tells Freeman he’ll make as much money selling as he would in continuing to run (and cut) his current holdings. Of course, that compares a current sum of money, in an offer, to a projected future revenue stream, and newspaper’s deepening print ad woes may have altered Freeman’s calculations.

    Then there’s the looming question that’s tough to confront publicly: If a paper like the Post has been cut back so much — from more than 300 in the newsroom to fewer than 75, with a product, print and mobile, much behind the times — can it still be revived? While peer metros — think the Star Tribune and The Dallas Morning News as the exemplars — execute a print-to-digital transition strategy on the foundation of still-robust newsrooms — can those that have been cut to the bone be revived?

    It’s an ugly question but a real one. Subscription revenue, especially digital subscription revenue — one of the many areas DFM has underfunded — is the make-or-break linchpin of future success. But DFM papers, given their high pricing and ever-weakening products, have lost a higher percentage of subscribers than its peers. It will take a mighty, long-term effort to get them back.

    So what could happen next?

    The Post tells us layoffs begin today. The news world will be watching for what, if any, action is taken against the Post’s editorial board for its gutsy stand. Other DFM journalists await those signals before deciding on their own actions. But beyond watching and publicizing, what can be done?

    Consider the Post’s readers — and best advertisers — on full notice. Sunday’s section and the coverage of it ensure that. Subscribers could be organized to cancel, or provisionally cancel, their subscriptions — a dicey game perhaps, but one to which Freeman would have to pay attention. In fact, the more I look at Alden’s strategy, the more the cynicism behind it shows through. It knows it can continue to cut and cut journalists — and raise subscription prices — and still take in enough money to keep profits flowing. Why? Two words: lag time. Enough subscribers of two, three, and four decades still want the paper, and even in DFM cities, they’ve continued to pay up. Alden works that lag time, squeezing every last cent out of every last year. Somehow disrupt the lag time, and profits plummet.

    Then there is the advertiser question. As the Parkland protests have shown us, can be effective. This too is a tough question, but would prominent Post advertisers be willing to weigh in on the kind of product they will support going forward?

    Today, attention focused on Denver. But recent Alden-ordered cuts in the Bay Area, in Los Angeles, and in Saint Paul all have taken similar tolls. In total, DFM still runs across the country. “Denver is getting hard hit, but some of the small papers actually are in more dire situations, when they only have a couple reporters or so,” one knowledgeable DFM observer told me.

    After this big splash, how much will this sense of truth-telling rebellion grow? And similarly, will it give more backbone to the beleaguered Sinclair local TV station journalists, who have seen their own reputations besmirched as they are ?

    There is more at stake here than 30 jobs cut at Colorado’s largest daily. It’s the soul of the trade that’s seen new light shone upon it.

    Is Alden an extreme case of vulture ownership? Sure, but Alden’s approach is only the steepest spiral downward, and only the most egregious approach to the business. Consider Michael Ferro’s cozy self-dealing over his two-year tenure at Tronc. Consider the endless corporate-ordered newsroom reorgs that have just shuffled fewer deck chairs year over year. Consider the many strategies based more on cost-cutting than on investment. All of these strategies have led us to the current local news tragedy. In the Denver Post protest, do we see the opening curtain after intermission, or a move to the final act?

    Photo showing the 142 members of The Denver Post’s newsroom staff in 2013 — with the blacked-out marking those now gone — via .

    POSTED     April 9, 2018, 9:31 a.m.
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