Hedge funds killed the newspaper industry, not the web

The web came of age with no-holds-barred finance capitalism, so it's hard to decide which of the last twenty years' worth of changes are the result of the tech industry, or of financialization, or a toxic mix of both.

In an exhaustive and fascinating article in the American Prospect, Robert Kuttner and a psuedonymous editor at a hedge-fund-owned community paper make a compelling case that the acquisition of community papers by private equity firms from their retiring, patrician family owners destroyed the news: mass newsroom layoffs, centralized decision making and design, pay-cuts and pay-freezes, and the kind of petty, short-sighted penny-pinching that is hard to believe (editorial staffers at the papers owned by Gatehouse don't get free subscriptions to the newspapers they contribute to).

Now, it's obvious that the web has been hard on the advertising market for print periodicals, but the hedge-fund-crapification of newspapers started before the web did, and had already degraded and weakened the news market, leaving it vulnerable to disruption (not least because private equity's favorite play is to sell off a business's real-estate and physical plant and load it up with debt, leaving it in fragile straits should its fortunes change).

And the increased weakness of newsmedia has only accelerated the process. In Canada, a group of US private equity vultures are publicly choking one of the national newspaper chains to death. The web is certainly not helping these papers survive, but there's a lot of talk about Craiglist's impact on classifieds, and a lot less on whether a newspaper that loses 70% of its newsroom and then raises its prices can be said to be well-managed or even worth saving.

Imagine what these papers might be if this money were reinvested in the newsroom and in an enlightened digital strategy.

So, despite having cut costs to the bone, the private equity parent is, for now at least, able to take out profits in the range of 15 percent to 25 percent of revenue. Papers that don't hit this mark can be sold for scrap or closed. Imagine what these papers might be if this money were reinvested in the newsroom and in an enlightened digital strategy.

GateHouse owns more newspapers, currently in 36 states, than any other media conglomerate: a mix of dailies, paid weeklies, and free "shoppers," mostly in small cities, but also a few bigger city papers like The Providence Journal, the Worcester Telegram & Gazette, and The Columbus Dispatch.

The model is simple. Buy a newspaper on the cheap, often from a legacy chain like Gannett or from a family owner whose siblings and cousins want to cash out. In the glory days before the internet and the financial collapse, newspapers were earning profit margins of 20 percent to 30 percent, and they cost at least 13 times earnings to purchase. This was the era in which buyers grossly overpaid for newspaper properties, the epic case being The New York Times purchasing The Boston Globe in 1993 from the local Taylor family for $1.1 billion, only to sell it two decades later to Red Sox owner John Henry for about $70 million.

Saving the Free Press From Private Equity [Robert Kuttner & Hildy Zenger/The American Prospect]

(Image: Patxi Izkue, CC-BY)