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November 22, 2014

The Demise of Lean Dean Singleton and the Rise of Private Equity

Dean Singleton worked the deals in corners of the U.S. for decades, building from scratch a major chain, that by circulation (though, not revenue) is probably the second largest in the country. If he was once dismissed by his more patrician peers as Lean Dean, for his lower operating cost philosophy and practices, he did okay for himself, serving as chair of the Newspaper Association of America and now as chair of the Associated Press board.

He 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.

It ran out officially today, as MediaNews announced that Dean Singleton, his long-time #2, Jody Lodovic, and three Singleton-appointed board members would all step down from their positions. The new CEO search has begun, with Lodovic gone immediately and Dean retaining chairman and publisher posts at his flagship Denver Post (where he finally drummed the Rocky Mountain News into the dustbin of history in 2009) and the Salt Lake Tribune. Singleton will also “focus on opportunities to optimize the company’s portfolio of properties and consolidation opportunities in the newspaper industry” and remain as executive chairman of the company when he steps as CEO, which will happen when his successor in that position is announced.

Dean fought as tenaciously to keep his empire alive as he had fought to build it over the years. Yet, in the end, he was overcome by the same forces that have brought chaos to the whole industry: a failure to satisfactorily transition the business from print to multi-platform, and by the depth of the recession, which seems only to have accelerated that transition.

This change in leadership won’t be a matter of rearranging the deck chairs, and therein lies the next MediaNews chapter, and one that we’ll see written for several other newspaper chains now effectively controlled — after bankruptcy reorganization or simply extensive restructuring of debt — by private equity and bankers of several kinds.

Look at whom is replacing the three departing Singleton-ites on the MediaNews board, from the release: Heath Freeman, Managing Director at Alden Global Capital; Bruce Schnelwar, Executive Vice President and Chief Financial Officer of Smith Management LLC and Managing Director and Chief Financial Officer of Alden Global Capital; and Eric Krauss, who was most recently Chief Financial Officer of Action Sports, Inc.

If the name Alden Global Capital is starting to sound vaguely familiar, it’s because the company has been mentioned in stories about shake-ups at Freedom Communications and the new Philadelphia Media Network, both of which it owns stakes in.

This phenomenon of private equity and bank owners asserting their controlling stakes in news companies has been little discussed publicly. In part, that’s because the new owners have been largely silent; one journalist expressed dismay today when he went to the Alden site, and found a single page. To get into the site, you need a client log-on.

We can look at this new ownership phenomenon two ways. The easy one is to decry largely silent control of the press by bankers, whose main motive is to create something of value of their woebegone holdings, and then sell out in the next several years. Bankers, after all, don’t come with the public service gene that have defined even the most profit-seeking traditional publishers. We are naturally suspicious of what they may do with the newspapers.

Another way to look at it, at least for a moment, is through the eyes of these new owners. The owners are looking at their properties as the only advertising-oriented media that didn’t make a comeback in 2010. With ad revenues down in single digits, the companies continue to shrink in revenue, as other media, particularly digital-only and broadcast, but even magazines, frame a growing future. Those media tell a better story, and you’d better have a better story if you want to establish value in these newspaper companies — to sell them and recoup at least part of your investment — over the next two to four years.

Several years into their new ownership, we’re seeing increasing impatience among the new owners with the old leadership. A growing conventional wisdom among them: too many newspaper CEOs just aren’t moving faster enough to grasp the mostly digital, multi-platform future. In fact, some of the new owners are meeting directly, without company leadership, with technology players who are offering shortcuts to the digital future. That’s one sign of the impatience.

Another is the replacement of leadership, today Singleton and Lodovic, with new talent. At Freedom, the new owners brought in as CEO Mitchell Stern, who came from DirecTV. In Philly, they brought in Greg Osberg as CEO and publisher; Osberg comes both from magazines and digital start-ups. The new Star Tribune owners brought in Mike Klingensmith, a Time Inc. alum. The new formula: out with the newspaper-only people and in with media people, whose experience is non-newspaper or newspaper-plus. Expect to see a similar move when the new MediaNews CEO is named.

For Dean Singleton and the industry, it’s a sea change. He built a company of great size and uneven journalism, from great to deeply mediocre. He made digital investments and then dismantled his central digital staff last year. He fought the spectre of bankruptcy hard, cutting deeply into the staffs of his newspapers. In the Bay Area, where I live, the result is palpable. Such papers as the Mercury News, the Contra Costa Times and the Santa Cruz Sentinel are shadows of their former selves; those shadows will soon be tested as some of them try metered pay walls this year, and customers, asked to pay, weigh whether the old papers have just cut too much.

One former MediaNews editor told me he did the requisite city tour with new owner Singleton, soon after Dean bought his paper. On the tour, Singleton told him, he says, that as long as the distinct local masthead was preserved, you could fill inside of the metro section with news from the wider (in the Bay Area case, more than a hundred miles) area, and readers wouldn’t know the difference. That contention is now sorely contested.

So, as he flash forward to 2011, the year of the tablet and more, the new leaders tapped by the new owners may, in fact, be what’s needed to both let go of the past and invest in the future. Some of the new owners fear that in all the restructurings, too much and/or the wrong things have been cut. The optimistic picture is that new leadership will help revive fractured franchises, and actually produce better journalism, en route to sustainable profitability. The pessimistic one, of course, is that we’re just in for more chaos and cutting.

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