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July 30, 2014

Media News, Bankruptcy and the Fog of Media War

Who will be next? And is the mating of banko companies
the look of the next year?

Dean Singleton bit the bitter bullet last week. After
staving off bankruptcy for all of 2009, telling MediaNews execs that the
company would not need to take that route, the company succumbed. MediaNews
is following Morris into bankruptcy, both taking the neater, pre-packaged route,
allowing quicker movement through the courts and, importantly, a continuity of
leadership.

Put together the long list of bankruptcies – Star-Tribune,
Tribune, Philadelphia Media Holdings, Journal Register, Sun-Times Group, Freedom,
Morris, MediaNews and some smaller ones – and you’ve got quite a chunk of
America’s dailies. With MediaNews – publisher of 55 dailies – joining the
second-largest US news publisher Tribune, industry guesses now turn to whether Lee, McClatchy
and Gannett can get to the other side, without a game board stop on the banko square.
 

That other side, of course, is murky itself, but expect it
to include more newspaper combos. Singleton, just as he was about to wheel his
hard-built company into court, told the Wall Street Journal that he wanted to
be the “aggressor” in the merger of newspaper properties. That’s an unlikely
statement from most CEOs taking their companies into bankruptcies, but it’s
pure Singleton irrepressibility [Excellent piece
by MediaNews alum Martin Langeveld on MediaNews’ spirited 25-year rise at
Nieman Lab]. After all, he and MediaNews president Jody Lodovic are set to
emerge from the bankruptcy maintaining their management of the company (through a special class of stock) and with a 20% ownership stake, as other equity shareholders
– including now-estranged, ex-partner Hearst, Skiffing off in its own direction, get nothing.

So imagine:

  • In the Twin Cities, the bankers who now own the
    Star Tribune decide to throw in their lot with Dean. After all, he’s a
    newspaper guy, and they’re not. Sure they’ve hired
    a new publisher with intriguing cred, but do they really have the appetite for
    a long-term turnaround?
  • In L.A., Tribune’s soon-to-be-owners similarly
    may have little interest in staying the course. Maybe a L.A. combination, involving the Times around
    lowered-cost, higher-efficiency publishing  – Singleton’s once and future trademark – is the way to go.

Anti-Trust, you say. Dean can find good attorneys to make
the case that it’s hard to see how bankrupt entities can dominate a
market! 

For most of these companies, bankruptcy is just a re-set, a
way of buying some more time, as new managers or old ones try to come up with a
new strategy. Most of these companies bet on the come, taking on big debt, at
what turned out to be an imprudent time. Sure, Sam Zell’s move was laughable on
the face of it.  The well-meaning
Philly and Twin Cities gambits were both cases of misunderstanding the bargains
the marketplace offered up. These weren’t distressed properties in a good
industry; they were distressed properties in a distressed and distressing
industry. For all, large debt is now seen as the anchor holding them back from a
fresh start.

The economics are fairly straightforward.

Recall a year ago when company after company had fallen into
a recession-ravaged operating unprofitability? Major staff, newsprint and
operating cost-cutting, and the easing of recession, got them back into the black,
month-to-month, many barely so. Yet debt service, once made possible by good
cash flows from existing and newly acquired properties, has become a major
barrier. Going-forward, within the new reality of the print-based news
business, it’s proven widely unsustainable to both maintain a large enough
business presence and pay off the debt. MediaNews will emerge with $165M in
debt, one-sixth of what it had on the books in December, producing a debt service
that seems much more doable.  So,
even in 2010, the bankruptcies continue.

Given the harrowing last year publishers experienced – a
fifth of their business has disappeared in a single year, with little
likelihood of much of it coming back – 2010 feels
a bit better than 2009. Yes, it’s hard to know how accurate the feeling is.

Yes, this could be a plateau. Knocked down a couple of
notches, but standing tall on solid ground, dailies could move forward. Or it
could feel like a safe plateau and really be a ledge, a landing place offering
temporary comfort.

That’s the vantage point, partly obscured by rock and clouds
(the last visibility on budgeting was sighted around 2005, I think) as dailies
make a slew of vital decisions that will determine their fate. Call it the Fog of Media War. There’s precious
little wiggle room left, as publishers make such fundamental calls as:

  • Erect a paid content wall or not;
  • Bet on the tablet as the saving grace of the
    time, and decide what that bet means they have to do;
  • Throw in their lot deeper with the winners of
    the first-round news and ad aggregation, Google and Yahoo, or play them off
    against the Apples, Sonys, Comcasts, Bloombergs and others making next-round
    digital business moves;
  • Consort with Journalism Online, or Skiff, or
    Microsoft, and/or re-direct the original consortium, AP
  • Re-consider the basics, and economics, of
    content creation, as AOL-Demand-Helium-Associated Content-Examiner models upend
    long-established notions of professional journalism creation.

As 2010 rolls out, that’s just the top of my list of the
real decisions that are in front of daily execs, in or out of bankruptcy. Tough
decisions, and ones better assessed from a broad Far West plateau on a
cloudless day, than on a ledge in the thick of a passing storm that’s left many
clouds on the horizon.

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