Update: Over the past several days since I posted this, I’ve received a number of concerning messages from both advertisers and readers in the community. A number of people have told me they’ve cancelled their subscriptions, some who have been readers for 40, 50, 60 years. They say the cutbacks at the paper have eroded it enough that they can no longer justify the expense of it. (By the way, you do know that Gatehouse has been sued for charging readers a “premium” without getting their approval, don’t you? You might check the details of your subscription. I don’t know if they’ll do it here, but they consider the ad-heavy Thanksgiving edition a “premium” in other markets. Here’s an example from the Rockford Gatehouse publication. Read the fine print at the bottom, and notice how the web site is almost identical to every other site they own).
Additionally, a long time advertiser told me the organization decided to end its relationship with Gatehouse in Hutchinson. The reason was two-fold: The company didn’t feel it was getting an adequate return on investment from its advertising, and it was unhappy with some of the “big city” sales techniques that have been deployed since Gatehouse purchased The News. This includes the option to “buy” a better voting placement position in the recent “Best of the Best” feature, and offers of free hotel stays and flights and various “prizes” that are awarded with the purchase of some ads. There’s nothing wrong with all that, technically, but according to this advertiser, it seems unsavory in a community like Hutchinson.
As Gatehouse no doubt continues to erode it’s content, it compromises the ability to maintain an audience, and I expect advertisers will continue to see less value in their marketing dollars. A company can cut it’s way to the profit margin it wants, but it can’t cut it’s way to the audience growth that advertisers demand.
There’s an old saying that you should never argue with someone who buys ink by the barrel. Luckily for me, the local newspaper doesn’t seem very interested in buying ink anymore; it’s hastening its change to a digital publication and in that world, no one has more pixels than anyone else.
I’ve been relatively quiet – publicly – on the issue in the time since Gatehouse/NewMedia purchased The Hutchinson News from the Harris family in December 2016. Even after I left the company in June, I largely kept my thoughts to myself. I have friends who still work there, and I didn’t want to do anything that would upset them, or serve to inflame readers or advertisers in a way that could further erode the paper’s revenue, and by extension, my friends’ careers. And, I have a deep fondness for The News. I worked there 15 years, came up the ranks, and felt some real ownership in the place for many of those years.
I didn’t say much publicly when the first round of layoffs came. Or the second. Or the third. Or when they shipped the entire design/production of the paper to a centralized location in Austin, Texas. Meanwhile everyone at the news had been told repeatedly that none of these things would happen. When people raised questions about their concerns, they were for the most part laughed off and joked away as if they were absurd, irrational thoughts. When Gatehouse/NewMedia bought The News, I sat in a room full of other employees and listened as one of the top brass told us that we’d hardly notice any changes at all. That the news would continue largely as it had always done, because the company had a strong commitment to the news product and the community.
Time, however, has shown the truth. And it’s past time to have an honest conversation about what is happening at The Hutchinson News and the true intentions of its corporate owners.
Also, I’m not especially known for my quietness.
On Friday, another round of layoffs came to The Hutchinson News – I know of four people who were let go. When I left in June, the count of displaced workers was around 20; counting part time staff that’s been released, it must be near or more than by 30 now. But I don’t have a solid number, and The News doesn’t report on its own staff reductions as it once did. (This used to be a common practice. The logic being that if someone else in town laid off employees, we would report on it and must be willing to have the conversation about ourselves that we had about other employers in town).
This round of layoffs is cutting to the quick. The layoffs include two reporters, a photographer, and a graphic designer. By my count, there are five reporters left in the newsroom. One sports reporter. Two full-time photographers and a photographer who doubles as a videographer for both the news and advertising departments.
These cuts will no doubt be billed as streamlining amid a changing landscape in media. Print revenue is declining, and readers are moving to digital. They read the news on their phones, and on their laptops at work, and from Facebook and other social media apps. There’s some truth to that. The world is moving to digital. It has for some time now and newspapers were late to the game. But it’s not universally true, nor is it happening organically in every market.
But what is happening now, I fear, is a deliberate attempt by big corporations to hasten the complete move to digital and bring an end to its print product.
The central question, I think, is this: Is Gatehouse/NewMedia a news organization or something else entirely?
I argue it is not at all a news company – it’s sole purpose is to generate value – and dividends – for its shareholder. But before I go into detail on that, we need some background on news production and the local newspaper’s owners.
Putting together a newspaper is expensive. First and foremost, there is content generation that requires reporters, photographers and editors. The success of any news organization is dependent on its content – both the quality and the scope. In a town like Hutchinson, readers ought to feel as if the content provides an accurate snapshot of life in the community. They should feel like the reporters are working on their behalf to inform them of important issues, events and developments in town. Based on the conversations people in this community are having with me – that I am not initiating – Gatehouse/NewMedia is failing on this front. And that is not the fault of the news staff that remains at The News. I hope people will separate the people who generate content from the company that publishes it.
Content then needs a place to reside, a place where it can be accessed by readers. Traditionally that has been a newspaper. It was an efficient way to reach a large number of people and provide them with that content. This is where the relationship between news and advertising comes into play. That large audience has historically been attractive to advertisers. I’ve always said that we didn’t sell advertising at The News, we sold access to an audience. Historically, newspapers were launched because someone had something to say and wanted to share it with others. When that message reached enough people, advertisers wanted in the audience stream. In today’s world, there’s the belief that the audience is potentially bigger online than it ever could be in print. Parking content online is much cheaper than printing a paper. There is no press, no paper, fewer workers to run things, and I suspect this is the end game for a company like Gatehouse.
And then there’s delivery. This, too, is expensive. There’s an entire network of people who make sure the paper makes it to your doorstep. Originally, newspapers were handed out by the iconic paperboy selling them on a street corner. The industry moved to home delivery, partly with the move to morning delivery. But this system to deliver papers is costly and time consuming – particularly when compared to the relative ease of throwing something up online for people to consume at their leisure, where ever they might be.
A news organization creates its value in the creation and distribution of information. When that’s done in a quality way, people voluntarily pay to access the content. When that happens, advertisers voluntarily pay to be included in that information. But I have never felt that Gatehouse’s primary goal was to create compelling content. It’s function is to create cash flow so that it can pay shareholders a mind-blowing 10-percent dividend on its shares. For Gatehouse, advertising revenue is the product; news and information is just the necessary package that it’s sold in. That is demonstrated by the uneven distribution of the layoffs – news has been hit far harder than advertising.
I read the transcripts from the CEO’s latest conference call with shareholders. To me it demonstrates the company’s mission.
“At a summary level, there are three primary factors to our thesis. One, we generate strong and consistent cash flows. Two, we are committed to investing in growth and have multiple avenues for growth. And three, is our strong commitment to returning capital to shareholders.”
This talk about returning capital to shareholders is a prevalent theme in the call. After reading it, I felt confident that this is the company’s primary concern. Gatehouse/NewMedia has been on a buying spree in the past several years – gobbling up small and mid market papers. That is how they achieve the desired growth. Some analysts have expressed concern about this, saying that the financials don’t support these purchases – or the company’s 10 percent dividends. Yet they persist.
Here’s another interesting excerpt from the call:
Traditional print revenues were $145.6 million and they decreased 12.3% on an organic same-store basis. Within this category, preprints, classified print and local print advertising categories declined 9.5%, 12.7% and 12.5% respectively on an organic same-store basis. Digital, our consistently growing revenue category, increased 9% to $34.8 million. Digital now represents 10.8% of our total revenue performance. UpCurve is the primary driver of this performance and generated $17.3 million in the quarter, up 44.4% to the prior year and now comprises 52.2% of our total digital revenue. Circulation, which comprises approximately one-third of New Media’s total revenues, was $110.6 million, flat to the prior year on an organic same-store basis. Digital-only subscribers were up 37% to over 59,000 in the quarter, while overall volume declines were down in the mid to high single digits.
Did you see it? The company makes $34 million from digital revenue, $145 million from print advertising and $110 million from circulation. And how about the 59,000 digital only subscriptions? Not the sort of robust endorsement I’d expect to see from a company that is putting all its eggs in the digital basket.
The thing about newspapers is that they cash flow really well. There’s always money coming in, even if it’s not enough. The communities in which they are buying are much like Hutchinson. They buy the only local paper, and in turn, capture an already existing cash flow. Then all Gatehouse has to do is shrink its operating expenses enough to make the numbers work. And that’s how they’re able to finance so many purchases and continue to pay those dividends – some of which is going to the company CEO, et all. The company recently purchased around 300,000 of its own shares and is prepared to buy up to $100 million worth of its own stock.
Also in the mix is the fact that Gatehouse is owned by a company called Fortress, which is an investment and management company. That company was recently purchased by Softbank, which is a giant Japanese firm that might actually own everything in the world.
Fortress is a hedge fund. It makes money for shareholders, and that’s its raison d’etre. It does this largely by charging the companies it owns a management fee.
By the terms of its agreement to manage the company, Fortress earned $19.4 million in compensation last year from New Media, based on the conventional private equity standards of a management fee of 1.5 percent of New Media’s total equity and “incentive compensation.” Each acquisition increases that total equity, providing a compelling rationale for more buying of newspapers.
That basically says when Gatehouse/NewMedia buys papers, they increase their equity, which means the management fees to Fortress increase, which means that shareholders get a better return. To do this, however, they are racking up a lot of debt.
Also from the conference call: “We ended the quarter with $154.3 million of cash on the balance sheet and $40 million undrawn on the revolver. In addition, we have $80 million of availability to upsize the existing term loan using the accordion feature. Debt outstanding at the end of the quarter was $343 million.”
I want to make a side note here – we’re all complicit in this practice.
“But wait! I don’t have anything to do with hedge funds and corporate raiding!”
Yes, you do, if you have a retirement account. Many of these shares are owned by institutional investors that manage our retirement accounts. And since we all throw out money to the stock market in the hope that we’ll someday, at long last, live comfortably, we are also giving these companies the money needed to finance bigger and better corporate takeovers of the companies that employ us.
“Institutional and mutual fund shareholders, including Vanguard, T. Rowe Price, Wells Fargo, and Black Rock Fund own at least 70 percent of the company. They find its dividend — just increased to 35 cents per quarter — attractive. There’s rich irony here: The retirement funds of those in the news industry, among many others, helps fund these New Media takeovers, which in turn result in more job cutbacks and the thinning of journalism in communities from coast to coast. Those nice dividend checks mean fewer journalist paychecks.”
The irony is palpable, but that’s a different conversation for a different day.
My original question was whether Gatehouse/NewMedia is a news organization or an investment organization.
The answer, to me, is clear – it’s an investment organization. Its primary function is not news. It is not the communities from which it profits. A company like Gatehouse/NewMedia is no different than a Walmart or other giant company that moves into a community. They are there to extract wealth. Period. Once that wealth dries up, they’ll sell out and move on.
People want to talk to me a lot about what’s happening at The News. They are upset. They are frustrated. They wish it was different. And those conversations happen because people care, because they feel that the paper, historically, has been a part of their lives. I’ve met people who said they felt like they knew me because they read what I wrote for so many years. I know that’s the case with other reporters. The News has traditionally been part and parcel of the community it serves. Even people who grumble about the paper, or didn’t enjoy its editorials and columns, still tended to see the paper as a valuable part of the community.
But that paper and that history is over. The company that owns it now is not part of the community. It has no long term vision for our town. It is not invested in the people – those who work there or those who reside here. Every employee, every advertiser, every person in this town is little more than an entry on a spreadsheet. And it’s quite likely there is a team of people in a corporate office coldly deciding whether an employee has good ROI and if the company has “maximized” the profitability of its readers and advertisers. There isn’t even a local publisher! If and when they put one in place, it’s likely he or she will be split between multiple papers across the state.
I would say that if you’re upset about what’s happening at the “newspaper” your entire premise is wrong. It’s not a newspaper any longer; it’s an investment vehicle that routes local money to New York, disguised as a newspaper and local news outlet.
When we see things for what they are, we can see what needs to be done. We have to stop pretending that Gatehouse/NewMedia is a local company that cares about this community. It is not, and continuing to pretend it is will be harmful to a city that I love and the people I’ve shared a community with for so many years.
I want to end with one last note. I am not writing this out of malice. I am writing this out of care and concern. Some of my closest friends – people who walked alongside me for the past 15 years – are still working at The News. But I question for how long – and that suspicion is based on evidence. That newspaper was good to me. I built a career from it, out of the most unlikely of odds. I saw what a good local paper can do for a community. It can provide balance between the rich and the poor, the powerful and the weak, the government and the people. It informs, and entertains. It sheds light on the dark corners, and brightens a town’s best parts. It is a vital institution, and without it, a community can lose its identity. I have a great deal of love for what The Hutchinson News once was; I have no love for a company that has come in to bastardize its tradition and history.
I’ll be criticized for this, I’m sure. I’ll be told that I’m harming people who still work there. That is not true. I can’t hurt the people there anymore than Gatehouse/NewMedia is hurting them. Conversations about layoffs are not as harmful as the layoffs themselves. And there was a time when The Hutchinson News viewed such hard conversations as an important part of the community dialogue. It is part of The News’ duty to create space for a truthful conversation about the things that have the potential to affect Hutchinson and its residents. And that includes hard conversations about itself and its role as a longstanding institution. We wrote those stories about Eaton and Siemens, and we blasted the previous out of state owners of the Hutchinson Mall when they allowed it to fall into disrepair. If The News sees the importance of raising those issues for other establishments in our community, it must be willing to turn the lens on itself.
I’m also writing this because the people left at The News aren’t in a position to speak up in their defense. And those who have been let go had to sign a contract saying they wouldn’t speak ill about the company. However, I don’t work there, and I left on my terms, so this company has no claim or authority over me.
I know the people at The News are trying to do the best work they can. They are working hard – and with this layoff, they’ll be expected to work even harder. They care about this community. And they don’t like what’s happening either – but they can’t say that out loud or publicly. And they are scared. They’ve spent this year watching round after round of layoffs, and they all wonder when it will come to them. I wish that I could say they are safe, but the truth is they are not. In this world, they are not more valuable than a dividend to NewMedia’s shareholders.
Nothing I write, in any way, should be seen as an indictment of any of the people who work at The News. It is, however, a clear indictment of a company that has shown zero interest in the long term health of the place you and I call home, or in the people I call friends.
Here’s a link to the conference call transcript, if you’re interested in reading it.