Saturday, March 25, 2023

how corporate greed it killing newspapers

 


 

As you know by now, my favorite source of news is newspapers, and I’ve written a couple of articles about them before:

https://tohell-andback.blogspot.com/2022/02/

 The article listed above gave a summary of the current state of the newspaper business, and it included comments about some of my favorite columnists. Right near the end of the article is a link to an article that Mike Royko wrote in 1979,


I GUARANTEE that it will bring tears to your eyes.

 The article below discusses the current financial situation of today’s newspapers, and it offers a clue on how they can survive. The article also discusses one of the main villains in the current newspaper crisis, and its name is Gannett:

 https://tohell-andback.blogspot.com/2019/01/

Since the article above was published, Gannett has a new CEO, and his name is Mike Reed, who joined Gannett in 2019.

Brian McGrory, now an employee of the Boston Globe, has a few thoughts about Mr. Reed:

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To be clear, Mike Reed didn’t cause the seismic collapse of the newspaper industry. No, larger forces had everything to do with that. But Mike Reed has inflicted brutal and probably irreversible damage on already struggling news organizations all across this country. Mike may well lead the league in bad decisions, every one of them made with the confidence of someone who never gets anything wrong.

More debt? Mike’s your guy. Distant, unresponsive ownership? Where’s Mike? Fewer journalists? Nobody’s better at sending them to the unemployment line than Mike.

 

Mike Reed used to be the CEO of GateHouse Media, which had the proud distinction of not being the worst of the private equity-driven raiders that were buying newspapers, gutting them for profits, then leaving them as scant shells of what they once were. In 2019, Reed set his sights on Gannett, another massive newspaper consolidator, albeit one with a prouder history. GateHouse bought Gannett, took its name, and made Mike Reed the CEO.

At the time, Reed said the combined companies would save some $300 million in “efficiencies.” Pressed by a New York Times reporter in 2019 for some estimate of how many newsroom cuts the chain could anticipate, Reed replied, “I can’t give you an exact number, but almost nothing.”

Good one, Mike. Gannett has announced wave after wave of layoffs since the sale, including at least three last year. It forced employees to take furloughs and other assorted pay cuts, paused the company 401(k) match, consolidated and closed papers, and froze hundreds of open jobs. Joshua Benton, the director of the Nieman Journalism Lab, wrote a lengthy story on the implosion of Gannett’s circulation this month in which he said the employee count was cut in half since the 2019 sale.

There’s more. Gannett stock has plunged about 70 percent under Reed’s leadership. The company is groaning under more than a billion dollars in debt from the sale, debt that had an initial interest rate north of 11 percent. Did Reed buy Gannett with a Discover card?

So you, like me, might wonder what a company pays a CEO who has inflicted this kind of generational damage on journalists, on a particularly fraught industry, on many millions of would-be readers and the communities where they live, and on shareholders. The answer, courtesy of the most recent proxy: $7.7 million in 2021.

Let’s pause there. Does anyone really think Gannett couldn’t convince Mike Reed, a former CFO, to cause this kind of mayhem for $2 million a year, or maybe $1 million, instead of eight? Does anyone think that Reed deserves to be paid more than the CEO of The New York Times Co., which he is?

The Patriot Ledger, which had a couple of hundred journalists at its peak, now has four news reporters. Four. When I worked there out of college, we had three people covering the town of Plymouth, and it was hailed as one of the best suburban papers in America. It’s hardly the only remnant. There’s The Cape Cod Times, the Providence Journal, the Brockton Enterprise, the MetroWest Daily News, the Worcester Telegram & Gazette — none better for Gannett’s stewardship. And so many reporter-less weeklies all over Massachusetts and beyond.

https://www.bostonglobe.com/2023/03/23/opinion/gannetts-ceo-is-getting-rich-by-gutting-newspaper-near-you/

 

Gannett is one of the largest newspaper chains in the country. The link below lists all the papers it owns, and it is close to 300. One of them is the Arizona Republic, which I have a subscription to:

https://en.wikipedia.org/wiki/List_of_assets_owned_by_Gannett

Mike Reed, of course, is not the first “vulture capitalist. That title would likely be  Carl Icahn.

 One of Icahn’s first targets was Trans World Airlines,  which started  business in July of  1930.

Howard Hughes acquired control of TWA in 1939, and after World War II led the expansion of the airline to serve Europe, the Middle East, and Asia, making TWA a second unofficial flag carrier of the United States after Pan Am. Hughes gave up control in the 1960s, and the new management of TWA acquired Hilton International and Century 21 in an attempt to diversify the company's business.

As the Airline Deregulation Act of 1978 led to a wave of airline failures, start-ups, and takeovers in the United States, TWA was spun off from its holding company in 1984. Carl Icahn acquired control of TWA and took the company private in a leveraged buyout in 1988. TWA became saddled with debt, sold its London routes, underwent Chapter 11 restructuring in 1992 and 1995, and was further stressed by the explosion of TWA Flight 800 in 1996.

In January 2001, TWA filed for a third and final bankruptcy and was acquired by American Airlines. American laid off many former TWA employees in the wake of the September 11, 2001, attacks. TWA continued to exist as an LLC under American Airlines until July 1, 2003. American Airlines closed the St. Louis hub later that year

https://en.wikipedia.org/wiki/Trans_World_Corporation

Icahn is an American financier. He is the founder and controlling shareholder of Icahn Enterprises, a public company and diversified conglomerate holding company based in Sunny Isles Beach. Icahn takes large stakes in companies that he believes will appreciate via changes to corporate policy and he then pressures management to make changes that he believes will benefit shareholders. He was one of the first activist shareholders and is credited with making that investment strategy mainstream for hedge funds. In the 1980s, Icahn developed a reputation as a "corporate raider" after profiting from the hostile takeover and asset stripping of Trans World Airlines.

Icahn is on the Forbes 400 and has a net worth of approximately $17 billion to $24 billion.

Since 2011, Icahn no longer manages money for outside clients, although investors can invest in Icahn Enterprises

https://en.wikipedia.org/wiki/Carl_Icahn

 

What you may have noticed is that ruthless cost cutting benefits few people other than the CEO making the cuts.

Icahn is worth as much as $24 billion, but he destroyed a company (TWA) that had been in business for more than 60 years. Elon Musk’s severe cost cutting at Twitter has caused the share value of both Twitter and Tesla to plunge.

 

As mentioned above, the value of Gannett stock has plunged 70% since Mike Reed took over.

In contrast, consider the investment strategies of Warren Buffett, who includes GEICO as one of his investments. He is a believer in buying well managed companies, and holding on to them. Long ago, he realized that treating employees as assets, rather than liabilities, is a sound business decision, which is why Costco’s profit margin is higher than Walmart’s:

 https://tohell-andback.blogspot.com/2022/11/that-why-they-pay-you-big-bucks.html

 

At least some of the papers under Gannett’s ownership will survive, but not all of them will,

This will leave a number of markets without a local news source, further contributing to the “dumbing down of America”, one in which 9 of the top 10 cable shows are on FOX, In case you are wondering, FOX is  actually not a news outlet, but an “entertainment” outlet, which is how Roger Aisles registered the company at its 1996 launch.

Gannett itself has a long history, and it goes all the way back to 1936. It is the largest newspaper publisher in the country, and it also owns about 50 TV stations. It will likely stay in business long into the future, but I predict that Mike Reed’s tenure will be short-lived if the stock price stays in the cellar.

To quote Rush Limbaugh, “that’s the way things ought to be”

 

https://en.wikipedia.org/wiki/Gannett

 

 

 

 

 

 

 


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