Marc Tracy at NYT:
Over the last decade, the finance industry noticed that newspapers were distressed — but potentially valuable — assets that were available at bargain-basement rates, said Penny Abernathy, the U.N.C. journalism professor who wrote last year’s report, “The Expanding News Desert.”
A paper that once fetched a price of 13 times its annual revenue could be had for one-fourth that amount. In the role of publisher, investors discovered that lowering overhead typically reduced costs at a faster rate than it drove down revenues. Many papers shrank. And their profits went up.
“Put yourself in the shoes of a hedge fund or private equity firm,” said John Longo, a Rutgers Business School professor. “Newspapers have steady, albeit slightly sinking, cash flow. In that kind of business, you can put some leverage on.”
If you ignore that the industry showing signs of ill health under its new minders has been deemed so essential to the nation that it was enshrined in the First Amendment, then these practices, straight out of the Wall Street playbook, seem unremarkable.
“They used the same notion of how they would manage newspapers as they would widget factories,” Ms. Abernathy said.
The hedge-fund-controlled publishers GateHouse Media and MNG are now among the four companies that own the most newspapers in the country. And MNG made efforts to buy the other newspaper chain among the big three, Gannett — which is now in talks to merge with GateHouse Media.
Alexia Quadrani, an analyst at J.P. Morgan, hinted at a flaw in the strategy of the industry’s new entrants: “It’s a cash cow, right? But at the end of the day, it is in decline. You ask yourself, What’s your endgame?”