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Finance Is Killing the News

The saga at "The Denver Post" reveals that the internet isn't the only culprit in the decimation of the journalism business

Justin Sullivan/Getty Images

Earlier this month, the 50 remaining staffers at The Denver Post fought to save their paper from their hedge fund owner, Alden Global Capital. Facing steep cuts, the paper’s editorial board took a stand in a blistering column. “We call for action,” the board wrote. “Denver deserves a newspaper owner who supports its newsroom. If Alden isn’t willing to do good journalism here, it should sell the Post to owners who will.” A day after the editorial was published, 30 journalists were fired.

All this despite the fact that both the Post and its parent company under the Alden umbrella, Digital First Media, were profitable. The Post has been bled dry. Since it was acquired by Alden, the paper’s 200-person newsroom has been hollowed out, substantially reducing the breadth and depth of its coverage.

There may be a happy ending at The Denver Post. Last week it was reported that a Colorado-based civic group had raised $10 million with the intention of purchasing the newspaper. But this is a story playing out across the country, particularly in smaller areas that lack individuals with the wealth needed to rescue newspapers from hedge funds and private equity. (The Los Angeles Times, which experienced turbulence with its debt-laden owner Tronc, was sold to billionaire Patrick Soon-Shiong alongside the San Diego Union-Tribune for $500 million in February.)

The resurgence of private equity has led to a focus on its role in bleeding dry profitable retail chains like Toys ‘R’ Us. But predatory financial institutions have played an enormous, under-appreciated role in the ongoing local journalism apocalypse.

The larger narrative surrounding the decline of local news goes something like this: For decades, newspapers had monopolies (or near-monopolies) over printed advertisements. While advertisers had some other options—billboards and, for larger businesses, television ads—most had nowhere else to turn, making the classified section extremely lucrative for newspapers. The internet changed all of that. Suddenly, there were a wealth of cheaper options to get a message out.

Beginning with Craigslist—and culminating with an online ad duopoly controlled by Facebook and Google—the newspaper business model was rapidly disrupted. Decreases in revenue were met with cuts to coverage, which led to precipitous drops in circulation, which then led to further cuts in coverage. Newspapers in cities big and small were decimated. While some national-oriented newspapers, notably The New York Times and The Washington Post, have managed to buck these trends, thousands of local papers have struggled to survive.

But while the implosion of the newspaper revenue model remains the prime driver of this phenomenon, in recent years another culprit has emerged: finance. Alden owns a number of papers beside The Denver Post. According to a report in The Nation, since acquiring Digital First Media, AGC has “eliminated a staggering two out of every three staff positions at its media properties.” While cutting positions, Alden has loaded up many of its newspapers with debt that it uses to finance other projects. It also “‘borrowed’ $248.5 million from newspaper workers’ pension funds, and had the newspapers take on $200 million in debt to finance its own investments.”

Executives at the company, meanwhile, have been richly rewarded. They have purchased expensive real estate in New York and Florida. The papers that Alden bought were, until the hedge fund came along, profitable (though that’s partly due to post-digital cutbacks). The hedge fund nevertheless set unreasonable profit targets; when coupled with the debt that these papers have been saddled with, the result was criminal. A successful paper is turned into a shell of its former self so its hedge fund owners can buy houses in the Hamptons.

Alden is hardly alone. A report late last year in The American Prospect found that smaller newspapers across the country have been targeted by private equity: dumped with debt, then harvested to death. Because newspaper earnings have fallen, they are cheap for private equity firms to buy. These firms can then juice profit margins by cutting staff. Meanwhile, the debt prevents newspapers from reinvesting profits into rebuilding their newsrooms. Instead, staff cuts continue as papers try to meet impossible profit goals. And because staff cuts prevent papers from covering important local issues—or, sometimes, even just the basics, like city council meetings and sporting events—circulation drops further, making them irrelevant and unattractive to other buyers.

In some ways, this is similar to what’s happening in retail. For the last several years, private equity firms have wreaked havoc on the industry, destroying profitable chains by larding them up with unsustainable levels of debt. In the case of retail, internet disruption provides cover for these firms. When Toys ‘R’ Us gets shuttered, pundits blame Amazon; when a newspaper goes under, people blame Facebook and Google. Financial firms, meanwhile, move on to the next target.

As in retail, digital disruption remains the most significant driver of instability. However, statistics show that private equity firms have made things decidedly worse for newspapers. According to the Prospect report, “Between 2012 and 2016, according to the Bureau of Labor Statistics, all newspapers lost 24 percent of their workforces. But at a sample of 12 papers owned by [Digital First Media, the company that owns The Denver Post] the layoff rate was more than half, according to a tabulation collected by journalists who worked for DFM papers.”

Just as importantly, these firms—unlike struggling newspaper chains like Gannett—have no interest in the work that these outlets do, making them even shoddier and creating “news deserts” across the country.

Lack of robust local newspaper coverage can have devastating effects. With minimal local journalism, citizens lack the information they need to make important decisions about their elected officials and schools; without watchdogs, corruption and environmental degradation can increase. Studies have shown that one result of a dip in the number of local news outlets is a decrease in voter turnout.

There are national implications as well. A Politico report that was published earlier this month found that Donald Trump “outperformed the previous Republican nominee, Mitt Romney, in counties with the lowest numbers of news subscribers, but didn’t do nearly as well in areas with heavier circulation.”

There is some good news in the world of local journalism. Earlier this week, The New York Times profiled Report for America, which aims to hire 1,000 journalists in communities that are lacking significant coverage by 2022. That’s a step in the right direction. But to stave off the death of local news, papers across the country need to be saved from big finance.