Hedge funds scoop up local newspapers withering under COVID-19 cuts
Claire Atkinson
Updated 5 min read
If things weren't going well for the local newspaper industry before the pandemic, COVID-19 might have officially brought it to its knees.
Over the past few years, the newspaper industry has been slowly acquired by deep-pocketed financial companies that believe they can cut costs, shift to digital distribution and create better returns. Now, as coronavirus-induced layoffs mount at local newspapers, journalists and industry observers fear that the pandemic could pave the way for further consolidation.
Chatham Asset Management, the New Jersey-based hedge fund best known as owner of the National Enquirer, announced over the weekend that it has a deal to acquire McClatchy, the country's second-largest newspaper publisher.
The acquisition comes after last year's mega-merger of powerhouse Gannett, owner of USA Today, the Arizona Republic, the Detroit Free-Press and dozens of other papers, with publishing giant GateHouse Media — a deal that put 1 in 5 daily newspapers under the control of New Media Investment Group, a hedge fund.
Another private equity firm, Alden Global Capital, owns a stake in Tribune Publishing, which publishes newspapers such as the New York Daily News and the Chicago Tribune.
"Hedge-fund acquisitions of newspapers are typically followed by opportunistic profit-seeking and aggressive austerity measures, especially cutting jobs," said Victor Pickard, a professor at the Annenberg School for Communication at the University of Pennsylvania. "This is bad for journalists, bad for media diversity and bad for communities at a time when we desperately need more local journalism, not less."
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McClatchy, which dates to 1857, serves almost 30 communities and owns storied titles such as The Kansas City Star, The Sacramento Bee and The Miami Herald — which broke open the Jeffrey Epstein story.
Julie Brown, the investigative reporter at The Herald who spent years in dogged pursuit of Epstein, said staff members were concerned for the paper's future, because McClatchy had already cut the newspaper to the bone.
"We're hoping they understand now is the time to invest in local journalism, not to continue to slash and burn it," she said.
But it remains to be seen whether Chatham will continue to back costly journalism research projects as it looks to boost margins — and where any editorial bias will sit.
"To me, it took a local newspaper to have the courage to do [the Epstein story]. I wonder whether Chatham, given the fact that it owns the National Enquirer, would have ever committed us to do a story like that." The Enquirer was reported to have killed several stories that portrayed Donald Trump unfavorably during the 2016 election.
Chatham, which is already committed to McClatchy as a debt and equity holder, was one of only two buyers at the Chapter 11 bankruptcy auction for the beleaguered news publisher.
"As long-standing supportive investors in McClatchy, we are pleased with the outcome of the auction. Chatham is committed to preserving newsroom jobs and independent journalism that serve and inform local communities during this important time," Chatham said in a statement.
As the pandemic continues, readers and viewers are seeking out their local news outlets and boosting audiences. The New York Times added 600,000 subscribers in the first quarter of 2020, topping 6 million, the paper reported. According to a recent Pew survey, 46 percent of respondents checked for COVID-19 news from local sources.
"We are seeing a doubling of audiences of local media, because local media is a place people turn to when something like COVID happens. National reporting only gets you so far," said Ken Doctor, a news industry analyst at the Nieman Lab at Harvard University.
And yet, in the first few weeks of the pandemic, 36,000 news industry workers were furloughed or laid off or had pay cuts, according to The New York Times.
Rich Zahradnik is president and founder of Pelham Examiner, a digital local news destination run and owned by students, which replaced local newspapers that had closed in Westchester, a suburb of New York City.
"A lot happens in local government," Zahradnik said. "The planning boards decide what gets built next to you. Village boards decide if the garbage is getting picked up. They oversee the police. There are lots of people who want to sit in their basement and write about Trump, but bloggers in the basement will not cover the planning board, and without being watched — and I don't think everybody is dirty — there's going to be corruption. And there's a lot of money in local government."
Ultimately, finding readers isn't the issue — finding revenue is.
"The problem hasn't been audiences. It has been the advertising lost to Google and Facebook," Doctor said. Whereas readers used to page through the classifieds for a local plumber or a new home, now they search online. That has devastated newspaper revenue, leaving the path wide open for the "vulture capitalists," as Pickard, of the Annenberg School, termed the investment firms that buy up struggling news publishers.
The McClatchy acquisition represents the end of family ownership among local newspaper companies, Doctor said.
"One of the first questions will be 'What do they do about the CEO?' Will they retain current CEO Craig Forman or pick their own? And who they pick will tell us a lot about the strategic direction of the company," he said.
