(I’ll explain in some detail at the end of this post what I used to know about DFM operations and strategy, and what I don’t know now.)
A tough sell
My first observation: Selling this scattered company and its diverse properties has probably been much more difficult than anyone thought last year when executives decided to pursue a sale. My first knowledge of plans to sell the company was that they would likely sell it in pieces. I think the difficulty of that job led to an effort to sell it in one piece, as Ken Doctor reported last year. That led to a pending $400 million purchase by Apollo Global Management. Ken’s speculation – more informed than mine, but probably not coming from DFM sources – is that the deal fell through over price.
I think DFM CEO John Paton, Chief Operating Officer Steve Rossi (who will
become CEO take over the company’s reins in July) and whoever is making decisions for Alden Global Capital, the hedge fund that owns DFM, have decided that some individual parts of the company will attract higher value separately. I think they’ve decided the higher values of some individual pieces will be worth the trouble of operating and eventually selling or shutting down the properties that would be more difficult to sell, or possibly operating a reduced company after selling the most attractive parts.
The strong financial performance reported in Thursday’s memo to employees might also put DFM in position to get higher value for the company than the initial Apollo deal.
I suspect the sale process that just fell through in Apollo’s case identified some buyers for individual properties or regional clusters. As a result, I expect to see a deal or two happen fairly quickly (recognizing that I don’t understand all that’s involved, so “quickly” might be a relative term).
The newspaper industry has had a lot of activity in recent years: reorganization of Tribune, Gannett, Belo, Journal Media and Scripps, involving separation of historic print and broadcast properties. We’ve seen purchases of individual properties or clusters such as the recent Tribune deal to buy U-T San Diego, the growth of Warren Buffett’s BH Media and the ill-fated Aaron Kushner attempt to build a print-first empire in Southern California.
New Media Investment Group, which emerged in 2013 from the Gatehouse Media bankruptcy, has shown an appetite for acquisition, buying both Halifax and Stephens Media. But those two companies combined weren’t as big or as complicated as DFM.
Freedom Newspapers, selling in chunks after bankruptcy, perhaps most closely resembled the DFM sale, with metro operations in Orange County, Colorado Springs and suburban Phoenix each finding different owners, and still more owners buying regional clusters of smaller papers. The two companies’ geographic footprints also overlapped or approached each other in Southern and Northern California, the Rio Grande Valley and New Mexico. But DFM is significantly larger than Freedom, and we’re a few years further down the path of digital disruption.
Maybe I’m overlooking something as I survey the changing media landscape. But I think it’s safe to say no company has tried to pull off the kind of sale that DFM is attempting. We shouldn’t be surprised that it’s a long, complicated process. I predicted that a year ago when I lost my job. I thought then and I think now that the company is a long way from its finish line.
(Interactive map suggestion for Poynter, Nieman Lab or someone: You should develop an interactive map showing the corporate genealogy of newspapers across the United States. Call me if you want to brainstorm the idea. I’m too busy to make it myself, but I think news junkies would eat it up.)
The 2011 deal uniting the fairly small Journal Register Co. with the huge MediaNews Group to create Digital First Media brought together some valuable assets for pursuing the digital future of media. But the merger (which occurred in phases) slowed the digital-transformation momentum JRC was making under Paton’s leadership since 2009. The massive DFM could not change as quickly as JRC was.
I enjoyed working on building a strong digital culture, processes and outlook on the news side, and am pleased with the progress we made in both original companies. But merging two businesses and two cultures was more difficult in other areas, such as sales, technology, human relations, accounting, corporate structure and the like. We weren’t even on the same fiscal year. At various times we were getting corporate leadership on different topics from headquarters in New York, Denver, San Jose and two different Philadelphia suburbs. Given the circumstances, communication and clarity were actually pretty strong, but it took a lot of effort. And effort spent on organization and operation is effort not spent on transformation.
The combination of size, variety of property types and geographic reach of the combined companies certainly has complicated the challenge of selling the company, whether it goes to a single buyer or multiple new owners.
Thanks largely to three bankruptcies – one for MediaNews and two for JRC – debt is not an issue for the company. Paton and Rossi described the company as “debt-free” in a joint statement to employees Thursday.
Pension obligations can complicate a sale, too, but I know pensions were one issue JRC addressed in the second bankruptcy. I assume the company’s pension obligations aren’t a huge problem, but they can always be an issue in a sale, and I have no knowledge of the pension situation.
Union contracts also can be a factor. DFM has had some contentious labor relations, but the bankruptcies and the decline of the newspaper business have left unions in a weak position. I’d be surprised if a sale came off without some union ripples, but I’d be more surprised if labor problems killed a deal. In fact, I wouldn’t be surprised to see a union somewhere involved in an effort to seek local financing to keep a paper in local hands.
DFM has a vice president of real estate, whose job was to sell outdated properties, get the company out of outdated leases (JRC’s second bankruptcy helped). This high priority the past few years has moved DFM’s properties mostly into the right space for its reduced size and current needs. DFM has made much progress in these efforts, helping eliminate debt, cut costs and improve the bottom line.
But leases and pending real estate sales can complicate the sale of a company. A regional buyer seeking to consolidate its existing purchases with DFM properties might see a long-term lease as a problem if it doesn’t need those offices. A buyer who sees all the savings already achieved through real estate consolidation knows that expense line is not as ripe an opportunity for the new buyer to cut costs.
I know no details and no certain roadblocks in the real estate area, but a corporate sale that includes dozens of leases and pending sales has dozens of land mines that people smarter than me will need to examine and manage carefully on both sides.
Who might buy chunks?
I don’t know much about who might buy individual properties or clusters.
Ken Doctor sees Gannett taking over the papers in El Paso, New Mexico and Pennsylvania (MediaNews and then DFM operated those newspapers, but Gannett has stayed a partner). That makes sense to me, but I have no knowledge about it.
Some or all of the nine newspapers in the Los Angeles News Group might be attractive for Tribune’s Southern California strategy that Ken described in analyzing the San Diego deal. But I have no idea whether Tribune (which Ken notices isn’t turning great profits) can afford to buy LANG and San Diego.
The San Jose Mercury News might be attractive in the Bay Area to someone, but I’m not sure whether the entire Bay Area News Group would be as attractive. If Hearst is interested in acquisitions and geographic consolidation, it might be a potential buyer of DFM properties in the Bay area, Hudson Valley or Connecticut.
Some of the DFM newspapers in California also are involved in partnerships, and I suppose some of those partners could be buyers (or complicating factors in a sale).
Philip Anschutz, a Denver billionaire with lots of wealth and media interest, clearly is the most logical customer for the Denver Post or all the Colorado properties and is clearly interested in adding Denver to his media empire.
I’m sure I’m missing some other obvious potential buyers in other regions, but I’m equally sure that some regions or properties don’t have anyone eager to pay prices that would be attractive to DFM.
I fear for my former DFM colleagues in markets where a possible outcome might be selling a property to a competitor who would shut it down.
I hope – perhaps naively – that in some markets a local foundation, businessperson, business group or even employee group will step forward and return the news operation to local ownership. Truly, that’s just a wish. I know of no one undertaking such an effort, but I can hope.
The Digital First strategy
This topic might be worth its own post, either in the near future or at another landmark in the sale process.
But I’ll say this much now: I don’t know financial details for the company or individual properties, and I’m not an expert in financials anyway. But I know of some stellar successes in building digital revenue. Thursday’s memo to DFM employees claims $200 million year to date in digital ad sales (I think the whole company has shifted to MediaNews’ July-June fiscal year, so that’s probably a 10-month total). I doubt that many newspaper companies, if any, can match DFM’s growth in digital advertising. On the other hand, it’s not enough. Profitability still rests on cost cuts, mostly payroll, which are continuing.
I remember being impressed with the digital revenue growth for AdTaxi Networks, a DFM division, but I don’t recall the details and they would be outdated anyway. I think that’s going to be a valuable piece when it eventually sells.
I understand that some individual JRC properties, and possibly a cluster, reached the company’s goal of the “crossover point,” where the growth, in actual dollars, of digital advertising revenue surpassed the decline in print ad revenue. That was an outstanding achievement that, if we had duplicated it companywide, would have been the best measure of digital revenue success and a true company turnaround.
I don’t know what factors kept us from achieving that goal across the company, but it was a worthy goal and I’m glad we pursued it and proud that some achieved it.
On balance, I’d call DFM’s digital revenue strategy a mix of achievement and disappointment. I think it outperformed much, if not all, of the newspaper business. But it fell short of what I was hoping for.
Working with the journalists and newsrooms of DFM was a treat. I made lasting friendships, learned from some outstanding journalists, taught some outstanding journalists and was pleased to be in charge of programs to recognize and reward their achievement.
It’s heartbreaking for me to watch from a distance as these journalists face this continuing upheaval. Each staff cut costs friends their jobs and disrupts careers of excellent journalists. I’m sorry that their upheaval is certain to continue. If you’ve lost your job and we’ve worked together at all, please reach out to me. I will be happy to help you as a reference and in connecting you with job opportunities that I know of.
I also have deep admiration for the continued excellence produced by DFM journalists. The Pulitzer Prize earned by the Daily Breeze in Torrance, Calif., is only the most recent and obvious example of the commitment by DFM editors and their staffs to continued excellence in journalism, whatever is happening at the corporate level.
I hope whoever buys DFM and its pieces recognizes the value of the journalists who work there.
Joint operating agreements
Dean Singleton, the architect of the MediaNews Group, is a competitive man, who operated No. 2 newspapers in competitive markets such as the San Francisco Bay, Los Angeles and the Twin Cities, and four joint-operating agreements (not counting the Denver Post flagship, where a JOA with the Rocky Mountain News didn’t survive to the deal with JRC).
I understand the four remaining MediaNews JOAs – Detroit, Salt Lake, Charleston, W.Va., and York, Pa. – were excluded from sale considerations, so they should not have been a problem in the Apollo deal.
Whether they eventually sell along with other pieces or become a loose end to tie up after selling other assets, the JOAs have to complicate the DFM future. Detroit never integrated with DFM because JRC’s three Detroit suburban dailies and multiple clusters of suburban weeklies would have opened issues with the Justice Department that no one wanted to address. A buyer for either the whole company or the Michigan cluster would have to address those issues and either receive Justice Department approval or risk Justice Department interference with a deal.
Justice Department resistance to changing JOAs is not a speculative matter. MediaNews tried to sell the Charleston Daily Mail in 2004, and the Justice Department and a federal court actually stopped that deal. The order in that case is fairly restrictive, giving Charleston a unique status within DFM, and certainly complicating any sale involving Charleston.
In Salt Lake, a local group is fighting a DFM revision to the JOA agreement with the Deseret News. I have no idea how that will come out, but I also have no doubt that a pending legal matter that important complicates any sale.
The York JOA, which involved a pre-DFM trade between JOA partners, appears to be the simplest of the four JOAs. Collectively, those four properties present significant logistical and legal issues remaining for DFM to work out, even if they’re not part of the major sales discussions.
If Wikipedia’s list of JOAs is accurate, DFM is involved in four of the remaining six agreements. If JOAs were ever a good idea, they are kind of an anachronism today, and I think selling or somehow unwinding from four of them would be extraordinarily difficult.
I was disappointed, of course, with last year’s abrupt end to my time with Digital First Media. But I give John profound thanks for the opportunity to work with DFM, one of the best experiences of my career, if not the best. I’m glad I joined the company when I did. I’m glad I had the experience there that I did. And I’m glad I moved on when I did. I’m glad not to have endured the past year’s upheaval (and what lies ahead).
I’m not under the illusion that John and I ever became close friends. But we were friendlier and closer colleagues than CEOs tend to be with second-level editors. He reached out to me by email, asking my advice, long before I was a potential employee. He personally recruited me to JRC, and we had multiple meaningful conversations, individually and in small groups, face-to-face and by phone and email.
Most notably, we had a long face-to-face conversation in January 2011, before I joined DFM, about his vision for the company and my vision for media. And we had a long telephone conversation in July 2012, when I was considering an attractive offer with another company. We talked both specifically and broadly about John’s vision for the company and my role in it. I believe I received genuine insight about him and the company in both of those conversations and to a lesser extent in many other exchanges.
I wish John had told me, and the public, more about the finances of DFM. But I think in both cases, he told what he could, working in a difficult situation. He has been extraordinarily transparent for a CEO, both in personal and public communication.
John had aspirations for leading a group of investors who would buy the entire company from Alden Global and other owners, and run it independently, under John’s leadership and following his vision. I don’t know how hard he pursued that vision, how close he came or why he didn’t achieve it. Maybe it was just impossible. But I am sure that would have been a better outcome for John, DFM and the news business than whatever sale(s) will eventually take place.
Some in the newspaper business saw John as a scold and a self-promoter, two attributes we might share, for better and for worse. I think John provided an important voice for change in a time when we absolutely needed it. Probably out of necessity, he was pretty quiet during the second JRC bankruptcy and the sale process. I missed his voice and hope he will be a more frequent contributor to the discussion about the future of news in his new position leading IVA Ventures, a spinoff from DFM, which invests in media-related startups. I think some of the companies involved in Ventures are promising, and I expect John may see more success there than in trying to change entrenched newspaper companies.
I was truly privileged to work with John and to get my occasional glimpses of executive-level issues, thinking and leadership.
I thank him for the opportunities he gave me, and wish him well in whatever lies ahead.
What I knew, and know, about DFM
A little elaboration on my disclaimer at the top:
I used to offer an insider vision of events on the newsroom side of Digital First media, based on my own corporate role as Digital Transformation Editor:
- Weekly one-on-one conversations with then-Editor-in-Chief Jim Brady.
- Weekly conference calls with Brady and other senior editors.
- Occasional in-person conferences among senior editors.
- Visits to 84 newsrooms, including all the dailies, and conversations with editors and staff there, including union leaders.
Occasionally I offered an insider vision of business issues, based on various levels of conversations, beyond the relationship with John that I’ve described:
- Those frequent conversations with Jim and other senior editors, which conveyed and addressed information from our bosses about business issues, either because those issues demanded our response or because information about those issues provided important context for newsroom operations.
- Two large in-person meetings in Denver, led by Paton, involving nearly all senior DFM executives at the corporate and regional levels.
- Chats with publishers, at varying levels of detail and candor, in many of my visits to newsrooms.
- I never had any conversations with anyone at Alden Global, the hedge fund owner of DFM.
- I never had any substantive individual conversations with Steve Rossi, who
will replace John as CEOwill lead the company after John’s departure this summer. He was a significant player in those meetings with news and business executives, and I heard a fair amount about his leadership from others. Our own direct dealings were cordial and extended before (in my work for the American Press Institute) and after my DFM tenure (a kind email of support from Steve following my lymphoma diagnosis last year).
- My insider knowledge never included a full picture of the company’s financial performance.
What I know now
Since leaving DFM, I haven’t had a substantive, extended conversation with anyone involved in making decisions about Digital First Media. I am removed from the company entirely, and everything I say here should be regarded as speculation of a no-longer-informed former editor.
The original version of this post said Steve Rossi would become CEO after John Paton steps down June 30. Their memo says Rossi will “assume leadership of DFM,” but I understand he won’t have the CEO title. I also originally misidentified Gatehouse Media.