Up & Coming Weekly

February 20, 2018

Up and Coming Weekly is a weekly publication in Fayetteville, NC and Fort Bragg, NC area offering local news, views, arts, entertainment and community event and business information.

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WWW.UPANDCOMINGWEEKLY.COM FEBRUARY 21-27, 2018 UCW 15 even worse. At Zenger's office, the editors get calls from readers who are having trouble with their sub- scriptions and can't reach anyone for help. "Sorry," the editors have to say. "There's nothing we can do." Cost-cutting measures at GateHouse are absurdly draconian, ranging from the fact that editorial staff- ers don't even get complimentary subscriptions to having to buy their own coffee for the office machine. "Next, it will be the toilet paper," says one staff mem- ber, only half-joking. … Within a decade the newspa- per had lost 40 percent of its circulation and over 50 percent of its advertisers. The ruthless miserliness of GateHouse manage- ment has two effects: It destroys the newspaper's capacity to do its fundamental job of covering the news, and it makes for miserable employees. "Ev- erybody I know in the leadership of the corporation were financial people or ad directors," says the editor of a GateHouse-owned paper. "They were never journalists – never covered a story in their life. This corporate stuff is killing local newspapers. I'm sweat- ing bullets hoping some bean counter doesn't say we've got to get another 17 percent profit out of this. How much more can these people cut? It becomes harder to do the right thing – to cover the city council meetings and find out what really did happen – when you had five people in the newsroom, and now you're down to two." It's worth noting that GateHouse and other cor- porate predators are managing to destroy a once- robust tradition of independent journalism without having to tell editors and reporters what to write or not write. "Eight hundred of us [ from local papers] were on a call yesterday with [GateHouse CEO] Kirk Davis," one GateHouse advertising manager said recently. "We gained nothing from it – a total waste of time. 'I've got your back,' he said. 'I hope you've got mine. I'm crazy about all of you.' I wanted to throw up." So, despite having cut costs to the bone, the private equity parent is, for now at least, able to take out prof- its in the range of 15 percent to 25 percent of revenue. Papers that don't hit this mark can be sold for scrap or closed. GateHouse owns more newspapers, currently in 36 states, than any other media conglomerate: a mix of dailies, paid weeklies, and free "shoppers," mostly in small cities, but also a few bigger city papers like The Providence Journal, the Worcester Telegram & Gazette, and The Columbus Dispatch. The model is simple. Buy a newspaper on the cheap, often from a legacy chain like Gannett or from a family owner whose siblings and cousins want to cash out. Last August, GateHouse purchased another 11 dai- lies and 30 weeklies from the Morris Publishing Group based in Augusta, Georgia. Its most recent move is to buy the Boston Herald, for just $4.5 million in cash. GateHouse announced on the same day the 171-year- old daily filed for federal bankruptcy protection. GateHouse's bid was conditioned on voiding all of the paper's union contracts and discarding all legacy pension, health (insurance) and other obligations to Herald workers. Major layoffs in the newspaper's 120-person newsroom are a certainty. With private equity, it's about squeezing out the 20 percent, and anything goes. Use it up, sell it, or just kill it. The profit is the product. 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 Digi- tal First Media, the layoff rate was more than half, according to a tabulation collected by journalists who worked for DFM papers. As quality drops at these papers so does circulation. And though ad revenue is down, many local businesses con- tinue to advertise because they actually value the print newspaper and want to be seen in it. In Southern Pines, North Carolina, The Pilot has been a family-owned paper for nearly a century and has been owned for 21 years by its current publisher, David Woronoff and family members. Editor John Nagy wrote a signed article for the paper last Janu- ary bemoaning the fact that one North Carolina pa- per in three is absentee-owned, and that others had folded. "Folks in those communities regularly call us, asking us about buying their local paper. … They're tired of a 12-page paper with no news, and they look at our 40-page, all-local product with envy." Woronoff got a call offering to sell a group of five other local papers that had been stripped down as they repeatedly changed hands over a decade. Woronoff took a good look at one, the Richmond County Daily Journal. "It's maybe eight pages a day, six days a week," he says. "They sold the building, sold the press; they might have two people in the newsroom. There is no kind of innovation that can come from that environment. There is nothing left. If he just handed me the keys, I'm not sure I'd take it." Woronoff has strengthened The Pilot by develop- ing other lines of business that are logical outgrowths of the newspaper. He now publishes four glossy monthly city magazines in nearby communities and operates a digital agency for the newspaper's customers. He also publishes telephone directories, and even operates a local bookstore. These profitable enterprises provide a revenue stream that strength- ens the newspaper, which now accounts for only 35 percent of total revenue. Follow the Money Wes Edens is the CEO of Fortress Investment Group, a private equity firm which controls Gate- House Media and extracts generous management fees from it. As a rare hybrid of private equity opera- tors controlling a publicly traded company, Fortress has to make financial disclosures to the Securities and Exchange Commission and the public, and shareholders get to vote on directors and bylaws. Public filings with the SEC revealed, for instance, that Fortress, as managers of GateHouse, had taken out $19.4 million in management fees and "incentive compensation" in 2016, and $39.7 million in 2015. As newspaper financial analyst Ken Doctor observes, these payouts are not far from the $27 million in operating expenses that GateHouse expect(ed) to extract from its papers during 2017. The money from the cuts goes straight to the private equity absen- tee owner and its executives. The New York Times reported Fortress CEO Wes Edens's total 2016 pay as $54.4 million, including an $11.6 million bonus. This public informa- tion gives some leverage to another player, the News- Guild (formerly the News- paper Guild), the union that represents employees at 17 GateHouse properties. The Guild, after extensive research, concluded that the tightly-knit controlling group headed by Fortress CEO Edens was profiting at the expense of ordinary shareholders and that the strategy of bleeding news- papers dry was unsustainable over time. The NewsGuild is now in collective-bargaining talks with GateHouse management. With manage- ment on the defensive, the union may be able to extract raises and better working conditions for employees at unionized GateHouse papers who have not had raises in a decade. Fayetteville/Cumberland County needs and deserves a strong, quality daily newspaper. For 22 years, Up & Coming Weekly has proudly served as the community's weekly newspaper. Without a local TV station, consistent coverage of local com- munity news, events and government meetings becomes necessary to restore and preserve the core institutions of American democracy. There is some good news. In some small towns, citizens are finding ways to take their newspapers back. The independent local weekly in the central Massachusetts town of Harvard, with 6,500 resi- dents, was bought by GateHouse. The corporation did its usual hatchet job on the formerly beloved Harvard Post. But a group of civic-minded citizens got together and started a competing weekly, the Harvard Press, modeled on the old Post, with exten- sive coverage of town boards, schools, and commu- nity life—and a notably quirky and detailed police blotter. Within six years, they put the GateHouse paper out of business. Can this happen here? You bet. Our commu- nity is one of the fastest growing in North Caro- lina. Here, business and economic opportunities abound. Our local elected officials need to stay at the top of their game, guiding and managing our city and county government's resources and op- portunities. The local newspaper will define our community's brand and tell our unique story. We must focus on the positive, and for heaven's sake, never stop seeking out and demanding the truth. A very special thanks to Robert Kuttner and Hildy Zenger and The American Prospect for al- lowing us to share their article and research with our readers. "Saving the Free Press from Private Equity" can be accessed online at prospect.org/article/saving-free-press-private-equity. Thank you for reading Up & Coming Weekly. BILL BOWMAN, Publisher, UP & COMING WEEKLY. COMMENTS? BILL@upandcomingweekly.com. 910-484-6200. COVER STORY The malign genius of the private equity business mode … is that it allows the absentee owner [GateHouse Media] to drive a paper into the ground but extract exorbitant profits along the way.

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