How Buyout Could Hurt the Journal Sentinel
10 ways the deal will impact the newspaper, the media world and this city.
It was back in August 2012 that I predicted the Milwaukee Journal Sentinel, part of a locally owned company since 1882, was likely to be sold to an out-of-town company. That came a bit later than expected, though it’s not clear just when Steven J. Smith, chairman and CEO of Journal Communications, began shopping the company or how many likely partners he approached.
We do know, according to the New York Times, that Smith approached the E.W. Scripps company about combining forces back in February. Scripps had no interest in getting bought out by a bigger company, nor was it necessarily interested in buying any newspapers. Rather, the company was looking to buy more broadcast stations. As for the Journal Communications, it already knew 2014 was going to be a very bad year for revenue, and was at a point where its stock was probably as high in value as it would ever get: it had risen from 49 cents per share in March 2009 to nearly $9 by Feb when Smith began shopping the company.
The deal that Smith and Richard A. Boehne, board chair, president and CEO of Scripps, crafted, creates two companies, both with majority control by Scripps stockholders: Journal Media Group, based in Milwaukee, which will run the Journal Sentinel and 13 other newspapers, mostly in smaller towns; and E.W. Scripps, based in Cincinnati, as it is now, which will run all the broadcast companies, including 34 TV stations. Smith naturally put a positive spin on it, telling the JS that “Everybody Wins.”
It’s a cinch that’s not true. So who loses and who gains and what does it all mean?
1. This is a basically a buyout. Yes, it’s called a merger, but Scripps has the whip hand. Journal Communications shareholders will own about 31 percent of the broadcast company (E.W. Scripps) while Scripps shareholders will retain about 69 percent ownership. Scripps shareholders will also own 59 percent of the new newspaper company (Journal Media Group), while Journal Communications shareholders get 41 percent. Given that the Scripps company is valued at $1.26 billion and Journal Communication at $571 million, the Journal only has about 31 percent of the value of the combined company. So you could argue its stockholders are getting a premium. But that’s no doubt worth it to Scripps to retain control both of its own company and the new newspaper company.
2. This is all about the broadcast companies. As the Times noted, “The complicated transaction is the latest move by media companies to focus on either television or print operations, with nearly all choosing to leave behind the slower-growing print business. Operators ranging from Time Warner to 21st Century Fox to Tribune have divided their assets, or are in the process of doing so.” As Boehne told the Cincinnati Business Courier, “TV is a very hot sector. It’s an outstanding business.” Boehne noted he had been building up the company’s digital capabilities for both its broadcast and newspaper divisions but all investors care about is TV. Adding the TV stations owned by the Journal will make Scripps the fifth largest independent TV group. As the story noted, “Broadcasters are going for size, for leverage when they negotiate with cable and satellite companies. The bigger they are, the more power they have to charge more for cable and satellite firms to carry their signals.”
3.The Newspapers Are Far Less Important. Across the globe, newspapers are losing circulation for print editions where they can charge more money for ads, and gaining online readers, where ads make far less revenue. This is equally true for the Journal Sentinel, whose declining revenue is a drag on Journal Communications. The company’s most recent annual report shows broadcasting earned $243 millon in revenue with $118 million in expenses while publishing earned $154 million in revenue with $100 million in expenses. Newspapers are not where the money is, which is why Scripps is asking for a smaller share of the newly formed newspaper company.
4. The Journal Sentinel Will Suffer Further Decline. The newspaper has already suffered buyout after buyout of staff, as I’ve reported , but insiders at the newspaper predict more to come. It’s inevitable, when mergers occur, as “redundancies” are eliminated and “efficiencies” are sought. The newspaper, despite the cuts, has done some remarkable investigative reporting, winning several Pulitzers in recent years. This week’s series on the Great Lakes by Dan Egan is a wonderful example of the newspaper at its best.
5. Out of Towners Will Control the Milwaukee Newspaper. Yes, Journal Media Group retains the Journal name and its identity, but the stockholders of Scripps, based in Cincinnati, will own a majority of the company. What will that mean for the editorial? It could be worse: among newspaper chains, Scripps is known as less tightfisted and more committed to quality than some. And the fact that it’s based in Cincinnati may make its leadership less likely to cave in on stories because some Milwaukee power brokers object. On the other hand, this is a company whose newspapers are mainly in smaller towns like Evansville, Indiana or Corpus Christi, Texas, where they are unlikely to be doing enterprise reporting like the Journal Sentinel. And they are mostly in southern towns where the readership is likely to be quite conservative, which may color how Scripps publishers see the world.
6.The Memphis Commercial Appeal may provide a model. It’s the one big city newspaper in the Scripps chain and it gets mixed grades from Bruce VanWyngarden, editor of the alternative weekly Memphis Flyer. As he puts it, the newspaper “had a long stretch with former editor Chris Peck (who Scripps brought in from Spokane) where the paper, in my opinion, suffered both from a lack of hard-reporting instincts from the top and crushing pressure from Scripps to increase/maintain profitability. This resulted in multiple purges of newsroom personnel, low morale, etc…”
‘The new editor, Louis Graham,” VanWyngarden continues, “is a former reporter, a solid guy, and from what I understand, liked and respected in the newsroom. I’ve seen a noticeable uptick in the quality of the journalism over there in recent months.” On balance, that’s more reason to worry about what might happen to the JS.
8. Journal Sentinel Leaders Could Be History: Steve Smith will serve as nonexecutive chairman of Journal Media, under new CEO Timothy E. Stautberg, who oversees Scripps’ newspapers. The respective titles say it all (but I’m betting Smith has negotiated for a golden parachute if he’s eventually let go). Journal Communications publisher Betsy Brenner hasn’t been mentioned so far, and may well be one of those “redundancies” we will soon begin to hear about. As for JS editor Marty Kaiser, the guy’s a survivor who has lasted through many changes at the paper. I wouldn’t be surprised if he survives, but he’ll definitely be dancing to a different tune.
8.Sykes Won’t Be a Sacred Cow: Once the newspaper splits from the WTMJ radio and TV stations, the newspaper’s reporters will no longer work cooperatively with stations and there will be no reason to give conservative talk show host Charlie Sykes the kid gloves treatment. Sykes has made a living bashing the newspaper for its alleged liberalism. Wouldn’t it be a shock if the newspaper occasionally responded? For that matter, you wonder if the Scripps company will continue to invest in Sykes’ Right Wisconsin website, which operates more like an ideological venture than a business (it’s a great place to find the latest Republican Party talking points). I emailed Sykes for a comment, and like a broken clock, he offered his usual answer: “Why don’t you just make it up, like you usually do?” Consider it done, Charlie.
9. The Deal Could Be Challenged: The companies say both boards of directors have approved the deal, which is expected to close in 2015. Shareholders and regulators must also approve it. But Tripp Levy PLLC, a securities and shareholder rights law firm, announced that it is investigating the acquisition of Journal Communications on behalf of its shareholders. “The investigation concerns possible breaches of fiduciary duty and other violations of state law by the Board of Directors of Journal for not acting in Journal shareholders’ best interests…” and also “seeks to determine if there was an adequate auction process and if E.W. Scripps is underpaying for Journal shares.” This sounds like an ambulance chaser looking to get business, so my guess the deal will go through.
10. The Journal Sentinel’s Competitors Will Grow. We’re already seeing great growth at Urban Milwaukee as the JS shrinks its coverage. In the online world in particular, the local media is likely to continue to undergo rapid change.