Bruce Murphy
Murphy’s Law

Journal Sentinel Jumps on Sinking Ship

Prospectus shows all 13 newspapers the new Journal company absorbs are losing money.

By - Feb 26th, 2015 12:12 pm
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Journal Communications Inc.

Journal Communications Inc.

March 11 is Decision Day for stockholders of Journal Communications Inc.

That’s when they’ll attend a “Special Meeting,” as its called, to vote on whether to approve its proposed deal with the E. W. Scripps Co. The meeting is largely pro forma, as approval is expected, but some will vote no, and you can understand why. While a sale of the Milwaukee Journal Sentinel was probably inevitable, the deal its CEO Steve Smith chose will have a huge — and probably negative — impact on the state’s largest newspaper. The details are all there to see in the prospectus sent to shareholders.

As I’ve previously written, the “merger” trumpeted by the Journal Sentinel is really a buyout by Scripps: it will absorb all the Journal broadcast companies and Scripps’ shareholders will also own 59 percent of the stock in the new company being formed, Journal Media Group, which will own the Journal Sentinel and 13 longtime Scripps newspapers.

This gives Scripps the broadcast companies, which remain (especially TV companies) good revenue generators while giving Journal Media Group all the newspapers, which are struggling to stay afloat. Just how badly they are doing is revealed in the prospectus for this new newspaper conglomerate.

The revenue of the 13 Scripps newspapers, all in smaller markets than Milwaukee (the Memphis Commercial Appeal is the biggest of them), has steadily declined from about $433 million in 2010 to $384 million in 2013 and a likely additional decline in 2014. Worse, the newspapers lost money for the last five years, by an average of $19 million annually from 2011 through 2014.

The Journal Sentinel’s estimated revenues and expenses from just its newspaper operation shows revenue declined from about $176 million in 2010 to about $153 million in 2013 and a likely further decline in 2014. The newspaper, however, made a small profit, averaging about $5 million in annual profit from 2011 through 2014.0

So when the two operations combine, they will yield a money-losing company. The prospectus shows a combined net loss of $8.6 million on combined revenues of $537.5 million in 2013, and a combined net loss of $19.4 million for the first nine months of 2014 based on total combined revenues of $384.1 million. Which suggests layoffs of staff will have to be made.

Odds are the cuts will have more impact on the Journal Sentinel. It’s the only newspaper that has “fat” from a net revenue perspective, as the others are all losing money. The many prizes it has won in recent years (including three Pulitzers) bespeak a staff big enough to do enterprise stories, something these smaller Scripps papers probably don’t do. Newspaper chains typically slash staff more, so it may be tougher to cut the Scripps papers’ staff without hurting the product and readership.

But several other factors may increase costs and pinch revenue, which could ultimately require more staff cuts. As the prospectus notes, “We will need to either contract for or internally develop a number of key services that our parent companies [Scripps and Journal Communications] have historically provided…including finance, treasury, tax administration, risk management, accounting… legal, regulatory, human resources, employee benefit administration…information technology” and many other functions.

The Journal broadcast companies significantly subsidized the Milwaukee newspaper and the figures for Scripps suggest some of that was happening there. But as the prospectus for Journal Media Group notes, “We will no longer be able to rely on Scripps and Journal for diversification of business risks or to provide capital resources.”

Given all this, its hardly surprising the prospectus says “we do not anticipate paying any dividends in the foreseeable future.”

The prospectus shows the combined daily circulation for the 14 newspapers has dropped from 896,000 in 2009 to 735,000 in 2013, or 18 percent, while combined Sunday circulation dropped by 15.4 percent. And it predicts that print advertising, which has been going through a meltdown, will continue to be “the largest component of our operating revenues.”

A continuing decline in print subscribers and advertising is all but certain. “We expect print subscriptions will continue to face pressure as readers find alternative sources to obtain news and information content, including on mobile and other digital platforms,” the prospectus notes. “This expected decline in circulation may impact revenue.”

As I’ve written before, newspaper inserts (rather than ads running in the newspaper) have become an ever bigger proportion of dwindling print ads, yet those are likely to decrease. “Advertising revenue may decline as fewer newspaper inserts are delivered with the printed newspaper,” the prospectus notes.

The company can hope to increase online subscribers, but online ads generated from this nationally continue to raise about one-eighth (or less) of what print advertising makes. The prospectus doesn’t directly address this issue.

The document all but shouts out the priorities of the typical corporate boardroom, where it’s all about compensation for executives. Many, many pages of the 123-page prospectus are devoted to discussing how executive compensation will be handled, while shareholder rights gets just a few pages and the fate or value of employees gets no mention whatsoever. The next round of staff cuts, as in the past, will happen quietly, with not one word in the paper about a long-time reporter’s contributions to the publication.

The CEO of the new company, Timothy E. Stautberg, formerly with Scripps, will draw a base salary of $700,000, plus stock worth $840,000 and incentives that could increase that by as much as $420,000, for a total of up to $1.96 million. Third in command will be Elizabeth (Betsy) Brenner, current publisher of the Journal Sentinel, who will be paid $410,000 plus incentives of up to $164,000.

Of course this is just for starters. As the prospectus notes of Stautberg: “Future incentive opportunities, both annual and long-term, will be established by the Compensation Committee.”

But no one will ever know these future amounts, because the company intends to keep this a secret. The prospectus notes that under the federal JOBS Act, Journal Media Group will be classed as an “emerging growth company,” meaning it’s exempt from reporting and disclosure requirements of federal law. The prospectus, however, notes that JMG’s leaders have “irrevocably elected not to avail ourselves of this exemption,” with the exception of how it handles the requirements under the Sarbanes-Oxley Act to disclose executive compensation and to hold an advisory vote on executive compensation. The company may choose to exempt itself from these provisions for up to five years, even if it has a negative impact on the company’s value. “We cannot predict if investors will find our common stock less attractive because we will rely on these exemptions,” the prospectus confesses.

Just in case that isn’t enough protection for executives, the company’s articles of incorporation “may impede the ability of holders of common stock to change our board or management.” Stockholders are prohibited from acting by written consent and prevented from nominating directors without advance notice and directors may adopt a rights plan (often called a “poison pill”) making it “more difficult for a potential acquirer to obtain control of us.”

All told, the new Journal Media Group doesn’t sound like a company whose initial stock offering is likely to thrill the market.

Categories: Business, Murphy's Law

30 thoughts on “Murphy’s Law: Journal Sentinel Jumps on Sinking Ship”

  1. PMD says:

    So when’s the next round of buyouts? And when does 7-day delivery end?

  2. Observer says:

    I delivered both the Sentinel and the Journal so while this news is very sad, the truth is a quality daily has not been a part of Milwaukee for quite some time.

  3. BPI says:

    Whatever you think of the JS (and I think it is still a good newspaper, better than 90% of U.S. metros), it is going to get much worse after this deal. Scripps’ newspapers across the board are, to put it politely, lousy. Expect fewer stories, shorter stories and more fluff in place of hard news.

  4. Wisconsin Conservative Digest says:

    Stories have been way too long, no one reads more than 4 paragraphs these days. I scan through the stories and might actually read a couple of paragraphs. These long 4,000 word monsters go unread.

  5. PMD says:

    You sound like a teenager with attention deficit disorder WCD. Heaven forbid we sit down and read something longer than a tweet or Facebook post. Then we might actually be informed as opposed to spouting off sounds bites and other inanities.

  6. CK James says:

    The only reason to read ANY actual printed newspaper is if there happens to be a unique enterprise feature story, telling investigative report or insightful editorial.
    Here is the list of papers that at least semi-consistently have those items : …….. The New York Times…(sometimes in the Sunday edition). …..That’s the end of the list.

    It’s true that the Journal Sentinel had always been one of the best overall papers, especially compared to dishrags in similar sized markets. But, even the mighty are reduced to irrelevant shells.

    The JS is not at fault, it’s just an inevitable reality that the newspaper biz is on the fast track to becoming obsolete and extinct. Local TV news will be next.

  7. wisconsin Conservative Digest says:

    I peddled both the Journal and the Sentinel, in LaCrosse, when I was a kid. They were incredibly better. Wed. and thu. were over 100 pages. Had to fold them in two parts to get out. But there was only radio and a few magazines for world new. TV was in infancy. The rest of the world was eons away, you found out more with the new Movietone News at the movies.
    USA Today with its 300 words or so is the future.
    Most Liberals will not notice as they only read the pictures and the comics.

  8. Calvin Pi says:

    I don’t know how the news companies will manage to survive, but I tell you what: It will not be by presenting news today which I read online yesterday morning. Especially when they are the same articles.

    I have only so much time to spend gathering news. If the paper wastes it with trash stories, that is time I don’t have for something else.

    If the paper wants my attention, it will have to provide news I don’t get elsewhere first. Maybe I’m the only one out there who wants serious coverage of serious local and state stories. Maybe there aren’t enough people who care about basics like government employee pension funding or school board races. Fine.

    But I won’t pay for 600 words each about a car crash, a house fire, another car crash, someone struggling with the multi-year effects of his/her own failings, or the outlook for the process attending a bill which is never explained in meaningful detail much less presents any section of the text of a bill. When a story amounts to “so-and-so says this bill would make children happier but such-and such says it might not” I learn nothing except that the reporter is either an idiot, a shill for the author of the bill, or hopes I am an idiot.

    There is a difference between entertainment and news. Newspapers and TV no longer make the distinction: If it is dry, they either play up personalities, thereby wasting my time, or they don’t cover it at all.

    I may be the only one around who wants news, but if the so-called newspapers want my money, they are going to have to make their product worth my time.

  9. jim says:

    Back in 1962, at the S-16 station in Milwaukee, 1AM Sunday, we would pull out our rubber thumbs and sub the night away, and for laughs we engaged in withering Journal bag fights jumping from steal table to wooden floor and back again, all the while gobbing spit onto the orange hot pot belly stove just to see and hear the sizzle from the blistering spittle.

    Sunday papers could be well over 300 pages. A route of 100 customers required extra strength axels for the Radio Flyers.

    On Fridays we had to play ruff with the customers that wouldn’t readily cough up the weekly amount 70 cents.

    Always kept a cat’s paw in the jacket incase of robberies. Much more fun the that wimpy video game “Grand Theft Auto.”

  10. jim says:

    Well, maybe not a Cat’s Paw.

    But something. Awareness.

  11. Radiodog says:

    All the more reason for them to sell the half-vacant HQ building for the new arena development – otherwise it’ll be completely empty in 5 years, and a likely eyesore to boot.

  12. Andy Umbo says:

    I see a future where the newspaper is probably only going to be published a few times a week, and it will be at it’s best as a vehicle for summing up important stories that break over multiple days, or review timelines of developing and important information for the community. The idea that it can compete with the instant ‘breaking’ aspect of digital delivery is a farce. I’d rather see a story of a train crash on an instant web-newser, so I can avoid it; and read the whys, wherefores, and reasons in a long form review of the accident later.

    People that defend the fact the the general public doesn’t read long form stories any more, are of course, defending the right of the public to be ill-informed, hence be gullible to the uneducated onslaught of sound-bite proclamation by the am radio nit-wits. And a lot of the general public still does read long form stories, they just aren’t available as much as they used to be, and locals papers are losing the ability to fund the stories themselves. You can’t say a paper was great 40 years ago (when it was filled with long form stories and knowledgeable reporting from local beat reporters who had been on the job for years), and then say papers are dying because no one would read those stories today, without referring to the dumbing-down of the news consumer at the hands of cable and am radio ‘blip-verts’ of information.

    There are also a vast number of us that are losing interest in local and national media exactly because they have bowed to the pressure of the right-wing to report all sides of a story, like they have the same value, instead of trying to find the truth in a situation. There is only one set of facts, and I don’t need to listen to or read to media that tries to present all the ‘public relations’ expousals as ‘facts’, when many times, they are most obviously lies. That type of pandering is what’s killing the local press, because the educated that used to buy it aren’t going to…

  13. David says:

    I have a feeling the JS building is still in play for the arena. Why haven’t the Bucks owners announced anything yet?

  14. ReikiStella says:

    wisconsin Conservative Digest says: “Most Liberals will not notice as they only read the pictures and the comics.” What a judgmental ass. Looks like the only thing you are “peddling” today is hate and asinine comments. This is not a political party conversation but you just had to go there. Folks like you are the ones responsible for the dumbing down of the American people. Just another carping conservative with nothing of value to state.

  15. fredfleming says:

    David, it’s because they want to wait until new management gets the chance to push several dozen hard-working, rank-and-file employees out of the fourth-floor windows.

  16. CK James says:

    @ jim – Great anecdote! I presume you have also had experience as a writer at some point between your paper delivering days and now. Descriptive storytelling is slowly becoming a lost art. English and literature students and professionals are now forced to write high quantity rather than high quality. The blessing and curse of Twitter!

  17. PMD says:

    WCD: “Stories have been way too long, no one reads more than 4 paragraphs these days. I scan through the stories and might actually read a couple of paragraphs. These long 4,000 word monsters go unread.”

    WCD (an hour later): “Most Liberals will not notice as they only read the pictures and the comics.”

  18. Observer says:

    PMD, the Daily Show might be in need of someone who knows the meaning of “Hoist with his own petard” and uses it to skewer the doublespeakers. Good job!

  19. EStreet says:

    Thanks to Calvin Pi and Andy Umbo for your insightful comments and would like to add my kudos to Jim for his anecdote as well.

    As a ten year old, helping my older brother with his route, I clearly remember the Journal bag fights and hissing stove. One tall drink of water named Ray had to be the champion spitter of all time. Shows you what you remember as a ten year old.

  20. Bev says:

    The JS national and wortld news is buried several pages behind the front page and there it difficult to find anything of real importance. A week ago or so the leading artuicle in that section was on peanut allergy. Was that the most important story on the nation and world level?

    The business section rarely covers anything of importance.

    The paper has almost lost all its value. The internet is the place to go for news especially if you want the actual facts.

  21. Andy Umbo says:

    The New York Times shows an average national circulation of 1.2 million, so there’s 1.2 million people that want to read long form stories…

  22. Wisconsin Conservative Digest says:

    NYT has lost tons of money. I read all of them daily, WSJ most important. Skip through the words to the cogent parts. Most articles can be distilled down to a few important paragraphs. With texting and fast readers people are just skipping to the important points, dropping the fluff. At the Journal this Schneider writes 95% fluff and two paragraphs of value. Go to Wisconsin Conservative Digest on Facebook where we post the important stories of the day.

  23. PMD says:

    “At the Journal this Schneider writes 95% fluff and two paragraphs of value.”

    Holy cow we agree on something WCD! Well, I’d argue against 2 paragraphs of value, but we come really, really close to agreeing, so that’s something.

  24. wisconsin Conservative Digest says:

    Liberals only have one paragraph of value. These days with texting, tweeeting etc you must make point quick and get off pot.

  25. PMD says:

    Yes WCD you already stated that you have a short attention span and never bother to read long stories. That’s a recipe for ignorance.

  26. CK James says:

    Indeed, as time passes, technology thrusts us into a reality where almost all of us have lost the patience to be patient. It’s a blessing and a curse. This phenomenon is also blind to political affiliation.

    The bottom line is – regardless of the quality of any given newspaper – 99% of their content has become obsolete. The 1% left that might be in demand are the rare but occasionally well done / in-depth feature stories.

    The JS was a good paper, but nevertheless, it’s a PAPER. Late, out-of-date, under funded, scarce on resources , and most importantly VOID of any unique or specialty content. It’ll soon be mostly copy-paste generic evergreen articles from a vault that feeds all of the Scripps / Journal newspapers. Like reading a menu at ‘Perkins’…virtually the same at every location in every city.

  27. Andy Umbo says:

    I had to move to Indianapolis for work, and if you think the Milwaukee J/S is bad, you ought to get a load of this “fish-wrap” the Indy Star…it’s right leaning to a fault, did the typical Gannett newspaper take-over of firing all their most intelligent reporters with all the institutional knowledge of where the bodies are buried in local politics, and just recently hired a ‘twenty-something’ beer reporter! This is exactly the type of paper WCD wants to have around, so that you don’t figure out you’ve been made into slave labor until it’s too late! BTW, remember when newspapers used to publish all the people running for office during election time, and their political ‘planks’ and pictures? Not here (and not the Milwaukee Journal/Sentinel I’m sure), I was happy to find the very nice black weekly, the Indianapolis Reporter, did it though, kudos!

  28. WaukAnon says:

    My household had subscriptions to both the JS and our local paper (the Waukesha Freeman). The Journal is cheaper for the Wed-Sun plan, but the Freeman had what we really wanted: our local news. The Journal at one point had a few people covering communities west, but it’s dwindled significantly – stories are reported a day or two late, or not at all. I missed the days of reading Laurel Walker and Daryl Enriquez’s articles and columns.

    With that, we decided to not renew our Journal subscription, and we’re sticking with our local paper.

  29. Chris Jacobs says:

    The left over paper and trash is enough to prevent me from ever ordering a physical newspaper. Frankly, all the news anyone could want could be concisely printed on one sheet of newsprint.You don’t gain anything important from most of those extra paragraphs. It seems half the paper just gets overblown with sports and ads when given the opportunity. Strangely, in a physical paper, the want-ads, obituaries, and classifieds are probably the most essential when you’re looking for those kind of things, while they aren’t always online.

  30. Andy Umbo says:

    Chris Jacobs…I have to say, that when I was in retail advertising, most focus groups showed that people were buying the Sunday paper mainly just to GET the advertisements, and the people most likely to subscribe to any paper, on-line or otherwise, were doing it for sports or business. Saying the paper gets ‘overblown’; with that stuff just means that you’re buying it for a different reason than probably 3/4’s of the people who are actually plunking their money down. Nobody is madder than me that they charge additional for a Thanksgiving or Christmas paper, because they are actually charging you additional to deliver a higher level of ad content to your door (or even when you pick it up). There are actually less stories in the paper, and more advertising, and they’re making the consumer pay for it!

    But, “all the news anyone could want”, could be printed on one sheet of paper is most certainly wrong. All the info that could be printed on one sheet of paper would just be people telling you what to do, not people explaining how things happen and how we ended up where we are so it doesn’t happen again. Do we really have to drag out that old adage of “people who do not understand history….?”

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