Bruce Murphy
Murphy’s Law

10 Ways Journal Sentinel Will Change

GateHouse purchase of Gannett is dreadful news for local and national journalism.

By - Nov 19th, 2019 12:00 pm
Milwaukee Journal Sentinel Headquarters. Photo by Jeramey Jannene.

Milwaukee Journal Sentinel Headquarters. Photo by Jeramey Jannene.

Last week brought bad news for the Milwaukee Journal Sentinel, and for this community and state.  

The shareholders of two companies, Gannett (which owns the JS) and GateHouse, voted to to merge, though it is more like a buyout as the parent company of GateHouse, New Media, will own 50.5 percent of the newly formed entity. For Milwaukee’s daily newspaper, which already saw its staff slashed under Gannett, the deal was somewhat like jumping out the frying pan and into the fire. As tough as Gannett has been about cutting staff, GateHouse has been even more ruthless.

How will this affect the Journal Sentinel? Probably in countless ways, but here are the ten biggest changes in the leadership that runs it:  

1. Much more remote ownership: As big as Gannett was, the newly-formed company will be far bigger. It’s now the largest newspaper publisher in the country, numbering more than 250 daily newspapers including USA Today, plus hundreds of weekly and community papers. GateHouse Media is part of the New Media Investment Group which is managed by Fortress Investment Group, a New York financial firm that is owned by the Japanese conglomerate SoftBank. Needless to say, the coverage of this community and the state by its largest newspaper is not a great concern for this multi-national conglomerate, whose decisions will be all about driving revenue. 

2. Less input from journalists: The new company’s nine-member board has no journalist on it. Two journalists who served on the Gannett board are gone: Stephen Coll, dean of the Columbia University graduate school of journalism, and Larry Kramer, former president of USA Today. Mike Reed, CEO of the new company is seen as a newspaper man, but will be operating under a board whose style is likely to continue the GateHouse approach of cutting costs to drive profits. 

“The deal is bad for journalists, it’s bad for readers, and it’s bad for the future of local journalism,” said Bernie Lunzar, president of the News Guild-CWA, the national union that includes the Journal Sentinel guild, in a statement to the media.

3. Questionable morals: GateHouse’s push to make money has led to “tactics that have raised eyebrows,” as one news account noted. “In 2016, GateHouse reporters at its Las Vegas paper were ordered to begin investigating judges who had been a thorn in the side of billionaire casino owner Sheldon Adelson… Weeks later, GateHouse sold the Las Vegas paper to Adelson for $140 million, more than double its book value.” 

Meanwhile, Fortress Investment was milking the publishing company for all the money it could, extracting $250 million from New Media/GateHouse between 2014 and 2021, an analysis by News Guild CWA estimated. “A back-of-the-envelope calculation suggests those fees could have paid the salaries and benefits for 336 workers… Leon Cooperman, the largest investor in New Media, called the Fortress compensation package ‘morally wrong’.”

4. Greater financial pressures: Yes, newspaper publishers like Gannett were already under the gun to spend less, but this deal leaves the new company facing a firing squad. To finance the transaction, New Media will borrow $1.792 billion from Apollo Global Management LP at an annual interest rate of 11.5 percent, a rate the News Guild analysis called “usurious.” The loan almost triples the combined long-term debt of the two companies.

Meanwhile, the fees collected by Fortress, which the billionaire investor Cooperman called “immoral,” would continue though lowered slightly. Fortress would continue to collect a management fee of 1.5 percent of assets and an incentive fee of 17.5 percent of profits, down from 25 percent before the merger.

All of which means the company will be forced to impose severe efficiencies, experts have suggested.  While the company has five years to pay of the $1.8 billion debt, “at an interest rate of 11.5%, the Apollo loan could become onerous if not paid off quickly, said Tim Hynes, head of North American research for debt analysis service Debtwire,” in a story by USA Today. 

5. A bigger need for immediate staff cuts: Gannett was already expected to cut its newsrooms can by 3 to 5 percent, as Nieman Lab reported, but the new deal likely means bigger cuts. “And the company won’t wait for the first of the year to begin layoffs,” the publication predicted. “With immediate savings a priority, expect those anxiety-inducing conversations to begin right after Thanksgiving.”

“No one knows for sure just how many employees will be laid off in the wake of the merger, but estimates put the number between 3,500 and 4,000,” an analysis by Brookings notes. “There are 37,900 workers employed by U.S. newspapers today. Together, Gannett and GateHouse employ 27,600 or 73% of them. If the expected layoffs occur, that will mean up to a 10% reduction of the nation’s total newspaper workforce.”

“In any room of eight people at a current GateHouse or Gannett operation, one is likely to see her job gone in 2020,” Nieman Lab predicted.

6. A bigger push for long-term staff cuts: Compared to Gannett, Gatehouse has cut stuff more deeply. The NewsGuild-CWA analysis noted that between April 2014 and April 2019, 12 of its bargaining units within GateHouse experienced a drop in employment of 40.1 percent versus  28.8 percent for bargaining units within the Gannett chain. 

No one knows what the long-term picture for staff cuts will be, but until the debt with Apollo is paid off, there will be enormous pressure to continue slashing operations. 

7. Fewer newspapers and more ghost newspapers: At both Gannett and Gatehouse, at least a third of the local papers “are so-called ‘ghost newspapers’ with as few as one, two or three locally based reporters or editors, as the Pointer Institute has reported. But GateHouse has also been aggressive about merging newspapers. “Local papers will likely vanish,” Lunzar predicts. In Wisconsin Gannett owns daily newspapers in Appleton, Fond du Lac, Green Bay, Manitowoc, Marshfield, Oshkosh, Sheboygan, Stevens Point, Wausau and Wisconsin Rapids, and those are likely candidates for a merger. This will have no impact on the Journal Sentinel, other than losing a few state stories it sometimes runs from these outlets. 

8. More emphasis on digital journalism. Yes, Gannett was already de-emphasizing print newspapers, but that trend will likely accelerate. In an era where the massive size of Google and Facebook gives them a huge competitive advantage in online ads, this new entity needs as much online traffic as it can get and must “engineer a full transformation to digital news at its 266 daily outlets and create a widened digital revenue base,” as Poynter noted. 

And the new company has a long way to go. “together the two companies have been growing paid digital subscriptions and now have 824,000. Spread over 250-plus properties, that is a little more than 3,000 each,” Poynter notes. 

A bright spot for Milwaukee is that the Journal Sentinel has been a leader in Gannett’s effort, with roughly 40,000 digital subscribers. However, as at all Gannett publications, a number of those “are at a discounted introductory rate, hence not generating much revenue — and there’s no sure bet readers will renew when the price goes up,” Poynter notes. 

9. Less emphasis on local journalism. Yes, that too was true for Gannett, as Urban Milwaukee has reported. But the financial pressures of this deal will likely cause an even greater de-emphasis on local journalism because it doesn’t drive big traffic numbers, which the company will desperately need to drive revenue. 

10: Less working journalists: “In the next year, it is likely the country will see thousands of reporters and editors previously employed at the local newspapers owned by Gannett and GateHouse leave the industry altogether,” Brookings predicts. This may also drive down pay for journalists, and may make it easier for News Guild CWA to unionize more newspapers. 

Outside the industry, for readers and communities who need news coverage, the deal is a disaster that will inevitably mean less coverage and less transparency in government.

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4 thoughts on “Murphy’s Law: 10 Ways Journal Sentinel Will Change”

  1. Lee Bitts says:

    GateHouse’s push to make money has led to “tactics that have raised eyebrows,” as one news account noted.

    Indeed, this was the most powerful and unnerving observation referenced in the article!

  2. George Wagner says:

    Maybe it’s time for billionaires like Tom Steyer to buy out Gatehouse and others like it, and give some of their billions to make newspapers viable again. Hate to see our newspapers rescued by billionaires, but I see no other way.

  3. Mary says:

    There was a story on NPR the other day about a newspaper becoming a non-profit:

    ‘Salt Lake Tribune’ Becomes 1st Legacy Newspaper To Change To Nonprofit Structure

    November 12, 20194:30 PM ET
    Heard on All Things Considered

    and, see also:

    “The current business model for local newspapers is broken and beyond repair,” said Huntsman, who also serves as The Tribune’s publisher. “We needed to find a way to sustain this vital community institution well beyond my ownership, and nonprofit status will help us do that. This is truly excellent news for all Utah residents and for local news organizations across the country.”

    “In historic shift, The Salt Lake Tribune gets IRS approval to become a nonprofit”

  4. Dan Wilson says:

    I predict Gannett will cease print editions of the smaller papers and gradually transition to web-only. Physical distribution of the paper is getting more expensive because the falling subscription rates necessitates longer routes to distribute the same number of papers. As an alternative they may go to mail distribution only. Gannett could boost its income by overhauling its classified advertising, allowing ads to appear in all editions. They should also allow a one-subscription for all in view of the fact their papers are all sharing content anyhow.

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