A paper’s sad decline in debt’s grip
Welcome to the San Mateo County Times, a once vigorous, locally owned, independent, community paper in northern California that was purchased in 1996 by MediaNews Group. Serving an area bracketed on the north by San Francisco and the south by Palo Alto, the Times became one of a cluster of 20 dailies owned by MediaNews that ranges from the tiny Ukiah Daily Journal to the once-formidable San Jose Mercury News. All of them have seen better days.
The Times may portend the future for other American newspapers owned by one of the several publishing companies that aggressively over-borrowed in recent years to fund acquisitions as the industry slid into an era of declining sales, slumping readership and uncontrollably rising expenses. The other companies range from such chains as Tribune and GateHouse to the one-off companies operating the Minneapolis Star Tribune and Philadelphia Inquirer. The managers and investors of these companies may yet see their initiatives pay off, though the prospects dim with every month of weakening sales.
The MediaNews papers in northern California are unique unto themselves. They are not only the largest consolidation of newspapers in the country but also are being managed more aggressively than any other group of publications to squeeze as much cash as possible out of a highly leveraged business facing some of the worst market conditions in the worst environment in more than 300 years of American newspapering.
With MediaNews forced by a combination of choice and unfortunate circumstance to push its ideas about newspaper “optimization” to the ultimate level, the price has been steep for the people working at its properties in northern California – and the communities they are supposed to serve.
Most of the Times is gone
How many other papers will share the fate of the San Mateo County Times? It’s impossible to predict. But one thing is certain: Most of what made the Times the Times is gone.
The newspaper this summer was stripped to a staff of exactly two editors, four reporters, two photographers, one sports correspondent and a secretary. The team will be expected to produce compelling, or at least convincing, coverage for two dozen separate and highly individual jurisdictions inhabited by some 705,000 residents spread over 741 square miles. The 10-person staff is about a fifth of the 48 editorial employees who worked there when MediaNews bought the paper a dozen years ago.
The Times is skinnier today than it was back then. Not only have its ad volume and physical heft declined, but its readership also has dropped by 42% to some 26k in daily circulation from about 40k at the time it changed hands. Thus, the paper’s penetration of the market has shrunk to barely 9.5% of the more than 266,000 households in the county. To try to turn the tide, the Times sells subscriptions to the daily and Sunday paper for a mere $20 for a whole year.
Although motorists can see the newspaper’s building from Highway 101, the structure is abandoned and up for sale. Before the staff departed for a rental office, production was moved to a MediaNews plant across San Francisco Bay, the presses were shipped off and intruders began stripping the building of its valuable copper fittings, according to former editor John Bowman, who resigned in 2007.
By the time the county historical society showed up to retrieve the leather-bound archives the Times had kept for years in a climate-controlled room, rodents had damaged the issues so badly that the volumes had to be destroyed. The climate controls had been turned off to save money.
Not what Dean had in mind
The Times as it exists today almost certainly was not what William Dean Singleton had in mind when his company, MediaNews, bought the paper.
Dean’s forward-thinking idea back then was to acquire and consolidate neighboring newspapers in a geographic area, so he could enhance the value of the assets by eliminating redundancies to pare costs to boost profits. He also had plans to share content among papers to avoid having multiple correspondents covering the same story, but there were hopes that at least a portion of the savings would go toward doing some of stories that otherwise wouldn’t have gotten done.
Dean succeeded in assembling a formidable footprint of publications that helped make his company the fourth-largest publisher of newspapers in the country. And there can be no doubt that he has cut staffing costs to all-time lows. But, as discussed in a moment, the hoped-for profits have eluded him.
Dean’s greatest success, by far, was in building a game-changing cluster of newspapers in northern California. The combined daily circulation of the MediaNews properties in the region today is more than twice that of the San Francisco Chronicle, which once rightfully billed itself as the largest-selling newspaper in northern California.
MediaNews reigns as the dominant newspaper publisher in the state, too. As you can see in the table below, the total circulation of its clusters in northern and southern California actually surpasses the combined circulations of the Los Angeles Times and the Chronicle.
In addition to buying as many papers as fast as he could, Dean borrowed great sums of money at the peak of the credit binge. But his success has come back to bite him – and, potentially, his partners at Gannett, Stephens Media and Hearst, who helped finance the myriad acquisitions that built his California empire.
Having borrowed heavily to cluster together California’s newspapers, MediaNews today is straining to keep up with the more than $1 billion in debt that it assumed in the belief it would be able to increase sales and trim expenses to produce ever-greater profits to pay off the loans.
The debt is carried not just by the northern California papers but across an entire company composed of a complex series of partnerships owning 56 daily newspapers in 11 states. MediaNews does not break out information for individual publications or groups, but gave a glimpse at the state of its finances when it sold its Connecticut Post earlier this month to Hearst to repay almost 25% of its bank debt.
This deal trimming a portion of its billion-dollar debt may forestall some of the drastic cuts that otherwise might have been required in the future to keep MediaNews ahead of its creditors. But the transacton is unlikley to reverse the cuts that already have taken place, because the heavily indebted company, like every other newspaper publisher, is fighting fierce economic headwinds.
Falling sales, tumbling profits
The problem for MediaNews and most other publishers is that sales and profits have been going down, instead of up.
According to the MediaNews financial statement for the six months ended in December, 2007, its operating profits fell by nearly 25% from the prior year. The report proved to be its last public financial statement, because the private company has elected since then not to issue any more. Although MediaNews did achieve an operating profit of nearly 11% on sales of just under $680 million in the six months ended in December, the margin was well under the 14.9% earnings it generated in the same period of the prior year.
As rocky as things were for MediaNews in 2007, things have gotten only worse for newspaper publishers since then.
In its struggle to avoid default, MediaNews is battling not only rising expenses for newsprint (up 20% this year), gasoline (up 33% through May) and just about everything else but also advertising revenues that are falling faster than even Dean’s seasoned cost-cutters can cut.
The newspapers in the group including the San Mateo County Times are “forecasting a 10% drop in revenue over the next 12 months, on top of a 17% revenue decline in the fiscal year that ends on June 30,” said publisher John Armstrong in announcing the latest layoff that trimmed 12.8% of newsroom employees in his group. “In my nearly five decades in this business, I've never experienced a downturn so deep and so broad.”
Nothing is sacred
The desperation to make the numbers is so great that nothing is sacred. Publishers have been changed. Budgets have been revised. Editors have been ousted. Newshole has been squeezed. Ad makeup has been outsourced to India.
Because newsrooms can be trimmed more readily than any other part of the operation, they have been hit the hardest. The staff of the Santa Cruz Sentinel was slimmed to almost nothing and the survivors were shipped to an office park outside of town. The newsroom of the San Jose Mercury News has been whacked in successive layoffs to a third of its strength in 2000. Even staff critics have been replaced by Associated Press movie reviews.
Though the San Mateo County Times still carries a few staff-written stories about local events, the shrinking paper and its website are backfilled with news from MediaNews papers in other counties – including those located on the other side of the bay. With fewer staffers now than two months ago, local stories will be scarcer than ever.
Because the change in coverage has occurred in a subtle fashion over an extended period of time, the executives at MediaNews evidently think readers won’t notice.
But they do.
“They don’t cover San Mateo County any more,” said a dismayed loyal reader who has canceled his subscription. “When they call and try to sell me the paper for $20 a year, I tell them it isn’t even worth that much.”