Wednesday, September 17, 2008

Bankruptcy may be next at some papers

Bankruptcy court may be the next stop for some of the most precariously financed newspaper publishers.

As awful as the prospect sounds, it actually could be a good thing for the newspapers, because a Chapter 11 bankruptcy filing enables a struggling company to restructure its debt, streamline its business and potentially put itself on a sounder footing for the future.

Not all Chapter 11 filings are successful. In some cases they lead to the eventual liquidation of the business through Chapter 7 or some other means.

And any bankruptcy action almost certainly would wipe out the equity of such investors as the owners of Philadelphia Media Holdings, the Minneapolis Star Tribune and Sam Zell and his fellow employees at Tribune Co. Fears of imminent bankruptcy already have driven public companies like GateHouse to 33 cents a share and Journal Register Co. to 1 cent, so neither has much further to go.

Bad as the loss of their $182 million investment might be for the equity shareholders of Philly Media, Chapter 11 could give management a lot of leverage in rescuing the business from outright collapse. The Philly example discused here generally applies to any financially stressed publisher owing more money than its sales- and profit-challenged business can afford to repay.

Under the auspices of a bankruptcy court, Chapter 11 gives a company the right to walk away from unnecessary leases on real estate, equipment and vehicles. It also lets a company renegotiate bills owed to creditors, enabling debts to be settled for cents on the dollar. Wages, benefits and other obligations to employees usually are unaffected by a bankruptcy filing.

Bankruptcy protection would give Philly Media’s creditors an incentive to renegotiate the $380 million loan the company’s weak profits no longer can service. Because the company was unable to make its scheduled debt payment over the summer, penalties nearly doubled the interest rate on its loan to 9.5%, according to Standard and Poor’s, the bond-rating service.

A renegotiated deal with Philly’s lender, the Royal Bank of Scotland, might trim the interest rate, lengthen the maturity or get the bank to write off a certain portion of the borrowing. Bond traders already have discounted the debt of companies like Philly Media, Tribune, Star Tribune and others to 50 cents on the dollar – or less. So, a reduction in principle may not be as far-fetched as it sounds.

Last but not least, Chapter 11 typically gives a company like Philly Media the ability to terminate the restrictive and anachronistic labor contracts that stand in the way of the efficient operation of a company that is literally fighting for its life.

Before anyone thinks I am anti-union, remember that my father was a union man, my mother was a union woman and I was a proud member for many years of the Chicago Newspaper Guild. But these are perilous times, and unions, instead of protecting antiquated prerogatives, need to act constructively to preserve as many jobs for their members as possible.

While Chapter 11 provides a respite for a troubled company, it is only a respite. At some point, a business either has to emerge from bankruptcy as a going concern or go down the tubes. In the latter event, everyone loses.

32 Comments:

Anonymous Anonymous said...

What happens, Alan, if this is not an ordinary recession? I don't have a crystal ball, and I lack the necessary academic training, but I'm reading some of the more truly miserable economic forecasts predicting a recession that this time will last 18 months or so. I believe newspaper companies counted only on a short downturn. Evidence for this were the tepid and hesitant layoffs earlier this year. Now we are seeing a further wave of layoffs and cutbacks so companies like McClatchy can make their debt payment schedules. But what happens if the advertising decline continues and persists for longer than corporate executives have seen before? They have now cutback their newsroom staffs to extremely low levels, and achieved savings in sharing printing facilities with neighboring papers. When the Christmas advertising season begins and the ads don't appear, I think we will see more than the newspapers you list filing for bankruptcy protection. This industry is in very sad shape and only those that have minimal leverage on their books have amy chance to survive.

7:41 AM  
Anonymous Steve Gosset said...

Alan: Former proud union man or not, you should not fall into the trap assuming that unions are to blame for a newspaper's problems or that abrograting them will solve them.
Brian Tierney, George Arawaddy and Avista may think so, but ultimately doing has about as much value as a used Band-Aid.
Philadelphia Newspaper Guild members have already attempted to be part of what ails the Inky and Daily News, ratifying a contract last year that according to the Columbia Journalism Review "expanded a two-tier wage system, curtailed sick pay, poked holes in seniority, and provided inadequate money for spiraling health-insurance costs, let alone raises. After one last payout, it froze pensions without offering any future contribution to employee 401(k) plans."
It was a pragmatic contract in the face of the prospect of further layoffs and in full recognition of the company's problems.
So for you to suggest that Tierney and their ilk can find their way to solvency by voiding contracts under Chapter 11 protection is unavailing, especially when there isn't much of a contract left to void.
Union members (and I was a shop steward at two different news organizations) have concurrently fought hard for a living wage and made concessions when conditions required. But there is precious little left to give back. Tierney & Co. know it. And chances are bankruptcy judges will too.

7:45 AM  
Anonymous Anonymous said...

You note that, under Chapter 11, wages, benefits and other obligations to employees usually are unaffected. But you say a bankruptcy filing would allow the employer to dump his labor contracts. What is the upside of that, if wages, benefits and other obligations to employees would be unaffected?

8:00 AM  
Anonymous Anonymous said...

Unions are not the problem facing newspapers.

The problem was and is cheap, short-sighted owners who have known since 1995 that the Internet would eventually kill off newspapers.

Publishers were too cheap to invest the hundreds of millions of dollars that dot-coms like Google put into the Internet, so now newspapers are paying the price.

Journalists are not slaves, and union "contracts" are just that -- contracts that both parties signed on to.

If newspapers use Chapter 11 to void union contracts, journalists should immediately go on strike -- or quit.

8:11 AM  
Anonymous Joe DiStefano said...

Alan, have you lifted a finger to check what's actually in Philadelphia Newspapers' labor contracts, or how closely the unions (CWA/TNG and Teamsters) have been cooperating with Mark Frisby and the others who run PN, and vice versa? If so, please be specific as to exactly which work rules you think bankruptcy would overturn. Otherwise, we'll have to suspect you're rambling on about things you don't really understand. Cordially, Joe DiStefano, reporter, Philadelphia Inquirer

8:26 AM  
Anonymous Anonymous said...

Alan, are you just blowing smoke, or did you happen to research the Philly newspaper labor situation? Have you looked at the CWA/Teamster contracts? Can you point to actual obstacles bankruptcy would likely remove? Do you believe the papers' largest investor, the Carpenters' union, would support gutting the union contracts? Have you examined the current relationship between Mark Frisby and other PN executives and the unions? If not, what value are you adding here? Cordially, Joe DiStefano, reporter, Philadelphia Inquirer

8:48 AM  
Blogger davidcay said...

Alan Mutter often provides trenchant analysis, but this blog post is far off the mark.

Bankruptcy may be inevitable for many newspaper companies, but the idea that the problems will be remedied, or even lessened, by voiding The Newspaper Guild’s contracts is nonsense, especially in the specific case he cites, the Philadelphia Inquirer and Daily News.

Neither union pay – which means attracting better talent – nor Guild work rules are the problem. Whatever happened to the old business adage that properly paid workers are free because they produce value equal to their cost? Badly paid, demoralized workers are a drag on an enterprise.

The facts are that Brian Tierney coveted control of the local newspapers and he willingly paid far too much for them.

That was true when he made the deal, which was before the collapse of the economic model of newspapers became big news.

His deal was also predicated on shedding the company’s legal obligations to me and many others, who now are at serious risk of receiving less than we are due in our old age. This is a sophisticated form of stealing, an issue that ought to be major page one news as it affects millions of workers who agreed to defer part of their pay, but will now not collect what they were promised.


It was The Newspaper Guild that tried in 1993 to make the business healthy by getting the previous owners in Philadelphia to halt a host of wasteful and inefficient management practices. Based on careful analysis of the same detailed financial reports that top management received, we had a plan to improve margins, deploy personnel efficiently and reward performance. We announced that our goal was to make the business healthy and more profitable, but management put plugs in its ears, evidently on orders from corporate.

Instead of incentive plan that would inspire sales agents, for example, management came up with silly contests. One was a form of lottery that rewarded someone for the luck of having their name pulled from a fishbowl, rather than for their individual performance. That is worse than dumb because it encourages cynicism.

Highly paid workers were forced to spend much of their time on clerical tasks. Significant efficiencies could have been achieved in subscription billing.

The tenor of management’s response was this: we are executives and who are you folks but a bunch of journalists, sales agents and circulation office workers.

One Guild negotiator went on to become a senior executive (and not in PR) at several companies including global vice president of one of the biggest firms in the world. And she was not unique in her business skills.

Management was so bad that in one case a Guild leader sought disciplinary action against a member for an unethical act, proposing if not outright firing then at least initiating progressive discipline.

“What is progressive discipline?” a senior manager asked.

Tell us, Alan, does that suggest to you that there just might be a problem not with the Guild contract, but with management competence? Just what would you have said to even a low level manager under you who had decades of experience and did not know what this basic management tool is?

In one of the recent rounds of layoffs three of those who were let go showed up in new jobs. Each was a relative or close friend of the Tierney team. Want to demoralize workers and make them less productive – that is a textbook case of how to do it.

What you seem to propose is a debtor-in-possession Chapter 11, which could mean wiping out the union contracts, as well as forcing lenders and vendors to take haircuts.

Would management’s stake really be wiped out in such a move? Not if you look at the records of many Chapter 11s, in which managers and owners did just fine (and sometimes pocketed fortunes) while the rank-and-file got hurt.

But perhaps I am wrong. So, Alan, please show us from the Guild contract just where its provisions are causing problems. And then ask why your immediate response was not that management and the Guild should try to adjust or remove this provision(s) instead often engaging in the wholesale destruction of the contract?

Oh, and with the contract gone just what would that to keeping and attracting the talent that is what makes any organization succeed?

Let’s put responsibility where it belongs and not blame employees for problems they did not create, especially when they took the lead in trying to make the business healthy.

8:53 AM  
Anonymous Anonymous said...

So Philadelphia Media Holdings overpays for the Inquirer and Daily, the banks underwrite it and now the unions (employees) are supposed to take it in the chops? FYI: The papers have ALWAYS made money, just not enough. Not enough for the Wall Streets swindlers that eventually forced the sale of Knight Ridder (and grabbed an exorbitant premium) and not enough to offset the staggering debt load that PMH now faces. No is "protecting antiquated perogatives," unless you think a living wage is "antiquated" concept. In point of fact, the union has worked diligently to help PMH meet its obligations across a wide range of issues. The bottom line is - as I am sure you parents once told you and you have obviously forgot - there would not be unions to begin with if management could be counted on to treat employees with fairness. But that was not the case 100 years ago and it is surely not the case now, as increasing numbers of people (not just in the newspaper industry) are leaving the workplace carrying boxes. So please stop promoting the lazy thinking that unions are the problem.

9:11 AM  
Anonymous Anonymous said...

Hooray, finally someone has found the real source to blame for newspaper problems today: unions. If you want to see the result of archaic work rules, take a look at the Baltimore Sun. Because of a court fight the Guild lost, the Sun's Internet operations are handled in a different building miles away from the Sun's newsroom, where unionized staff put out the dead-tree product. The extent of integration is someone hitting a button to send the electronic version of a finished story across town for the Web site to handle. As print goes online, there is resentment across-the-board for this structure, but the Guild won't relent.
In this particular time, union rules calcify, making it virtually impossible for management to change operations. To get union approval requires endless meetings and consultations, sometimes involving lawyers from the International. It is very difficult to operate under these circumstances.
I personally believe the unions would prefer to see newspapers collapse than alter some work rules crafted for an industrial age that no longer exists. Unfortunately, the bankruptcy option for all of its difficulties looks like a viable way of blasting change through the heads of those who don't see that it is necessary.

9:31 AM  
Anonymous Anonymous said...

This seems to be a forest for the trees problem. The problem with the union contracts is that they exist, creating a multi-lateral relationship were any potential investor in the endeavor wants very clear lines of responsibility in exchange for taking on mammoth risk.

Put another way, if every discussion about domestic bliss turns on "Well, my ex-wife has been great about..." chances are many suitors will be scared off.

JAT

9:46 AM  
Blogger rknil said...

Unions are a major problem in newspapers. Too often, the only thing they accomplish is the protection of marginal-at-best workers. Some of the workers should have been fired for non-performance years, if not decades, earlier.

The biggest problem with newspapers is they retain terrible employees at the expense of good workers. Unions play a major role in this fisaco. They need to be dismantled as quickly as possible.

Alan Mutter may be taking some heat here, but ultimately his point is a good one. When it comes to newspapers, vote Union No. They don't fight the right battles. They protect bad employees. They are a major part of the problem.

Remember: Union No.

9:53 AM  
Anonymous Anonymous said...

I am hugely pro-union, but have seen firsthand how the unions at the philadelphia daily news and inquirer protect unproductive employees. I know it's only part of the problem, but newspapers can't afford the dead weight any more. One of the concessions unions should make is the elimination of these unproductive workers. Their identity usually is no secret.

10:17 AM  
Anonymous todd said...

rknil: absolutely correct. Bravo.

The industry is in free-fall holding an anvil (unions).

Someone among the pro-union cheerleaders, a one-sentence answer, please: Name *one thing* the Guild has done to help the newspaper industry during the current crisis. (Making snarky comments about company airplanes doesn't count.)

Waiting...

10:39 AM  
Anonymous todd said...

Anon 10:17: I concur. Break the unions, and cut the dead weight.

10:41 AM  
Anonymous Anonymous said...

Show me a newspaper where unions have a constructive influence. A friend of mine used to be a high-ranking production executive in Philadelphia and regaled with stories of union greed (overmanning on press crews, guys grabbing OT shifts and their buddies working for them to cover, etc.). When I was in Baltimore many years ago, the union press crews used to broadcast the sound of a train whistle over the pressroom PA whenever a shift went long -- it was the sound of a money train.

You could argue about the presence of unionization in the crafts and trades, but in the newsroom, sales forces and IT? Puh-lease!! When Tierney bought PNI, he couldn't send sales reps out of town without paying OT for travel (sales reps making hourly wages is itself ridiculous). The Internet and unions are and should be mutually exclusive, and you know what, employees at Internet companies do just fine. There's no place for them in the Internet age. You think that Pennsylvania unions would have what happened to the steel industry. The white collar union folks will find jobs after PNI folds, but those six figure pressmen and mailers -- we'll be seeing them as greeters at Wal-Mart soon.

11:33 AM  
Blogger davidcay said...

Some posters here blame unions for companies not getting rid of inefficient and ineffective workers.
Nonsense.

A Guild contract does not protect people who do not work or interfere with production. This is a lame excuse for management that does not manage.

Even Barlett & Steele could have been fired if management wanted to get rid of them. All it takes is building a file.

12:22 PM  
Anonymous Anonymous said...

todd asks: Name *one thing* the Guild has done to help the newspaper industry during the current crisis.


Does relinquishing fairly negotiated pay raises count?

2:10 PM  
Anonymous Anonymous said...

If unions are the problem, how come non-union papers are sinking under the waves, too? I am sure some union contracts create more problems for management, but given the big picture, it's hardly the major problem they face.

2:52 PM  
Blogger rknil said...

"A Guild contract does not protect people who do not work or interfere with production. This is a lame excuse for management that does not manage.

Even Barlett & Steele could have been fired if management wanted to get rid of them. All it takes is building a file."

What alternate universe are you working in? I cannot say it more clearly: Newspapers. Do. Not. Fire. Bad. Employees. Biggest problem in the industry.

Try building a file when every response is some tit-for-tat B.S. for no purpose other than to neutralize the valid complaints. Newsrooms are packed with do-littles and do-nothings who never should have been hired in the first place. Yet they stay year after year, even as good employees leave or are cut.

I could cite several stories of union workers who knew they could do nothing other than the absolute minimum. But those are as common as oxygen.

I have yet to experience one time when a union was a positive in any newsroom. The message is clear: Union No.

3:57 PM  
Blogger rknil said...

"If unions are the problem, how come non-union papers are sinking under the waves, too? I am sure some union contracts create more problems for management, but given the big picture, it's hardly the major problem they face."

These bursts of illogic amuse me. So, because non-union papers are having problems, then unions cannot possibly be a problem? Paradox -- claim rejected.

4:22 PM  
Anonymous NPinsider said...

Its worth diving a bit beyond the union issue here to get to a bit closer to the root cause. There's only one reason that unions get formed in the first place; when employees feel abused or otherwise forsaken by management. Certainly there are always examples were unions have been counterproductive, but there's more to it than that.
Managment in newspapers has been extraordinarly arrogant for a very long time. They viewed themselves as a protected monopoly that could wrap themselves in the American Flag and First Amendment at will. Monopolies as a general rule don't work to improve operations, but to protect their status. It enables inefficent employees to remain with a sense of entitlement. It's just a slightly different version of the world Xerox expereinced 20 years ago, or typewriter companies 10-15 years ago, or that Microsoft or Google might face in the future.

The core of the problem is the most rotten part. It's not management, it's not unions; its a changed business model and a capital structure that is unforgiving. Its a culture that grew up being a monopoly. Chapter 11 might help erase some past sins, but they can't make the dinosaur fly. Even AH Belo with zero debt and only one union paper can't make real progress in this environment.

7:17 PM  
Anonymous Anonymous said...

So nonunion workers will save journalism? The papers in the company where I work have had repeated layoffs. I don't think many workers are in unions. There haven't been severance or buyout offers at my paper. Corporate officers continued to take home paychecks in the millions.

Even before newspapers started their freefall, my employer was calling everyone "salaried" and working them 50 or 60 hours a week for crappy pay. Many hourly workers put in extra time off the clock. Newspapers ignored NLRB rules. We used to fantasize about getting guild jobs the way some people dream of winning the lottery.

People like Tony Ridder or Stan O'Neal will live in comfort even if their stock portfolios decline significantly in value. When will there be justice for ordinary employees?

Rich buyers who "overpaid" for newspapers need to pay their employees decent wages, hire decent managers, and provide decent health care. If raises for employees are less than the rate of inflation, then the corporate officers shouldn't be getting multi-million compensation or bonuses. Ever.

And if wealthy owners can't get indecent profits paying decent wages, they should consider that old phrase, "caveat emptor."

Executives don't make profits on their own. It's time for the government to protect workers, expecially when companies use bankruptcy or are sold. The taxpayer money going to shore up Wall Street should come with the condition that all executives will work for salaries under $100,000 per year.

If ordinary employees aren't protected, who's going to buy products, including newspapers cars and 401(k) plans, that companies are trying to sell?

8:33 PM  
Anonymous djs36 said...

So you want to know where unions have had a constructive influence? I worked at the Philly Inquirer back in the days before the suburban correspondents got their first modest contract. One day, pre-contract, a correspondent was rushed to the hospital, and we literally passed a hat around the newsroom to help pay the bill. What a wakeup call that was. Surely that's not the kind of episode that any of us would like to see repeated in our new, lean-and-really-mean business. These days I teach journalism, and the last thing I want for my bright young students is to send them into an industry where they beg for decent pay and health care, and their bosses steal their retirement funds. Let's point the finger where it belongs -- toward the newspaper companies that were only too happy to rake in all those double-digit profits every quarter of every year for decades, while paying scant attention to the long term, union shop or not.

10:45 PM  
Anonymous Anonymous said...

Unions?

What a red herring.

Based on recent events, the real question here is where are Paulson, Bernanke, McCain, Bush? Newspapers, like banking and finance, merely need this 'free' market crowd to make news business a free market by nationalizing it with taxpayer money.

Hey, a 'free' press is in the Constitution and financial markets are not in the Constitution.

We need taxpayer bailouts of 'free' markets in order to make those markets truly 'free'.

Of course, when Bernanke and Paulson and McCain and Bush do act to nationalize our free press through the wonders of 'free' markets, then they probably should eliminate unions because, you know, unions destroy 'free' markets.

5:56 AM  
Anonymous Anonymous said...

Ok, rail at Tony Ridder and the executives with their corporate jets, etc., if you will, but that does not resolve the problems we face today. Ridder is no longer a newspaper executive, and the corporate jets are mothballed or sold off. We need to face a reality that the great times are gone. During the fat years, employees benefited with pay increases and cost increases for health benefits, etc. were absorbed. In contrast, take a look at the bottom lines of these corporations today. So it is well and good to sing Solidary Foreever, and gather around the union banner, but unless the employees demonstrate more flexibility on management cost-saving initiatives, we are all going down with this ship.

5:57 AM  
Anonymous Anonymous said...

The ship is sinking. It doesn't matter if the crew is union or not. The only thing that matters is whether they can seal a gaping hole under the waterline.

10:13 AM  
Anonymous Anonymous said...

Clearly, Alan didn't suggest unions were "the problem," shrill, knee-jerk reactions here aside.

A range of moves must be made to rescue a floundering media company. Restructuring operations to save a business cannot be done without including union contracts among the options.

1:23 PM  
Anonymous Grant Perry said...

The main problem with Chapter 11 is that it would make it practically impossible for newspaper companies to make investments that are critical to creating sustainable business models. Cost-cutting doesn’t solve the fundamental business problem: online revenues don’t begin to make up for lost circulation and print advertising revenues. Can a newspaper in bankruptcy invest in new technologies, workforce retraining and hiring of people with multimedia skills, and expand both news and non-news content to expand the audience? It would be awfully difficult.

4:14 AM  
Anonymous Anonymous said...

It's true that unions are not THE problem, but it doesn't mean they aren't one of the many problems the industry faces.

I'm tired of these pro-union excuse makers talking about how bad things would be if it weren't for these antiquated, throwback organizations.

If the conditions in which you work are that bad, go find another job doing something else. No one is holding a gun to your head and making you stay in a situation where, as one commenter here recalled, co-workers have to pass a hat around to pay your medical bills.

Abuse is a two-way street. The abuser and the one being abused. If you feel you're being abused, how retarded do you have to be to stick around and let an employer continue to abuse you? The quicker you find other employment, the better off you'll be.

I'm perfectly capable of negotiating my own deals, thank you very much. I don't need someone else to do it for me. Thankfully, I've got options, and while I feel fortunate that that is the case, in truth it's because I've worked my tail off to be in such a position. I haven't been sitting at my desk for the last 30 years doing nothing knowing the company was nearly powerless to get rid of me because of the contract negotiated by my guild.

Let the unions ride the sinking ship down to the bottom of the ocean. It's where they belong. Unfortunately the rest of the industry will be there with them.

7:57 PM  
Anonymous Anonymous said...

The union doesn't do the hiring, doesn't pick the CEO, doesn't decide how much corporations will pay for newspapers and didn't beg newspaper management to ignore the internet for moire than a decade.

6:20 AM  
Anonymous Anonymous said...

Tierney wasn't rich enough to buy the Philly papers and has been doing it on the cheap ever since. Look at the Inky, it's over pretty quick. Two years ago, to free up some cash, he laid off all the suburban writers and photographers, putting an end to mostly all suburban coverage. Most of the Inquirer readers are/were in the suburbs. No more coverage, no reason to buy the paper. As for the guild, they are useless. They threatened to strike, but caved to company demands on seniority, sick pay, and the pension, and urged everyone to vote yes to the company's contract or there will be a higher number of layoffs. Guess what is still happening?
The suburban correspondents got screwed the moment they became employees with a low pay and miniscule benefits contract after the NLRB ruling(under Knight Ridder). For ten years they battled for an "equal pay for equal work" agreement. When the contract came up for renewal two years ago, and a promise by the newspaper guild for equal pay, they were rewarded with a layoff. Some had twenty years seniority but it made no difference as the company and the guild cut a deal to get around seniority. And this wasn't a case of deadwood either, as they worked five days a week, a nine hour workday, and put thousands of miles on their own vehicles every year. The union failed them. The memo put out by the company saying the layoffs were done by seniority, "last hired, first fired" was total BS. And after the smoke cleared, the deadwood was still there.

3:59 PM  
Anonymous Anonymous said...

Thank you to Steve Gosset, and to whoever posted comments at 8:11am and at 3:59pm. I watched as the caste system at the Inquirer ruined both its credibility and the community of journalists at the newspaper. No company can succeed when it sets up situations where people work side by side doing the same job--and doing it just as well or better-- as colleagues making twice as much. And, in those layoffs as well as in the current round, to say that the company poked holes in seniority is to be very, very generous. The company ran rampart over seniority. The Newspaper Guild stepped aside, turned its back and let it happen. When you let creatures like Zell and Tierney get their grubby hands on something as sacred as the delivery of news, you are saying goodbye to journalism. And, yes, it's well to remember the Wall Street machinations that brought about the downfall of Knight Ridder in the first place. I hope those people took their blood money and invested it with Manoff.

7:01 PM  

Post a Comment

<< Home