Next for MediaNews: Rolling up ailing dailies

Ailing newspapers in Detroit, Minneapolis-St. Paul and San Francisco eventually could shrink or shut down after MediaNews Group emerges from bankruptcy.

The prospect of future seismic shifts in the newspaper industry from Salt Lake City to York, PA, were signaled last week when Affiliated Media, the parent of MediaNews, filed for bankruptcy to eliminate all but $165 million of its $930 million in debt.

In the last line of the lengthy and complicated press release that originally announced the filing, the company said the post-Chapter 11 structure of MediaNews will create “a platform from which to develop, grow and participate in the consolidation and re-invention of the newspaper industry.”

Translated into plain English, this means William Dean Singleton, the ever-resilient chief executive of MediaNews, will use his newly streamlined balance sheet to pursue his long-time passion for extracting profits from struggling newspapers.

In even plainer English, this means merging profit-challenged properties in multi-newspaper markets and consolidating their operations at every level – in the newsroom, in the ad department and throughout the production chain – to wring fatter profits from what remains.

In the plainest English, this likely means more lost jobs.

After MediaNews emerges from a bankruptcy whose terms were said to approved in advance by lenders who are taking a $750 million haircut, Singleton’s next steps like those he took to build his company into the second largest newspaper publisher in the nation, will involve many moving parts. And many partners, including Gannett, Stephens Media and, potentially, even Hearst, who will lose $317 million in equity in the bankruptcy.

The other publishers like working with Singleton, because he is not afraid of doing the dirty work – and taking the heat – associated with shaping up troubled properties, which at the moment happen to bee abundant in the newspaper industry.

So, the “consolidation and re-invention” of the industry he mentions is likely to take two tracks:

:: Terminating joint-operating agreements by eliminating the secondary papers in places as diverse as Detroit, Salt Lake City and York, PA.

:: Putting independently owned papers in competitive markets onto common ad sales, production and circulation platforms. This could take place soonest in cities like Minneapolis-St. Paul and San Francisco.

Here’s how each of the two distinct strategies might play out:

The JOA strategy

Singleton celebrated the value of nuking the No. 2 paper in a JOA in the press release announcing the planned bankruptcy filing.

“Circulation of the company’s newspapers grew for the September Audit Bureau of Circulations six-month reporting period, while industry circulation dropped,” said the handout. “The growth included gains by the Denver Post after its primary competitor ceased publication.”

With all the newspaper revenue in the market flowing to a single title with enriched circulation, its stands to reason that the sole surviving daily in Denver is a far more profitable business today than before the rival Rocky Mountain News succumbed. A similar burst in circulation and profitability benefitted the Seattle Times last year, when its JOA terminated after the shutdown of the print incarnation of the Post-Intelligencer.

JOAs are antitrust exemptions that were expressly tailored by Congress to save newspapers by permitting publishers to make more money by combining ad sales, production and delivery in a single business. The U.S. Justice Department would have to bless the unwinding of any JOA, but approval may not be difficult to get, given the ills of the industry in general and the fact that the company is toiling to recover from bankruptcy.

The bankruptcy filing may give Singleton the argument he needs to persuade the Justice Department that his distressed business has to exit the various JOAs, so as to be able to scale back to a single paper in order to remain viable. This argument likely will be the centerpiece of his efforts to gain Justice approval of all the consolidations he may seek to undertake.

If Justice balks at the outright shutdown of a paper, MediaNews could give a few pages each day in the surviving paper to the one he wants to shut down. That’s what happened to the losing partners in joint agreements in Las Vegas and Madison, WI.

Here’s what might happen at the JOAs in which MediaNews is involved:

Detroit

The newspaper business has been so dismal in Detroit that the dailies there abandoned home delivery for all but three days a week. With MediaNews stripped of debt, it would be in the position to acquire the dominant Detroit Free Press from Gannett, its JOA partner, so that its own struggling Detroit News could be shut down.

Alternatively, it is possible that Gannett could elect to buy out MediaNews. But it is far more likely that Gannett, a publicly held company, would like to unload the risk and distraction associated with owning a metro in the staggering Motown economy.

In buying Detroit, Singleton not only would get the opportunity to work his cost-cutting magic but he also would be doing a favor for Gannett, which is an investor in the MediaNews partnership that owns 15 dailies and a batch of weeklies in Southern California.

Salt Lake City and York, PA

While prospects in Salt Lake City and York may not be as bleak as they appear to be in Detroit, the day seems to have passed when there is enough business in most cities to provide two newspapers with the handsome profitability to which publishers historically were accustomed. So, the days may be numbered for the weaker paper in each of these cities.

In an unusual twist, Singleton already owns both papers in York, which he agreed operate as a JOA to get clearance to continue running the York Dispatch when he bought the competing York Daily Record.

In another unusual relationship, Singleton is partnered in the JOA in Salt Lake City with a for-profit arm of the Church of Jesus Christ of the Latter Day Saints. The Mormon unit owns the Deseret News and Singleton runs the Salt Lake Tribune and the JOA serving both papers.

Charleston, WV

In a third unusual arrangement – notice the theme? – Media News participates in a JOA in Charleston, WV, where the dominant Charleston Gazette owns the entire operation but Singleton runs the newsroom of the sagging Daily Mail.

The essentially uncompetitive nature of the relationship attracted the attention of the Justice Department, which took action against the publishers in 2007 and finally secured a settlement Friday from both publishers to engage in more competitive behavior. The enhanced competition, if you want to call it that, will include adding MediaNews representatives to the Gazette board and selling the 20,000-circulation paper for less than the 44,000-circulation Gazette.

The newly inked agreement requires both papers to continue to be published unless one “is determined to be a ‘failing firm’ under U.S. antitrust law and the Justice Department gives written approval” for a shutdown, said an article on the settlement in the Gazette. The default of MediaNews on $930 million in debt certainly suggests evidence of a “failing firm.”

The roll-up strategy

As Singleton seeks to move to solo papers in the JOA markets, he may pursue different paths to consolidating operations in places like San Francisco and the Twin Cities. Regardless of the approach in each market, the initiatives would involve aggressive cost cutting, which historically has translated into hefty headcount reductions.

San Francisco

The most likely path in San Francisco would be to add the San Francisco Chronicle, where Hearst has sunk more than a $1 billion since 2000 without seeing much profit, to the chain of newspapers Singleton operates in the Bay Area.

The long-running losses at the Chronicle, plus the MediaNews bankruptcy, may be sufficient to persuade regulators that an antitrust waiver is necessary to sustain journalism in northern California. As an added argument in support of a waiver, Hearst could threaten – as it did early in 2009 – to shut the Chronicle, which would make San Francisco the largest American city without a daily newspaper.

Adding the Chronicle to his Bay Area juggernaut would enable Singleton to eliminate most ad sales, administrative and back-office positions. At the same time, a consolidation would provide ample opportunities to streamlining production and circulation.

This also would result in potentially the deepest cuts yet in the Chronicle newsroom. The Chronicle editorial staff, which has been halved over the years to a couple of hundred traumatized souls, could be thinned yet again to perhaps a couple of dozen individuals. Further insight into Singleton’s operating approach in the Bay Area is offered here.

Minneapolis-St. Paul

In the Twin Cities, Singleton may attempt to create a joint operating platform to handle ad sales, production and circulation for both his St. Paul Pioneer Press and the Minneapolis Star Tribune, which just exited bankruptcy after shedding 75% of its debt.

Although the Strib arguably has been restored to financial health after shedding $380 million in debt, it was revealed last week that the Pioneer Press is the only one of the 54 dailies owned by MediaNews that is losing money.

The back-to-back bankruptcies of the newspapers might convince the Justice Department that the publishers need an antitrust waiver to keep the presses rolling in the Twin Cities.

New acquisitions

While the above activities are likely to keep Singleton busy for quite a while, his prior behavior suggests that he is a fan of buying fixer-upper newspapers at bargain prices – of which, unfortunately, there may be an abundant supply.

The crummy economy and Singleton’s heavy debt load prevented him from acting on his acquisitive impulses in the last few years. Now that his balance sheet is about to become nearly debt free, he evidently will have the ability to borrow more money to start bulking up his empire.

So, you never know where he might turn up next.