Newspapers Gobble Each Other Up to Survive Digital Apocalypse
By Gerry Smith March 29, 2016 — 2:00 AM PDT
Newspapers have settled on a strategy to stop withering away: feast on each other for survival.
For the owners of big-city dailies like the Chicago Tribune and Denver Post, buying smaller publications and slashing costs has become a way to buy time while figuring out how to make more money online. That was the logic behind the recent failed attempt by Tribune Publishing Co., owner of the Los Angeles Times, to buy two Southern California newspapers.
Last year, the industry saw the most deals for the largest amount of money since the 2008 financial crisis, with 70 daily newspapers being sold for a combined $827 million, according to mergers-and-acquisitions adviser Dirks, Van Essen & Murray. Gannett Co. bought 15 dailies, including the Milwaukee Journal Sentinel; Tribune snapped up the San Diego Union-Tribune; and Warren Buffett’s newspaper chain acquired the Free Lance–Star in Fredericksburg, Virginia.
Even after last year’s surge of activity, more deals may be coming. The pressure to combine is only expected to grow because several media companies have spun off their lucrative TV stations, leaving newspapers to fend for themselves. In the past few years, Tribune, Gannett and News Corp. have been decoupled from their broadcast and TV operations.
“The case for consolidation has gotten stronger than ever,” said Rick Edmonds, a media business analyst for the Poynter Institute, a nonprofit journalism school. “It is one of the ways that newspapers are repositioning themselves against the digital competition.”
Some major newspapers can afford to remain solo, especially if they’re fortunate enough to have a national brand like the New York Times or to be owned by a billionaire, such as the Washington Post. But the rest of America’s newspapers -- many of which are the sole source of professional journalism in their communities -- are hanging on by a thread, 20 years after the Internet first became a competitive threat by siphoning off classified advertising.
Not everything in the Fourth Estate is grim. Newsrooms continue to experiment with strategies to draw readers and convince advertisers of their value. Newspaper publishers say they’re making progress with niche websites that may have national or global appeal. They’ve also gotten new sources of revenue from digital subscribers, sponsored events, newsletters and acquisitions of digital startups that have found an audience.
To that end, Gannett last week acquired a minority stake in a startup called Spirited Media. Founded by former Washington Post editor Jim Brady, Spirited Media owns a Philadelphia website called Billy Penn that publishes local news and hosts events with sponsors. Gannett’s investment will allow the site to expand its model to other cities, the companies said in a statement.
The New York Times, meanwhile, has generated more than 1 million paid online subscribers. And Boston Globe Media’s new startup, Stat, is trying to reach a global audience interested in health, medicine and science. The site, which started in November, publishes newsletters sponsored by companies such as CVS Health Corp. and is considering hosting events and charging for content, said Rick Berke, the former New York Times editor who runs Stat.
“We hope people will pay in some form for journalism they can’t get anywhere else,” Berke said.
Yet for many of those ideas to be fruitful, they need investment and time -- two things in short supply at many newspapers as the once-lucrative print audience disappears. Advertising revenue at U.S. newspapers has plunged to $12 billion this year from $50 billion in 2000, according to Bloomberg Intelligence. Print circulation has dropped by half on average since 2005, according to industry analyst Alan Mutter.
While online readers are growing, most digital advertising is going to Google, Facebook and other popular websites that don’t produce local news. Newspapers are “way behind” the overall growth rate of digital advertising and their share of it is decreasing, said industry analyst Ken Doctor.
For some, the best strategy is to get bought by a billionaire willing to give the newsroom time and resources to try new things. Under owner Jeff Bezos, the founder of Amazon.com Inc., the Washington Post has widened its focus on national and international coverage and added 70 employees to the newsroom, including about 50 reporters and editors, lifting the headcount to about 700.
Those moves have helped the paper keep pace with the New York Times in unique U.S. Web visitors.
The Globe, backed by Boston Red Sox owner John Henry, can even afford experiments that don’t succeed, such as Crux, a website focused on the Catholic Church that the newspaper plans to shut down April 1 after not finding enough advertisers.
The Globe and the Post are among the fortunate few papers shielded from the pressures of Wall Street.
“Most newspaper companies don’t have billionaires writing them checks,” Mutter said. “They’re struggling with shrinking profits.”
As newspaper chains buy smaller papers and merge them, some worry that coverage of local news will wither further. Yet for many owners, the strategy has been to “maintain profitability by continually diminishing the product and charging more for it,” Doctor said.
One newspaper owner that is acquiring and combining newspapers is privately held Digital First Media Inc., which is controlled by the hedge fund Alden Global Capital. Last week the company, which owns about 80 daily newspapers including the Denver Post, bought the Orange County Register and Riverside Press-Enterprise in bankruptcy court after a federal judge blocked Tribune from acquiring them on antitrust concerns.
This month, Digital First Media said it plans to combine six newspapers covering the Bay Area into two and cut 20 percent of the staff, according to the San Francisco Chronicle. After the cuts, the company will have 160 people covering 160 towns across 5,000 square miles, according to Mutter.
The company’s strategy is to squeeze out profits by attracting local advertising while scaling back on local news reporting, Doctor said. Digital First Media didn’t return a request for comment.
“They’re milking these properties,” Doctor said. “As print advertising goes down, they’ll cut more staff. This is the unmistakable path at this point.”