Touted by industry worthies as the digital future in the making, the Journal Register is more a business of financial engineering
Last November the New York Times’ media reporter, David Carr, wrote an enormously laudatory profile of John Paton (“a bearded man with a friendly face”), a financial executive who had just taken the reins at the second largest newspaper chain in the country, MediaNews (with more than 60 papers, including San Jose Mercury News, Denver Post, and Los Angeles Daily News). Paton had gotten this job, said Carr, because of the great work he had done at another newspaper chain, the Journal Register – not least of all by implementing an aggressive digital strategy.
Actually, Paton wasn’t even giving up the first job, but, in an unexplained convolution, taking responsibility for both groups under an umbrella management company called Digital First – for the “digital first” imperative he was proselytizing about in his newsrooms and at conferences all over the country. He was, according to Carr, a white knight for the newspaper business.
Bankers in the industry found this a curious article – a reality-trouncing one. From the financial view, MediaNews and the Journal Register, along with various other besieged US newspaper companies, represented a failed gamble on the part of two distress debt firms: Angelo, Gordon & Co (“specialists in non-traditional investments,” as they describe themselves) and Alden Global Capital (run by a reclusive investor, Randy Smith, who nobody seems to know much about).
Over the last several years, the firms had played aggressively in the debt of many of the nation’s newspaper companies, including the Tribune Co, Philadelphia Media Network, Star Tribune Media company, and Freedom Communications, as well as MediaNews and Journal Register – all of which had been restructured in bankruptcy proceedings. To no one’s surprise but, apparently, their own, both firms had fared poorly in these investments. (The executive at Angelo, Gordon responsible for the newspapers deals, Brad Patelli, was forced out of the company.)
Last week, the Journal Register – the same company whose success after it emerged from its first bankruptcy had, according to Carr, propelled Paton into his new responsibilities at MediaNews – went into bankruptcy, again. Alden Global Capital, its controlling stakeholder, announced that its corpus was for sale.
In addition to getting the Times’ Carr to endorse his management approach, Paton had also recruited an advisory board of luminary digital journalists, including Jeff Jarvis, a vocal gadfly and a professor at Cuny’s Graduate School of Journalism, Emily Bell, director of the Tow Center for Digital Journalism at Columbia’s Journalism School (and formerly the Guardian’s director of digital content), and Jay Rosen, a media critic and professor of journalism at New York University. “Advisory board” is a non-official status often used by digital companies to associate themselves with industry worthies; companies that are themselves worthy do not usually have advisory boards.
Carr, in his article, took respectful note of Jarvis, Bell, and Rosen’s involvement. It may have been their presence that helped Carr overlook the more obvious point that Paton’s track-record – limited to brief time running a Hispanic chain – hardly suggested he was the man with the chops to restructure the US newspaper business.
Indeed, the “bearded man with the friendly face” seems to be convincing enough, or charming enough, even with the Journal Register in bankruptcy again, to have had Jarvis take to his blog the other day to explain that this latest bankruptcy was really just an effort to appropriately shrink the cost basis of the company. “CEO John Paton said that legacy costs undertaken under different circumstances are now unsustainable. Bankruptcy presents an opportunity to renegotiate many of those costs, including leases, contracts, and pensions,” said Jarvis, seeming, none too sheepishly, to concur. He continued:
“I do believe that newspapers, rethought, can be sustainable – that is, profitable. The first step is to make hard financial decisions such as the ones discussed here. The next is to make the transition to digital, to put digital first, to become sustainable digital enterprises.
Jarvis also pointed out that Rick Edmonds at the Poynter Institute and Josh Benton at the Nieman Journalism Lab were saying much the same thing: Paton was on the right track. The bankruptcy was, in Benton’s words, “a reboot”. Payton just need the pressure taken off of him so that he could use the resources he had to continue to transform his papers into digital enterprises.
The problem, however, was that, so far, the digital strategy had, from a revenue standpoint, not become all that significant to the company – you’d be hard-pressed to find much value there. Or even the prospect of value.
Except, perhaps, PR value. With the bearded, friendly Paton’s umbrella company, Digital First, out front, defended by so many worthies, the notably less friendly distressed-debt guys were tending to the real business, trying mightily to improve the bad deal they had initially made when taking on so much newspaper debt at the twilight of the newspaper business.
It was a classic disparity between the way journalists wishfully see their business and the way the people they work for see it.
Distressed-debt investing is – to the surprise, it seems, of earnest journalists – not about building business, or even saving them. It’s about jockeying for position and improving your deal. It’s about exerting leverage on companies that don’t have the cash to pay you back (whether they make widgets or report the news). Now, when you buy debt and restructure – the rejiggering you force a company to do when it can’t pay what it owes – you end up with equity: indeed, Alden owns pretty much all of the Journal Register’s equity by now. In other words, the only way the company can pay you off is by giving you a part of itself, or all of itself, which introduces another perplexing and shifty element: as equity owner and debt holder, you are both borrower and lender – maximizing your leverage and ability to self-deal. (When there are multiple debt holders in a distress deal, as there often are, things get really interesting: suffice it to say, nobody trusts anybody.)
All of which has little to do with figuring out how to build a sustainable newspaper business – even though Paton and his advisory board continue to say that’s what the result will be. What it has to do with is making good deals, or making bad deals into better deals. So, while the journalists covering this story, or recruited to be part of it, keep talking about the prospects of growth in the digital future, the financial guys have seen the more immediate and darker issue: neither the print nor the digital operations are going to pay them back – meaning: if the customer won’t pay, they have to turn somewhere else.
So, the Journal Register has been put into bankruptcy again. Its big debt holder, Alden Capital, will now make a bid to buy it. This is a bid that will be high enough so that if someone else comes along and is willing to pay more, great – and good riddance. But if no one comes along, this enables the dominant debt holder to extract ever-more concessions from other remaining stakeholders (employees, pensions, management, and lesser debt holders). First and foremost, it’s a haircut all around. As is always so.
If it’s digital at all, it’s digital last.
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