Two numbers stood out in Friday’s shocking news that the New York Times Co. was threatening to shut down the Boston Globe: $85 million and 450. The first number is the amount of money the Globe is expected to lose this year without union concessions. The second is the number of employees at the paper who have lifetime-employment contracts. All of those people should be very nervous right now.

The Times Co., which is groaning under $1.1 billion in debt, wants the unions to give up $20 million in concessions or face closure of the 137-year-old Globe, which has dominated the news business in Boston for more than 30 years. Given the size of the projected loss this year, $20 million seems like a modest amount. This would indicate that the Times Co. threat is merely posturing, as Alan Mutter argues. But ultimatums appear to be working in San Francisco, where the union just voted 10-1 to give the Chronicle broad authority to lay off employees without regards to seniority as well as to cut vacation time and extend working hours. The Chronicle and the Globe have similar audience characteristics.

The brass ring for Times negotiators has to be the 450 Globe employees who work under lifetime job guarantees. We knew such guarantees existed, but we hadn’t seen a count of the number of employees who have them until this past Friday; they comprise nearly a third of the unionized workforce. It’s hard to imagine any company handing out promises of that kind, but the Globe did that in 1993, when the economy was emerging from recession and businesses were being conservative about guaranteeing anything. Such management hubris testifies to the dominance the Globe enjoyed at the time over the Boston market, where its only competition is the working-class Herald and a string of suburban dailies.

We live in Globe country and can testify to the paper’s reach in the affluent suburbs. Drive through a quiet subdivision on any Sunday morning and the Globe is the paper you see in the driveways of the $700,000 homes. However, the tech-savvy Boston audience is also more open than most to online alternatives, which is perhaps one reason Boston.com is the sixth largest newspaper website while the Globe reported a circulation decline of more than 10% last November on top of an 8.3% decline six months earlier.

If the 450 employees each cost $100,000 on a fully loaded basis, that’s $45 million in annual costs over which management effectively has no control. We don’t have to comment on the lack of motivation that guaranteed employment must instill in a heavily unionized environment. If we were Times Co. management, though, we’d probably aim the first few blows of the ax directly at that soft middle.

The Globe covers its own news with reaction from community members ranging from fry cooks to U.S. Senators.

College student Adam Sell, who has interned at the Globe for two years, sent us a link to a Flickr photostream he created of the closing of the Globe‘s NorthWest bureau 10 days ago.

Miscellany

Two central Pennsylvania newspapers that have published separately with a single weekly combined edition will join forces on a permanent basis at the end of June. The Intelligencer Journal and Lancaster New Era will be published Monday through Saturday mornings with combined news and features operations but separate editorial pages.  The merger will result in the reduction of 60 full-time and 40 part-time positions, or about 20% of the workforce. Management said the combined circulation of 229,500 has been growing but that the economics of the publishing industry demands changes.

Publishers who are struggling with solutions to the revenue problem, none of them very appetizing, might want to look to Europe for inspiration. The big German publisher Axel Springer just reported record profits and is looking to expand overseas, possibly into the US.  Norway’s VG Nett charges citizens for access to its news through a cable TV subscription fee. And a group of papers in Belgium joined forces to force Google to remove their content from its search results. All in all, some papers in Europe are doing just fine, thanks to tight government partnerships and creative approaches to revenue

The Detroit Media Partnership, which publishes the Detroit Free Press and the Detroit News, has closed a deal with Plastic Logic to distribute the Plastic Logic Reader under purchase or lease to subscribers of the Detroit dailies as an alternative to paper delivery.  The reader is the size of an 8.5 x 11-in. pad of paper, weighs less than many print magazines and sports a touch-screen interface.

With the Minneapolis Star Tribune in bankruptcy, employees have started a grass-roots effort to save the paper. A group has launched a Facebook group (1,280 members, but only one discussion post since Jan. 17), a website (inactive as of this morning) and plans to hand out paper hats and scorecards at the Twins’ home opener. It’s probably going to take more than that.

If you like Chicago Sun-Times columnist Richard Roeper, you probably won’t after reading this egotistical, self-indulgent monument to himself. If this is how newspaper columnists regard their own celebrity, it’s no surprise readers are turning elsewhere. But there are a couple of good anecdotes that illustrate how divorced these scribes are from their readers.

Google CEO Eric Schmidt will keynote the Newspaper Association of America national convention in San Diego this week. Schmidt, who is often considered the great Satan by newspaper publishers, has nevertheless been a vocal proponent of the need to help the industry.  It should be an interesting encounter. Schmidt is scheduled to speak on Tuesday at 10 a.m. PDT. You can listen to his remarks live. NAA will offer a moderated “Cover it Live” discussion on its PressimeNow! blog, where visitors can pose questions, share their thoughts and get live reactions from attendees.

The Sun-Times Media Group is considering ending publication of some of its suburban newspapers as it struggles to emerge from its recently declared bankruptcy.

A.H. Belo Corp., owner of the Dallas Morning News and three other daily newspapers, will cut employee salaries next month and suspend a retirement supplement to pension plan participants next year. Cuts will range from 2.5% to 15%, depending on an employee’s salary. The company’s CEO will also take a 20% cut in pay.

Last month we told you about St. Louis Post-Dispatch editor Christopher Ave’s use of song to lament the layoffs of newspaper copy editors. Now, 26-year old Berkeley musician named Jonathan Mann has joined forces with the staff of the East Bay Express to come up with a solution to newspapers’ business problems. You have to wait to the end to hear it, but the three minutes are time well spent.

Editor & Publisher looks at the list of solutions being proposed to the newspaper industry’s troubles and adds a new one into the mix: the Low-Profit Limited Liability Company, or L3C. An L3C “is a corporation that qualifies as a charity under IRS rules but runs as a for-profit business,” Mark Fitzgerald explains, and it’s gathering momentum as a rescue strategy among various chapters of the Newspaper Guild.

That’s right: The Newspaper Guild may get into the business of running newspapers, if only to save its membership from annihilation. An L3C is allowed to take investments from charities and nonprofits because it has a “social benefit.” This new kind of nonprofit is now permitted in several states and the Guild “is lobbying for federal legislation – expected to be introduced later this spring – that would explicitly include newspapers among businesses that have a ‘social benefit.'”  

Apparently, the thinking is that a lot of newspapers are going to come on the market selling at pennies on the dollar this year and this new tax structure would allow owners to spread out ownership among a great many entities, including businesses like printing press makers and auto dealers who have a vested interest in maintaining the business. Foundations would also be able to treat their donations as investments that could earn a return.

Another school of thought is to tear down antitrust rules that prevent newspapers from cooperating on fixing prices, E&P says. This could be a solution to the “content wants to be free” problem: If newspaper owners can legally collude to set prices and licensing fees for their content, then they can conceivably reverse the tide and charge for their product.

One thread is clear throughout the feature, though: No one is seriously arguing that newspapers should be publicly supported like National Public Radio. The consensus among owners and even Guild officials is that these businesses must stand on their own.

BTW, this story was just put online on April 1 after first appearing in E&P‘s print edition in March.

Sun-Times Parent is Bankrupt

Sun-Times Media Group, Inc. (STMG), which operates 59 newspapers and websites, including the Chicago Sun-Times, filed for bankruptcy on Tuesday. The company has been under severe financial and competitive pressure and was weakened by a fraud scandal that landed two previous executives in jail. Chairman and interim CEO Jeremy Halbreich said the company is looking at possible asset sales and new investments, and that it has sufficient resources to work through the bankruptcy process.

The Toronto Globe and Mail looks deeper into STMG’s financial situation and the ripple effect of the 2007 fraud convictions. Last year, the company lost $344-million on revenue of $324-million, as advertising revenue fell 18 per cent in the fourth quarter and is expected to drop 30 per cent in 2009. What’s more, STMG is contractually obligated to pay the former executives’ legal costs, which total $118 million so far. To top it all off, it may face a $510 million tax obligation as a consequence of illegal deductions those executives took.

Dour Pew Report Nevertheless Offers Hope

“This is the sixth edition of our annual report on the State of the News Media in the United States. It is also the bleakest,” reads the introduction to The Project for Excellence in Journalism’s annual State of the News Media report. It certainly delivers on that promise. We haven’t read all 180,000 words, nor are we likely to, but you can start with the executive summary if you want to dive in yourself.

The media overall had a terrible year in 2008 with the newspaper and magazine segments being hit the hardest and the cable TV industry providing the single bright spot. Cable networks actually increased their newsroom investments by an average of 7% during the year, with CNN adding bureaus in 10 cities. This modest growth wasn’t nearly enough to make up for the huge cost cuts in other media, though. By the end of 2008, all three TV networks had pulled their embedded reporters from Iraq. Newspaper circulations continued to decline; Sunday readership is off 17% since 2001.

The biggest disaster was in news magazines, with only one in four Americans reporting they’ve read one the day before. Time, which invented the genre, may be the only one left pretty soon, the report says.

Public trust in media dropped, but historical data shows that this trend is erratic. Interestingly, a vast majority of Americans (70%) believe the media favored Barack Obama in the most recent election. Even a majority of Democrats believe that.

Newspapers are in “free fall,” the report concludes, although “We still do not subscribe to the theory that the death of the industry is imminent. The industry over all in 2008 remained profitable,” turned in revenues of $38 billion and employed 45,000 professionals gathering and editing the news. There is reason to believe that traditional walls between online and print are falling and that newspapers are figuring out how to monetize targeted audience segments. They also appear to be much more open to working with aggregators and partners.

Still, the long-term outlook continues to be dim because of the economy, debt pressure and the unwillingness of investors to spend money in mature markets. The value that papers provide, though, is only increasing in importance. “In what traditionalists tend to dismiss as a cacophony of talking heads, celebrity infotainment, opinion-driven blogosphere exchanges and information overload, the integrity and sense-making of professionally done news should be more valuable than ever.”

The report also has an interesting section analyzing the practices and credibility of citizen media. It features an update of an earlier report that audited 64 citizen news sites. The new research should provide some comfort to established news organizations because it finds that, in general, they do a better job of incorporating citizen voices into their coverage than pure grassroots citizen operations. In particular, legacy news organizations are better at giving citizens a voice in published content and making it easy for readers to download and share information. In fact, the only area in which mainstream media’s citizen journalism ventures failed to outshine the grassroots sites was in linking to competitors’ content.

Finally, the report includes profiles of several new media ventures, ranging from NewHavenIndependent.org to MinnPost.com to GlobalPost.com.

Miscellany

The San Francisco Chronicle‘s buyout offer has 120 takers, which is more than was expected. As a result, the involuntary layoff total won’t be as high as many had feared. The newspaper management has been working with the union to restructure its contract. Even with the buyout, remaining employees will still see pay cuts and longer hours.

The Livingston County (Mich.) Daily Press & Argus has announced a “significant but unspecified number of layoffs” in its 95-employee workforce. Management would only say that the number was more than 10 and included Managing Editor Maria Stuart.

The Staunton (Va.) Daily News Leader will cut eight full-time employees and 15 part-timers from a workforce of unspecified size. Just one day earlier, the paper said it would outsource its printing operations to the Harrisonburg Daily News-Record. Laid-off employees include “press operators, mailroom workers and other employees charged with the production side of printing the paper every day.”

If you’re in Eugene, Oregon this afternoon, you can stop by the university at 4 p.m. and hear Boston Globe editor Martin Baron talk about the challenges facing newspapers, presumably including his own. The Globe laid off another 50 people last week.

Demotix is a new kind of citizen journalism site that acts as an intermediary for photojournalists. Its media clients can select images from the site’s feed and Demotix splits the revenue 50:50 with the photographer. Unlike the many citizen journalism ventures that pay on the order of a few dollars to contributors, Demotix prides itself on getting professional pay scales. Non-exclusive fees can run from $50 to $3,000, according to the company’s website.

“We are raising citizen-journalists to professional rates, because that’s what they are worth,” says Tim Saunders, Demotix’ North America Editor. “We see this as fundamental to our core aim of incentivizing quality citizen journalism and securing a viable income for talented freelancers.”

The London-based company principally serves up photos at the moment, but will expand into written journalism soon, according to CEO Turi Munthe (left). The business has signed on several high-profile newspapers and is hoping that its international scope will make it appealing to US journals that have had to lay off their international correspondents. Services like its concentrated coverage of the G20 Summit in London fill gaps left by the absence of foreign bureaus.

Anyone can contribute to Demotix by simply setting up an account and uploading reports and photos. A staff of professional editors decides what goes out on the wire and pays a small fee to contributors just for being selected. If a client outlet publishes an item from the wire, Demotix negotiates a fee.

On the day we caught up with Munthe for a short interview last week, the office was a bit chaotic. Demotix had just won the Media Guardian Award in the Independent Media category, an honor that Munthe said is like the “media Oscars.” 

To listen to the interview, click below or right-click here and save to download.

Asserting that the collapse of mainstream media demands the same urgency as “the threat of terrorism, pandemic, financial collapse or climate change,” two authors of a forthcoming book called Saving Journalism propose massive government intervention in the journalism crisis. Writing in the liberal journal The Nation, John Nichols and Robert McChesney say the recent debates over micro-payments and nonprofit funding is all well-intentioned, but these rescue scenarios don’t address the serious structural problems the US media faces. In essence, the public watchdog function is vanishing with nothing to replace it.

Media Post chart

This trend isn’t new; cost-cutting in the newsroom began in the 1970s when media tycoons began to form quasi-monopolies under the umbrella of government protection. Today, the media is a pathetic shadow of its former self, doing “almost no investigation into where the trillions of public dollars being spent by the Federal Reserve and Treasury are going but spar[ing] not a moment to update us on the ‘Octomom,'” the authors write.

Government already subsidizes media to the tune of tens of billions of dollars annually through mailing discounts, government advertising, monopoly broadcast, cable and satellite licenses and copyright protection. However, private interests have taken advantage of those subsidies to create wealth, and in the process are destroying the services they provide the public, Nichols and McChesney assert.

And they get specific about what needs to be done:

• Eliminate postage for periodicals that get less than 20% of their revenues from advertising;
• Give all Americans an annual tax credit for the first $200 they spend on daily newspapers or online sources that meet certain quality criteria;
• Allocate funds to enable every middle school, high school and college to have a well-funded student newspaper, a low-power FM radio station and accompanying substantial websites.

Face it: The old system is collapsing and won’t be resurrected, they say. We are entering a world in which government abuse and corporate greed will run rampant because no one is watching over the abusers. The business media completely misled the public about what was happening in Iraq and completely missed signs of financial disaster. And that was before 20,000 more journalists lost their jobs.

Although you need to take the left-wing source into account, this article is a pretty compelling argument for government intervention.  It is particularly chilling in its description of the impact that media cutbacks have already had on the public’s ability to understand the financial crisis and its own legislators’ actions.  The authors maintain that the estimated $20 billion cost of their proposal is a drop in the bucket compared to the amount being spent on the financial bailout.  The stretch may be in equating the urgency of the two problems.

Uphill Climb

Stewart: Millennials' Cronkite?

The Nation will have a battle convincing a skeptical American public that government support is the answer. Recent data from Rasmussen Reports paints a picture of a public that is largely disengaged from traditional media institutions while increasingly deriving its news from entertainment. A telephone survey of 1,000 Americans early this month found that 30% overall read a daily newspaper, but among respondents under 40, that percentage was only half as large. The survey also showed that newspaper websites have less “stickiness” than a product that arrives at the front door each day. Only 8% of US adults say they read their local paper’s website every day.

Meanwhile, one-third of Americans under 40 say Comedy Central’s Daily Show and Colbert Report are replacing traditional news outlets, which is slightly more than the 24% of Americans overall who think this is true. And there’s a popular opinion that this is a  good thing. “Thirty-nine percent of adults say programs of this nature are making Americans more informed about news events, while 21% believe they make people less informed,” the report says. Interestingly, Democrats are much more inclined to share this positive view than Republicans, by a margin of 48% to 28%.

Miscellany

The New York Times Co. imposed temporary 5% pay cuts for most employees in hopes of avoiding cuts to the newsroom staff.  Nevertheless, the Times also laid off 100 people in its business operations and said it would reduce freelancer spending and possibly consolidate some sections.  The pay cuts are subject to union agreement. Times management threatened to lay off 60 to 70 people out of its 1,300-person news staff if the union doesn’t concur.  The Times Co. cited an overall drop in advertising revenue of 13.1% in 2008 and 17.6% in the fourth quarter.  The pay reductions were described as temporary.  Salaries will revert to their previous level next year unless economic conditions improve fail to improve.  The company has already laid off more than 500 people this year.

The recession has clearly taken hold in the advertising business and the result is likely to be “the closing of more big regional daily newspapers and bankruptcy declarations from even more big publishers,” according to Media Post. Fourth-quarter 2008 results were a disaster, and that’s coming on top of two years of declines that seemed to get worse with each quarter. Newspaper classified advertising fell 39.2% overall in the quarter, with job-recruitment advertising plunging nearly 52%. Perhaps more ominous is that online revenue at newspaper sites was off  8% in the quarter, although online advertising is weak across the board right now.

The Rockingham News of southern New Hampshire has just published its final edition, and the weekly that has served the region for more than 40 years offers quite a lesson in its own history. Aubrey Bracco must have interviewed a couple of dozen local residents to get their recollections of what the paper meant to them, and he pens a loving and informative farewell.

Mike Hughes, president and creative director at the Martin Agency, pens an impassioned plea to his colleagues to support newspapers with their advertising dollars. “Our industry needs newspapers — but just as important, so does humankind,” he writes.  So stop following the latest trend and putting your advertising in the trendiest places.  “How many agencies aren’t selling newspaper advertising to their clients as hard as they should? It’s time for a wake-up call.” It’s an invigorating argument until you read the bio and see that Hughes’ employer is the “agency of record for the Newspaper Association of America.”

Writing on Mashable, Woody Lewis lists five ways newspapers can embrace social media more effectively. He notes that The New York Times now has an application programming interface that third parties can use to access its content from their programs. This is a cool idea. He also says partnerships with strong technology partners are a good idea.

Jay Rosen lists a dozen articles about journalism that he really thinks you should read, although we can’t fathom his top pick: Paul Starr’s laborious New Republic epic. Many of the others are excellent, though, and a few we hadn’t seen before.

And Finally…

We were thrilled to be included among the “Death of Newspapers” bloggers cited by Paul Dailing in Huffington Post. We agree with him that our self-absorbed, righteously indignant, told-you-so attitude is crap and that we have no answers to the problems facing the industry. We encourage you to boycott our book (available in fine bookstores everywhere) in support of his position. We should be ashamed of ourselves.

This site has received quite a bit of attention for the “R.I.P.” column, which has been a fixture on our sidebar since day one. However, we think the headline for that column may have run its course and we’d like your opinion.

The big problem is that not every title in that column has ceased to exist. The Capital Times, for example, is still plugging away online and even delivers a print publication twice a week. The Ann Arbor News is about to go the same route and the Seattle Post-Intelligencer has abandoned print but is bullishly trying to reinvent itself on the Web.

If we have the Capital Times there, we really should add the Christian Science Monitor, which is about to go weekly in print but stay 24/7 online. Several papers have recently cut back to four or five days a week and more are likely to follow. They aren’t R.I.P. but neither are they really daily newspapers any more. Should they be on the list?

So, your opinions please. Should we:

1. Leave R.I.P. as it is on the assumption that nothing is perfect in this world?

2. Leave the title as R.I.P. but limit the list to papers that are truly defunct? Gone? Pffft?

3. Leave the title R.I.P., list papers that can no longer be considered dailies but may exist in other forms and add a silly disclaimer like this one?

4. Change R.I.P. to “Out of Print” and list papers that can no longer be considered dailies but that may live in other forms?

5. Something else we haven’t thought of?

Sorry for the lengthy explanation, but this kind of thing really does cause us to lose sleep.

With this latest and deepest round of layoffs, the Atlanta Journal-Constitution will have cut the population of its newsroom by more than half since 2006.

The newspaper announced today that 30% of its editorial staff will be dismissed through a combination of voluntary buyouts and layoffs. Another 107 full- and part-time jobs will be eliminated because of a reduction in circulation. The move will trim the size of the news group to about 230, from a high of 500 people just three years ago. Distribution to seven outlying counties will be severed, reducing the AJC‘s reach to 20 metro Atlanta counties.

This is the third round of layoffs at the AJC, which can’t be accused of dribbling away staff.  In December, it eliminated 56 full-time and 100 part-time jobs in its circulation unit. Last July, it cut 189 jobs – including 85 in the newsroom – while also spending $30 million on new printing presses. In that move, the paper also discontinued all its regional editions, including the Gwinnett County regional, where its main printing press was located.

The new cutbacks will target people making the most money.  Most of the reductions “will be in production and management, allowing us to keep as many news reporters as possible,” AJC Editor Julia Wallace said.

And this isn’t the end. “Today’s announcements are the first in a series of initiatives we’ll announce over the next 90 days to reduce costs,” said Publisher Doug Franklin, who added that the goal is to regain profitability by 2010.

Remaining editorial staff will be reshuffled to plow more resources into the profitable Sunday edition.  The strategy hints at possible cuts in frequency, which has been a popular cost-saving move for an increasing number of papers in the last few months.

We really like Sen. Ben Cardin’s idea that newspapers should be allowed to operate as nonprofits. We like it so much, in fact, that we’re going to be the first news organization to take the Senator up on the idea. So effective today, we are a nonprofit. Our $87.13 in monthly advertising revenue is tax-exempt and we welcome donations. We agree not to make any political endorsements, which is fine because we don’t like any of the candidates anyway. We do fear, however, that some newspaper companies may find it a tad more difficult to accept the Senator’s plan. They have this tiny problem of a couple or three billion dollars worth of debt to take care of. Maybe Sen. Cardin should attach a rider making the nonprofit option part of the bankruptcy code. That’s an idea we could really support. But for now, heck, keep those donations coming. PayPal preferred.

A Queensland University professor surveyed 200 first-year journalism students and four that few of them read newspapers. “More than 60 per cent read a printed newspaper once a week or less often. Yet 95 per cent said they enjoyed keeping up with news,” said Alan Knight. Their preferred sources are broadcast TV and the Internet. The survey was conducted online, which means it’s statistically invalid by default, and the brief press release doesn’t say how Prof. Knight limited response to first-year students. Still, it’s interesting and the prof plans parallel studies in other countries.

If you want an excellent summary of how bad it is in medialand, read Bob Garfield’s excellent overview on Advertising Age before it goes behind the subscription wall (If you’re too late, click here). The sky is falling, folks, and it’s not just for newspapers.

Garfield is the author of the forthcoming book, Chaos Scenario (right), and he’s obviously been doing his homework. Some stats from the story:

• In 2008, magazine newsstand sales fell 12%. They’ve dropped another 22% this year off of that awful base.
• TV Guide, the erstwhile 17 million-circulation goldmine, was sold in October to OpenGate Capital for $1, or $2 less than a copy at the supermarket checkout.
• “Bernstein Research predicts a 20% to 30% drop in 2009 TV station ad revenue.”
• “For the last reporting period, Nielsen Media Research said, CBS’s prime-time audience was down 2.9%, ABC’s down 9.7%, Fox down 17.5% and NBC down 14.3%.”
• “According to Media Dynamics, the average price of reaching 1,000 households with a 30-second spot in prime time, has jumped from $8.28 in 1986 to $22.65 in 2008 — but effectively more like $32, because between 150 and 200 of those 1000 households use DVRs to skip past the ads.”
• NBC Universal CEO Jeff Zucker recently admitted that he’s considering making NBC a cable channel. A CBS executive said much the same thing.

And why is this all happening? Quoting again:

“Today the average 14-year-old can create a global television network with applications that are built into her laptop…you have the ability to create virtually unlimited supply against what has been historically relatively stable demand.”

Economic Shift

And that’s the problem. Also the opportunity. The ad-supported revenue model presumed that advertising space was limited, but today it’s abundant and growing faster than the supply of people to consume it.

If your business is to sell expensive advertising on the theory that you control a narrow channel to the consumer, and then your business is being vaporized by information abundance.  This is the problem for mainstream media in general and it is the one that demands the most creative solutions.

Garfield quotes Philadelphia Newspapers LLC’s Brian Tierney ruing the failure of the free Internet model: “If you build it, they will come — I don’t think is working for media like ours. … I think we’re going to have to start to find a way to charge for it and not just rely on advertising.”

Advertising was a great business for many years when media was scarce and power was concentrated.  The mass democratization of media is sinking all businesses that rely upon that inefficiency.  The solution is not to continue doing more of what we’ve been doing but to deconstruct the centralized media model into something that looks more like the shape of this much flatter market.  The goal should not be to preserve newspapers or television networks or magazines or whatever.  It should be to preserve and enhance the quality of what they have long provided while finding a sustainable business model.

Analysts are digging into the new owners of the San Diego Union-Tribune and trying to discern the investment firm’s intentions.

Tom Gores (San Diego U-T photo)

Sign-on San Diego fills in some of the information void surrounding Platinum Equity, the purchase of the site’s parent. Despite its low public profile, the company is actually the 19^th largest private employer in the US, according to a Forbes estimate. Its founder, Tom Gores (right), has been listed by Forbes as the 163rd-richest American, with a net worth of $2.5 billion. It raised $2.75 billion last year – which was quite a feat in this economy – for its investment activities. The U-T is the first newspaper the company has owned but it may not be the last. There have been media reports that the principals are also looking at the Austin American-Statesman. Most importantly for U-T employees, the story quotes Platinum principal Mark Barnhill saying Platinum isn’t in the game for a quick flip. “We don’t worry about exits,” Barnhill says. “We worry about getting in on the entry side and running businesses effectively.”

Ken Doctor isn’t so sure. In his view, the deal may be all about the real estate. Citing sources who say Platinum paid no more than $50 million for the U-T, whose value once exceeded a half billion dollars, Doctor says the value of the land alone could be north of $100 million. “We may have entered a new rocky period for newspaper companies,” he writes. “The real estate on which they sit determines their market value.” Doctor notes that the biggest buyout in the history of the industry – the acquisition of Tribune Co. in 2007 – was carried out by a real estate tycoon. And property is part of the value that investors are scrutinizing carefully in Miami and Maine.

Writing on Paid Content, Doctor observes that Platinum Equity specializes in high-tech companies, so what’s it doing with a newspaper? The strategic adviser the partners are bringing in – David Black – has done nothing of note with the Akron Beacon-Journal that he took over in 2006. “The Black ownership has been unremarkable,” Doctor writes. So what did Platinum buy? Property “That real estate under its building…may be a real motivator for the purchase,” he concludes.

Incidentally, Ken Doctor has an interview with Michelle Nicolosi, who’s the editor in charge of turning SeattlePI.com into a true Web publisher. She’s trying to boost the idea of aggregation and local focus, but Doctor points out that links to direct competitors are pretty thin in the first week. The collection of 150 reader blogs is impressive, though.

Power in the Mid-Market

The Deal Journal blog at WSJ.com has an intriguing interview with Jonathan Knee, an investment banker who specializes in the media industry and who advised on the U-T buy. He has some intriguing insights that go well beyond the “industry is dying” conventional wisdom. Working from the premise that “within the pantheon of media sectors, the newspaper business is actually still one of the better ones,” Knee argues that the bloated cost structures that newspapers developed during times of plenty actually make them good candidates to endure the cost cuts they’re having to make right now, simply because there’s so much excess to cut. Furthermore, he argues, mid-market dailies are actually in a great position to harvest their monopoly positions and remain profitable for some time to come.

The secret: outsource whatever isn’t necessary to serve your local community. Then serve that local community very well. Don’t try to be bigger than what you are. Those boring local markets will “continue to generate…better profits than the supersexy businesses in the media industry asking for government or nonprofit help like movies and music.” Considering that small-market dailies have been considered the most at-risk properties in the business, Knee’s counter-intuitive views are worth reading.

Happy Birthday to Us

Today is Newspaper Death Watch’s second birthday (you can read our modest first entry here) and it’s been quite a ride. We started out by documenting the downsizing that was just beginning to occur in the business two years ago but quickly found ourselves engaged in more interesting issues like the future of news. Since 3/23/07 we’ve logged 382 entries and 528 comments, many from journalists who are being caught up in the cost-cutting. Last week we averaged over 2,000 daily page views and Technorati has us in the top 12,000 blogs worldwide. We’ve been profiled in Spain’s largest newspaper, interviewed on NPR,  traded views with Guardian Angels founder Curtis Sliwa on talk radio, and sourced on local TV in Sacramento.  We were also just interviewed by CNN.com for an upcoming feature on the transformation in the newspaper industry.

Two years ago, we published a book called The New Influencers that argued that the ability of individuals to publish to a global audience would disrupt the economics of media and transform our institutions. Since then, we’ve been living that idea.

Layoff Log

• Collateral damage: the Denver Newspaper Agency, which handled business operations for both the Post and the Rocky Mountain News, will idle 200 people as a result of the Rocky‘s closure. The news account says that’s 17% of the agency’s 850-person staff, but our calculator says it’s really 23%. The jobs aren’t needed any more without a paper to support.
• I turns out he Buffalo News won’t be laying off “dozens of employees” as ws feared a week ago. A deal with the Newspaper Guild succeeds in achieving targeted cuts of $2.9 million through a combination of wage reductions and givebacks. Still, nine people will lose their jobs.
• The Orange County Register had six rounds of layoffs last year and is promising more soon. No details on how many jobs will be lost.
• The Dayton Daily News cut 10 sales staff.
• The Skagit (Wash.) Valley Herald has laid off four people, including the editor-in-chief.
• The News-Gazette of central Illinois has been publishing both morning and afternoon editions on weekdays, but beginning June 1, it will publish ditch the afternoon edition. Elimination of an entire issue will save 1% in operating costs. Huh?

And Finally…

What would you do if your newspaper closed? Consider a career in local government. The New York Times profiles Michael Hanke, a veteran newspaperman from Canton, Ohio, who lovingly covered his hometown for more than 35 years before being laid off in a cost-cutting move two years ago. It could have been a sad story, but there’s a happy twist: Hanke is now a county administrator, where he works side-by-side with some of the people he used to criticize in his newspaper columns. And they’re tickled pink to work with him. It turns out that reporters are naturally inquisitive, resourceful and knowledgeable. “We got a real bargain when we hired Mike Hanke,” says Jane Vignos, the board president who selected him from among 70 candidates.

The pending purchase of the San Diego Union-Tribune by a private equity firm opens an interesting new chapter in the newspaper industry’s history. Not much is known about Platinum Equity other than the company has completed more than 100 acquisitions in the last 15 years and one of its partners is a successful newspaper owner. For a company that has spent $27.5 billion on acquisitions, it’s website is almost defiantly sparse, as if to reinforce that it doesn’t have to tell anybody anything it doesn’t want to.

Based on our experience with similar takeovers in the past, here’s a short FAQ of what we think you can expect. Also be sure to check out Alan Mutter’s analysis for the views of a professional investor.

What’s a private equity firm?

It’s basically a group of rich people who pool their money and invest in companies that they think are undervalued. They bring their expertise to bear to quickly grow the value of the assets they acquire and then sell them, hopefully at a substantial profit. There are a lot of private equity companies out there, but you don’t hear much about them because they prefer to work in the background and they’re largely unregulated.

Why did this one buy the Union-Tribune?

For starters, it probably got a great price. Private equity firms look to unlock asset value and Platinum Equity must believe that it can quickly make changes that will substantially increase the value of the paper. What those changes are is still unknown.  Because private equity firms don’t have to tap into the lending market to any great degree, they are among the few institutions that are capitalized to make big purchases right now. That’s another reason we can presume they got a great price.

Platinum Equity would not have bought the Union-Tribune unless the partners believed that the business was undervalued.  That’s another indication that perhaps the market has hit bottom.  The big question is what changes the partners believe they have to make to increase the value of the asset.  That’s going to be the really interesting question

So what’s going to happen now?

In the short term, not much.  The new owners will spend the next couple of months on paperwork to get the deal done. However, things are likely to happen pretty quickly after that.

The partners in these private equity firms are usually decisive, no-nonsense people who don’t fear making tough decisions.  It’s likely there will be downsizing and probably a lot of it since the new owners don’t have the sentimental attachments of the current owners.  One thing is for sure: the new owners will treat the Union-Tribune as a business and probably a short-term business at that.  Professional investment firms rarely work on timelines of more than three to five years.  If they haven’t sold the business and doubled their money by that time, the deal is considered a failure

Is this good for the Union-Tribune? 

It probably is. Platinum Equity spokesman Louis Samson said the right things in endorsing the value of the Union-Tribune brand: “We will bring a strong operational focus that helps ensure the Union-Tribune not only survives in this market, but thrives.”  This is good news, because professional investors are as likely carve up and destroy a company as readily as they can build one.  It appears that the new owners are focused on stabilizing and supporting the brand, but that doesn’t mean they will avoid hard decisions.   It should be noted, by the way, that the company’s press release about the acquisition makes no reference to continuing the Union-Tribune s as a newspaper

Is this good for the newspaper industry?

Yes, because it is one sign that the market has become attractive again. With the exception of a few small papers in Connecticut, nobody has bought a major newspaper in over a year.  The fact that someone finally did buy one may open the door for other investors to come forward. 

Platinum Equity’s moves  certainly will be closely watched.   It will also be interesting to see how a professional investment firm treats its new asset.  While Platinum Equity has some experience in the market in the person of partner David Black, it is not a professional publisher.  The partners will be looking at the Union-Tribune as an asset and trying to maximize the value of the asset.  In other words, their minds won’t be clouded by assumptions of what a newspaper should be.  It will be just a business to them.  Since the problems in the newspaper industry are fundamentally business problems, it will be interesting to watch what a professional management firm does to solve them.

What would you do if you were an employee of the Union-Tribune right now?

I’d think hard about how to justify my value to the organization, not in terms of my length of service or number of awards but rather relative to the company’s bottom line.  When business managers with no newspaper background took over at Tribune Co., they started measuring journalist productivity by column inches of copy.  The new owners at the Union-Tribune probably aren’t that dense, but they will almost certainly take a financial analyst’s approach to managing the operation.  Employees who can’t demonstrate why they are critical to the business will be most at risk, as will those who carry  the highest salaries.