Reckless, Dark Speculation on the Chris Harte Memo
By Brian Lambert
Strib publisher Chris Harte's memo earlier this week, which announces that his master, Avista Capital Partners, was bringing in (at no doubt substantial expense) the outside consulting firm Restructuring Associates to help get the House of Strib in order, set off more furious clucking and divining of portents than usual.
There are several good reasons for the acute attention. Although clearly asserting that this is dark speculation, let me distill the essence of what I've been hearing from people with whom I've spoken.
1. Everyone knows the newspaper business is sinking like a rusted scow with flooded bilge tanks. Presumably the smartest guys in the room at Avista Capital Partners had done their homework before paying $530 million for the Star Tribune only last year. Certainly they comprehended the condition of the newspaper business and, therefore, had a plan—a contingency plan—in case the business, which was showing no signs of improving revenue when they bought it, tanked even worse. Right? Right?
2. After jumping into a moment of extreme (downward) transition, Avista Capital Partners has displayed no unique aptitude for the news business much less a business in such rapid decline. Much the opposite in fact. Implicit in Harte's memo is a strategy blaming union-related costs for most of the shortfall/intractable overhead. This requires one to ask, "What level of basic math was Avista using when they bought in?"
(Former newspaper exec Alan Mutter offers some sympathy for Harte/Avista here. I love the juxtaposition of these two graphs from Mutter's blog:
"Tightening cash flow is a particular problem for the Philadelphia, Minneapolis and Tribune Co. newspapers, because each company has been bought within the last two years with vast sums of borrowed money. As such, a great portion of the operating profit at each company is earmarked to pay interest and principal on the newly acquired debt."
And this:
"In the interests of saving as many jobs and as much quality journalism as possible, it’s time for journalists – and their colleagues in the sales, production, circulation and other departments – to stop whining about the glories of yesteryear [The Wire's creator David Simon's recent screed] and start thinking of creative ways to make or save more money."
Ill-informed speculation can be a pisser some times, can't it?
3. Harte presents his odd comparison to the fat and happy pre-dot-com bubble-burst era as some kind of horrible, shocking surprise. But all those ugly trends were well established before Avista shook hands with McClatchy in December '06 and closed in February '07. Assuming Avista understood the nature of union contracts, where was any kind of significant, evolutionary strategy for countering the gruesome statistics of print? Specifically, where are the revolutionary online enhancements setting foundations for a news business with much less or no paper? (Old buddy/archrival David Brauer cooks some numbers in this MinnPost piece.) Also, just wondering, but does the $5–$10 million Avista spent defending Par Ridder get factored in these onerous "payroll and benefit" numbers?
4. The country as a whole seems poised to officially assume recession status, this one deeper than others in recent memory if only because the sub-prime catastrophe has months more to play out. The blow back from reckless derivative trading is being portrayed as a shocking, a wholly unexpected consequence to everyone from Citigroup to individual investors. Please. Anyone smart enough to play that game had a responsibility to be smart enough to be alert for the downside. Harte and Avista appear to be preparing to dig themselves out of their speculative hole on the backs of their employees . . . some of who could have told them what they were getting into.
5. Sometime in late spring, the Strib/Avista Capital Partners will commence contract negotiations with the local newspaper guild. It is now a foregone conclusion that Avista/Harte must once again drastically reduce "payroll and benefit" costs. Translation: A combination of draconian wage and benefits cuts, buyouts and/or layoffs. Despite Harte and his management team continuing to crow about the "great" work they are still doing, public perception is of a fatally gored bull elk staggering off into the woods looking for a place to die.
6. Rumors continue to burble that Avista will attempt to unload its misbegotten Minnesota newspaper venture very soon, and a contract that effectively castrates its unions is viewed as critical to properly "staging" the place for a new buyer. More to the point, no buyer is going to pay anything close to $530 million they paid. If Avista were able to sell today for something in the low $300 million range, it'd be a miracle offer they would grab and cash before the buyer sobered up. If Avista hoped to leave Minnesota in the black, they likely expected to split town shortly after selling off their Downtown real estate—most likely to Zygi Wilf of the Vikings. But post-bridge collapse, post-state deficit, and now on the cusp of recession, the chance of Carol Molnau getting the Republican vice-presidential nod is better than Zygi getting a multi-million dollar subsidy from the legislature. Bottom line: No obvious buyer. No premium price.
7. As a private equity firm, unlike previous owner McClatchy, Avista will have to be forced into disclosing the true financial condition of the paper if it attempts to use the apocalyptic scenario in Harte's memo to extract concessions from its unions. Fortunately for Avista, the newspaper guild is sorely in need of leverage to force anything. The best they may be able to do is protract the "negotiations" as long as possible while Avista watches its investment pool fill with red ink.
8. The most likely buyer is already in business across the river. Media News's Dean Singleton is the guy with the means, motive, and opportunity to acquire monopoly control of daily newspapers in the Twin Cities market. If the numbers are as God-awful as Harte claims, no federal agency is going to enforce antitrust issues. The days when the Twin Cities could support two dailies are now gone—if you accept Harte's scenario. Hell, the days when the Twin Cities could support ONE fully staffed, full-function daily are probably over before they even started.
© 2008 MSP Communications, Inc. All rights reserved
As a student in Chicago in the years leading up to the sale of the Tribune Company, I endured constant harassment--when they chase you down the street it officially becomes harassment--from people paid by the Tribune to hawk its goods, offering free issues, burritos, even Whoppers, just for trying a week or two of delivery. For me, it always seemed to take the dignity from a publication that was supposed to provide me with information--not hamburgers.
Sadly, yesterday for the first time I experienced the same thing in the Minneapolis skyway, as a smart-mouthed young man shouted "free gift cards, get your free gift cards," and managed to draw quite a crowd before everyone figured out that "free" really meant "in exchange for signing up for a month." It made me wonder whether I was being offered a newspaper subscription or a timeshare in Clearwater, Florida.
Papers are not in good shape. And, though I don't know whether Restructuring Associates had anything to do with the most recent marketing ploy,the companies are not doing themselves any favors by admitting that they need the help of a gift card to a popular big box retailer in order to have people buy their wares. If the papers continue farm-out most of their space to syndicated- and news wire-produced pieces, and fail to make it worth picking up a local product opposed to the NYT or Washington Post, no amount of "restructuring" is going to help them.
Posted by: RLJ on January 24, 2008 at 2:46 PM
It's a typo of course, but I'm liking "sinking like a rusted scowl." I'm seeing Par's moue after his testimony, slowly subsiding under the purifying waters of Lake Minnetonka.
LAMBERT: Oops! Damned sharp-eyed bastards.
Posted by: Rusty Scowl on January 24, 2008 at 3:55 PM
Bauer did a couple of nice posts on the now famous memo. What was really interesting is how Harte presented only a few of the numbers without really telling the entire story.
It is obvious that Avista was missing batteries for their calculators when they did this deal. They are sitting on an asset that is depreciating like a 1976 Chevy Vega. As they continue to layoff staff and cut costs, they reduce the net book value of their investment.
Producing a smaller paper with less real information drives more readers away. Putting the content at no charge on their website continues to make no sense to me (the ads do not come close to what print ads were for revenue).
As you noted Brian, there is one remaining option, the Pioneer Press and Strib must merge and hope the economies of scale can save them. Even that is doubtful if younger readers quit reading newspapers (and it appears they have).
Odd that this all happened at the same time as the mess at the LA Times. Ten years ago I would have never predicted that the Tribune would go down in flames.
LAMBERT: As one of the grey beards in the Strib newsroom asked, "Where the [bleep] are the specialized websites, for the Vikings, for business ... " and all the others you'd think they'd be actively testing right now. "Politically Connected", "Buzz.mn" and "Vitamn" need about a dozen compadres.
Posted by: Dave on January 24, 2008 at 4:22 PM
I still read a real paper newspaper in the morning, with coffee. It is a small pleasure first thing in the morning. However, that pleasure will die with my generation, if not sooner. The other morning, the Pioneer Press had an 8 page first section. Three of those pagers were full page ads for some pharmaceutical product or whatever; and another half-page ad. One page is devoted to celebrity "news". Four and a half pages of non-news in an 8 page first section. And, to top it off, the lead story on the front page was about people not bringing their cats to the vet! Anyone wondering why people are looking elsewhere for their news?
My young adult children don't read the paper at all. They get nearly all their news and information from the internet. After I read my real paper newspaper I turn to the internet for my information. (Network and local TV news take heed).
I am no expert to what is happening to newspapers, but there may be something in lead stories about cats and more ads in the first section than news.
KTG
LAMBERT: It doesn't help the credibility of either local paper to continue asserting that they are "doing great journalism" in the face business/editorial decisions like you describe. It may be worth my time to do an ad/edit ratio check of the two locals. Something tells me we aren't far from Denny Hecker above the fold.
Posted by: KTG on January 25, 2008 at 9:27 AM
I'm just a poor agrarian from the South, but doesn't the numbers decline of papers like the Strib and the PiPress require some revolutionary thinking if they are to survive at all? Why not (#1) merge for the sake of efficiency and labor savings and (#2) completely jettison the newspaper in newsprint and become available exclusively online? It seems to me that there remains a need for the reporting these papers do, but the fundamental problem has become one of the method of distribution. Dire problems require innovative solutions, so burn the village in order to save it.
LAMBERT: I'm on record saying the disappearance of print, or certainly the shift to primarily web-based is five years off, max. The problem of course is that there is currently no way to cover even 130 reporters' salaries (much less truck drivers and Par Ridder's legal bills) with internet advertising. Radical attrition, baby. Some kind of "enhanced" subscription concept is always being kicked around, with the "paper" targeted strictly to educated, presumably upper demos ... and less the "younger readers" ... who don't read.
Posted by: A Son of Mississippi on January 25, 2008 at 9:37 AM
How do we maintain a democracy when only a subset of us ("educated, presumably upper demos") know what's going on? Young people do not read. Certainly not in print. There is no viable mechanism to deliver the real news to them. We are facing a crisis.
LAMBERT: As much as we talk about the growing divide between rich and poor, (or should I say "super-rich" and everyone else?), I fear another growing divide between those who actively search for and critically assess information ... and those who accept whatever they enjoy being spoonfed. Whether on paper or a screen of some sort, there's more information available now than ever before.
Posted by: Karen on January 25, 2008 at 12:48 PM
130 reporters? You get rid of those covering local fashion, gossip and the courts, as well as Jon Bream, and we're probably down to something manageable. As noted by KTG, there is so much fluff that a lean journal of news and substance might take some doing, but make it a 'news' paper rather than a rag that tries to be everything to every potential reader. Color me naive.
LAMBERT: They could at least make a spirited attempt to control their own inevitable Balkanization, by "owning" web sites devoted to fashion, pop music, sports, yadda yadda.
Posted by: A Son of Mississippi on January 25, 2008 at 1:09 PM
*placing tongue firmly in cheek*
Com'n Brian, if you were truly a media blogger concerned about modern media, you would at least have a weekly blog to recap the latest American Idol shows for us, you know, to clarify why these important shows are valuable for our times.
(This of course to placate the non-super-rich sheep.)
Also, would it be too much to ask for a pro-media article on the value of our modern media in culling the political herds for us clumsy and stupid americans who cannot be bothered to do even the least amount of research.
(This of course to placate the super-rich, concerned more than ever of the ROI of their political contributions.)
We need you more than ever Bri-guy.
*still shaking my head, but I think my tongue slipped out of my cheek somewhere above*
LAMBERT: More "American Idol" analysis. I'm on it. Is the PiPress still doing four-times a week updates? I may have deep thoughts about the return of "Lost" this week. As for culling the political herds. Believe me, there are a few of these herds I'd like to see culled to nothing.
Posted by: The Other Mike on January 27, 2008 at 11:09 AM
Watching the SAG awards last night reminded me that you deserve special, if belated, recognition for your supporting performance in 'Patti Rocks'. I can only hope that those 'freaky little' Coens take notice and include you in their upcoming local production.
LAMBERT: Rumor has it that the "Director's Cut" of "Patti Rocks" will include my long lost nude scene.
Posted by: A Son of Mississippi on January 28, 2008 at 11:10 AM
God help us if that ever comes to pass.
Could Josh Brolin be any luckier?
I mean, Diane Lane, TOO!
Posted by: bertram jr on January 28, 2008 at 3:37 PM