More chain-owned news organizations are returning to local ownership

From New England to Arkansas, local investors are buying news outlets from large chains and seek to reverse what they see as decades of disinvestment.

By: Mark Jacob

July 26, 2021

This article was originally published on Northwestern University’s Medill Local News Initiative website and is republished here with permission.

As chain consolidation brings new uncertainty to an already fluid news landscape, another trend is emerging in which local investors buy news outlets from large chains and seek to reverse what they see as decades of disinvestment.

Sara April, whose firm Dirks, Van Essen & April brokers the sale of newspaper companies, expects to see more news outlets go into local hands as some big chains focus on their larger products and spin off their smaller ones.

“It’s definitely safe to say that there is a trend of some newspapers returning to local ownership,” April said. “… It made sense for these large newspaper companies to build when they did, but now it’s making sense for them to peel off these papers and put them in the hands of people who can really operate them in this day and age.”

In some ways, large chains can be beneficial for local news consumers. They often bring website expertise, technical support and consistent business practices. And they may have a greater ability to recruit talent.

But local owners’ strong presence in the community may be more important, according to Penny Abernathy, creator of the influential “news deserts” reports and visiting professor at Northwestern University’s Medill School of Journalism, Media, Integrated Marketing Communications.

“All things being equal,” Abernathy said, “local ownership is always best for the community where the newspaper is located. That’s because a local owner is going to know that market and know the residents.”

As Tim Schmidt, who is building a small newspaper group in central Missouri, put it: “The newspaper has to care about the community. I think local ownership plays a huge part in that.”

In the wake of the Gannett-GateHouse merger in November 2019, Gannett is selling off some of its smaller news outlets. And industry observers are watching for what comes out of Alden Global Capital’s recent acquisition of Tribune Publishing and whether any of Tribune’s news outlets will end up in the hands of local owners.

At one point in the Tribune negotiations, a group led by Maryland hotel executive Stewart Bainum was expected to take over The Baltimore Sun as part of the Alden deal, but the Bainum group ran into disagreements with Alden and tried to join with investors in Tribune’s other markets to put together a rival deal in which those outlets would go back to local owners. That effort failed, but since Alden is a hedge fund, no one thinks it’s averse to buying and selling in the future.

Gary Lutin, CEO of the Shareholder Forum, which provides information to investors, has sought to acquire a Tribune paper, The Morning Call in Allentown, Pennsylvania.

“Alden had invited negotiation of my proposed acquisition of the Morning Call when they finished their acquisition of Tribune, and I’m definitely looking forward to doing so as soon as they’re able to focus on it,” Lutin said. “My interest is in what’s been called liberating community news publishers. Allentown is an ideal first step because the Call clearly has meaningful support within the community as well as a very effective existing publishing operation. They have a bunch of good reporters there.”

An Alden spokesperson declined an on-the-record interview.

Gannett is unloading small outlets

Gannett’s strategy appears to be focused on its bigger properties, with some smaller ones up for sale.

April, whose firm represents Gannett in many transactions, cited a number of recent deals. The Reid family purchased three Gannett outlets in February, adding them to its group of small papers in Oklahoma. Larry and Sharon Hiatt acquired Gannett’s Cherokee County News-Advocate in Baxter Springs, Kansas, in March. Former Guam Lieutenant Governor Kaleo Moylan bought the Pacific Daily News from Gannett in February. (Dirks, Van Essen tracks newspaper transactions on its website.)

Gannett declined an interview request about its strategy but did issue a statement from Bernie Szachara, president of U.S. Publishing Operations.

“Having been approached by prospective buyers, we’ve carefully considered what was best for both our company and the community, and we’re pleased that in several situations, a local owner will continue to lead these brands into the future,” Szachara said.

Hedge funds such as Alden now control about half of daily newspapers in the United States. Does this suggest greater volatility, with hedge funds likely to sell their news outlets to local owners?

“Every newspaper publisher is constantly looking at their options,” April said. “Are they financial owners known to be long-term holders of newspaper assets? Historically, no.”

Tim Franklin, senior associate dean and John M. Mutz Chair in Local News at Medill, said acquisitions by local investors make sense under the right conditions.

“After decades of consolidation in local news ownership, we could be on the cusp of a back-to-the-future moment with more local operators, especially in smaller communities,” Franklin said.

“There are civic-minded investors who are concerned about lack of news in their communities after years of downsizings,” he said. “Those folks can either launch a digital startup and hope it catches on, or they can pay a premium for a legacy outlet that’s a known brand and has an existing subscriber and ad base. At the same time, some of these large companies and hedge funds may be looking to unload smaller news outlets with limited future growth and that don’t fit their larger market strategy. That may be the sweet spot for transactions.”

Consumer demand in New England

Fredric Rutberg has been both a buyer and a seller of local news outlets. In 2016, he was part of a group that bought New England Newspapers from Digital First Media, owned by Alden. This May, Rutberg and other owners kept the flagship Berkshire Eagle in Pittsfield, Massachusetts, from that deal while selling off three Vermont newspapers and a magazine to tech entrepreneur Paul Belogour.

“This is my retirement project,” Rutberg said. “I was a judge in the local Massachusetts state court, and Massachusetts judges have mandatory retirement at age 70.”

So he and his partners went into the newspaper business.

The group in particular wanted the Eagle, but “when we were talking to Alden, it became clear to me that financially it would make more sense to buy the whole company (New England Newspapers). They were so integrated, it wouldn’t be worth the seller’s while to separate them. It would be very difficult if they did because of the loss they would incur.”

Rutberg said the community was “extraordinarily” receptive to the Berkshire Eagle going local. “I used to walk down the street and strangers would come up and say thank you,” he said.

Rutberg recalled how one of his partners, Robert Wilmers, who died in 2017, felt about the Eagle: “I remember Bob saying on more than one occasion in my presence, ‘I never, ever, ever wanted to own a newspaper. Except that newspaper.’”

But a further localization of New England Newspapers’ other assets made sense, Rutberg said.

“We have our fingers on the pulse of what’s happening here in the Berkshires, but never really had my fingers on the pulse of what’s going on in southern Vermont,” Rutberg said.

Belogour, a developer of foreign-exchange software who has bought a variety of properties in Vermont, approached Rutberg about the newspapers.

“I saw the opportunity, saw the neglected asset,” Belogour said.

Rutberg said reaction to the Vermont sale was “a little mixed, mainly positive. … He’s going to hopefully do to those papers what we’re trying to do here.”

Belogour said people are thirsty for local news as an alternative to “highly politicized national news.” And he believes local news can be a profitable business.

“People can talk about, ‘Newspapers don’t make money. Newspapers do not make money.’ Well, guess what: They do,” he said. “… You’ll have a solid income. I’m not talking about Google income, but for the local newspaper, it’s good money.”

When the chain won’t sell

Another news industry development in New England demonstrates the determination of community-minded people to keep local journalism strong.

City leaders in New Bedford, Massachusetts, including Mayor Jon Mitchell, became frustrated with what they saw as diminishing coverage by the Gannett-owned Standard-Times.

“The Standard-Times has declined to the point where they’re missing a tremendous amount of matters of public importance in our city and not offering the depth of analysis that our folks need to understand what’s happening,” Mitchell said.

Community leaders’ preferred solution was for a local group to buy the paper. But Gannett wasn’t interested, Mitchell said. There was no formal offer, he said, but “a surrogate made the ask” and “the word was that they were not up for selling it.”

Plan B was to start their own news organization. And that’s what they did.

The nonprofit, digital-only New Bedford Light debuted in June, with former Boston Globe executive Steve Taylor as Publisher.

“We’re trying to basically bring the Fourth Estate back to New Bedford in a serious way,” Taylor said. “We’re trying to do deep, investigative, explanatory, first-rate quality journalism.”

The Standard-Times’ coverage has been reduced mostly to “high school sports and very daily news, you know, crime, car crashes, fires, whatever,” Taylor said. The Light will generally skip those topics for now, focusing instead on areas the Standard-Times has neglected, such as in-depth investigations and arts coverage, he said. As its staff grows, the Light will take on more beats, perhaps ultimately including high school sports and breaking news, Taylor said.

Mitchell emphasized that he thinks news outlets in New Bedford should both serve as a watchdog and highlight areas in which the government is doing a good job. And he doesn’t expect the Light to go easy on him.

“They’ve already said some things that have been somewhat critical of me that I haven’t entirely agreed with, but that’s OK,” he said.

Gannett declined an interview for this story, so it’s unclear how it views the New Bedford situation. But Mitchell said local community boosters remain open-minded.

“If Gannett were up for selling it today,” he said, “there would probably be an investor group that would be interested in making another approach, but … we’ve heard nothing along those lines.”

Relentlessly local in Missouri

Tim Schmidt, owner of a small Missouri newspaper group, has the same goal as thousands of small publishers over the years: “I want as many names and faces in the paper (as possible) every single week.”

Schmidt, who started out as a sportswriter and moved to the business side of the newspaper industry, founded Westplex Media in 2018 and has purchased three papers, most recently The Mexico (Missouri) Ledger from Gannett last year.

Schmidt said that when he heard the Ledger might be available, he recalled that it “used to be a really good paper” before it became part of the GateHouse-Gannett chain. “I said I think this is a paper we can turn around. Because financially it was struggling. It did not have local community support. And we’ve done well since buying it. The community is now back interested in the paper.”

Schmidt cut subscription prices and advertising rates to win over local consumers and businesses. He got rid of most wire copy to make his publications focused on the news from their communities.

Under Gannett, “There were no local faces of the paper,” and the reporter there “was also working for four other of their newspapers.” Since buying the Ledger, “I’m not in Mexico every day, but we have a staff that is in Mexico every day.”

Schmidt’s chain offers e-editions and has websites, but “I still believe everything starts with print. I still think people are going to cut the pictures of their kids and their grandkids out and put it on their refrigerator.”

Why the sell-off?

To some extent, a news chain like Gannett may be selling off its “orphans,” according to visiting Medill professor Abernathy, who cited the Pine Bluff (Arkansas) Commercial as an example.

In September 2020, WEHCO Media, owner of the state’s biggest news outlet, The Arkansas Democrat-Gazette, bought the Commercial from Gannett and converted it into dedicated pages in the Democrat-Gazette for the Pine Bluff area. The Democrat-Gazette has discontinued print delivery except for Sundays while lending iPads to its subscribers so they can read a daily digital replica edition.

Abernathy said the Commercial was an “orphan” for Gannett in Arkansas, not fitting into a hub-and-spoke system in which some chains develop regional clusters to take advantage of shared systems — “owning a bunch of small papers, consolidating the printing in one place, consolidating the back-office functions in one place and probably having maybe only one reporter in each town with an editor in one place.”

Another dynamic in possible sales of chain papers to community buyers is whether the chain can command a premium sale price from local groups that may have a strong emotional stake in the deal.

“That certainly can happen,” said April of Dirks, Van Essen & April. “There have been some larger-profile deals that have taken place. This is less so in the last 18 months.” As an example, she cited “the sale when GateHouse spun off the Las Vegas paper soon after they’d bought it from Stephens.” But, she said, it’s difficult to say whether a sale was made at a premium “because the details are not always shared about the transaction prices.”

In any possible sale of Tribune Publishing papers by Alden, industry analysts expect the hedge fund to drive a hard bargain.

“Alden is still requiring that you pay full freight for any newspaper they’re selling,” Abernathy said.

Plenty of pitfalls

Local groups wanting to get into the news business face lots of challenges beyond coming up with the purchase price.

“One of the mistakes that many local organizations that want to buy the newspaper make is that they raise the money needed to buy the newspaper without considering the extensive amount of capital they’re going to have to invest to transform the business model,” Abernathy said.

The logistical and technical challenges of recreating the structures for advertising, circulation and content management can be daunting.

“That can be a hurdle,” April said. “Just using Gannett as an example, where they have so many things knitted together on the technical side of things, if you get a single individual person, say it’s a former reporter from a paper who wants to buy and operate it locally, they don’t have infrastructure to plug that paper into. That can be a challenge to transition off of the company’s systems and set up your own.”

Small chain owners with systems already in place make the transition more easily.

“With Phillip Reid (in Oklahoma), he already had a small publishing group,” April said. “That’s a perfect scenario where he’s able to — and Tim Schmidt (in Missouri) was the same way, as well as Larry Hiatt (in Kansas). They had newspapers already nearby, so they can fold those papers that Gannett spun off right into their system. When it’s an individual starting fresh — and in Fred Rutberg’s case (in New England) they were starting fresh — that would be more of a challenge.”

According to Rutberg, “It was a major endeavor. … They had all these systems built. We had to stand up our own. It was much more complicated than we probably thought it was at the time.”

For example, they thought they could simply keep one of Alden’s vendors when they took over, but they were considered a “new customer” that would have to pay a higher fee.

“The additional cost was very substantial, well into six figures,” Rutberg said, “so we had to go say, sorry, we’ll go someplace else. So we did, and it worked out fine. They used systems that were much bigger than we needed because they had a much bigger company.”

Schmidt, whose Missouri operation remains small, said: “I’ve been able to find a decent model where I’m able to hold our expenses in check. I run some different software that bigger papers aren’t going to do but it makes sense for us because it’s a little bit cheaper and it can do the same thing without the bells and whistles.”

Industry ripe for change

Franklin, who heads the Medill Local News Initiative, said more local ownership could be an outgrowth of other trends buffeting local news organizations.

“The local news industry is incredibly fluid now because the business model is changing rapidly to digital reader revenue,” Franklin said. “This means chains are going to be even more strategic about the size and geography of properties they own. All of this could create opportunities for local players who are community-focused and don’t have to answer to shareholders.”

Amid the doom and gloom in some sectors of the local news industry, people need to remember that there’s money to be made, April said.

“There’s a lot of activity in these small markets because the papers in some of these small markets are really healthy operations,” April said. “They’re producing good margins and they’re strong businesses. We all read a lot about the struggles of the newspaper industry, and we don’t read a lot about the 3,000-circ, three-time-a-week paper that has a 12%, nice margin. But there’s a lot of those still out there. And so these papers that are coming out of the chain ownership are settling in really quickly and nicely with these new owners.”

The turnaround can be quite swift when small- and medium-sized papers get local owners, April said.

“They’ll buy one of these stripped-down papers, make three hires, buy everybody a new computer, everybody’s reenergized and suddenly sales are at 2018 levels within 60 days,” she said. “That’s what we’re seeing and it’s such a positive story to see how quickly these papers can be reenergized.”

Correction: Dirks, Van Essen & April is a firm that brokers newspaper company sales, not a law firm, and Sara April is not a lawyer. We regret the errors.