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January 20 2011

21:00

The shakeup at MediaNews: Why it could be the leadup to a massive newspaper consolidation

[Our regular contributor Martin Langeveld spent 13 years as a publisher in MediaNews Group. That gives him an inside perspective on the company's bankruptcy filing, which he shares with us here. —Ed.]

Back in the early 1990s, Dean Singleton predicted that ultimately there would be just three newspaper companies left standing, and he intended his MediaNews Group to be one of them.

It was an audacious prediction, because at the time, after a decade of wheeling, dealing and sometimes ruthless management, MediaNews Group still consisted of just a dozen newspapers, and the company’s board meetings, as he was fond of saying, “could be held in the front seat of a pickup truck.” But Singleton often repeated his prediction of industry consolidation, and it was the driver behind MediaNews’s growth into the sixth largest newspaper company (in terms of circulation) over the past 15 years. Today MediaNews has 54 daily newspapers with a total of 2.4 million weekday circulation. (On its own site, MediaNews claims to be the “second largest media company,” but that’s a double stretch: Its properties are nearly all newspaper entities, and, by my count, Gannett, Tribune, News Corp., McClatchy and Advance have more daily paid print circulation — and are certainly all bigger media companies than MediaNews.)

MediaNews’s growth was accomplished not only through acquisitions but through innovative regional partnerships such as the California Newspaper Partnership, and was paid for through a complex and ever-changing leverage structure put together by the financial wizardry of Singleton’s associate Joseph “Jody” Lodovic IV.

But over the past few years, opportunities for Singleton to pursue his vision came to a halt. MediaNews could not outrun the ticking clock of debt accumulation; revenues plummeted; newspaper values tumbled; and lenders threatened foreclosure. Lodovic engineered a strategic and very quick bankruptcy that wiped out $765 million in debt by placing nearly all of the company’s stock in the hands of the former bondholders. Remarkably, the bankruptcy reorganization left him and Singleton in charge and with a small equity stake, plus the opportunity to earn back an equity position up to 20 percent. They also had theoretical control in the form of the power to appoint a majority of the board.

The shakeup

It was an unusual outcome — in other major newspaper bankruptcies, the lenders have imposed new management. For example, there have already been several changes at the top in Tribune’s ongoing bankruptcy process; at Freedom Communications, longtime chief Burl Osborne was replaced by Mitchell Stern, whose background includes CEO stints at Fox Television Stations, Inc. and Direct TV; at the Phildelphia Media Network, the publisher of the Inquirer and Daily News, Greg Osberg, a veteran of Newsweek and U.S. News & World Report, was handed the reigns; and at the Minneapolis Star-Tribune, Michael Klingensmith, a longtime Time Inc. executive, became CEO following the paper’s emergence from bankruptcy.

And then there is Journal Register Company, which emerged from bankruptcy in August 2009 and was once known as one of the most rapacious of publishing firms. “Tell me a Jelenic story,” Singleton would ask new refugees from Journal Register hired by one of his papers, referring to the sometimes ludicrous anecdotes of skinflint budget management attributed to Journal Register CEO Robert Jelenic and his lieutenant, CFO Jean Clifton. But under its post-bankruptcy CEO, John Paton, Journal Register Company has become a forward-thinking, innovative organization with a digital-enterprise management style, and has even instituted a profit-sharing plan which was on track, as of October, to make a substantial year-end payout.

So given that the normal pattern is for the post-bankruptcy owners to dump the old leadership team, it should not be surprising that the MediaNews creditors-turned-owners considered Singleton and Lodovic to be on probation. And it turns out that their trial period is over. On Tuesday, MediaNews announced a shakeup in which Lodovic (who has no street-level newspaper or digital operating experience, and whose financial skills were no longer relevant in the post-bankruptcy structure) was ousted and Singleton was reassigned to “executive chairman of the board” — ostensibly with strategic and deal-making responsibilities described specifically as “opportunities to optimize the company’s portfolio of properties and consolidation opportunities in the newspaper industry.”

On the surface, this looks like a way for Singleton to pursue his vision of consolidation, something he alluded to at the time MediaNews emerged from bankruptcy. But in reality, the shakeup robs him of nearly all his clout. The Singleton-Lodovic appointees to the MediaNews board are gone, replaced by new directors representing the stockholders group led by Alden Global Capital, a hedge fund firm which has acquired a large, though not controlling, stake. Several interim executive positions were also filled by people related to Alden or its parent, Smith Management LLC. While Singleton may have ideas for strategic consolidations, without Lodovic he lacks the necessary financial engineering savvy, and without control of the board, he can’t make anything happen. The new title for Singleton looks and feels like a face-saving ambassadorial position.

Consolidation?

So the question becomes, what will happen next? For clues, it is worth digging into Alden Global Capital and a web of investment cross-connections that tie it and several other hedge funds and investment banks to most of the major newspaper firms that have experienced bankruptcies in the last few years.

Consider the following list of investment banks, hedge funds and investment managers that have been reported to be involved in various bankrupt or post-bankrupt publishing companies (note, though, that because most of these are private investments by relatively secretive players, it’s not possible to know whether all of them are still involved as listed, or what their ownership percentages are):

MediaNews Group: A large stake is held by Alden Global Capital; the reorganization was led by BankAmerica and involved 116 lender-creditors.

Philadelphia Media Network (publisher of the Inquirer and Daily News): Alden Global Capital, Angelo, Gordon & Co, Credit Suisse, Citizens Bank, CIT Group.

Journal Register Company: Alden Global Capital, JPMorgan Chase.

Freedom Communications: Alden Global Capital.

Tribune Company: Alden Global Capital, Angelo, Gordon & Company, Greywolf Capital, Oak Tree Capital Management, JPMorgan Chase. (Note, in this case, the players are not on the same page yet, with Alden and others filing suit against JPMorgan and others.)

Minneapolis Star-Tribune: Angelo, Gordon & Company, Credit Suisse, Wayzata Investment Partners.

Postmedia Network Inc.: The Canadian group acquired the newspaper holdings of bankrupt Canwest Global Communications Corporation with backing from Golden Tree Asset Management as well as Alden Global Media and a number of smaller investment funds. John Paton, CEO of the above-listed Journal Register Company, serves as an advisor and recruited its CEO, Paul Godfrey, a media executive who also did a stint as CEO of the Toronto Blue Jays.

Morris Communications: The lone publisher with no apparent overlapping investors shared with the others; its principal creditor in bankruptcy was Wilmington Trust FSB. But Wilmington is a bank, and in most of these cases the banks have been flipping their holdings to the hedge funds.

Clearly, Alden is the outfit with the most skin in the game, having investments in MediaNews, Freedom, Philadelphia Media, Journal Register, Freedom, Tribune and Postmedia. (Incidentally, as a further extension of this network, JP Morgan Chase, which has been involved in the Tribune, Freedom and Journal Register reorganizations, is the largest stockholder at Gannett, with a 10.2 percent “passive” investment.)

With all these interrelationships among investors and “distressed” newspaper firms, it’s not hard to see why Dean Singleton might say that achieving some kind of “consolidation” will be a full-time job. Still, it seems unlikely that Singleton will get to pull the strings, when the money behind the interlocking investment structures is controlled by billionaire Randall Smith, Alden’s founder, who built his fortune through investments in junk bonds and distressed properties. Alden acquired most of its newspaper stakes through its Alden Global Distressed Opportunities Fund, which it launched in 2008 and which is now worth nearly $3 billion. Alden has offices in New York, Dallas, Dubai and Mumbai, along with a tax-haven presence on the Channel Island Jersey.

The tip of the iceberg of consolidation shows in rumors of a possible merger between Freedom and MediaNews. This would be of strategic value particularly in California, where MediaNews already controls about 26 percent of the newspaper market by circulation through its California Newspaper Partnership created by Singleton and Lodovic. MediaNews, Gannett and Stephens Media Group all contributed newspapers to the partnership, in which each firm holds a proportionate equity stake and profit share, but which is controlled and managed by MediaNews. Combining MediaNews and Freedom would add another 7 percent, bringing the total to 33 percent. Antitrust is unlikely to be a big hurdle, since the MediaNews and Freedom holdings compete only at territorial margins and the continuing decline in newspaper revenue and circulation is a sufficient argument for the need to consolidate.

Alden could be seeing the California opportunity not only as a chance to find additional cost savings through production efficiency, but more importantly as a way to gain revenue through market share, both in print and online. Conceivably, because of Alden’s role in Tribune, the Los Angeles Times could end up as part of the partnership as well, boosting the consortium to about half the state’s paid circulation.

This California consolidation opportunity could be used as a model for similar possibilities elsewhere. For example, in New England, a combination of MediaNews, Journal Register and Tribune would have properties in Connecticut, Rhode Island and Massachusetts — totaling about 25 percent of circulation in those states, on a par with the current California partnership. On a countrywide basis, the companies in which Alden appears to have a stake and some degree of influence, as detailed above, have about 15 percent of all circulation and if fully merged, would be about 10 percent bigger than the current champion, Gannett. Gannett currently holds only about 13 percent of total circulation, and when compared with most other media such as television, cable, radio and magazines, the patchworked map of newspaper ownership and its lack of concentration of ownership both now seem outdated and inefficient. Singleton’s early vision of three principal players owning most of the newspaper landscape is increasingly likely.

But it must be done right. Strategic geographic consolidations, if operationally led (one hopes) by someone of Paton’s caliber, could be a potent force for the rejuvenation of the industry, including a renewed focus on what, after all, is the principal product and potential strength of all three companies: local journalism, along with Paton’s strong emphasis on digital-first, print-last thinking.

MediaNews’s own statement on the reorganization seems to echo this: “These measures will strengthen the company’s performance in its core markets, and continue the transformation of the business from a print-oriented newspaper company to a locally focused provider of news and information across multiple platforms.”

It’s really the last hope for the newspaper business, but a pessimistic view is possible, of course. Randall Smith, Alden’s CEO, is a shrewder and more sophisticated financial engineer than Lodovic was as Singleton’s second-in-command, and Alden’s ultimate interest is in earning a strong return on its investments, not in the future of journalism, so its strategy is at heart a financial one. And, yes, consolidation will come at the cost of jobs.

But Smith also knows that the only way to win his big bet on the future of newspapers is to turn them into nimble, modern digital news enterprises, and even Singleton (who rarely touches a computer) seems to agree.

Let’s hope they both listen to Paton, who said in a December speech:

Stop listening to newspaper people. We have had nearly 15 years to figure out the Web and as an industry we newspaper people are no good at it. No good at it at all. Want to get good at it? Then stop listening to the newspaper people and start listening to the rest of the world. And, I would point out, as we have done at JRC – put the digital people in charge – of everything.

Disclosure: I worked for MediaNews Group for 13 years as a publisher in its newspapers in Pittsfield and North Adams, Mass. and Brattleboro, Vt. In a previous post, I asked whether Singleton could steer MediaNews to a digital future.

January 18 2010

17:51

Singleton’s next chapter: Can he steer MediaNews to a digital future?

[Our regular contributor Martin Langeveld spent 13 years as a publisher in MediaNews Group. That gives him an inside perspective on the company's bankruptcy filing, which he shares with us here. —Ed.]

In August 2006, as part of a deal that netted MediaNews Group the Contra Costa Times, San Jose Mercury News, and the St. Paul Pioneer Press, the Hearst Corporation agreed to make a $300 million equity investment in MediaNews. At that point, the peak of MediaNews’ company’s expansion and with revenue and cash flow at an all-time high, the holdings of the principal stockholders — the Singleton and Scudder families — net of debt, were arguably worth more than $500 million each.

But last Friday, whatever was left of that equity, as well as Hearst’s stake (not finalized until a year later), evaporated as part of an announced plan to file a “prepackaged” Chapter 11 bankruptcy. For Hearst, it’s a hefty writeoff of a bad investment. For the Scudders, it’s a bitter payoff after nearly 25 years of active participation in MediaNews management. For MediaNews CEO William Dean Singleton and his financial wizard, company president Joseph (Jody) L. Lodovic IV, it’s a fresh start (which includes a 20 percent equity stake for the duo, and retained control of the company).

Could readers of the company’s papers now see new investment in its newsgathering capabilities, long hammered by budget reductions? For MediaNews employees, could this be an opportunity to participate in the transformation of the company into a truly digital enterprise? Both answers depend on what kind of vision is shared by Singleton, Lodovic, and the former bondholders who are now their equity partners.

MediaNews’ story

In 1983, Singleton, then a brash 32-year-old newspaperman who already had bought and sold several newspapers, enlisted the help of his friend Richard B. Scudder to buy  the Gloucester County Times in New Jersey. Scudder, former publisher of the Newark Evening News (which his family owned for three generation before selling it in 1972), was founder and president of the Garden State Paper Co., the first commercial-scale producer of recycled newsprint.

Singleton and Scudder went on to create MediaNews Group in March 1985, and steered the company through a long series of deals that eventually built it into the sixth-largest newspaper group (by circulation) in the country — today it owns 54 daily newspapers with a total weekday circulation of about 2.3 million, plus a slew of weeklies and niche products. It also has a television station in Anchorage and a group of radio stations in Texas.

From the outset, Singleton and Scudder agreed to manage MediaNews for growth, and never to pay dividends. Neither of the partners ever personally owned any stock — they put it in trusts for Scudder’s children and grandchildren and for Singleton’s future children. Singleton was only 33, unmarried and childless at the time, but Scudder was 72, so the trust strategy would avoid inheritance taxes in the event of his death.

The company never went public, but because a small portion of its debt was publicly held, it was required for years to file disclosures with the SEC, providing a detailed window into the complex financial structure that enabled its growth. (That window closed in 2008 when the company reached an agreement with bondholders to avoid the filings.)

The financial wizard behind the company’s financial maneuvers was Jody Lodovic, who became chief financial officer in the early 1990s and rose to become president. Together, Singleton and Lodovic created partnerships with Gannett in Texas and New Mexico and with Gannett and Stephens Media in California to which each company contributed its newspapers, with MediaNews assuming the management. They pioneered the concept of “clusters” of papers that could realize economies of scale. They deftly exploited joint operating agreements in Detroit, Charleston, W.V., York, Penn., Salt Lake City and ultimately in Denver at the conclusion of a long battle between MediaNews’ flagship paper, the Denver Post, and the Rocky Mountain News. At times, when cash was tight or they got offers they couldn’t refuse, they sold papers, including the original New Jersey cluster dear to Dick Scudder’s heart.

For Singleton, the elimination of most his company’s debt is a long-delayed goal. As early as 1996, at a retreat for the group’s management and publishers, he outlined strategies including a few more years of acquisitions followed by a push to reduce debt. But somehow, acquisition opportunities kept coming along, and debt reduction was put off. Singleton began to feel that at some point, there would be only two or three newspaper companies left standing, and he wanted MediaNews to be one. To be in the running, the company had to keep growing. Ultimately, revenue tanked not long after the final big deals with McClatchy and Hearst, and MediaNews found itself in workout last April. Given the complexity of its financial structure, it’s not surprising that it took eight months to package the bankruptcy.

For Singleton, it’s not the first disappointing turn, but certainly the biggest. In 1975, pre-MediaNews and at the age of 24, Singleton was involved in an attempt to revive the Fort Worth Press, which had been closed by E. W. Scripps after losing money for two decades. The venture ended in failure after three months. MediaNews bought, but couldn’t make a go of the Dallas Times-Herald, which was closed a few years after Singleton sold it. Later, MediaNews bought the Houston Post but couldn’t make it profitable and sold the assets to Hearst, which owned the dominant Houston Chronicle. Hearst paid $120 million and immediately closed the Post. (The laid-off staffers, calling themselves the Toasted Posties, set up an early social networking site of sorts to stay in touch and swap gossip about Singleton; it was succeeded by a now-dormant blog, and later by a Facebook page.)

Known as a cost-cutter

Though he continues to have a reputation for ruthlessly cutting costs when necessary, Singleton takes a genuine pride and interest in his newsroom staffs. When visiting newspapers, before heading out for dinner with the publisher, he makes of point of visiting the newsroom to see what’s going on. He keeps an eye on editors, reporters and photographers with promise and has promoted some to the Denver Post. He has a mail subscription to every one of his dailies, and when he’s traveling, his sister and personal secretary Pat Robinson sends some of them to his destination in Fedex boxes so he can keep up. Editors are not surprised to get a call from Singleton asking about a local story, or exhorting them to run more local news on the front page. He lets each local paper formulate its own editorial views and endorsements. Before the going got rough, Singleton and Scudder convened annual gatherings of MediaNews publishers to talk strategy; they enjoyed these confabs far better than meetings of publishers.

And as Singleton told the Wall Street Journal in an interview relating to the current bankruptcy process, he continues to press his vision for consolidation of the newspaper industry, telling the Journal he wanted to be the “aggressor” in that effort.  The group’s employees fear that by consolidation, Singleton means more outsourcing or more centralization of operations regionally and nationally. There’s been a lot of that already, and there could be more, but Singleton and Lodovic will now be free to expand their partnerships, to seek mergers with other groups, or to rationalize the market through exchanges of newspaper properties. “Look at the map,” Singleton told the Journal in response to the question of where such consolidations might occur.

Singleton has lived with multiple sclerosis for 24 years; the disease has now robbed him of the use of his legs. In a long and particularly revealing interview last year with the Colorado Statesman, he discussed its effects:

I cheated it for many, many years. The last three years, I haven’t cheated it so well, and it has become more aggressive. I’ve lost the use of my legs and partial use of my arms and fingers. I feel fine most of the time. I’ve never missed work because of it. But clearly the current prognosis isn’t particularly good. The good news about Multiple Sclerosis is, it doesn’t kill you. But it does disable you. Not being able to walk or button your shirts or tie your tie — it’s troubling. But I’d rather be disabled and alive than fully able and headed to the other side. So I count my blessings for all the things it hasn’t taken. But it certainly has taken a lot. I look worse than I feel. I feel pretty good.

I’m still very energetic and do what I want to do. I travel if I want to travel, and get around to the newspapers and go anywhere I want to go. I enjoy life a lot, but I just enjoy it differently without some of the physical things I once had. It’s comical when I go on the road. I can’t button a button because my fingers don’t work. I can’t type anymore. I can’t use a computer because my fingers don’t work. If I go to hotels where I stay regularly, I’ve always got a concierge who’ll come up and button my shirts and help me tie my tie. If I stay in a strange hotel, I ask one of the housekeepers if she’ll button my shirts. She almost wants to call the police or something. You get all kinds of weird looks when you ask a housekeeper, “Would you come here and button my buttons for me?”

And I love it. In some places you get somebody who can’t speak English, so you have to explain how to button a shirt. And some places you get somebody who does, and they first think you’re joking. And then they understand your nod and they start laughing and everything. One of the fun things I have in life when I travel is the look on somebody’s face when I ask them to button my shirt. So you make the best of it.

Clearly, the MS puts some urgency in Singleton’s quest for a legacy. The elimination of most of his debt gives him an opportunity to rebuild newspaper operations that have been hammered for years by revenue declines and the company’s inability to invest adequately in its future (many of the papers are still operating on content management systems installed as Y2K solutions).  Whether he, or Lodovic, will have the vision to turn the company into a truly digital enterprise is an open question. Singleton has an understanding of the web (he helped lead the formation of the Yahoo Newspaper Consortium), but he’s not an active computer user. He has often expressed faith in the future of print, and has strongly espoused charging for content in order to protect the print side of the business: “I think print’s going to be important for a long time…Print is still the meat. Online’s the salt and pepper.”

With that attitude it seems unlikely that Singleton and Lodovic come to share the digital vision of another CEO leading his company out of bankruptcy, Journal Register’s John Paton, who told Jeff Jarvis recently (speaking of his previous company, Spanish-language publisher impreMedia):

The first thing we did was to decide that in our company, a print company, when it came to products we would be digital and brands first and print last. It was our radical way of focusing everyone on the future. By recognizing our competitors and our future were digital everything we built and did had to follow that decision.

Paton is free to pursue that vision at Journal Register, which is also newly unencumbered by debt. The readers and employees of MediaNews could benefit from a similarly unequivocal determination at the top to radically reinvent the business in a truly digital direction.

Disclosure: I worked for MediaNews Group as a publisher for 13 years from 1995 to 2008 at its cluster of four dailies in western New England. In a previous post, I outlined in more detail my suggestions for a more digitally-oriented MediaNews Group.

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