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Some good news in Newspaperland?

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vintage newsboyI did a little happy dance today because of some encouraging newspaper news out of the east. If you’re interested in journalism and public affairs, you might want to look for your tap shoes too.

The good news is that Apollo Global Management has ended its effort to acquire Digital First Media, the newspaper chain that publishes 70 some papers across the country, including the Monterey Herald and the Santa Cruz Sentinel.

It’s not that there’s anything wrong with Apollo. It is a very successful investment fund and it has made sizable profits for its many investors. It manages some $160 billion in assets and it apparently is very good at what it does. But what it does is make money, not run newspapers.

If Apollo had completed the deal, worth somewhere in the universe of $400 million, it would have been one large investment fund buying the newspaper group from another large investment fund, the Alden Global Capital hedge fund. Months of talks broke down, however, apparently because the parties couldn’t agree on price. Which is a good thing, I believe, because the transaction very likely would have led to continued shrinkage of the staffs and contents of the newspapers. I’ll explain my thinking in a bit.

This leaves the future of the Herald, the Sentinel and their various stablemates in a limbo of sorts. Digital First Media officials said two rather contradictory things Thursday — that the chain isn’t for sale but that they may be selling off pieces, either regional clusters of newspapers or individual papers.

As we and others have reported previously, there are local groups interested in buying both the Monterey and the Santa Cruz papers. One is headed by Geoff Dunn, a writer, educator and filmmaker who has been involved with alternative weeklies in Santa Cruz and elsewhere for decades. He was involved last year in brokering the sale of small dailies in Santa Clara and San Benito counties along with a Santa Cruz weekly and he continues to pursue Digital First Media operations on the Central Coast and elsewhere in Northern California.

Other groups have expressed interest in other Digital First holdings around the country, but DFM has deferred discussions with most of  them while pursuing a package deal with Apollo. If it starts negotiating with groups here and elsewhere, it is likely to become a complicated financial chess game with other newspaper groups proposing trades and other newspaper operations making plays for various configurations of newspapers. (As it stands, the Monterey and Santa Cruz papers are part of Digital First Media’s Northern California group along with papers in Chico, Red Bluff, Vacaville, Vallejo, Red Bluff, Fairfield, Eureka, Mendocino, Ukiah, Clear Lake, Woodland and Paradise. The San Jose Mercury News is part of the company’s Bay Area News Group along with the Contra Costa Times and several closely affiliated papers in the East Bay. At different times, the Sentinel has been part of both groups, as has the Marin Independent Journal.)

I am encouraged for several reasons. I believe local ownership could help restore at least some of the quality at the local papers. Corporate operators are by definition far more interested in profits than in journalism. Also, I believe the right kind of local ownership would be in much better position to make improvements.

Here’s why. As the U.S. newspaper industry has suffered large losses in advertising, circulation and revenue, the impression has been created that they are barely profitable if at all. The reality is that many newspapers have made respectable profits in recent years, not by increasing circulation or their advertising linage but by cutting expenses. With the Apollo deal falling apart, there already is talk of new budget cuts for the DFM papers starting in July. If the deal hadn’t fallen apart, budget cuts would have been on the near horizon anyway, or at least that’s what I think.

What sets local ownership apart from investment banker ownership is that local investors would have much less incentive to cut in order to create the kind of returns that hedge funds and other asset managers proudly offer their clients. Potentially, local investors motivated by public spiritedness might even be able to reinvest some of the profits and rebuild the newspapers.

Am I dreaming? Probably so. But until today, I was expecting to watch the continued decline of most DFM newspapers, including the Herald, where I once held the editor’s title. Now, I feel there is at least a possibility of recovery and the public benefit that goes along with it.

In the past few months, I have given talks to various community groups, including the League of Women Voters of Monterey County, the Gentrain Society at Monterey Peninsula College and the Carmel Valley Association and each was keenly interested in the future of the Herald. The people in the audiences are more involved in public affairs than most folks and a relatively high percentage of them still subscribe to the Herald even as they complain about its dwindling daily report.

I told them about the potential Apollo purchase and the local possibilities, which at the time seemed remote. After each talk, several people came up to me or called or emailed to say that newspapers remain extremely important to them, that they would be following the sale process closely and would be pulling, pulling hard, for local ownership. For the sake of the Herald and the Sentinel and the communities they serve, for the sake of the readers and the advertisers, for the sake of all, let’s hope it works out.

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Apollo Global Management boss Leon Black bought one version of Munch’s “The Scream” for $119 million, the most ever paid for an artwork at auction

After months of silence about the future of the Monterey Herald and 70 or so sister papers, some news has ascended out of the East. It isn’t the good kind. The trade papers are reporting that the frontrunner to buy the Digital First Media chain is the very large private equity firm Apollo Global Management.

If you are involved in high finance, you likely know about Apollo. It manages about $160 billion of investor and shareholder money and specializes in acquiring distressed businesses and extracting profits from them by whatever means necessary.

In other words, Apollo is similar to but larger than the company that now owns Digital First Media, Alden Global Capital. Apollo owns a long list of businesses you’re familiar with, including Coldwell Banker and Century 21 Real Estate, Caesars Palace, Norwegian Cruise Line and Carl’s Jr. In 2013 it bought a company with a strong local presence, McGraw-Hill Education.

That is not to say that Apollo is in the restaurant, real estate, gaming, cruise line and educational publishing businesses. It is in the business of buying companies, taking them in and out of bankruptcy, combining them with other companies, streamlining their management, laying people off, improving their short-term profit picture, and selling them off.

A piece in Forbes magazine last August had this to say:

“Apollo has been the hottest private equity player in recent years. Its biggest fund has delivered a net internal rate of return of 30%, it has raised the biggest new private equity fund the industry has seen in years, and its billionaire co-founders are buying professional basketball and hockey teams and famous pieces of art.”

Newspapers weren’t mentioned in the piece.

Apollo is headed by Leon Black, the former Drexel Burnham Lambert manager whose personal worth is estimated at $5.4 billion, according to Inside Philanthropy.

Three years ago, Black purchased one of four known versions of Munch’s “The Scream.” The $119 million price was said to be the highest price ever paid for a single artwork at auction.

Word is that Apollo is the only remaining bidder for the entirety of the Digital First network but that the deal has been delayed by complications involving DFM’s holdings in Texas. It is significant to note, however, that Digital First has numerous suitors for pieces of the pie, individual papers or regional clusters such as the Bay Area News Group, which operates the San Jose Mercury News, Contra Costa Times and other dailies ringing the bay.

The Herald and Digital First’s Santa Cruz Sentinel have been pursued by local investment groups headed by Geoff Dunn, a Santa Cruz entrepreneur and activist who had attempted to buy the Sentinel the last time it was in play. Others have attempted to make offers for the Mercury News alone, the Denver paper and other combinations.

Unfortunately for almost everyone except perhaps DFM and Apollo, DFM’s owners so far have opted not to entertain offers for any of the various parts. I say unfortunate because in many cases, the potential buyers consist of investors interested in saving or even restoring their local papers to what they once were.

The rumored price for all the papers works out to about $400 million, which could be less than what just the Mercury News and DFM’s Denver Post would have gone for 15 years ago. But while that price is low compared to what it once would have been, it is high enough to suggest that the new operator, if it is Apollo, will be devoted to grinding profits out of the papers rather than letting them hold onto enough cash to rebuild.

Leon-Black

Leon Black, patron of the arts, would-be media mogul

In the past 15 years, the Herald has gone from a daily circulation of well over 30,000 to a figure hovering around 14,000. The newsroom staff has dwindled from 50 to about 15. The Santa Cruz Sentinel has experienced a similar decline. (Do a Wikipedia search for the Herald and you’ll see a daily circulation figure of 23,862 and a Sunday figure of 58,001. Take this as additional proof that Wikipedia is not to be trusted. The Sunday figure has no relation to reality, past or present.)

The conventional wisdom is that the papers have downsized so dramatically because they are losing money. The fact is that most papers continue to make handsome profits – largely because they have cut content, staffing and other expenses so dramatically. In other words, the ownership has chosen to deliver a thinner and thinner product in order to maintain double-digit profit margins. In still other words, much of the decline of newspapers is self imposed. Investor groups interested in the individual properties believe or at least suspect that ownership with much more modest profit expectations could revitalize the operations, with much of the benefit accruing to the communities they serve.

The current owner, Alden, acquired the Herald and the rest of the Digital First papers in a series of steps that also involved bankruptcies and other elements of modern deal-making.

The Herald was founded by well-respected Col. Allen Griffin and started its route through a series of ownership changes in 1967. It was purchased first by Block Communications, which traded it to the E.W. Scripps chain in 1992. In 1997, it was traded again to Knight-Ridder, one of the most highly regarded newspaper groups in the country.

Knight-Ridder included the likes of the Mercury News, the Philadelphia Inquirer, the Miami Herald and other quality operations. For the most part, the Herald flourished.

The end of the empire came in 2006 after one of Knight Ridder’s largest shareholders complained publicly about inadequate returns, prompting company President Tony Ridder to put it all up for sale. In fairly quick order, the Herald went from being part of the Macy’s or Nordstrom of newspaper chain to the Kmart of chains, Dean Singleton’s MediaNews Group.

Singleton made his mark on the industry through cost-cutting and “clustering,” consolidating operations of newspapers on a regional basis. One staff plus a few small bureaus produces several newspapers, quite similar but each with its own name. As just one example, all the copy editing and layout of the Monterey and Santa Cruz papers plus eight or nine others takes place in Chico.

Singleton’s papers became Digital First Media papers in stages that included a management contract, a couple of bankruptcies and eventually a merger. Ownership fell into the hands of Alden Global Capital, a very low-profile operation based in New York. Alden also became a major investor in other groups, including the New York Times and McClatchy but its role and influence in the industry have attracted scant attention.

Under the leadership of John Paton, a Canadian newsman, DFM began this decade with a serious attempt to build the brand by pushing each of the newspapers in the string to seriously ramp up its online operation. Paton and those around him recognized that print newspapers are a dying breed and that the future of news distribution is online. The challenge was that digital advertising is far less lucrative than print advertising.

Paton and company made a strong run at it but committed at least one fatal error. They persuaded Alden Global Capital to make some investment in the product and to show some patience, but almost all of that investment went into creating something called Thunderdome. It was headquartered in New York and was tasked with creating and bundling national and international news and features to be used on the websites of each of newspapers.

At the local level, editors, me included, were desperate to increase the quantity and quality of local reportage but the resources for that were being routed to Thunderdome instead. Individual papers were even billed for the cost of keeping Thunderdome afloat.

The national content created by Thunderdome was good but not good enough to drive readers to the Chico Enterprise-Record website or to cause El Paso Times readers to cancel their New York Times subscriptions. Alden’s patience wore out just over a year ago and the current sale process was launched.

It is not certain that Apollo will be the buyer, nor is it certain that it would only be interested in the quick buck.

The fear, given its history and that of other companies specializing in “distressed properties” is that it will try to make money simply by cutting expenses and putting the papers on the market. The question is whether there is anything left to cut.

Royal Calkins was editor of the Monterey Herald until February 2014 when Digital First assigned Santa Cruz Sentinel Editor Don Miller to lead both papers. Calkins previously was city editor and opinion page editor at the Herald and has consulted with Dunn on the potential purchase. By the way, many of you are familiar with the Julia Reynolds’ byline. She has been one of the top Herald reporters for nearly a decade now, skillfully covering courts and gang violence along with investigative topics. She is taking a voluntary layoff and her last day is Friday.

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Back in the pulpit

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For months now, I have been promising (threatening) to create a full-service news and opinion website, with lots of bells and whistles and community input. This is not it. Too complicated for a word guy. This will have to do for now.

Until February, I was editor of the Monterey Herald. I departed when the ownership, Digital First Media, decided that one editor could oversee news and opinion for both  the Herald and the Santa Cruz Sentinel. A tall order. Some days the drawbacks are not instantly apparent. Downsizing eventually may make it possible for the papers to have no editors at all. But despite the valiant effort of hardworking and exceptionally conscientious journalists at the Herald, the current formula there takes little account of  the community’s need for news, information, commentary  and scrutiny. All by myself, I can do painfully little to address that, but I’m hopeful that contributions from many others in the community can help fill some of the  gap.

On this blog, I plan to weigh in on local topics, primarily in the areas of politics and public policy. I’ll also throw some news on here now and again when I stumble onto something in the unemployment line. News items I have picked up recently, for instance, include Clyde Roberson’s candidacy for mayor of Monterey (corrects previous misstatement that he was running for a seat on the council) and the current filming of the final episode of Mad Men at a home in Big Sur.  (I had that item before the Weekly but had no place to put it.) For now, this blog is simply that. Just a blog. No sponsors, no advertisers, no hint of commerce. I have added a link to Gary Patton’s fine Land Use Report, what I hope to be the first of several links to locally relevant sites.

If the Monterey Bay Partisan becomes wildly successful, things likely will change, possibly to the point of including a hint of commerce. .Success usually leads to change, but so does failure. For now, just look here now and then for my efforts to fill in some of the blanks in local journalism. Don’t be surprised if some media criticism comes along, sooner rather than later, or if I weigh in on the upcoming campaigns. I suspect I’ll weigh in often on the sheriff’s race, pitting incumbent Scott Miller against Steve Bernal, who appears to be in the contest only because he’s a Republican and the local GOP bigwigs are hellbent in getting Republicans elected to local office no matter how unqualified they may be.

Oh, by the way, about the name. I picked it partly to ward off those who will read something here and accuse me of exhibiting bias. Maybe the name will alert them to the facts that, A., they  are correct and, B., that it is not a secret. I had thought about something even more descriptive, like Monterey Bay Online Pinko Rag, but it seemed too long. Or the Monterey Bay Impaler, but that seemed too aggressive. Briefly I thought about Mr. SmartyPants.com. Too flip. Out of the entire realm of possibilities, only the Monterey Bay Partisan remained.

And so we start. For my Facebook friends, look for updates there whenever something new is posted. I’ll also be tweeting and touting and whatevering Wish me luck. Wish us all luck.

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