Update: The possibility of a McClatchy company bankruptcy suggested here last week is now being bandied about by the mainstream media. “Newspaper Publisher McClatchy Teeters Near Bankruptcy,” Bloomberg headlined today.
The story below cited media analyst Craig Huber’s observation that “if they can’t offload the pensions or get pension plan relief, they’ll have to file for bankruptcy.”
McClatchy faces a mandatory, $124 million payment to its pension fund in 2020. A McClatchy request to have the payment waived has already been vetoed by the government. The pension plan is already underfunded to the tune of $535 million.
Huber estimated McClatchy will have less than $20 million – about a sixth of the needed pension payment – available as spendable cash-flow next year. The company’s problems have left some former employees of the Anchorage Daily News worried about the fate of their pensions, although those payments are federally insured.
The Daily News was a McClatchy-owned newspaper from 1979 until its 2014 sale to Alice Rogoff, the then owner of the online Alaska Dispatch news website. Rogoff had big ideas for expanded news coverage and a bigger, better newspaper for Alaska. She managed to drive the newspaper, which she had renamed the Alaska Dispatch News, into bankruptcy in only three years.
A former Rogoff employee on Monday noted that if the former Washington, D.C. socialite had only exercised the patience many of her advisors advocated in 2013, she would likely have been able to buy the ADN for a small fraction of the $34 million she paid.
The high purchase price forced her to sell the ADN headquarters – now the home of the telecommunications company GCI – along with the printing press it contained. Rogoff’s fumbling efforts to build a new printing plant sent off a cascade of events that doomed her newspaper business.
The Binkley Company from Fairbanks bought the ADN out of bankruptcy for $1 million, and it continues to struggle on in a tough market for the sale of news. The Binkleys own no presses and contracts with a printer to produce the ADN. Rogoff was early on advised to follow that route, but she rejected the idea just as she rejected the idea of sticking to the business of publishing news online in a world where the print-news business was already collapsing.
Ironically, one of the reporters on the Bloomberg story was Josh Saul, who grew up in Anchorage and cut his teeth as reporter for the online-only Alaska Dispatch before moving to the East Coast to pursue a successful career.
The original story continues below:
McClatchy’s pension plan is underfunded by about $535 million. The company asked the federal government to waive its required contribution, but was denied
The other shoe has finally dropped on The McClatchy Company, which only five years ago sold the Anchorage Daily News to Alice Rogoff for $34 million only to watch her bankrupt it in a matter of years.
Now, McClatchy itself may be headed in the same direction.
The company on Wednesday reported a net loss in the third quarter of 2019 of $304.7 million and revealed in a public statement that it is in discussions with the Pension Benefit Guaranty Corporation (PBGC), “its largest debt holder,” on how to reduce approximately $124 million in pension contributions due over the course of the next year.
“The amount due greatly exceeds the company’s anticipated cash balances and cash flow given the size of its operations relative to the obligations due and creates a significant liquidity challenge in 2020,” the statement said.
The company is strangling in debt.
Given the “liquidity challenge” – a fancy way of saying the cash isn’t expected to be available to pay the bill, “the company has retained financial and legal advisers to explore options. Typically that is a first step toward a company exploring the possibility of a sale,” Rick Edmonds today reported at Poynter, the website of the Poynter Institute. The institute bills itself as “the world’s most influential school for journalists.”
A newspaper sale was the same life ring for which Rogoff grabbed before the ADN’s bankruptcy two years ago. She couldn’t find anyone willing to offer even a fraction of the $34 million she paid for the newspaper and Alaska’s largest news website in 2014.
The operation ended up being sold to the Fairbanks-based Binkley Company for $1 million after Rogoff reneged on her debts and left her creditors, many of them small Alaska businesses, holding the bag on about $1.5 million in debt. A federal bankruptcy court trustee is still trying to sort that out with Rogoff’s ex-husband, billionaire David Rubenstein, having agreed to try to compensate his ex-wife’s creditors.
Rogoff subsequently turned her efforts and her millions toward bankrolling a website for Arctic news, which she is now trying to finance as a charitable non-profit.
McClatchy has publicly made no mention of bankruptcy though the possibility has been raised elsewhere.
“The publicly traded McClatchy newspaper chain, with 30 outlets including the Miami Herald and Kansas City Star, still gives the McClatchy family voting control. Those directors, to date, have fiercely resisted seeking bankruptcy protection or selling,” Edmonds wrote.
This week, however, McClatchy publicly admitted for the first time that a sale is now under consideration.
The company is deeply indebted to Chatham Asset Management, a hedge fund, that is both McClatchy’s biggest lender and the company’s biggest stockholder. Chatham is the parent company of the National Enquirer and also owns Postmedia, Canada’s largest newspaper chain.
McClatchy is talking to Chatham about a sale.
“In a conference call with analysts, (McClatchy) chief financial officer Elaine Lintecum said the company is ‘early in these negotiations’ and therefore declined to comment beyond the press release,” Edmonds reported.
“CEO Craig Forman said the goal is to restructure outstanding debt, including the pension payment, but ‘we cannot assure you these efforts will be successful.'”
Postmedia has extensive experience in restructuring. It has aggressively cut costs at its Canadian newspapers, although critics contend that has been done largely to enable Postmedia to continue payments on high-interest loans from Chatham. Chatham members then enjoy the profits from those loans.
“Postmedia is Canada’s largest media chain, with an estimated 200 newspapers, magazines and digital outlets — reaching more than 10 million Canadian readers daily,” the Vancouver-based National Observer reported in October 2018.
“(But) of late, Postmedia has been closing newspapers and laying off staff at a relentless pace: in June, it announced it would be closing six small papers in Ontario and Alberta, move three more to online-only publishing, reduce another from a bi-weekly to weekly publishing, and chop 10 percent of staff across the entire chain.”
Postmedia’s big problem – like McClatchy’s – is debt, media analyst Marc Edge told the Observer.
“They’ve got their heads well above water on an operating basis,” he said. “The problem is all this interest. (But) they will not go into bankruptcy if they can avoid it. The current arrangement is too lucrative for its hedge fund owners. This way they get to skim their take off the top every month as payments on the high-interest loans they hold, having bought the distressed debt of Canwest at pennies on the dollar before it defaulted in 2009.”
Though McClatchy is clearly in serious trouble, the company’s public statement Wednesday was a largely upbeat tome its success at going digital.
“McClatchy’s progress in its digital transition is reflected in both growth in its number of digital subscribers and engagement with its digital products,” the company reported. “Digital-only subscriptions grew 45.4 percent from the third quarter of 2018 to nearly 199,200 subscribers. When coupled with the company’s combination print/digital subscriptions, where customers have activated their digital products, total paid digital customer relationships were approximately 509,400 at the end of the third quarter of 2019, up 23.2 percent from a year earlier.”
Though those numbers look impressive, it should be noted that the paid circulation for just three of the company’s newspapers – the Kansas City Star, the Sacramento Bee and the Charlotte Observer – totaled 567,967 at the start of the decade with U.S. newspaper circulation on the precipice of a major decline.
One of the company’s most influential publications – the Miami Herald – was already in big trouble then.
Once one of the 25 largest newspapers in the country, the Herald in 1985 boasted a paid circulation of almost 450,000 readers, Miami Today reported in 2012, but by 2012 was already down to 104,000 paying readers.
Across the country, the problem of plunging newspaper circulation has only grown worse since then. With the old model for financing journalism with paid advertising in printed publications clearly broken, McClatchy continues efforts to try to find a workable new model.
“In October, we launched Mahoning Matters, a digital-only news outlet serving Ohio’s Mahoning Valley as a part of our Compass Experiment,” Forman said in the company statement. “The Compass Experiment is a local news laboratory founded by McClatchy and funded by Google News Initiative’s Local Experiments Project where McClatchy is launching digital-only news outlets in three localities with 60,000 to 300,000 residents and limited sources of local news.”
Google’s partnering with national, mainstream media is, however, only adding to concerns that the internet giant is trying to monopolize U.S. news. Those fears started with the left, but have shifted to the right since the election of President Donald Trump, who was widely opposed by Google employees.
“The Federal Trade Commission’s premature decision to close down its investigation of Google is a blow not just to Google’s competitors but to the health of American democracy in the digital age,” The Nation, a left-leaning publication, reporting in 2012.
“For a news provider, dropping below the front pages of Google’s search results means lost advertising dollars. But more important, it can mean disappearing from public view.”
The rise of Facebook later eased some of the left’s fear of dropping from the front page of Google searches, but right-leaning publications now contend Google is conspiring with other social media to control news coverage.
An 85-page, Google briefing paper, “titled ‘The Good Censor,’ admits that Google and other tech platforms now ‘control the majority of online conversations’ and have undertaken a ‘shift towards censorship’ in response to unwelcome political events around the world, Breitbart reported in October 2018.
From a less partisan perspective, an August 2018 examination of Google News by “The Conservation” found no inherent left-right bias in Google’s “front page,” but a huge bias to a handful of news organizations.
“Established mainstream news outlets strongly dominate the results, regardless of what a user is searching for,” the website reported. “Of all the Google News recommendations we collected, a full 49 percent – nearly half – were to just five national news organizations: The New York Times, CNN, Politico, The Washington Post and HuffPost. And those five, much like other mainstream news organizations, tend to be seen as center-left.”
“…Across the political spectrum, Americans have far more trust in their local media than in the national media organizations that dominate online,” The Conversation added. Those are the very media struggling most, however, as Google and Facebook, the elephants of the tubes, stampede news toward a handful of national media outlets.
And independent news sites such as this one are almost always left out in the cold by Google.
Correction: This is an updated version of the original story which misstated the price Alice Rogoff paid for the Anchorage Daily News.