Media

A historic bankruptcy

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The palace The McClatchy Company built to house the Anchorage Daily News in the heyday of print journalism

Finally bowing to what seemed inevitable for so long, the national newspaper chain that for more than two decades owned Alaska’s largest and most influential news organization has announced its plan to file for bankruptcy.

The action by The McClatchy Company comes less than three years after the epic collapse of the Anchorage Daily News (ADN), once one of McClatchy’s most financially successful operations. 

McClatchy in 2014 sold the ADN to Alice Rogoff, then the owner of the online-only Alaska Dispatch and the estranged wife of David Rubenstein, the billionaire co-founder of The Carlyle Group, an investment firm.

Fueled with Rubenstein money and dreams of restoring the past importance of words on paper, Rogoff paid McClatchy a staggering $34 million for the newspaper and then poured millions more into its operation before it floundered in 2017.

By the time Rogoff filed for bankruptcy, the ADN was $2 million in debt to creditors, some of whom had threatened to cut off supplies of print and ink; facing eviction from the building that housed its printing press; and bleeding money to the tune of $500,000 per month, according to court documents.

Rogoff would eventually end up giving the paper away in Bankruptcy Court for the $1 million The Binkley Company from Fairbanks offered as a loan to prevent the shutdown of the state’s largest newspaper.

Thus ended the biggest and most visible business failure in modern Alaska history to complete a saga that had begun only a few years earlier as the biggest dot-com success story of the internet age in the cold, dark north.

The purchase of the state’s largest newspaper by an internet startup that once proclaimed “we don’t do dead trees” attracted national attention with CNN Money writer Brian Stelter billing the deal as a “further affirmation of the rise of digital news operations” that “also shows the enduring value of print newspapers in some markets, even in an era of staff cutbacks.”

Stelter was wrong on both counts. The deal turned out to be more a replay of the mistake that put McClatchy in a position from which it never recovered, leading it eventually into the same position as Rogoff’s ADN.

A bridge too far

Rogoff’s closest advisers advised her from the start to hold off on buying the newspaper. Dispatch co-founder Tony Hopfinger – Rogoff’s best friend forever until she reneged on a promise to pay him $1 million for his remaining interest in the company he started – was firmly of the opinion McClatchy was in a death spiral as early as 2013.

Wait, he told Rogoff, and the ADN will in a few years become available for a song. But the elderly, would-be-business-mogul – a onetime adviser to Alaska Gov. Bill Walker on global fiance – couldn’t wait. Her vision of building a newspaper and online news empire that took over journalism in Alaska could not be contained.

In her first commentary in the newspaper, she announced big plans to “expand our footprint. We already have reporters based in Mat-Su, Fairbanks and Juneau, but we now want to add reporters to some of the state’s hub towns. Our first rural Alaska bureau will be opening shortly in Bethel. We are also eyeing Nome, Barrow and other towns where we can base reporters. Meanwhile, we are working on opening a bureau in Washington, D.C., so we can track the federal decisions that affect so many Alaskans.”

The editorial echoed the view of McClatchy after it bought the Knight-Ridder newspaper chain for a whopping $4.5 billion at auction in 2006 on the cusp of the media transition from print to the internet. It was a purchase from which the company never recovered, though McClatchy executives did a much better job of stringing out the collapse than Rogoff did.

Former Anchorage Daily News editor Howard Weaver –  McClatchy vice president for news in 2006 – originally trumpeted the Knight-Ridder purchase as McClatchy saving journalism in an interview with the Poytner Institute, a non-profit journalism school and research organization.

“Think about what a talent pool has been assembled,” he said. “Someone has to prove that quality, independent journalism should be at the heart of the enterprise, and we intend to be the one to do it.”

It didn’t work out that way.

But the company was so happy with the deal at the time that it handed a $1 million bonus to chairman and CEO Gary Pruitt and $125,000 to Weaver as part of $575,000 in rewards to four of the key executives involved in the deal. 

Beginning of the end

Within two years, Pruitt and Weaver were under fire for massive, company-wide layoffs of 1,400 – including 10 journalists at the ADN – and Weaver was explaining that “while everybody would agree it’s good to avoid ‘crushing debt’….the definition of ‘crushing’ has changed dramatically since McClatchy bought Knight Ridder just two years ago. The price we paid was a bargain by any historical measure, the papers we bought and kept have actually outperformed the classic McClatchy titles since the purchase, and the debt was easily manageable with the projected, relatively conservative forecast of cash flow at that time of about $800 million for the newly configured company.”

At the time of the Anchorage layoffs, the ADN was turning a profit of about $10 million per year, but job cuts were needed in Alaska to help boost the bottom line of a company in big trouble nationally.

Weaver in 2008 cast the problems in a rosy glow that would have made Rogoff proud:

“Our debt (which, btw, is declining steadily and is well on its way to meeting our year-end prediction of $2 billion), does indeed generate a lot of interest to repay….

“(And) you can certainly argue that McClatchy would be less in today’s headlines as the smaller, less indebted company it was before the KRI purchase. Yet in many ways, our competitive and prospective position could well be worse: with only the classic McClatchy papers in our portfolio, California would have represented a far greater percentage of our total company, and thus the real estate downturn would have hit us even harder. Add in Minneapolis and our revenue problems would have been profound.”

He went on to describe the “internet clout” McClatchy had acquired as part of the Knight-Ridder deal and how newly acquired “high-performing, high value assets…will play a central role in our future. The national economic troubles have masked their performance and contribution, but economic downturns don’t last forever.”

Those assets, however, would never prove close to capable of covering the losses McClatchy was taking as its print operations faded.

The company would spend the next decade continually cutting staff and selling off assets (the ADN sale to Rogoff for the highly inflated price of $34 million was a coup for McClatchy), but it would never shake free of the debt Weaver dismissed in 2008 with the proclamation of a company “more diversified geographically and economically and stronger on the internet. Our total audience is growing. Our journalism is strong and mission-centered.

Bold claims

We have challenges, but we will overcome them,” Weaver said. “I agree with you that not every newspaper company will get across the bridge. But as I offered here before, if anybody wants to put his money where his mouth is and bet against McClatchy, I’m easy to find.”

Hopfinger, a one-time ADN employee, is one of those who wishes he’d been able to track Weaver down to make that bet. As he told Rogoff before she stopped listening to advice, McClatchy’s demise was inevitable.

“I’m not surprised,” he said Thursday. “We saw that downturn for a long time. I mean, the 2008 McClatchy layoffs hit ADN hard, and that was 12 years ago. One reason we (Hopfinger and ex-wife Amanda Coyne) started Dispatch was because of those layoffs in 2008.”

At the time, the couple’s dream was to build a financially successful internet news organization. They never got there. Advertising revenues grew steadily over the years, but they were quickly consumed by the costs of new hires as Rogoff, who’d bought controlling interest in the Dispatch, pushed growth.

Her strategy of expanding cover to put competitive pressure on McClatchy in the Anchorage market was a good one. It brought McClatchy to the bargaining table, but instead of bargaining, she made a deal on McClatchy’s terms to secure the prize she thought would secure her dream of becoming a 21st-century media mogul.

“In my mind,” she told an Anchorage jury eventually empaneled to decide the disposition of the $1 million she’d promised Hopfinger and then refused to pay, “we would be making money.”

The same was true for McClatchy at the time it swallowed Knight Ridder. The deal was supposed to be a money maker. But McClatchy choked on its catch in much the same way Rogoff did.

She, ironically, started with tech and then bet against it. McClatchy can at least claim to have been better grounded. It thought it could leash tech to the old way of doing things, and in some ways it did.

Tech then took the company on a long, wild ride through the tubes that ended in the crash of the country’s second-largest news organization. The wreck has only left journalists already overloaded with angst wondering what happens next in a world where the whole idea of journalism is undergoing a major and rapid evolution.

No one knows what it will look like in the future, but the divide between journalism right and left is getting wider by the day. It was a crack between the conservative Anchorage Times and the more liberal ADN when Weaver got his start in journalism in Alaska in the 1970s.

It is now a growing canyon between online media outlets across the country.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

20 replies »

  1. 1.) Learn WordPress. 2.) Learn WordPress. 3.) Learn WordPress.

    You can’t succeed online as a single-proprietor site-owner with some good ideas, if you have to hire fix-it and change-it services, to keep the site perky.

    What’s really historic here, is the opportunity that’s opening up for the little guy. That McClatchy is headed for the dustbin, is just the nightly cleanup.

    Sure, the big-kids & fat-cats want it all. Google, Amazon, Facebook, Twitter, what more do you need? How can you compete? But the online game bears a real similarity to the gold game and the fish game. Gold and fish are where you find them, you gotta play it like it lays, and lots of it just isn’t that convenient for the behemoths.

    A piece of what McClatchy was, and billions in other media-biz, could be yours.

  2. The Rubensteins obviously needed a write-off to compensate for the hundreds of millions that David’s hedge funds rack in year after year (BTW how much is AK currently paying him to manage PF assets?).
    You can only claim losses to the feds for around 3 years with a business and avoid taxes.
    In that time we were fed countless Walker & China propaganda pieces that ultimately led to loosing half of our permanent fund dividends as Alaskans.
    In the end, Alice and David got what they wanted and the Walker/ Gasline Clan laughed all the way to the bank.
    I for one would not miss the propaganda of newspapers if they all folded tomorrow.
    Good riddance!

    • Dig two holes in the ground. Label one “write-offs: and label the other “taxes”. Regardless which one you throw money in, the money is not in your(or Rubenstein’s) pocket anymore.

      • Marlin,
        This is not some “mom and pop” business that is righting off expenses to get by…this is the Carlyle Group.
        One of the largest hedge funds in the world!
        The Carlyle Group owns 50 percent of Hilcorp.
        Hilcorp is quickly becoming the “state” oil and gas industry in Alaska while the “state” still pays Carlyle millions for managing a nice chunk of PF money…
        The million dollar question is: Are state funds from the PF going towards the buy out of BP?
        Are more and more industries becoming “state owned” in Alaska just like the commercial fishing industry?
        This is a slippery slope for sure!

  3. Interesting story, Craig. I haven’t given up on the idea of general-circulation print newspapers serving as authoritative sources for community news. The cost of printing a paper ensures that a city paper will be more accurate, less biased, and likely more aggressive than public radio or most online alternatives. A printed product still means something to people to my way of thinking. But I’ve never snuggled up with my laptop in bed on Sunday morning. Besides, who wants to read the funnies online? Of course, I may be in the minority. Been there most of my life so far.

  4. This week Charlie Munger (Warren Buffett’s partner) on Berkshire Hathaway’s sale of its 100 newspapers:

    “Technological change is destroying daily newspapers in America including the little ones like ours,” Mr Munger told Daily Journal investors. “The revenue goes away and the expenses remain and they’re all dying. Berkshire owns about 100 of them and it doesn’t matter because they’re all going to die. There’s nothing that can be done.”

  5. Good riddance!!! The “divide” is the difference between believing in the US Constitution or NOT believing in it. Pretty simple really. Bernie Sanders, Warren, Biden, Doonberg, etc.. do not believe in it..

      • Okay, I relent, though when I saw rush given the medal I cringed. When we start celebrating bigots, racists & haters that is when I draw the line. McCain was a hero, rush is not.

      • Jame’s, or medal cringe for that community agitatin, race hustler from Chicago getting the Noble Peace Prize for the “beer summit, Ferguson, Trayvon, ‘you didn’t build that’, or for the race war on police”? I mean, you did say “racist, bigots, and haters” right? Funny how you always leave the REAL ones out.

      • James,
        You have a very monotropic outlook on life.
        McCain is somehow a “hero” cause he flew 8,500 miles away and dropped bombs (probably Napalm) on innocent villagers?
        By this rationale I guess you also believe Custard is also a hero?

    • You mean the “Veco Times”? If a conservative newspaper, cannot survive in a red state, then there are other issues involved.
      Their reporting was biased, sloppy, pandering and outright misleading.
      Good riddance to bad rubbish.

    • Steve, McCain may not have been a hero in your eyes, though what about the 58K plus US men & women who gave their lives , during the Vietnam war. If you do not agree with what our country did, then direct your criticism toward LBJ, McNamara, Nixon, JFK and all the other politicians and military contractors, who got us involved.
      Same with the US involvement, by way of our CIA and the corrupt government of Iran (60s-70s), once again do not shame our soldiers. If you do not agree with your governmental representatives, than work to vote them out. Why not ask Rep. Young about his votes to continue with our horrific two decade involvement in Afghanistan, at the cost of thousands of American lives and billions of dollars. When we finally leave and close the door, the Afghans will be in the same situation as they were 20 years ago.
      Again do not blame the individual soldiers, they are only doing their duty.
      McCain was a US military hero, who did his government’s bidding, trump got out with a foot deferment. WTF?
      Why you brought George into this discussion, I do not get? In my view:
      Custer was an narcissistic egotistical man, who got in over his head, and deserved the punishment he received.
      As a result of the systematic destruction and killing of Native American tribes, all across the lower 48, besides being well documented in our history books, George was only the by product, of our government’s rape, pillage and killing of all tribal entities. The current casinos are only part of the payback.
      When Lewis & Clark traveled to the West and ended up in the SW corner of the State if Washington (Fort Discovery), they left behind a trail of infected people with measles, small pox, and alcoholism. Wow! Good job, what else can you give us?
      The history of our American white ancestors is not a pretty sight. I do not blame Custer, I look at the people who sent him there! Politicians, you gotta love them, not!

      • James,
        The Vietnam war is a very emotional subject.
        My father was forever changed by his combat experience in the Mekong Delta.
        I am not against the folks who were drafted unfairly into that debacle of a war, but I do not see McCain as a hero.
        No more than Custer would be a hero in my mind.
        Yes, we lost 58,000 GI’s…but the North and South Vietnamese lost over 2 Million people…many of whom were innocent villagers caught up in a geopolitical struggle B/W the U.S. and China.
        Let’s face it…that famous trail in Vietnam went right up into China and the U.S. GI’s were dying from Chinese landmines and Russian AK-47’s along with Russian made RPG’s.
        Vietnam was just the beginning of these new proxy wars that put us against innocent villagers that are fueled with communist weapons.
        McCain knew that he messed up when he was captured by the North Vietnamese but by then it was too late for him.
        During a 60 mins show in 1997 he said it himself: “…I was guilty of war crimes against the Vietnamese people.
        I intentionally bombed women and children.”
        You cannot only blame the political process when men and women still volunteer to this day to “carry water” for the Empire during forgein wars.
        Everyone who participates is culpable and bears the burden for many years to come.
        Somehow this cycle of violence needs to stop.

        https://msuweb.montclair.edu/~furrg/Vietnam/mccain60min.html

      • Jame’s, I appreciate most of your response. Except, you can’t have it both ways “Custer was an narcissistic egotistical man, who got in over his head, and deserved the punishment he received.” “Again, don’t blame the individual soldier, they are just doing their duty”.
        Also, this whole blame the “white ancestors” for everything is a bit silly. My “white ancestors” brought West medicine, innovation, prosperity, education, civilization, and order. But, on top of that they brought forth the greatest nation on this planet. Our history pales in barbarity compared to other nations.

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