How a Newspaper Fails: Why Current Business Models Hurt Local Papers

How a Newspaper Fails: Why Current Business Models Hurt Local Papers

The Refresh the Press series at NCND examines the current news landscape with an emphasis on the disappearance of local newspapers. There has been a decline in local newspapers since the peak of print advertising and circulation at the end of 2004. Following this peak, there has been a downward trend in print newspaper advertising revenue as online platforms are more preferable for many readers.

This trend is a result of the buyout of local papers during a digital age that demands less traditional news sources. Local newspaper failures have grown increasingly common. The consolidation of many papers has left areas without coverage, creating news deserts throughout the country. Our news deserts piece highlights that not only are these areas left behind in news coverage but they are also often marginalized minority communities. So, how did newspapers begin to disappear?

Impact of the 2008 Recession: The Initial Blow

Leading up to 2008, investors kept purchasing newspapers despite revenue from print sales declining. Small and mid-size papers were declining less rapidly than large papers, though larger papers had higher revenues from their online presence. From the peak at the end of 2004 until 2008, newspapers were changing hands at 13 times their yearly earnings. This means it would take, on average, 13 years for purchasers to get a return on their investment.

For much of the 20th century, the newspaper industry giants were large, privately-held chains such as Gannett, McClatchy, etc. The 2008 financial crisis left many newspapers in distress, paving the way for investment groups and private firms to purchase hundreds of papers. These strugglings newspapers were primarily in smaller communities and in bankruptcy proceedings. 

The Aftermath: Lower Valuations and Buyouts

The financial shock of the recession rapidly decreased the value of newspapers. Papers were purchased at only three to five times their earnings, a sharp decline from previous years (2005-end of 2007). This allowed the investment groups to buy several papers for the same price they would have spent on one. These groups transitioned from investors to owners in the newspaper industry. This shifted the focus of many papers from family-centered papers to investment opportunities for private equity firms.

Phasing Out A Paper

Low valuations for newspapers has been a continuing trend that has changed the landscape of the newspaper industry. As of 2014, six of the ten largest newspaper owners were investment groups rather than media giants. Phasing out local papers throughout the country occurs through the aggregation of small, local newspapers by investment groups. So, what does the transition of ownership look like?

The costs of newspaper ownership have dropped tremendously, which allows private firms to purchase struggling newspapers. These firms use business models similar to their other investments and focus on aggressive cost-cutting measures to increase revenues. What does this mean for local papers?  Daily newspapers become weekly or non-daily and staff is heavily reduced. Less frequent editions and cuts to staff leads directly to undersupplying local news and sometimes the elimination of beats altogether.

Large chains sometimes merge local papers in an area, creating a zoned edition. Penny Abernathy, Knight Chair in Journalism and Media Economics at UNC Chapel Hill, explains these zoned editions often result in communities relying on dailies up to 75 miles away, and that “then eventually they’re subsumed and there’s nothing left.” 

Why Does This Shift in Ownership Matter?

 “Some of those companies and private equity firms view the news as basically raw assets,” says Zachary Metzger, a researcher on the US News Deserts project at UNC Chapel Hill. Newspaper management is new to many of the investment entities who view papers as part of their overall portfolio. These owners focus on bottom-line performance and returns rather than a long-term commitment to supplying news coverage. 

Abernathy also explained to NCND that, “they came without a sense of journalistic mission or civic mission, and as a result, their sole emphasis was on shareholder returns.” When newspapers prove not to be as profitable as anticipated, firms move their investments into other sectors. Firms do not hold the same interest as many previous owners when selling and buying newspapers. For local news, journalists, and democracy this is important. 

Accountability and Transparency by Ownership Disappears

The transition to newspaper ownership by private firms also means a lack of transparency. The firms and equity groups are private, which makes it difficult to hold these owners accountable. So not only have priorities of newspaper owners shifted, Abernathy highlighted that “we also lost the ability to hold people accountable who are running these organizations.” 

Local papers are often part of a portfolio with non-newspaper companies. This grows the distance between the civic mission of a newspaper and focuses on financial returns. Large chains that own local newspapers are disconnected from the communities that depend on them. Consolidation continues to threaten the emergence of additional news deserts and an undersupply of local coverage.

In Your Backyard: Newspapers in North Carolina

In North Carolina, the News & Observer is the largest paper in circulation. The McClatchy Company owns the News & Observer and is one of the few remaining public, large newspaper companies. McClatchy currently stands as the 12th largest newspaper owner in the country, ranked by the number of papers owned. Want to know what type of ownership your local paper has? Check out the infographic below:

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