Readers strike back against subscription price gouging

With print circulation plunging at the newspapers its owns or manages for New Media Investment Group, GateHouse Media found ways to stabilize circulation revenue from newspapers like the State Journal-Register.

It threw so-called “premium” publications into the home delivery package, making readers pay extra for advertising-driven content. So even though fewer and fewer people were subscribing to newspapers produced by fewer and fewer journalists, GateHouse kept finding ways to charge more and more.

Readers in Massachusetts objected to this scam, filed a class-action lawsuit and reached a settlement in GateHouse.

Perhaps readers in Illinois should ponder their options. Rather than pay more and more for less and less content, they should demand more from these out-of-town owners vacuuming dollars from this region.


SJ-R’s owner keeps buying, plundering newspapers

Early on in his fourth quarter earnings call for investors, New Media Investment Group CEO Michael Reed singled out the Sarasota Herald-Tribune for its award-winning investigative reporting.

“We are so proud of the role our publications play within the communities they serve as the dominant sources of comprehensive high quality local news and information,” Reed read from his script. “These local brands are the cornerstone to our organic growth strategy allowing us to leverage our strong community standing in ties, our highly recognized brands, and our large in market local sales force, which is helping us further expand our digital and service offerings for small businesses.”

Of course, Reed didn’t mention the round after round of cuts the Herald-Tribune newsroom has suffered under New Media ownership and GateHouse Media management. Nor did he mention that the Herald-Tribune was an award-winning newspaper long before New Media bought it and began the wholesale bloodletting of journalists.

Reed addressed that payroll slashing with typical CEOSpeak: “Subsequent to the quarter close, we have implemented a cost reduction program that is expected to reduce expenses over $3 million in the first quarter of 2017 and over $27 million for the full year of 2017.”

In other words, expect the layoffs to just keep coming at its newspaper like the State Journal-Register, Peoria Journal Star, Rockford Register Star and Pekin Daily Times. Expect to see fewer and fewer reporters working in the communities and less and less reporting on topics vital to the residents.

Here are some other highlights:

  • For a change, Reed didn’t claim that New Media stock is undervalued by Wall Street. Its share price has been hovering in the $15 to $16 range, a far cry from the $40 or more some experts predicted for the stock when it was first issued.
  • Reed talked up the increased New Media dividend ($0.35 this time around), which is funded by the cash flow from local newspaper properties. Rather than reinvest in its news-gathering operations and reader retention, the company bleeds profits from these properties through round after round of cost reduction.
  • The company is still banking heavily on circulation revenue. While print circulation continues to plummet across the chain, the company offsets that with price increases and paid digital subscriptions. That is not a sustainable model, particularly given the dramatic newsroom reductions across the chain. People won’t keep paying more for less. They just won’t. Also, newspaper reader demographics skew old. Younger people are getting the information in other places.
  • Reed noted the company suffered massive declines in print advertising, led by the industry-wide decline in “pre-print” advertising from major retailers and classified advertising. While that decline may slow in the years ahead, Reed admitted that it won’t reverse.
  • He once against talked up “organic growth” in the company, but this time he didn’t put a timeline on it. Instead Reed stressed the diversification of revenues, including growth in digital ad sales, Propel Marketing, commercial printing and event presentation.
  • Reed also talked up the company’s expanding BridgeTower Media group of business publications. Those properties aren’t subject to the steep retail advertising declines that imperil the newspaper business.
  • Some of the company’s healthy cash flow will continue flowing into acquisitions. One by one, New Media/GateHouse is picking off family-owned operations and stripping them down for cash flow. That “inorganic growth” will feed the revenue bottom line for years to come as the grand consolidation of newspapers continues.

Fortress Investment Group, now owned by Japan’s Softbank, will continue reaping huge external management fees from New Media/GateHouse for as long as company lasts. Such is the reward for raising capital for expansion. Fortress earned $19.4 million in compensation last year from New Media after raking in $39.7 million the year before.

Fortress owns about 1 percent stake of the New Media stock, so it is not overly concerned about the stock price tanking. And yet Fortress employs Reed as the New Media CEO, raising reasonable questions about his commitment to producing shareholder value. (Although it should be noted that Reed has bought 60,000 shares of the stock the past few months at a cost of nearly $800,000)

Wall Street remains unimpressed with SJ-R parent company

Once again New Media Investment Group CEO Michael Reed argued that his company’s stock is undervalued.

“We believe the dividend increase speaks to our optimism around the outlook for the company,” he told analysts Thursday on his third quarter earnings call. “Obviously I think our equity is undervalued given where the share price is today and think the strategy and what we have done is currently misunderstood.”

Wall Street was unmoved by that pitch from Reed, whose company owns the State Journal-Register, Peoria Journal Star, Pekin Daily Times and other Illinois newspapers through its GateHouse Media operation. Friday afternoon the stock plunged back toward $14 per share after briefly rising past $15.60. Remember, this was a stock that drew a $42 target price from one well-respected analyst when the company initially went public back in 2014.

The company’s game plan has been well-established. The price of newspaper properties keeps falling due to the collapse of print advertising revenues. One by one, smaller operators are getting out of the business. So New Media is able to swoop in and get them for good prices.

New Media then slashes operating costs at the acquired properties, stripping them down for maximum cash flow. Some of that cash is used to fund hefty dividends and some helps fund more acquisitions — which leads to more cost-cutting, more cash flow and more money for dividends and acquisitions.

This strategy has had a debilitating effect on five Illinois newspapers represented by the United Media Guild: The Peoria Journal Star, Pekin Daily Times, State-Journal Register, Rockford Register Star and Freeport Journal Standard. We have spent a lot of time talking face-to-face with readers, civic leaders and advertisers in those communities about what this New York-based company is doing to their newspapers.

Reed ran through the his playbook for analysts Thursday, offering no surprises. New Media still hopes to:

  • Offset its ongoing circulation decline by jacking up prices and making diehard subscribers pay for special sections.
  • Replace the loss of print advertising with more digital advertising.
  • Keep buying properties at favorable prices to build total revenue and expand the reach of Propel Marketing.
  • Build Propel into a bigger piece of the revenue pie.
  • Invest more in the “business-to-business” properties that aren’t as vulnerable to print advertising decline.

That latter step is a wise choice, given the company’s history of accelerating the erosion of local newspapers. Revenues at those operations will continue diminishing as increased digital advertising fails to offset the losses on the print side.

It is worth nothing that GateHouse Media leadership, working under the New Media umbrella, finally improved the look and functionality of the previously dreadful newspaper websites. So there’s that.

Reed keeps promising to turn the corner and generate actual growth, but there is no sign of that at its properties — which limp along with smaller and smaller news-gathering operations and disillusioned sales forces, offering readers and advertisers less while charging them more.

Morale is worsening across the chain, prompting increased unionization. When newsrooms in an anti-labor state like Florida vote to join the Guild, you know employees have no faith in corporate management.

For now, anyway, the stock is paying nice dividends. The United Media Guild appreciates that, since we own New Media stock and can use that investment income to better serve our members.

But how long will that last? And what will become of the news-gathering operations and the communities they serve?

Analysts downgrade the stock of SJ-R’s parent company

Back in October, 2014, Citi analyst Jason Bazinet was bullish on New Media Investment Group stock. The parent company of GateHouse Media and the State Journal-Register was selling at better than $18 per share at the time and Bazinet set a price target of $41.00 on the stock.

Two years later the price was down below $15, slightly more than where the stock opened as a spin-off of Newcastle Investment Group in February, 2014.

The analysts saw this coming earlier this year:

So what happened?

Obviously New Media operates in a distressed industry facing year-over-year revenue declines. But it exacerbates its challenge by demoralizing journalists — who create the product the company is selling — along with the sales force and managers with its quarter-to-quarter quest to maximize cash flow.

The core problems are the same as we identified back two years ago based on our on-the-ground work with employees at its properties. We made this points back in September of 2014:

  • Relentless cost-cutting has diminished the quality of New Media newspapers. While the company improved its cash flow by slashing newsroom staffing, it also invited readership decline.
  • The debilitating employee churn extends to the very top of newspaper operations. At the State Journal-Register – one of the key properties in the company – publishers have come and gone at a dizzying pace.
  • Aggressive circulation pricing also contributes to readership erosion.
  • Readership decline accelerates the migration of advertising to other media.
  • Digital advertising will keep growing, but not fast enough to offset print revenue declines. More robust websites could speed that growth, but New Media has stripped many of its news operations to the skeleton.
  • Propel Marketing might or might not become a significant revenue source.

Since we raised those issues two years ago, New Media went on a buying spree. By acquiring properties at good prices and slashing the work forces, New Media has been able to maintain strong cash flow.

But underlying problems remain:

  • Constant cost-cutting in the news gathering operations has caused further product erosion, both in print and on-line.
  • This erosion accelerated the decline of print circulation. Raising the price of the print product stabilizes circulation revenue in the short term, but it will ultimately accelerate this decline.
  • While revenues from digital advertising and Propel Marketing continue to rise, this growth can’t offset the rapid decline in print advertising. So the company keeps kicking its top line growth projections down the road.
  • By forcing salespersons to sign non-compete agreement, the company slowed the sales churn by also ran off experienced salespersons with strong client relationships.
  • Acquisitions have dramatically increased the company’s debt load.
  • The company continues to churn journalists, salespersons, publishers and national-level management as morale declines.
  • The company’s major investment in journalism, the GateHouse Media Center for News and Design in Austin, is a big cost-saver. But centralized editing, production and content production weakens the connection between local newspaper operations and the communities they are supposed to serve.
  • Circumstances surrounding the sale of the Las Vegas Review-Journal raised journalism ethics concerns that drew national media coverage. The ensuing fallout raised concerns about the company’s leadership team.
  • Increasingly hostile labor relations have prompted NewsGuild locals to rally public support in key markets like Springfield, Ill., Rockford, Providence and Erie — further impacting circulation and advertising revenue. The company is piling up Unfair Labor Practice charges across the country while galvanizing employee discontent.
  • Relentless newsroom cost-cutting has triggered unionization at newly acquired properties in Lakeland and Sarasota. Guild organizing in Florida was unheard of until New Media bought properties in that famously anti-union state.

That might be the ultimate vote of no-confidence of New Media Investment Group by its employees. As industry analyst Rick Edmonds told the Columbia Journalism Review after the Florida papers unionized:

“I don’t know if this is two in a series of two or two in a series of 12. But it’s not a good thing for your business if your journalists are saying, ‘We can’t really serve our community.’”

So the story is the same as it was two years ago. Every warning we raised about this company has rung true.

Wes Edens and Co. at Fortress Investment Group will keep collecting big money as the external managers of New Media. Shareholders will continue collect dividends . . . while they last.

The individual properties and their product will continue eroding and at some point the reckoning will occur — just as it did for GateHouse Media in 2013 under this same management team of Michael Reed and Kirk Davis.

Other GateHouse newsrooms follow the SJ-R’s lead and join the Guild

Journalists at the State Journal-Register started something when the stood up to the asset-stripping managers at GateHouse Media and voted to join The NewsGuild.

Their colleagues at the Rockford Register Star followed that lead and also voted in the Guild. They joined the Guild-represented Peoria Journal Star and Pekin Daily Times in the battle against GateHouse.

Recently newsroom employees at the Lakeland Ledger voted to join the Guild, their GateHouse colleagues at the Sarasota Herald-Tribune voted to do the same.

Unionization is unheard at Florida newspapers, so these votes underscore the severity of journalists’ concerns with GateHouse management.

Of course, the company is not happy about this. The organizing drive in Sarasota met with particularly heavy resistance from Herald-Tribune executive editor Bill Church.

In fact, management’s attempts to intimidate our activists there led to an Unfair Labor Practice charge against the company and strengthened the resolve of the journalists seeking representation.

Church subsequently got promoted to Senior Vice President for News at GateHouse Media. He will move to Austin to oversee the company’s Center for News & Design.

GateHouse CEO Kirk Davis trumpeted Church’s ascension as proof that the company cares about journalism.

“It is essential for GateHouse to have a corporate advocate for its news employees, enterprise-wide, who appreciates the diversity of our markets, who can engage our news leaders in the ‘conversation’ about how we evolve our news organization, and who possesses the ability to communicate effectively and consistently about our journey,” Davis said in a GateHouse memo.

Church’s promotion further cleansed the company of its ugly Las Vegas stain, which involved one of the most egregious lapses in journalism ethics in memory.

Journalists across the company hope Church’s ascension will create more opportunity to do vital enterprise reporting. They hope this move is more than just a PR gesture.

But if the GateHouse reality remains the same — eternal pay freezes, staffing cuts, journalists hiring on for less than a living wage — then news-gathering operations will continue eroding and communities will keep suffering.

And more newsrooms will follow the SJ-R lead and join the Guild. As industry analysts Rick Edmonds told the Columbia Journalism Review, “I don’t know if this is two in a series of two or two in a series of 12. But it’s not a good thing for your business if your journalists are saying, ‘We can’t really serve our community.’”

Attention Mike Reed: The battle escalates

Earlier this month United Media Guild business representative Shannon Duffy sent this letter to Mike Reed, the CEO of New Media Investment Group — the parent company of GateHouse Media and its four newspapers that we represent in Illinois:

Dear Mike,

Thanks for taking the time to meet with Phil Luciano and me at the New Media Investment Group shareholders meeting on May 25.

As we told you in New York City, we are concerned about the future viability of the Peoria Journal Star, State Journal-Register, Rockford Register Star and the Pekin Daily Times in the face of eternal wage freezes and newsroom cuts. Excessive cost-cutting is taking a heavy toll in the workplaces where the United Media Guild represents journalists.

That is taking a toll on the news product which, in turn, will cause premature loss of readers and advertisers.  This is troubling to our members who love their craft, their newspaper and their communities.

Recently the State Journal-Register imposed its “last, best and final” offer on our members at that newspaper, which will extend the current wage freeze to nearly 12 years. That seems an absurd working condition, particularly at a newspaper that has helped fund New Media Investment Group purchases and dividend payments with its positive cash flow.

Your employees have never been more important. Newsrooms must innovate and evolve on the fly to compete in a rapidly changing landscape. The business side must do the same in the face of staggering print revenue decline.

Rather than belabor the fairness issue, I’d like to caution you that maintaining an eternal wage freeze at New Media/GateHouse newspapers could cost the company far more in the long run than a relatively modest re-investment in its employees.

Here are some of the inevitable consequences:

  • Declining morale and productivity – and at a time when employee productivity has never been more important.
  • Accelerated churning of salespersons, journalists, editors, publishers and New Media/GateHouse executives.
  • Increased levels of union activism in various workplaces and communities.
  • Economic actions against individual newspapers, targeting subscribers and advertisers.
  • A national corporate campaign against New Media/GateHouse management targeting analysts and shareholders.

Last year, after you expressed your concerns during our phone conversation, we toned down our rhetoric and tried to reach a fair settlement in Springfield without intensifying our public campaign there. But that effort failed, conditions have now been imposed on our members and so here we are, ready to fight on their behalf through all lawful means.

We believe there is real economic value in labor peace. Now, unfortunately, it appears it will be our job to establish the economic cost of a labor dispute.


Since then, we have seen another example of what happens when a company takes its cost-cutting too far: The Lakeland Ledger will soon vote on whether to unionize. We are asking all of our members to support and others that could arise in the face of GateHouse’s draconian actions.

The harsh truth about GateHouse and other big media companies

The consolidation of the newspaper business continues. Gannett hasn’t given up on purchasing Tribune Co. as part of its ongoing expansion.

The money guys behind New Media Investment Group/GateHouse, Fortress Investment Group, remain in “buy” mode they can maximize the management fees they collect.

Prices have dropped for newspaper properties, making them more attractive targets. Companies like Gannett and New Media/GateHouse have centralized production facilities, so they can “gain efficiencies” with properties they acquire.

That is a nice way of saying “fire a lot of people to increase profits.”

The expressed New Media/GateHouse plan is to maximize cash flow at its properties, then use the money to pay dividends and to buy more properties, cut more costs, generate more cash flow, pay more dividends, buy more properties . . . you get the idea.

Revenues are sinking for newspaper properties and will continue to sink. New digital initiatives like New Media/GateHouse’s Propel Marketing generate some new revenues, but not nearly enough to offset all the decline.

And bleeding these properties for cash flow speeds causes newspaper and websites to   deteriorate, which accelerates the loss of readers, advertisers and, of course, revenues.

CBNC commentator Kevin O’Leary noted the ongoing consolidation of newspaper companies will not solve the core problems.

“The best analogy is two smaller ice cubes melt faster than one bigger block of ice,” he said during a report on Gannett’s bid for the Tribune Co. “These are both melting.

“This is a just long end game of cutting costs, banging together all the ice you can, consolidating, slashing costs The long trend is to zero.”

He did not see the wisdom in Gannett’s bid. “This sounds like a business plan that is handed to you when you finally descend into hell and you know you have to live there in perpetuity,” O’Leary said. “Who would want this challenge? I mean, it is brutal.

“I’d like to have a moment of silence for the money that’s going to die in this project because it deserves that respect.”

What would an honest description of a consolidation plan sound like?

“Sometimes you have to say, ‘Look, it’s going to go to zero eventually. I am going to milk as much cash as I can out of it on the way by combining all the zero candidates together and put them on life support, try to make the refrigerator a little colder so the ice melts a little slower and suck out every dollar out before you turn out the lights.

“Listen, let’s tell the truth. That’s what’s going to happen.”

New publisher, same problem at SJ-R

springfield3The churn continues at the State Journal-Register. Salespersons come and go. So do reporters, frustrated by the eternal wage freeze invoked by GateHouse Media.

Notable departures include Jamie Munks, Maggie Menderski, Dan Petrella, Tobias Wall and Molly Beck.

And this company even blows through publishers. Once upon a time those positions were among the most stable in the media industry. As the Illinois Times notes, the SJ-R employed just two publishers between 1968 and 2005.

But those days are long gone. Rosanne Cheeseman became the sixth SJ-R publisher under GateHouse Media ownership, replacing Clarissa Williams.

Back in 2013 since-departed GateHouse executive Brad Dennison hired Williams to replace interim publisher Michael Petrak, who filled in after Richard Johnson retired after less than a year on the job.

Johnston signed on in 2012 to replace Walt Lafferty, who came aboard in 2010 to replace Scott Bowers. Whew!

Springfield civic leaders need a scorecard to keep up with all the changes atop the SJ-R, an important institution that has eroded due to excessive cutting under GateHouse ownership.

Cheeseman takes over as the United Media Guild moves closer to triggering advertiser and reader boycotts of the SJ-R. GateHouse Media’s last contract proposal to the UMG amounted to a pay cut for many of our members in Springfield.

Veteran journalists at the paper have gone nearly nine years without a raise. This prompted them to organize, vote in the Guild 26-4, and embark on an aggressive public campaign.

Our members have engaged the public in a variety of ways, including informational picketing, leafleting major events, speaking to civic groups, soliciting support from organized labor, manning an informational booth at the Illinois State Fair, gathering support cards and running a radio advertising campaign.

More recently UMG business representative Shannon Duffy met with several of the major SJ-R advertisers face to face, some of them on multiple occasions. AFSCME, which has 35,000 members in the region, has been assisting our efforts.

The UMG isn’t eager to inflict economic damage on the SJ-R — some of which could be permanent — but if GateHouse insists on maintaining its wage freeze, we will have no choice to prove that labor peace has major economic value.

Boycotts could cost GateHouse Media hundreds of thousands in the near term and perhaps millions in the long haul. Regaining lost readers and advertisers can be expensive and, in some cases, impossible.

And odds are we’ll see more churn, more salespersons, reporters and, yes, even publishers heading out the door.

Illinois labor leaders support our contract quest

Officials from 10 major unions and labor organizations — including the Illinois Education Association, AFSCME Council 31, the Illinois AFL-CIO and police and firefighter unions — recently wrote a letter to the editors of The State Journal-Register and Illinois Times calling on GateHouse to work out a fair contract covering Guild members in the SJ-R newsroom in Springfield.

We give thanks to these labor leaders for supporting good journalism as an essential component of a stable democracy. This show of support is bound to ripple throughout the community, and it should be a strong indication to GateHouse Media officials in New York that the general public values quality journalism in the capital city. Readers of the paper far and wide don’t want to see GateHouse siphon the lifeblood from the The State Journal-Register in the name of profit. Readers already have seen printing of the paper outsourced to Peoria and page design outsourced to Texas while a steady stream of talented staffers either left the paper or were shown the door.

Readers want to see profits generated by the SJ-R’s remaining hardworking employees spent on more than lavish bonuses for top GateHouse officials and the acquisition of more newspapers. A good first contract with newsroom employees would bring stability for workers and readers alike.

Here is that letter:

Since Abraham Lincoln’s time, Springfield residents have relied on local newspapers to provide information and insight about local and state matters.

Because Springfield is home to state office holders and their staffs, these newspapers had substantial influence on the debate of issues affecting all Illinoisans.

The State Journal-Register (SJR) is the last daily paper standing in Mr. Lincoln’s hometown and it is crucial the SJR remain viable, employing first-rate journalists and presenting high quality news and analysis.

To achieve that goal, there must be a fair settlement of the contract between Gatehouse Media, owner of the State Journal-Register, and newsroom employees represented by the United Media Guild.

For more than three years, the employees have been trying to negotiate a contract to allow the SJR to continue to publish a high quality newspaper and, over time, boost circulation to the point that reporter positions eliminated since Gatehouse bought the paper can be restored.

Many of these employees have logged decades of service to the SJR and its readers, remaining loyal despite Gatehouse’s elimination of the copy desk and other important newsroom positions.

We urge everyone who believes a great city deserves a great daily newspaper to call the publisher and insist that the SJR negotiate a fair contract with the newsroom employees.

You can reach Publisher Clarissa Williams at (217) 788-1326.

Support our fight to Save the State Journal-Register

Springfield is a great city. It deserves a great newspaper. And the journalists working at the State Journal-Register are working hard to maintain quality journalism, despite massive cutbacks to newsroom staffing.

GateHouse Media and its parent company, New Media Investment Group, are using the newspaper like an ATM. The newspaper’s positive cash flow is going to pay stock dividends — mostly to a handful of Wall Street investors — and fund more acquisitions that the company can bleed for cash.

Meanwhile many journalists have gone more than eight years without a raise. Through their union, the United Media Guild, they are trying to negotiate a fair contract that encourages the retention of veteran reporters, photographers and editors who know this community and region well.

The company has maintained a hard negotiating line at the table and engaged in unfair labor practices against the union.

Thousands of area residents have signed supported cards, sent e-mails to GateHouse CEO Kirk Davis, signed our on-line petition, visited our booth at the Illinois State Fair and seen our members hand-billing public events.

You have heard our commercials on local radio stations and seen news reports of our labor fight. We appreciate your support.

But the work is not done. The years-long battle for a fair contract continues. Readers and advertisers should ask SJ-R management why it refuses to reward journalists with fair contract.

Publisher Clarissa Williams can be reached at (217) 788-1326.