What’s not to like about the SJ-R’s parent company

We’re hearing lots of happy talk out of New York about New Media Investment Group, the parent company of GateHouse Media and the State Journal-Register.

The company has plowed forth on a buying spree, becoming one of the few big players left in the newspaper industry. On his fourth quarter earnings call with analysts, New Media CEO Michael Reed said the company could spend up another $360 million on acquisitions this year.

Even after giving a glowing earning report and paying another healthy dividend, though, New Media stock dipped to $15.26 per share Friday — well below its 52-week high of $25.62 and about one-third of the long-term price some analysts predicted the stock should reach.

What’s up with that? Writing for Poynter.org, Rick Edmonds observed:

Some commentators have doubted whether New Media’s strategy will work as well at bigger papers it bought in Columbus and Providence as it has with earlier additions of smaller papers.

In the conference call with analysts, Reed argued that the market undervalues New Media. The newspaper sector, he said, is “out-of-favor and fragmented,” and that leads to New Media being “misunderstood.”

But is it really misunderstood? Or is the market wary of a newspaper company that buys and plunders properties, seeking maximum quarter-to-quarter cash flow while risking accelerated erosion of readership and advertising revenues? At some point, doesn’t the company have to grow the bottom line?

New Media puffed up its fourth quarter numbers with a $54 million cash infusion from flipping the Las Vegas Review-Journal to casino magnate Sheldon Adelson, who bought the newspaper to pursue a personal agenda.

That was a nice windfall for the company, but raised serious questions about its commitment to credible journalism. First it tried to get reporters at the Review-Journal to do Adelson’s bidding by investigating Las Vegas judges. Then GateHouse executive David Arkin tried to get journalists at its Sarasota newspaper to investigate the judges.

New Media has since scaled back its management agreement in Las Vegas and backed away from the mess, but not before its egregious ethical lapses drew extensive national coverage in both the industry and the mainstream media. The controversy triggered rumblings of an unhealthy rift between Reed and Kirk Davis, the New Media COO and GateHouse CEO.

It’s no wonder the company feels compelled to assemble its editors for an April meeting in Chicago for a journalism refresher course. Clearly upper management needs it.

Of course, New Media/GateHouse management is creating even greater concerns of interest. Let’s run down the list:

Core product deterioration. New Media/GateHouse has cut newsroom operations to a fraction of their former size. Even after emerging from bankruptcy flush with cash, it continued running off veteran reporters, photographers and editors and hiring entry level replacements — often at less than a living wage. The constant cutting and churning keeps diminishing the “strong and trusted local brands” the company touts to investors. Outsourcing copy editing functions to its Austin design center has further diminished content quality, since ever-changing workforce there is far removed from the communities New Media/GateHouse newspapers serve. In many cases editors have little knowledge of the people, places and issues in the stories they process. As a result, more obvious errors end up in print.

Gouging subscribers. While circulation is plummeting at many properties, the company offset that decline by raising subscription and newsstand prices and making subscribers pay extra for “premium sections” that are essentially advertorial fluff.

Employee abuse. Even while spiraling into bankruptcy in its earlier incarnation, GateHouse Media maintained reasonable relationships with its unions. After its rebirth as the cash-flush New Media Investment Group, the company has established a more strident tone toward its employees, many of whom have endured wage freezes of eight or more years. The company is steadfastly refusing to offer raises during its ongoing negotiations with various unions. At the SJ-R, for instance, the loss of just one key advertiser would cost the company far more money than settling with United Media Guild on a fair contract for its members. That market is well aware of the UMG’s years-long fight for a first contract, thanks to a radio commercial blitz, outreach to community and labor leaders, public demonstrations and direct meetings with some of the SJ-R’s biggest advertisers. But the company simply doesn’t care about public perception. It is too busy vacuuming every last nickel and dime out of cities like Springfield.

Vulture capitalism. John Levin, chairman and chief executive of Levin Capital Strategies L.P.,  called for more independent directors for the companies spun out of Newcastle Investment Corp. to reduce the obvious conflicts of interest. The external management structure of these spin-offs reward the money guys backing the enterprise, Wes Edens and the Fortress Investment Group LLC, while putting shareholders in some peril. Levin notes that Fortress gets paid to build size, not to necessarily create better performance. As Levin noted about another Fortress property, New Senior Investment Group, perhaps a buyer will come along and save the company for the long haul. The same could occur for New Media. Readers of newspapers like the SJ-R could only hope so.

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