Fears for future of American journalism as hedge funds flex power

As the pandemic recedes in the United States, few businesses may emerge so transformed as local and regional newspapers.

More than 70 local newsrooms have closed over the past 15 months, with hundreds of media jobs lost, as the already difficult financial conditions in the industry intensified during the crisis. By some estimates, a staggering 2,100 local newspapers, or one in four, have closed in the US since 2005.

But into the carnage a new breed of owner has emerged: one that has industry veterans and media observers deeply worried about the future of journalism in America and its ability to act as part of a functioning democracy.

According to a recent analysis, hedge funds or private equity firms now control half of US daily newspapers, including some of the largest newspaper groups in the country: Tribune, McClatchy and MediaNews Group.

Last month, shareholders of Tribune Publishing, the parent company of the New York Daily News, Chicago Tribune, Baltimore Sun and others, approved a $630m deal to be taken over by Alden Global Capital, a hedge fund that through its MediaNews Group already has stakes in about two hundred American newspapers.

Alden’s holdings already spanned the country, including the Denver Post, the Boston Herald, the St Paul Pioneer Press, the Orange County Register, the Trentonian, the Saratogian and the Los Angeles Daily News.

Kyle Pope, Columbia Journalism Review

Alden Capital and other players in the sector are widely feared by the industry for cutting staff and selling off real estate assets to boost profits. Last month the Washington Post reported on a labor department investigation that found Alden had “probably” violated federal pension protections by putting $294m of its newspaper employees’ pension savings into its own funds.

But as lenders of last resort for businesses too sickly to meet lending requirements of conventional banks, hedge funds say they are being unfairly depicted as grave robbers.

“The purchase of Tribune reaffirms our commitment to the newspaper industry and our focus on getting publications to a place where they can operate sustainably over the long term,” the Alden chief executive, Heath Freeman, said in a statement after the deal was approved.

Whether Freeman is able to transform Alden’s newspapers as the Amazon billionaire Jeff Bezos did for a revitalized Washington Post is open to question. Newspapers are notoriously cash-intensive and have declining print readership. They have often relied on deep pockets of wealthy proprietors or, in the case of the Guardian, a trust foundation.

But efforts to steer the sale of newspaper groups away from hedge funds have come to nothing. Besides Alden, Fortress Investment Group, via GateHouse Media, acquired Gannett for $1.4bn, making it the biggest US newspaper publisher by titles and circulation. Chatham Asset Management bought McClatchy, which includes the Miami Herald and Sacramento Bee, out of bankruptcy last August.

After the Tribune-Alden deal last month, the NewsGuild, a union that represents many journalists, said in a statement that it opposed the transaction on grounds that Alden had “demonstrated a consistent policy of profiting from liquidating rather than building news publishers”.

Kyle Pope, the editor of the Columbia Journalism Review, said while there may be some opportunity in the newspaper business as it transforms to all-digital distribution, those opportunities are unlikely to be seized by hedge funds.

“One of the big challenges the news business faces is the need to articulate why local journalism is important and to try to get some buy-in from local communities for that proposition,” he Pope.

“The debate we need to have is do we value these newspapers as an investment like a car dealership or a pawn shop, or do they have a different function in the community? I argue that they do, and they’re important to the way we function every day, but local communities need to buy into that idea.”

It’s a case that gets undercut when more than half the newspapers in the country are owned by hedge funds, Pope said. “They have no sense of civic obligation, or haven’t articulated one, and their actions have been to go in the opposite direction and to cut back on news.”

Columbia Journalism Review has published a series of analyses on the effects of cutbacks in local news production, including the spread of low-cost, online automated story generation that has come to be known as pink slime journalism.

Rick Edmonds at the Poynter Institute said the story of local and regional newspapers’ decline has not fundamentally changed over two decades save for a progression of symbolic markers. While some national media prospered during the Trump era, local media saw readership gains during Covid but that has not resulted in revenue increases.

“There’s an agreement that the industry will be mostly digital within another four or five years,” Edmonds said. “The industry isn’t sitting on its heels, and it is making an effort to modernize.”

Where local news continues to fare better than national is in the area of trust. A Knight-Gallup study released in 2019 found that six in 10 believe local news organizations are more caring (36%), trustworthy (29%) and neutral or unbiased (23%) than national media counterparts.

“I think local news is to some extent different,” said Edmonds. “The hedge funds [are] coming in as lenders of last resort and that’s a sign of the financial difficulty they are in.”

However, there are a number of independent, locally owned newspapers that are doing reasonably well, Edmonds says, pointing to the Tampa Bay Times, recent winner of a Pulitzer for an examination of a controversial law enforcement initiative; the Boston Globe, purchased by the local businessman John Henry a decade ago; and Charleston’s Post and Courier.

“These are bright spots but it’s hard to argue they are representative of the wider industry,” he said.