Your question could not be more timely: McClatchy, the nation’s second-largest newspaper chain that operates The Miami Herald and The Sacramento Bee, filed for bankruptcy on Feb. 13, 2020. And that’s just the latest development in the local news crisis. Since 2004, the U.S. has lost about 1,800 daily and weekly publications, according to a UNC Hussman School of Journalism and Media report. This downturn is creating what are known as “news deserts” across the United States—with Pen America reporting that up to 3.2 million people now live in communities without a single reliable source for local news.
The problem is that the traditional business model for local journalism doesn’t work anymore. Before the digital age, small-town newspapers made money from local advertising and subscriptions. Now, most readers get their news online, in many cases for free, while ad revenue is siphoned off by tech giants like Google and Facebook. These local newsrooms then have to cut costs and jobs, which leads to less content, even fewer readers, fewer ads and so on until the newspaper is no longer profitable and closes.
Another factor is that hedge funds like Alden Global Capital and Fortress Investment Group have become lenders of last resort to ailing newspapers and have been buying them for their cash flow. That may seem counterintuitive, but these local newspapers can still be quite profitable in the short term if their new owners aggressively slash jobs and cut costs. Typically, when one of these companies buys a newspaper, it quickly maximizes cash flow by selling off assets and gutting the newsroom, which allows the new owner to profit from any remaining print advertising revenues.
Case in point: The Denver Post, which was acquired by Alden in 2010. The hedge fund slashed the paper’s headcount from 250 to 80, sparking an open revolt against Alden in 2018 and a plea for an owner who supports its mission. Margaret Sullivan called Alden “one of the most ruthless of the corporate strip-miners seemingly intent on destroying local journalism.” Alden has become known as the “grim reaper of American newspapers” for implementing the same strategy at its dailies in Boston, San Jose, and Trenton. In December, it set its sights on its next target, acquiring a 32-percent stake in Tribune Publishing, which owns the Chicago Tribune, the Baltimore Sun, the Orlando Sentinel and the New York Daily News.
A similar fate most likely awaits McClatchy. If its Chapter 11 plan is approved, the McClatchy family will give up control of the company to its largest debt holder, hedge fund Chatham Asset Management. Chatham, Alden and Fortress will then control about 50 percent of the nation’s daily newspapers.