February 14, 2020

Breakingviews: Broke newspapers face painful trade-off writ large

by Breakingviews.

It would be nice if clickbait and socially responsible local news were the same thing. But they’re not. McClatchy, the 163-year-old local newspaper group, said it had filed for bankruptcy protection on Tuesday, and the likely new owner is Chatham Asset Management, a hedge fund that owns such down-market titles as Us Weekly and In Touch. It speaks a painful truth to the news business. Investors can be motivated by love or by money, but not both.

Local newspapers have struggled for years as baby boomers age and millennials ditch daily rags for Instagram influencers. For a while the business was bailed out by billionaires who liked the bragging rights and often had a tie to a particular region. In 2013, the New York Times sold the Boston Globe to John Henry, principal owner of the Boston Red Sox. Real estate mogul Sam Zell bought the owner of the Chicago Tribune in 2007.

Warren Buffett was a supporter too, until recently. His company Berkshire Hathaway bought 28 newspapers for $344 million in the 15 months leading up to his 2013 annual meeting. He believed newspaper profits were “certain to decline” but thought he could solve the local newspaper problem by investing in reporters that created great content. “Skimpy news coverage will almost certainly lead to skimpy readership,” he said.

Recently he’s abandoned that message. This week his vice chairman, Charlie Munger, said newspapers are “all going to die.” Berkshire off-loaded its properties to Lee Enterprises for $140 million, while lending it funds at a 9% interest rate. McClatchy, which sells more than two dozen newspapers in local markets that range from Modesto, California to Miami, shows why. Between the end of 2014 and the end of 2018, the company’s sales fell by almost a third.

Chatham’s more populist titles face a tough market too, but celebrity gossip goes viral faster than, say, the winner of the town fair’s pie eating contest. That leaves the question of how to fund local news. Facebook and Google owner Alphabet have both launched projects that they claim will help, maybe because their core products have played a big role in disrupting small media companies. In the meantime, the likes of McClatchy face a trade-off between profit or lofty principle.

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