September 07, 2011
Digital First: What’s next for this news biz coup?
This morning the news broke that a newly created company called Digital First Media Inc. will “take over management” of both MediaNews Group and the Journal Register Company. This intriguing deal could end up heading in a bunch of different directions, both good and bad. Here are some key bits of context and possibilities…
The structure of this deal is, as Nieman Journalism Lab noted, “something like a merger-without-merging. Journal Register is creating a new company, Digital First Media, which will ‘manage’ both chains. The two companies will maintain separate boards, but JRC CEO John Paton will take over as boss of both.”
Digital First Media is so new, in fact, that as of this writing it doesn’t even have its own website. (The domain DigitalFirstMedia.com currently forwards to the JRC site.)
(UPDATE OCT. 25: Digital First Media has announced its initial lineup of top executives, as well as its new advisory board.)
According to JRC’s official announcement of the deal, Digital First Media will be a division of JRC. That press release also omits any mention of Alden Global Capital—the hedge fund that in July bought JRC outright.
Alden is so secretive that its web site can only be accessed by clients with login privileges. In July, Poynter’s Rick Edmonds explained exactly how hard this new media giant works to maintain a low profile.
Alden has been investing in several distressed newspaper companies, including major players such as Gannett and McClatchy. And in January, Alden also partially took over MNG. Since Alden owns JRC, that also makes the hedge fund the behind-the-scenes owner of Digital First.
Why does Alden’s role matter? As Ken Doctor observed back in July, “hedge funds don’t want to be long-term operators.” They specialize in earning above-market returns by shouldering high risk—such as by purchasing distressed companies, fixing them up, and sell them. But Doctor also predicted: “Before that happens, though, expect the next shoe to drop: consolidation.”
Even though this deal is not being called a merger, Digital First’s management takeover of two major U.S. newspaper chains is clearly a consolidation move.
In July, former MNG publisher Martin Langeveld offered some keen insight into Alden’s strategy. In short, when Alden took three seats on the MNG board in January, “That move was important because it enabled Alden to use MediaNews as a platform from which to drive consolidation in the still-fractured U.S. newspaper industry. ...Under SEC rules, by taking a position on the board, Alden was no longer allowed to speculate in MediaNews stock; hence, their assumption of board seats signaled an intent to use their MediaNews holdings strategically rather than speculatively. ...The Alden takeover of JRC gives it a second operating platform for its consolidation goals.”
Now, through Digital First, Alden is effectively combining these platforms. More importantly it could probably extend this third-party strategy to take over the management of additional distressed news chains. (Note: I contacted JRC for comment on this and other points, but did not hear back by my deadline.)
In recent decades, the news business has had a mixed history with consolidation. It has generally has been criticized for leading to fewer papers, less local coverage, and less competition. But news industry consolidation also has yielded some benefits through expanded infrastructure, access to capital, and economies of scale. This kind of dichotomy was most eloquently portrayed in Monty Python’s Life of Brian.
The catch, of course: What if the news properties managed by Digital First don’t show the kind of return Alden wants quickly enough? Hedge funds generally aren’t long-haul investors, and they haven’t generally been noted for their sense of civic duty. They may not be easily persuaded by organizations like the John S. and James L. Knight Foundation, which seek to promote and enhance media’s role in preserving democracy.
Today JRC/MNG/DF CEO (how’s that for alphabet soup?) John Paton contended that embracing digital and social media can make a huge difference in the fortunes of news.
“Since implementing our Digital First strategy in mid 2010 our digital audience has doubled to more than 12.3 million uniques and our entire audience has grown from 14.9 million monthly customers on all platforms to nearly 21 million customers,” he wrote. “In Q2 of this year, 10 of JRC’s 18 dailies are up year over year in advertising or within 2% of last year’s ad revenues because of digital advertising growth. JRC newspaper digital revenue grew more than 81% year over year in Q2. That’s against an industry average of less than 10%. ...And if our dailies continue on the trend they are on right now, by the end of the year they will have brought in more digital revenue than the costs of running their newsrooms.”
Sounds nice, but is it sustainable and will it scale? Might local news get shortchanged in the process—even though JRC bills itself as a “leading local news and information company”?
Could this attempted transformation falter on the rocks of entrenched culture, practices, financial woes, and prior commitments at MNG? What will Alden do if Paton’s current approach doesn’t pan out across a larger playing field? How long will Digital First have to prove itself?
Keep an eye on Calfornia’s Bay Area—home to several MNG papers operating as the Bay Area News Group. In the near term, this is where the prospects of Digital First may shake out.
On Aug. 23, BANG announced that on Nov. 2, 11 of its existing East Bay papers will be consolidated into two new regional papers—effectively killing several long-established local news brands. Many BANG employees have already received “warn” notices of impending layoffs, which are likely coming in the next couple of months.
This kind of move toward regionalization is notably different from the strategy Paton has pursued at JRC—which mostly has involved preserving news brands and reporting jobs, while doing consolidation and upgrades to production and revenue operations, and while emphasizing social and participatory media. (Part of this has been happening under Project Thunderdome, currently headed by Jim Brady, former head of TBD.com and WashingtonPost.com.)
So: Might Digital First try to steer BANG back toward localization, before it lays off those employees and kills those local papers? Stay tuned for that, and more.
Noted media critic Jay Rosen, who has been serving on JRC’s advisory board (so far, Digital First has not formed an advisory board), and who will also serve on the Digital First advisory board, observed that, on the upside, “Probably the biggest thing that Paton has going for him is a plausible strategy for the future. How many of those do you know of in the newspaper biz?”
Speaking of the future, Rosen noted: “What I would like to see is some plan to make everyone in MNG aware of what is meant by ‘digital first,’ so they don’t see it as a buzzword or hip slogan but as a coherent direction companies like theirs can move in to find a more sustainable future.”
Jane Ellen Stevens, director of media strategies for the Lawrence Journal-World WellCommons, said: “If they put their minds to it and shake off their attachment to print, Digital First has a real opportunity to out-Patch Patch, in a profitable and sustainable manner.”
The News for Digital Journalists blog is made possible by a grant to USC Annenberg from the John S. and James L. Knight Foundation.
Comments
Very informative post, Amy. Thanks for doing it. Let’s hope this works out well, while remaining aware of the risks.
(I guess I should thank you also because I missed the Life of Brian reference. Great excuse to go watch the movie again in search of the right scene. :>)
By Robert McClure, 09/07/11 at 4:43 pm
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