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American Journalism Review
Are These Guys Crazy?  | American Journalism Review
 AJR  Features
From AJR,   December 2012/January 2013

Are These Guys Crazy?   

Despite newspapers' much-publicized woes, they continue to attract buyers. Who are the new newspaper owners, and why are they doing this? Mon., November 26, 2012.

By Cary Spivak
Contributing writer Cary Spivak ( is an investigative reporter for the Milwaukee Journal Sentinel, focusing on business issues. He explored the question of when journalists should share information with law enforcement authorities in AJR’s Spring 2012 issue.      

It has happened in newsrooms across the country. News breaks that somebody is buying a newspaper, undoubtedly at a deeply discounted price. Buyout-weary reporters and editors look around their own newsrooms filled with empty desks and wonder: "Who are these guys buying newspapers? Are they crazy?"

"Only a little bit," says Aaron Kushner, the new publisher of the Orange County Register, who in July led a private equity group in its acquisition of Freedom Communications Holdings, Inc., which owns the Register and five smaller dailies. "I do happen to relish a challenge."

If it's a challenge he wants, Kushner and a handful of other investors across the country have picked the right industry. Many see the newspaper business, battered for years by plummeting ad revenue and circulation losses and a failure to capture young readers, as one headed for extinction. The industry was slow to react to the onset of the digital era and has yet to come up with a new business model that doesn't depend on advertising dollars as the main source of revenue.

Still, against all odds, a handful of wealthy investors, like the members of Kushner's Santa Ana-based 2100 Trust LLC, are willing if not eager to put their dollars into the struggling newspaper market. This diverse group of budding media barons ranges from respected investors such as Warren Buffett to politically connected local players, people more accustomed to seeing their names in the news pages than on the masthead. Toss in a few investors like Alden Global Capital that snap up distressed properties, and you have a new universe of newspaper ownership emerging. One factor fueling the trend is that the papers are available at bargain if not fire-sale prices.

Working journalists hope the new breed will succeed where others have failed, while in some cases fearing what type of change and political influence their new bosses might impose on their papers.

The buyers have a variety of motivations, with some trying to ensure that their hometown papers survive and others looking to turn a quick profit.

"There are some private equity firms who still think they could buy a big newspaper, reduce its costs substantially..and flip it," says John Morton, a longtime media consultant and analyst who writes a column for AJR. The bottom line for both types of buyers, Morton says, is simple. "It's a highly risky investment."

Regardless, the buyers are out there.

"Media properties for some reason bring people out of the woodwork," says veteran media analyst Ed Atorino of The Benchmark Co. "Number One, there's always hope...and the confidence that we know how to fix it."

Recalling a saying he used to hear as a Chicago reporter covering the Board of Trade, consultant and media blogger Alan Mutter says, "For every seller there is a buyer – until there isn't."

There are buyers out there, at least for now. Deals announced since the fall of 2011 include Buffett's purchase of his hometown Omaha World-Herald followed this year by the acquisition of 63 newspapers owned by Media General; Los Angeles-based Revolution Capital Group's October purchase of the Tampa Tribune; and the acquisitions of the Philadelphia Inquirer and Daily News, San Diego Union-Tribune and Chicago Sun-Times by local, politically connected investor groups.

Though far from a tidal wave of activity, the trend will probably continue as prices continue to fall and respected titles, including the Chicago Tribune and Los Angeles Times, are likely to go on the market as parent Tribune Co. emerges from bankruptcy.

The buyers bring to the table optimism that the company they are purchasing will survive and turn a profit. "We are in the business as a business," says Kushner, a successful Internet entrepreneur. "We are not in the business to preside over its demise."

In addition to acquiring prominent if challenged brands at very low prices, in some cases the new owners are able to avoid some of the dirty work of laying off hundreds of workers. The private equity group that sold the San Diego Union-Tribune in 2011 "did something we couldn't have done – they terminated about 600 people," says John Lynch, the CEO and an investor in the group that bought the paper. "It was draconian and caused a lot of pain... But it had to be done." Still, Lynch, a longtime resident of the Southern California city, says he doesn't think the group led by local developer Doug Manchester would have bought the paper if it had to jettison hundreds of workers.

Even if massive job cuts are in the industry's rearview window – and there's no guarantee that they are – making a profit from newspapers and their digital operations is no easy task. "Nobody knows about the future. If they did, nobody would be poor," says Lewis Katz, the 70-year-old co-managing director of the investor group that in April purchased Philadelphia's two dailies and their Web site, "Certainly, we felt that with time and some cooperation from various parties, there was an opportunity to keep the print papers alive."

Each investor group brings with it a different plan, though there are some common threads shared by many of them, including:

I don't pass up a good business deal. Nobody personifies this more than Buffett, 82, who with a net worth estimated at $46 billion in September is ranked No. 2 on the Forbes 400 list of richest Americans. In 2009, the Oracle of Omaha famously wrote off the beleaguered print products, saying that "for most newspapers in the United States, we would not buy them at any price." That was then. In 2011, Buffett's Berkshire Hathaway Inc. bought the Omaha World-Herald Co. and six other papers, and last May it picked up 63 more daily and weekly papers. (In November it announced that one of them, the News & Messenger in Manassas, Virginia, would be shut down.) When he bought those papers from Media General for $142 million, Buffett spoke of his love of papers and the important role they play. Still, Thomas Story, a Chicago-area money manager and longtime investor in Berkshire Hathaway, sees a simpler explanation. "The prices have gotten so cheap, the price to cash flow [ratio] is very attractive," says Story, whose Thomas Story & Son manages about $175 million for clients. "It's an old-fashioned value investment."

Buffett, who has said he hopes to buy more newspapers, declined to be interviewed for this story. In a May letter to his editors, Buffett laid out some of his ideas. "I believe newspapers that intensively cover their communities will have a good future. It's your job to make your paper indispensable to anyone who cares about what is going on in your city or town," he wrote.

Mutter believes that Buffett may be on to something by eschewing big papers with many forms of competition. Smaller community papers are "the sweet spot of the newspaper business today," Mutter says.

The bargain basement prices are attractive to other investors as well, says Rick Edmonds, who writes about the business of journalism for the Poynter Institute. "The prices are very, very low...especially when you consider the real estate holdings" that often go along with newspaper companies, Edmonds says. "It doesn't take much of an investment to get into the game. What is going to take money is covering losses."

I've got a better idea. "It's fairly well known that business affairs of most traditional newspaper companies have not been run particularly well," says George Norcross III, one of the leaders of the clout-heavy group that in April bought the Philadelphia Media Network, owner of the Inquirer and Daily News. "One..advantage in the current circumstances is that there is a tremendous amount of room for improvement in running the business enterprises." The Philadelphia investor group paid about $55 million for the company, or less than half the $139 million that Alden Global and Angelo, Gordon & Co. had paid just two years earlier. And here's how sharply prices have fallen: In 2006, McClatchy sold the papers to a local group headed by public relations executive Brian Tierney for $562 million.

How the investors plan on fixing things varies from group to group. Norcross and his partners see promoting digital in addition to print as the road to profitability. Kushner is taking a back to the future approach by beefing up the Orange County newsroom, adding investigative journalists and other newsroom positions at a time when shedding staff is in vogue, and focusing on building the print business. Buffett is scooping up small- and medium-size papers with little competition and a strong voice in the community. And the new owners of the former San Diego Union-Tribune, rebranded as U-T San Diego, are looking at using multiple platforms, including television, as the best way to deliver news to the public and profits to the owners.

Each of the owner groups I talked to sees readers paying for digital content as part of their approach. "I'm in the insurance business," Norcross says. "If I gave insurance away for free, I doubt I'd be in business very long." Currently, digital editions of the Philadelphia papers are available for a monthly fee. But material on is free.

Norcross says the owners plan to recapture readers who have left the paper while promoting online offerings and targeting young people, many of whom attend the approximately 90 colleges and universities in the area. "The trick, we think, is to reconnect with the readers," Norcross says "It's a great publication, and we actually think we can reconnect with the readers." At the same time, he says, the company must "appeal to those who get their news through online my [25-year-old] daughter. She never left reading a newspaper. She never read a newspaper."

U-T San Diego erected a paywall in July, and Kushner says the Orange County Register is also planning on charging for digital content. "We believe that journalism is of great value and that quality journalism comes at a high cost – for which newspapers should be compensated," he wrote in an e-mail.

I believe newspapers are important. "I've loved newspapers all of my life – and always will," Buffett wrote in the letter to his editors. As evidence of his love, Buffett noted he delivered papers in his younger days, his father edited his college paper and he himself reads five papers a day. "Call me an addict." By Berkshire Hathaway standards, the purchase of the newspapers is a small deal. "But the papers are every bit as important to me – and, for that matter, to society as other businesses we have purchased for many billions of dollars," Buffett wrote.

Kushner, 39, counts himself as a True Believer in newspapers, even though his past ventures – the creation of an online site to help people who are moving and the purchase of Marian Heath Greeting Cards – had nothing to do with the news business.

"Very few businesses could have the impact that a healthy newspaper could have," says Kushner, whose investor groups made unsuccessful runs at the Boston Globe and a group of newspapers in Maine. "Newspapers really matter a lot to the fabric of their community in ways that very few industries can."

That type of thinking by people with fat wallets can provide a lifeline for the industry. "There are people who think there should be a voice aside from the television talking heads," says Atorino, who has been following the industry for more than 30 years. Some people think a local newspaper should provide that voice and are willing to use their money to keep one or more alive. "As long as there are people like that, newspapers will be around for a while," says Atorino. Says Mutter, author of the Reflections of a Newsosaur blog: "I call it a civic mitzvah."

Admirable as that belief may be, it can be a double-edged sword – especially if the owner opts to follow the Citizen Kane model of using the paper's news columns to promote a point of view.

"One man's civic duty is another guy's horrible mistake," Morton says.

Case in point: Doug Manchester and John Lynch.

The deal in which their group bought the San Diego Union-Tribune for about $110 million raised eyebrows from day one. The subhead of the story on November 18, 2011, refers to Manchester as "the controversial Doug Manchester," and the story's third paragraph describes him as a "well-known but polarizing San Diego-based developer who refers to himself as 'Papa Doug.'" Experienced reporters cringed when Manchester provided a local radio station with his views of the media. "Local newspapers need to be a cheerleader for what's right and good for the country, such as promoting the new stadium or whatever."

"The scary part of it is, the price of buying a newspaper has gotten so could just buy a newspaper and emerge as a player," says Andrew Donohue, former editor of the Voice of San Diego, a local news Web site.

Since taking over the paper, Manchester, a hotel owner, and Lynch have been no strangers to contention. In June, New York Times media writer David Carr noted that Manchester, 70, favors "a remade San Diego centered around a new downtown waterfront stadium and arena." And, Carr wrote, Manchester has not been reluctant to use his new investment to promote that vision. "Public agencies that have not gotten the hint have found themselves investigated in the news pages of The U-T. A sports columnist who was skeptical of the plans found himself out of a job, and the newspaper has published front-page editorials and wraparound sections to promote political allies who share its agenda. According to several employees at the paper, a feature called 'Making a Difference' has included flattering profiles of many of Mr. Manchester's associates."

Lynch, whose voice grows angry when defending the paper's journalism, told me that every public official who was subjected to an investigation deserved to be placed under a journalistic microscope – that's the newspaper's role, he says. "I'm proud of the kind of journalism we're putting forth." OK, I told the former star college football player and father of retired NFL safety John Lynch, but has the paper done an investigation of somebody who supported the goals of Manchester and Lynch? Take your time, I told Lynch; you could get back to me if you need to check clips or talk to editors. "Have we done an investigation of an ally?" Lynch, 65, quickly responded. "No, I don't have to think about it. Never." But, he adds, that's not his call or even Manchester's – the newspaper's editor has the autonomy to decide what stories to cover.

Lynch, a former radio executive, says he doesn't understand what all the fuss is about. Newspapers are supposed to promote their communities and throw editorial page support behind projects that are good for the town. The San Diego community is conservative and has a strong military presence, Lynch says, arguing the newspaper and its various platforms reflect that. "For 10 to 15 years [the Union-Tribune] has been MIA," Lynch says. "We're trying to put it back in its rightful place as a community leader."

As for the conservative slant, Lynch says, "I will guarantee you that the New York Times, which gets their talking points from the Obama administration every morning, is more liberal than we are conservative." Besides, the paper covers all of the news, positive as well as negative, Lynch says, arguing that is all Manchester meant when he made the cheerleader comment. "Mr. Manchester demanded that we do some positive news... People like positive news. They're tired of the negative crap. They want some good news, and they want some hope."

More important, Lynch says, is an array of actions the new owners have taken since acquiring the newspaper. It has purchased a nearby daily, the North County Times, and is interested in buying other papers. Lynch, a former salesman for the Chicago Tribune, did not rule out making a run at his former employer.

The owners are fostering a strong digital focus, insisting that reporters provide content for all of the company's various platforms, including print, digital and television. When the new owners met the newsroom employees, their message was clear, Lynch says. "This is your last day working for a newspaper," Lynch says the staff was told. "We are no longer a newspaper company. We are a media company." The message to those who don't buy into the new program or don't like their new bosses' view of journalism is just as blunt. "I have no apologies," Lynch says. "If they don't like it, they could leave."

More than 2,700 miles to the east, in Philadelphia, there is some nervousness among politicians and reporters over the politics of the new owners of the Philadelphia Inquirer and Daily News. These owners are every bit as controversial and powerful in South Jersey and Philly as Manchester is in his hometown. In Philadelphia, however, they have not flexed their political muscles since buying the company last spring. Just before they acquired the papers, the investors' best-known figure – former Pennsylvania Governor and Philadelphia Mayor Ed Rendell – withdrew from the group.

Despite the hand-wringing prior to the purchase, there has been little evidence of a political agenda at play in the news pages since the deal closed in April, says Dan Gross, a columnist for the Daily News and president of the local Newspaper Guild chapter that represents newsroom employees. During the first six months under the new owners, Gross says, the only change in coverage he's noticed is a greater emphasis on covering New Jersey, the home turf of Katz and Norcross. "I don't know if that's a good thing or a bad thing," Gross says. After going through four previous owners in the past six years, Gross says the chief concern of many in the newsroom is survival, not the politics of their new bosses. "More than the political concern is the real-life concern," Gross says. "Are these guys for real, and could they turn it around?"

Katz, described in local news stories as a parking lot magnate, major fundraiser and philanthropist, says reporters and editors have nothing to fear from the ownership group. "The minute anybody tries to get political, they dig themselves a terrible hole..because the reporters would be the first to report that," Katz said during a joint phone interview with Norcross. "Witness what happened before we got here. We're both probably a little crazy to put ourselves in the position we're in, [but] we're not that crazy."

Indeed, in the months before the paper was sold, there was considerable outcry after the New York Times reported that then-Publisher Gregory J. Osberg told top editors that he would personally oversee all stories about the sale of the papers. Making matters worse, an Inquirer story about a real estate developer who had put together a bid to buy the company was spiked. On top of that, a company spokesman removed a post on the Daily News' PhillyClout blog that mentioned other potential buyers.

Prior to the purchase, the Katz-Norcross group faced intense scrutiny from the newsroom. Approximately 300 journalists signed a statement demanding the new owners not use the newsroom to promote their interests. Coincidentally, in March – just days before the purchase of the papers was announced – the Inquirer reported that Matthew Boxer, the New Jersey state comptroller, "exposed an insurance payback deal allegedly orchestrated by...Norcross, the South Jersey insurance executive and Democratic Party power broker who is chairman of the board of Cooper University Hospital in Camden."

When Rendell dropped out of the investor group, he said he did so because of his political prominence. "There was enough blowback from reporters and editorial people, because I'm active politically and support candidates and the president, that I decided to step back," he told the New York Times. Katz, a friend of Rendell whom the ex-governor once called his "single biggest fundraiser," provided a different reason for Rendell's departure in a recent interview. "He dropped out because he realized that it might be necessary to close one or two of these papers," says Katz, a former owner of the New Jersey Nets. "He really just couldn't see himself in a partnership that might have to do that." Katz emphasizes that the notion that a paper might be shut was Rendell's, though he declines to say whether Philadelphia will continue to be a two-newspaper town indefinitely. Asked whether the owners would be able to keep both papers running, he replied, "We certainly hope we are." Rendell did not return calls seeking comment.

As newsroom types cringe at the thought of politicians taking control of newspapers, many are cheering Kushner's moves at the Orange County Register. Since buying the paper, Kushner's team has launched a stand-alone business section, is beefing up its investigative team and hiring reporters – lots of them.

"It's a feel-good story," says Mark Katches, a former Register reporter and editor who is now editorial director of the Berkeley-based Center for Investigative Reporting.

"Every newspaper in America is going to be watching what happens in Orange County," he says. (Katches previously directed investigations at the paper until 2006, when he joined the Milwaukee Journal Sentinel and oversaw creation of its investigative reporting team, of which I am a member.)

Morton, the analyst, agrees that lots of eyes are on Kushner's Orange County experiment. "Whether it will work remains to be seen," Morton says. "I sure hope it works [but] I'm unconvinced. I don't have a lot of reasons to be optimistic," Morton says, pointing to the steep and myriad challenges facing the newspaper industry. "This will be interesting to watch."

Kushner says at one point during the summer he was trying to fill 96 open newsroom positions, all of them new. His paper is continuing to hire for the slots. "I got into this business because I believe in the importance of the mission," Kushner says. "The only way you could accomplish that mission is with more great journalists."

He still believes there is value in print for both readers and advertisers, pointing out that many major retailers still spend a healthy chunk of their advertising budget in newspapers. The Register will continue to put resources into digital as well, though Kushner makes it clear that the print paper is his top priority. "We could move a lot farther faster with more of our resources focused on the print product at the moment relative to our digital product," he says.

Kushner's enthusiasm for his undertaking provides insight into why some investors still want to put money into an industry long derided as a dinosaur. It's both a formidable business challenge and a chance to run an enterprise that affects entire communities, an opportunity to try out new ideas and to interact with – and sometimes irritate – powerful people.

Says Poynter's Edmonds, "It's more fun than a lot of other things you could do with your money."



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