Excerpts: “The Hedge Fund Vampire That Bleeds Newspapers Dry Now Has The Chicago Tribune by the Throat.”

• Alden isn’t the only hedge fund or private equity player that has muscled its way into the U.S. newspaper industry. Through the $1.2 billion merger of GateHouse and Gannett in November, Fortress Investment Group, owned by SoftBank, now manages the largest newspaper chain in the country, with a fleet of more than 260 dailies that includes prominent titles like USA Today, the Detroit Free Press, and the Record of northern New Jersey. (The merged company is now colloquially referred to as “New Gannett.”)
• That deal was financed by a $1.8 billion, five-year loan from Apollo Global Management, at a staggering 11.5% interest rate. The steep terms have led some Wall Street types to suspect that Apollo, which is simultaneously buying up dozens of local TV stations to compete with Sinclair and Fox, will end up as the owner of Gannett in the long run. A Gannett spokeswoman countered, ‘We intend to aggressively pay down our debt, and refinance within two years.
• Once upon a time, he explained, newspaper chains were predominantly owned by wealthy and powerful families—the Chandlers, the Medills, the Knights, the Newhouses (who continue to own Condé Nast, which owns Vanity Fair). Newspapers were a good investment, owing to a largely captive market of local advertising, and as they maintained their position as a highly lucrative industry into the ’70s, ’80s, and ’90s, these families turned to the public markets and bought even more newspapers. It was a high-margin business, about 80% dependent on advertising, and it grew steadily along with the national economy. It all worked out very well for a long time, until cracks began to show in the armor.
• For starters, as the internet took off in the late ’90s and early aughts, publishers began feeling the heat from digital ad disruption and new online competitors, a whole host of which had gained significant traction by the end of the decade. That’s when disaster struck.
• In 2009, the Great Recession obliterated nearly 20% of daily advertising revenue in a single year, according to Doctor, a wound from which the industry would never recover (with the exception of deeply resourced brands with massive national and international readerships, like the New York Times, the Wall Street Journal, and the Washington Post). Hence all of the bankruptcies, the closures, the widespread layoffs and buyouts, the inexorable tide of decline.

Source: Vanity Fair