The good news about American newspapers is that the news isn't completely bad. The Inland Press Association just examined the financials of more than 120 of the country's dailies and reported that even though ad and circulation revenues have been dropping for years, "operating profits still ranged from more than 8.5 percent to 13.6 percent of gross revenue in all circulation groups except 25,001-50,000."
In other words, profits began falling from a pretty high place. And where newspapers are in bankruptcy—Chicago's a great place to look—it's not simply because of evaporating revenue streams. Our local papers face crushing debt, be it to lenders (Tribune Company, Reader parent Creative Loafing) or to the IRS (the Sun-Times Media Group).
CEO Jeremy Halbreich has made it clear that the way forward for the STMG involves selling off its hundred-some titles, preferably as a group but conceivably in bits and pieces. One of those pieces, the outlier, is the Post-Tribune in Gary, Indiana, a paper whose separatist ethos would be applauded by the Parti Quebecois. Twice in the past two decades Post-Tribune employees, led by the Gary Newspaper Guild, have organized an employee stock ownership plan (ESOP) to try to buy the paper—in 1989 from the Knight-Ridder chain, which in the end took the paper off the auction block, and again in 1997, when Knight-Ridder eventually sold the Post-Tribune to Conrad Black's Hollinger International. Today Black's in prison, Hollinger is the vestigial STMG, and Andy Grimm, a Post-Tribune reporter and president of the Gary guild, tells me, "We might be the only people in the world who believe in our newspaper right now, and I think we'll get in and get a bargain."
At what price over $0 would the Post-Tribune be a bargain? Ten years ago, says Grimm, "we put in a bid of $37.5 million and it went for a little over $38 million." The price of STMG stock was down to a nickel a share when the group filed for bankruptcy in March, and on that basis, the Sun-Times reported, "the entire company is worth about $4 million." Today's Post-Tribune is such a stripped-down operation that, the guild observes, if it shifted to Web-only publication nobody's job would become obsolete. The Post-Tribune no longer has presses—printing was transferred to the Sun-Times presses on South Ashland in Chicago, burdening the Post-Tribune with earlier deadlines. It no longer has trucks—distribution of Media Group papers was turned over to Tribune drivers, doing the Post-Tribune no favor because Tribune circulation is spotty in northwest Indiana.
The Post-Tribune does still have reporters—though Grimm says that "in the last two years we've probably seen a 25 percent reduction in newsroom staffing, at least, and that's not counting attrition." It has real estate—its offices in Merrillville, a bureau in Crown Point, and the abandoned presses in Gary. And Grimm believes it has prospects.
"I think we are a profitable paper," he says. "Two to three months before the bankruptcy filing [March 31], corporate came out to give cake and ice cream to our sales department for hitting its ad marks." Even more to the point, he thinks the Post-Tribune, despite a circulation that's been dropping for years and is now under 60,000, maintains a hold on its region. It's an article of faith at the Post-Tribune that northwest Indiana, lacking its own TV stations, largely ignored by the Chicago media, yet rich in news, needs the Post-Tribune and knows it.
Joe Conn, a former reporter and Gary guild chairman who led the '89 and '97 ESOP bids, now works in Chicago for Crain Communications. "I come in on the South Shore every day," he says, "and there are scads of people reading the paper. The franchise is still respected."
In a situation such as the Post-Tribune's, an ESOP involves employees forming their own corporation and joining forces with investors to buy a company, with employee interest in it increasing as the investors are repaid out of company revenues. It's a process that offers tax advantages to both buyers and sellers while giving the working stiffs "some skin in game," as Grimm puts it. The danger is that the working stiffs could find themselves along for the ride as the people with the money enjoy their tax breaks and do whatever they want to do. The workers could even find themselves having an ESOP imposed on them, which is what happened to the thousands of Tribune Company employees in 2007 when Sam Zell took it over. Zell got the tax breaks he needed, and his new nominal co-owners didn't enjoy an ounce of protection against the wholesale layoffs that followed.
Though the national Newspaper Guild is encouraging its members at threatened papers to consider ESOPs as a way of saving themselves, there's no romance to the idea of inmates taking over these asylums. Christopher Mackin, a financial consultant in Cambridge, Massachusetts, retained by the national guild to assist in ESOP negotiations, is now advising the Gary chapter, having just helped orchestrate an ESOP deal in Maine. The employees there joined investors in taking over that state's Blethen newspaper chain. In return for 15 percent ownership of the four Blethen papers and two seats on the new board of directors, the employees agreed in May to a 10 percent wage cut, a two-year salary freeze, and a halt to the company's 401(k) contributions. Furthermore, they understood that as soon as the deal went through there'd be more layoffs.
Despite these bleak terms, the president of the newspaper guild in Portland, Maine, hailed the Blethen sale as a victory for labor. "People on the ground-floor level are going to be involved in the decision making of the company," he said. "It's amazing that we were able to do it. The newspaper industry is collapsing. No one is buying newspapers. Banks are not lending any money to newspapers. There hasn't been a bank to lend money to buy a newspaper in two years. So this is quite a remarkable story."
In Gary, it's inspirational. "Can a newspaper work as an ESOP?" asks a FAQ on the new Web site buytheposttribune.com, then answers, "Yes it can," and points to the Blethen ESOP as evidence.
To get Post-Tribune employees behind an ESOP bid, the guild reminds them they have nothing to lose. "How much worse can it get?" Grimm asks. He tells me the working assumption is that sometime this fall "we'll have a new owner and the company [the Sun-Times Media Group] will cease to exist—that's what we're told. And that new owner will come in and things will change around here. Whatever we can do to have a say in who that owner is, or to have that owner be us, we're going to do it."
If investors come forward, Grimm supposes they'll probably be local, have a warm spot in their heart for the Post-Tribune, and want to do the deal mainly for the real estate. Grimm isn't picky. "A lot of analysts say what's hurt the business in recent transactions is people like Zell coming in as flippers," he tells me. But he wants to hear from the flippers.
"This is an opportunity for someone to get in and get out quickly and make a good return on their investment, but at the same time flip it to us, flip it to people who are in it for the long haul, who care for the newspaper."
What if your flippers turn out to be strippers? I ask him.
Grimm doesn't think there's much of anything at the Post-Tribune left to strip, but as he knows, new owners of newspapers never cease to amaze us. "They can sit there and strip it down," he reflects, "but the employees, their prospective buyers, aren't going to want to see that. And we are the people buying shares in the company over time. We're here for the next 30 years, not the next three."
In other words, the employees don't want a minority stake in the Post-Tribune. In a few years' time they want control. And they're counting on investors appearing who value the Post-Tribune and intend to do right by the people who will end up with it.
Last year, Grimm says, there were months of conversations with the Chicago Newspaper Guild over an ESOP bid for the entire Sun-Times Media Group. But that would have been a much larger, more complicated purchase, and the idea finally died.
Knight-Ridder regarded the earlier ESOP bids for the Post-Tribune with unalloyed hostility—it had no interest in sharing its books with employees. The worst that can be said about the present owners is that STMG has offered no encouragement—the media group wants to sell everything to a single buyer, and it's made that clear to its unions. But this might not be possible. And even if it is, Grimm figures the new owner won't want to keep it all. He won't say how high he thinks a successful ESOP bid will have to go. But in a hypothetical scenario of how this could play out he has a "money guy" putting up $2.5 million to control 90 percent of the stock and a few years later being bought out completely by the employees for $5 million. In another scenario, the employees would avoid an equity partner altogether by swinging a loan guaranteed by the real estate they'd be buying. Then again, that real estate, which Grimm figures is worth about $4.5 million, is already on the market. There's a for sale sign in front of the Post-Tribune building..
The worst case scenario? The Times in nearby Munster, a bigger paper that Grimm believes makes money hand over fist, buys the rival Post-Tribune, shuts it down, and has northwest Indiana all to itself. Grimm believes—well, he hopes—the region's readers and advertisers won't stand for this. He hopes some of them will stand up and show some money.
Copyediting by Committee?
The headline: With no enemies in sight, Marines battle Afghan heat.
The subhead: 2 soldiers killed as Taliban hit remote U.S. base (Sun-Times, July 5).
The headline: Murdered landlord well-liked by tenants.
The subhead: Renter accused of beating, burning him (Sun-Times, July 6).For more on the media, see Michael Miner's blog, News Bites.