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Hedge funds have found that they are able to wring profits out of an ailing product: the print newspaper. But for how long?


Phil Luciano, a columnist at The Peoria Journal Star, got a story tip recently about Caterpillar, the heavy equipment company that was based in Peoria, Ill., for 90 years before a recent relocation to Cook County.

The tip seemed promising enough. But as one of only seven full-time reporters at the paper, he felt stretched too thin to do much about it.

“Who’s our Caterpillar reporter?” Mr. Luciano asked. “We don’t have one right now.”

In recent years, The Journal Star has been hit with the kind of cutbacks that have become common for newspapers nationwide as they steer a bumpy course toward a digitally focused future. The newsroom had more than 80 guild employees in the 1990s, and now has about a dozen.

The Journal Star is still the largest paper in downstate Illinois. But after covering more than 23 counties in its heyday, it now limits itself to three: Peoria, Tazewell and Woodford.


“And Woodford’s pretty small,” Mr. Luciano said.

The Peoria daily is representative of the newspaper industry as a whole in two other respects. It is owned by a company controlled by a hedge fund — GateHouse Media, which owns more papers than any other company, according to a University of North Carolina study. And even in its reduced state, the paper is profitable.

“I know The Journal Star’s in the black,” Mr. Luciano said. “How much in the black do you have to be? That’s what drives us up a wall.”


Such is the strange state of an industry that has been part of the American fabric since the days of The New-England Courant, a newspaper started by James Franklin, older brother to Benjamin Franklin.

In the centuries that followed, papers became a dominant form of news media, with city customers swarming newsstands mornings and evenings to grab the latest editions, and suburban subscribers scooping up their copies from driveways at dawn.


Today, the business could hardly be more dismal. Around one in four papers in the country, most of them weeklies, have been shut down since 2004, the U.N.C. study found. In that same time span, roughly half of all newspaper jobs have been eliminated as the cumulative weekday circulation of print papers has fallen to 73 million from 122 million.


While readers have moved in droves toward consuming the news of the day via screen, be it desktop, laptop or phone, the revenue generated by digital ads has yet to match the money once supplied by print advertising. To stay above water, publishers have cut jobs, which has resulted in understaffed newsrooms, a thinner overall report and reader complaints.

The numbers convey the news in stark terms: From 2017 to 2018, newspapers in the United States lost $2.4 billion in combined advertising and circulation revenue, according to the Pew Research Center. If you count the yearly revenue the industry has lost in those two categories since the pre-recession high of 2005, you come up with nearly $35 billion.

At the same time, some news organizations centered on a daily paper can still turn a profit, with much of their revenue coming from the legacy product that leaves ink smudges on your hands.

The stubborn survival of print newspapers has given some publishers a way to subsidize the transition to a digital-centric revenue model. But print’s persistence often takes the form of what a study published by the U.N.C. researchers called ghost papers — spectral incarnations of once-thick publications able to haul in cash even as they lack the deep reporting that once made them essential to their communities.

These phantoms have hung on because print revenue, while in steep decline, still brought in more than $25 billion last year.

“Most people ask the question, ‘Will there ever be a day without daily newspapers?’” said Ken Doctor, a news media analyst. “As if the actual printing of a product is the mark of whether you have a paper or not, as opposed to whether there’s actually anything of quality in it.”


The job of top editor has lost some of its old luster in this era of job cuts and hedge fund ownership. A vocation that once had a dash of grit and glamour has become more administrative, with a lot of bean-counting and heartbreak.

Neil Chase, the former executive editor of the Bay Area News Group, said that the news organization he oversaw regularly received profit targets from its owner, Digital First News — now known as MediaNews Group, a company controlled by the hedge fund Alden Global Capital. To hit those targets, he had to slash costs.

During Mr. Chase’s tenure, from 2016 to the start of this year, layoffs and attrition cut the newsroom to around 165 from an already diminished staff of 240, he said.

Mr. Chase and his team tried to preserve the company’s core publications, The Mercury News in San Jose and The East Bay Times. And so the group’s weeklies — titles like The Walnut Creek Journal and The Los Gatos Weekly-Times — took a big hit.

“We gutted those papers by taking the journalism out of them,” said Mr. Chase, now chief executive of CALmatters, a nonprofit covering California state politics.

Those weeklies are now among the nation’s ghost papers. A typical issue contains items from stringers tucked in among articles from Bay Area News Group dailies.

“They’re still there,” Mr. Chase added, “because they have local ads.”


Over the last decade, the finance industry noticed that newspapers were distressed — but potentially valuable — assets that were available at bargain-basement rates, said Penny Abernathy, the U.N.C. journalism professor who wrote last year’s report, “The Expanding News Desert.”

A paper that once fetched a price of 13 times its annual revenue could be had for one-fourth that amount. In the role of publisher, investors discovered that lowering overhead typically reduced costs at a faster rate than it drove down revenues. Many papers shrank. And their profits went up.

“Put yourself in the shoes of a hedge fund or private equity firm,” said John Longo, a Rutgers Business School professor. “Newspapers have steady, albeit slightly sinking, cash flow. In that kind of business, you can put some leverage on.”

If you ignore that the industry showing signs of ill health under its new minders has been deemed so essential to the nation that it was enshrined in the First Amendment, then these practices, straight out of the Wall Street playbook, seem unremarkable.

“They used the same notion of how they would manage newspapers as they would widget factories,” Ms. Abernathy said.

The hedge-fund-controlled publishers GateHouse Media and MNG are now among the four companies that own the most newspapers in the country. And MNG made efforts to buy the other newspaper chain among the big three, Gannett — which is now in talks to merge with GateHouse Media.

Alexia Quadrani, an analyst at J.P. Morgan, hinted at a flaw in the strategy of the industry’s new entrants: “It’s a cash cow, right? But at the end of the day, it is in decline. You ask yourself, What’s your endgame?”


Journalists at one newspaper that suffered particularly drastic job cuts — The Denver Post, an MNG publication — made news last year when they rebelled against their bosses by publishing a six-page special opinion section blasting their ownership. In the lead essay, The Post singled out the hedge fund behind MNG, Alden Global Capital.

“If Alden isn’t willing to do good journalism here,” it said, “it should sell The Post to owners who will.”

MNG declined to comment for this article, but the company has defended itself by noting that it has saved papers like The Boston Herald and The Orange County Register from bankruptcy.

GateHouse also did not respond to requests for comment. Mike Reed, the chief executive of GateHouse’s controlling entity, seemed to sum up the company’s viewpoint in an interview last year when he said its strategy came about because newspaper owners grew complacent in the days before the internet challenged print.

“The industry was fat, dumb and happy,” he said.

There may still be a way forward for metropolitan dailies interested in providing communities with deep coverage while also making money, one that means investing print revenues in digital growth while acknowledging that the days of 20 percent profit margins are long gone.

The Seattle Times, for one, has recently increased digital readership and print revenues, according to its president, Alan Fisco, thanks to the stewardship of the Blethen family, which has owned the paper since the 19th century. Referring to the paper’s publisher, Frank A. Blethen, Mr. Fisco said, “The old expression Frank has used is, ‘We don’t publish newspapers to make money. We make money to publish newspapers.’”

A similar setup — call it the benevolent patron model — has helped turn around the fortunes of The Washington Post, owned by Jeff Bezos, the founder of Amazon, since 2013, as well as The Los Angeles Times and The San Diego Tribune, which were bought last year by the biotech billionaire Patrick Soon-Shiong from Tribune Publishing as part of a $500 million deal.


Mr. Doctor, the analyst, pointed to Hearst Corporation, whose papers include The Houston Chronicle and The San Francisco Chronicle, as a solid owner, because it is private and holds other assets with excellent profit margins.

Jeffrey M. Johnson, the Hearst Newspapers president, said his group had increased profitability in seven of the previous eight years while maintaining aggregate newsroom head count.

Hearst papers and The Seattle Times share a common strategy of raising prices on print subscriptions in order to subsidize investments in digital.

Does this strategy have a sell-by date? The outlook for print, after all, is poor. As recently as 1998, the Sunday print circulation of newspapers in the United States totaled more than 60 million. Last year, Pew estimated, that figure was 30.8 million.

Only a few newspapers have arrived at the safe harbor of bringing in more absolute revenue from digital than print. The Boston Globe now has more digital-only than weekday print subscribers, and Vinay Mehra, The Globe’s president, said digital revenue alone could support the newsroom’s payroll.

The Globe, however, serves a densely populated area with a high number of affluent residents willing to shell out $25 a month for online access. A paper like The Vindicator, a 150-year-old daily in Youngstown, Ohio, is less of an outlier. It recently announced that it would cease publication on Aug. 31.

Mr. Luciano, the columnist in Peoria, said he was concerned about the fate of The Journal Star, not to mention comparable dailies in cities like Muncie, Ind., and Allentown, Pa.

“I don’t know who is the watchdog when they leave,” he said. “There’s no one.”

Marc Tracy has covered college sports for The Times since 2014. Previously he worked at Tablet Magazine and The New Republic. @marcatracy

A version of this article appears in print on , Section F, Page ۱۰ of the New York edition with the headline: Gutted Yet Profitable: The ‘Ghost Papers’.



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