Saving the Free Press From Private Equity

There is a standard story about the death of newspapers. After decades of enjoying easy profits from print ad income, publishers were blindsided by the internet revolution. Free information on the web cut into their core audience, especially among the young. The expenses of paper, printing, and delivery—“trucks and trees”—made them increasingly uncompetitive in a digital age. Publishers were slow to adjust. By the time owners figured out how to monetize web content, Google and Facebook had gotten there first, and were taking an estimated 80 percent of digital ad revenues. The crash of 2008 only hastened the decline.

A few national newspapers with unique franchises—The New York Times, The Wall Street Journal, and The Washington Post—have begun to figure out the digital transition, using paywalls, new digital content, and complementary business strategies to realize income from other sources. They will survive, even thrive.

But the real tragedy for the civic commons is occurring at the level of regional papers. Local dailies and weeklies are in a slow death spiral. They missed the digital rendezvous. Operating losses cause owners to lay off staff and shrink content, further depressing readership and ad income, leaving little to reinvest in digital. Local web-only media are feisty in a few places, but no substitute for a robust newspaper, whether print, web, or a blend.

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Fortress Investment Group, which controls GateHouse, is the rare case of a private equity firm that is also a publicly traded company. Fortress was the first private equity company to list its shares on the New York Stock Exchange, beginning in 2007—on the eve of the financial collapse. Its media subsidiary promptly went broke. Fortress transferred its media properties to a new subsidiary, and assumed more than a billion dollars in debt. After emerging from a strategic bankruptcy in 2013 though a complex ownership web, and rebranding the company New Media/GateHouse, the private equity managers continue their acquisition binge, spending $735 million to buy up newspapers in the past four years.


As a rare hybrid of private equity operators controlling a publicly traded company, Fortress has to make financial disclosures to the Securities and Exchange Commission and the public, and shareholders get to vote on directors and bylaws. Public filings with the SEC revealed, for instance, that Fortress, as managers of GateHouse, had taken out $19.4 million in management fees and “incentive compensation” in 2016, and $39.7 million in 2015. As newspaper financial analyst Ken Doctor observes, these payouts are not far from the $27 million in operating expenses that GateHouse expects to extract from its papers during 2017. The money from the cuts goes straight to the private equity absentee owner and its executives. The New York Times reported Fortress CEO Wes Edens’s total 2016 pay as $54.4 million, including an $11.6 million bonus.



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Private equity exists thanks to three loopholes in the law. Much of New Deal financial regulation was based on public disclosures, which had to be filed with the SEC. But the law granted a small exemption (to the 1940 Investment Company Act) for narrowly held investment companies, many of them built around families. As a result, private equity companies did not have to make the same disclosures to the SEC as other mutual funds or ordinary corporations. But the private investment firms of that era were tiny compared with today’s.


http://prospect.org/article/saving-free-press-private-equity


This is an excellent article..........................

Gatehouse/ Fortress Investment Group and other vulture capitalists ...................just like The Bain Capital Group of Mitt Romney