Register, Press Enterprise Sale: Out of the Tribune pot and into the Digital First fire

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Another dismal chapter in the tragic farce of Southern California newspaper journalism appears nearly over, as U.S. Bankruptcy Court Judge Mark Wallace Monday ruled that Freedom Communications—belly up for the second time in seven years—can sell the Orange County Register and Riverside Press Enterprise to Digital First Media.

Tribune Publishing, which owns the Los Angeles Times and San Diego’s UT, was the high bidder in the auction for the two papers, but it ignored the Department of Justice’s warnings that its acquisition of the Freedom titles would create an illegal monopoly in violation of federal anti-trust laws. Last week, Federal District Judge Andre Birotte granted DOJ a restraining order preventing Tribune from closing a sale, ruling that the feds had a “substantial change” of prevailing on the merits, if they proceeded with an anti-trust action against the Chicago-based chain.

Birotte got things right. Allowing one company to control 90% of a market, as Tribune would have done in Orange and Riverside County, is a monopoly no matter what sort of fizzy new media economics you try to introduce into the equation.

His opinion in the case did a particularly deft job of separating the real world wheat from the digital chaff. Online sites, he wrote, “primarily post links to stories on the websites of other content generators – including local newspapers like the Register or the Press-Enterprise. . . That other websites post links to local sites only demonstrates that local newspapers continue to serve a unique function in the marketplace: They are the creators of local content. It further stands to reason that local advertisers in search of print advertising would choose to advertise with local news providers.”

Birotte continued: “The public interest and the balance of hardships inquiries are interrelated and both weigh in favor of an injunction. The Court finds this especially applicable here where the consumer access to local news is at stake. Newspapers – indeed, local ones – are important to a healthy democracy.”

Tribune argued that the DOJ’s intervention not only ignored the new realities of a media environment in which readers and advertisers in every market have an array of online sites to which they can turn, but also occurred at the 11th hour.

But Birotte wrote that Tribune “could have avoided the risk of harm altogether by vetting the acquisition with the government ahead of time.”

He noted: “It may be that Tribune will lose the opportunity to acquire the Register and Press-Enterprise in favor of the second place bidder. However, this private harm does not outweigh the public interest in the preservation of competition, especially given the government’s likelihood of success on the merits.”

Still, while Birotte got things right on the case presented to him, it’s not really possible to call this sale a victory for the long-suffering newspaper readers of Orange and Riverside Counties. To gloss John Kenneth Galbraith’s famous description of politics, the possible outcomes of their situation had narrowed to the disastrous and the unpalatable (anti-competitive domination by the shambling Tribune chain or the vampiric embrace of the rapacious Digital First.)

Essentially, both Tribune and Digital First had the same plans for the Register and Press Enterprise—more job cuts, more consolidation of functions, more lip service to growth without any investment to achieve it.

Tribune, which now is in the hands of majority stockholder Michael Ferraro, a Chicago tech entrepreneur, appears to have financial issues of its own. Before he bought control of Tribune with a sweetheart investment of just $44 million, insiders told the New York Times that the company was just a few bad months “from being unable to pay its bills” with no access to the capital markets.

Even if it wanted to fight the DOJ’s intervention, it’s doubtful that Tribune could finance the legal costs of an extended anti-trust case. Moreover, in a filing last week with the Securities and Exchange Commission, publicly traded Tribune, whose stock has declined more than 50% in value since it was spun off from Tribune Media, dropped this unsettling little bomb: It has found, it reported to the SEC, “material weaknesses in the company’s internal control over financial reporting.” Those material weaknesses, it said, “could result in misstatements of the accounts and disclosures that would result in a material misstatement of the annual or interim consolidated and combined financial statements that would not be prevented or detected.”

In other words, their books may be, in some undetermined part, a work of fiction. They’re not entirely sure how much money is coming in or where it’s going when it does. (I’m not sure how you punctuate a disclosure like that with anything but the admonition caveat emptor.)

All that said, the truth is that Denver-based Digital First, the country’s second largest chain with 68 daily and Sunday papers in 18 states, is among the worst and least responsible newspaper operators in the country. Its Los Angeles News Group already owns nine Southern California papers: the Los Angeles Daily News, Long Beach Press-Telegram, Whittier Daily News, Pasadena Star-News, San Gabriel Valley Tribune, Torrance Daily Breeze, San Bernardino Sun, Inland Valley Daily Bulletin and Redlands Daily Facts. The chain’s flagship papers are The Denver Post and San Jose Mercury News.

Digital, which has been through its own bankruptcy, now is owned by private hedge fund, Alden Global Capital, which specializes in acquiring distressed debt. It’s tempting to call these distressed debt finders ‘vulture funds,’ but that insults a useful and hardworking bird.

As Kevin Roderick has pointed out on his LA Observed website, Digital First’s tenure has been a disaster for all its publications those titles, which have been hollowed out into ghostly effigies of their former selves. In each of them, there are small groups of talented and diligent local journalists doing the best they can for their readers, but it’s a worse-than-uphill struggle. I’ve seen a number of their newsrooms first-hand and the ones I’ve visited are mostly dark, silent and rather sad spaces.

Digital, which has been through its own bankruptcy, now is owned by private hedge fund, Alden Global Capital, which specializes in acquiring distressed debt. It’s tempting to call these distressed debt finders ‘vulture funds,’ but that insults a useful and hardworking bird. It’s equally tempting to speculate that their managers have ice where their hearts ought to be, but that assumes that they ever had an organ resembling a heart.

As media analyst Ken Doctor has observed, Alden’s current strategy seems to be to milk as much money as it can out of its journalistic properties while operating them at a cost that provides little more than a facsimile of responsible journalism. These guys, in other words, are more parasites than they are proprietors in any sense we’ve traditionally understood that latter word in newspapering.

When it comes to operating the Register and Press Enterprise, Alden/Digital First almost surely will do as venal and callously irresponsible a job as it’s doing everywhere else in the country. Tribune might have done a couple of degrees better at the margin, but the downside to its consolidation of Southern California newspaper readers from Mexico to the Ventura County line would have been a delay—albeit not a particularly long one—of the day when Tribune itself goes back into bankruptcy, which it almost inevitably will. It’s a company bereft of both resources and ideas and was set up to fail by the Tribune Media executives who spun it off without material assets and saddled with debt. Alden, for its part, still is looking to sell off Digital First at the next advantageous opportunity.

The sale of the Register and Press Enterprise will do nothing to serve their readers and communities in the short run. Over the intermediate term, it will hasten the possible passage of those papers and the Times and UT back into the hands of local owners.

At this point, that’s probably the only possibility in which hope resides.

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