Will Bankruptcy Strengthen the Santa Cruz Sentinel?
Written by Maria Gaura
SANTA CRUZ (January 2010) – After more than a year of increasingly urgent rumors, the Santa Cruz Sentinel’s parent company filed for bankruptcy protection January 22, a move expected to vaporize $765 million in bad debt and transfer most of the company’s stock to its creditors.
Losing more than three-quarters of a billion dollars would be considered a grim turn of events for nearly any company. But many media observers say they are cheered by the terms of the MediaNews Group bankruptcy, and expect it to benefit the Sentinel, its workers and news consumers in Santa Cruz County and beyond.
“I see all of this as good news for the papers, employees and debt holders of MediaNews Group,” said Mario van Dongen, a former Sentinel publisher who is now director of sales and marketing at the Portland Oregonian. “Cutting the debt … will give the papers some very important breathing room.”
Rowland Rebele, a retired newspaper owner and publisher who lives in Santa Cruz, called the structured bankruptcy “a brilliant move.” He noted that MediaNews Group Chairman and CEO William Dean Singleton agreed to exchange 80 percent of company ownership – most of which belonged to him - to creditors in exchange for lightening a debt load the company simply could not repay.
“It appears Dean is not being greedy and … has the best interests of his papers, and the communities they serve, at heart. The Sentinel folks should be happy!” Rebele said.
DEBT FOR STOCK
In essence, the Chapter 11 filing will allow Affiliated Media, Inc. of Denver to shrink its debt from approximately $930 million to $165 million by transferring the bulk of ownership to a group of institutional lenders including Bank of America.
Affiliated Media’s sole holding is MediaNews Group, the second-largest newspaper publisher in the U.S. by circulation and owner of the Sentinel, the Monterey Herald, and every daily newspaper in the San Francisco Bay Area except for the San Francisco Chronicle. MediaNews owns 54 daily newspapers, more than 100 non-daily papers, and various websites, TV and radio stations in 12 states.
MediaNews Group will continue to be run by Singleton and President Joseph Lodovic, IV, who will jointly retain 20 percent ownership of the company. The bankruptcy plan was negotiated with creditors prior to being submitted to bankruptcy court as a “pre-packaged” deal, so the petition is expected to be resolved quickly, and the company should emerge from bankruptcy by the middle of March, Lodovic said.
In theory, debt relief for MediaNews Group could result in less financial pressure for the newspapers in the chain, including the Sentinel, allowing them to invest in staff and content, which have been cut dramatically in recent years.
CAUTIOUS OPTIMISM
Even Carl Hall, local representative for the Northern California Media Workers Guild and a science writer at the San Francisco Chronicle, expressed cautious optimism about the bankruptcy deal. While the Sentinel is not unionized, the Guild represents workers at a number of MediaNews Group newspapers, including the San Jose Mercury News and the Monterey Herald.
“It’s hard to make good news out of a bankruptcy petition,” Hall said. “But the company is saying they anticipate no material effects on the operating units, and … we have no reason to doubt their word. In theory …newspaper staffs may end up not noticing any changes, or possibly even benefitting if the debt burden is lightened.”
The Guild is seeking a seat on the creditor’s committee overseeing the bankruptcy proceedings, to assure that workers’ pensions, vacation and other accumulated benefits are not affected by the reorganization, Hall said.
SHOPPING SPREE
Industry observers point out that the mountain of debt that threatened to crush MediaNews Group was racked up by Singleton himself, as he borrowed to finance a newspaper shopping spree, snapping up multiple media properties including the Contra Costa Times chain, the San Jose Mercury News, the Monterey Herald and the Santa Cruz Sentinel, many of them purchased near the peak of the real estate bubble.
The subsequent collapse of the real estate market, coupled with a severe slump in newspaper advertising revenues, left the company underwater in a big way. MediaNews’ $930 million debt ended up resting on the shoulders of a company that the Wall Street Journal recently valued at $200 million, including $50 million in equity.
Critics argue that Singleton’s attempt to corner the Bay Area newspaper market has been bad news for journalism and competition as well as for the investors who lost millions. Singleton’s modus operandi has been to buy up the competition and recoup the investment by cutting costs. Papers bought by MediaNews would see their staff slashed, buildings sold, printing and ads outsourced and news reporting shared with other publications.
BUYING THE SENTINEL
Singleton’s purchase of the Sentinel in 2007 is a case in point. MediaNews Group paid an estimated $38 million for the Sentinel, which even then was a steep price for a paper with a daily circulation of 30,000. The newsroom staff was cut from 48 to a current total of 23 reporters, editors and photographers. The Sentinel’s landmark office building was sold, the presses scrapped, printers laid off, advertising partially outsourced and the remaining workers relocated to an office park in Scotts Valley, a 15 minute drive from downtown Santa Cruz.
The Sentinel is now printed in San Jose and trucked to Santa Cruz. And it regularly shares stories with the Herald and Mercury News, its former competitors.
The Sentinel was profitable before the sale to MediaNews and, despite sagging circulation and ad sales, remains profitable still. But circulation now hovers at 23,000 to 24,000, ad sales remain slow, and no amount of squeezing was likely to produce enough cash to pay off its debt. That scenario was repeated at other newspapers throughout the MediaNews chain, leading to the recent financial crisis.
“It’s like being able to afford a $200,000 mortgage, but instead you buy a $600,000 house,” said Alan Mutter, media analyst and author of the industry blog Reflections of a Newsosaur. “It’s not that you don’t have a job, you just can’t make a big enough mortgage payment. That’s essentially what happened here.”
REVERSING DIRECTION?
Bankruptcy could be good for MediaNews Group’s newspapers, but only if management reverses direction and starts investing instead of cutting costs, Mutter said. Mutter is skeptical that Singleton will take that tack, however, and predicts the MediaNews chief will focus on acquiring new papers, shutting down the weaker papers in competing markets, and continuing to cut costs.
"In plainest English," Mutter wrote in a recent blog post, "this likely means more lost jobs."
Phil Trounstine, political journalist and editor of CalBuzz, a website devoted to California politics, believes that Singleton's focus has always been on the business side of newspapers, and he doesn't expect that focus to change.
"He's never had journalistic excellence as a primary goal," Trounstine said. "To him, these newspapers are purely commodities in a business operation. If he thought good journalism would make enough money for him, he'd probably be for it.
HAPPY COINCIDENCE
"Nothing being done (at MediaNews) right now is being done with the purpose of improving the quality of the local reporting," Trounstine said. "If it should happen, that would be a happy coincidence."
MediaNews President Lodovic would say only that “no subsidiary or individual paper is in any way impacted” by the bankruptcy. But Singleton recently told the Wall Street Journal that he will intensify his efforts to consolidate newspapers in the MediaNews chain, which Mutter predicts will target newspapers in Southern California and Minneapolis-St. Paul. In addition, Mutter expects Singleton to purchase or partner with the San Francisco Chronicle.
ALREADY MERGED
Mutter thinks the Sentinel is unlikely to be formally merged with the San Jose Mercury News. He noted that MediaNews has already consolidated printing, and news content is already shared. Ad layout has been outsourced to India, and there is a possibility that copy desks at the papers could eventually be merged.
While many in the journalism community are appalled at Singleton’s slash-and-shrink tactics, others wonder grimly whether there is any other way to keep the ailing newspaper industry afloat.
Sentinel Publisher Michael Jung could not be reached for comment on this story. But former publisher van Dongen believes that the bankruptcy was a good outcome, under the circumstances, and that the coming year will be good for the Sentinel.
“Advertising revenues are starting to show a modest rebound, and these papers should be well positioned when the economy picks back up,” van Dongen said. “This story will have a happy ending.”
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