McClatchy filed for Chapter 11 bankruptcy today in a move executives say won’t result in layoffs but will put majority ownership of yet another media company—this time a 163-year-old, family-owned publisher—in the hands of a hedge fund.
The move, if approved, transfers majority ownership to Chatham Asset Management, already a lender and shareholder in the company. On a website the company created to address the Chapter 11 filing, leadership said it will “allow us to continue to operate as usual” and that employees’ jobs would not be affected. “McClatchy doesn’t undertake this restructuring lightly,” Craig Forman, CEO, McClatchy, said in a statement online. The company attracted $50 million in financing from Encina Business Credit to operate in the meantime.
One media buyer Adweek spoke with said the filing won’t have much impact on clients in the short term, since the bankruptcy allows the company to restructure its debts and clean up its pension obligations.
McClatchy has significant investments in local markets, with 30 media companies in 14 states including properties like the Miami Herald, The Sacramento Bee and The Charlotte Observer.
Giving a hedge fund control of a media organization is not unique for the industry, which has seen countless instances of such companies taking control of and whittling away newsrooms. Alden Global Capital, for example, ultimately offered buyouts to employees after it became the largest shareholder in Tribune Publishing with properties that include The Baltimore Sun and Chicago Tribune.
In January, Warren Buffett’s Berkshire Hathaway sold off its roster of 30 daily newspapers to Lee Enterprises for $140 million in cash.
“It is potentially an existential problem for the entire industry if this trend were to continue and if the hedge funds don’t make some kind of an investment in pivoting the business model in what is an ad-supported model to more of a reader revenue business model which, at the moment, is where it’s headed,” said Tim Franklin, former president of the Poynter Institute and senior associate dean at Northwestern University’s Medill School of Journalism.
The newspaper industry’s workforce dropped from 71,000 in 2008 to 38,000 in 2018, according to a July 2019 Pew Research report. Additionally, 20% of all U.S. newspapers have closed since 2004. Pew found that “the total estimated advertising revenue for the newspaper industry in 2018 was $14.3 billion.” Pew said that was down 13% from 2017 and that total estimated circulation revenue was $11 billion, compared with $11.2 billion in 2017.
The so-called “managed bankruptcy,” Franklin said, gives McClatchy a chance to keep the lights on and significantly reduce its debt load brought on by pension payments promised in the days of yore, as newspapers are left competing for digital ad dollars primarily soaked up by social and search. For example, Google made $134 billion in digital ad revenue last year, while Facebook took in $69 billion.
Total ad revenues at McClatchy in the fourth quarter of 2018, meanwhile, were $89.7 million.
“Operating with new ownership gives McClatchy a fresh start to reinvest in different areas of its enterprise,” said John Hyland, Centro’s vp of publisher solutions. “And it would behoove the ad industry to support principled, local-based, journalistic organizations because wide, low-cost access to news and information is an important aspect of democracy.”