Alden and other venture capitalists threaten journalism’s role in democracy

By Margot Susca

From “Hedged: How Private Investment Funds Helped Destroy American Newspapers and Undermine Democracy” by Margot Susca. Copyright 2024 by the Board of Trustees of the University of Illinois. Used with permission of the University of Illinois Press.

Warren Buffett’s Berkshire Hathaway had a dalliance with the chain newspaper market, acquiring in 2012 dozens of newspapers from Media General, based in Richmond, Virginia, for $142 million and operating them as BH Media Group. The deal registers as a blip in Berkshire Hathaway’s 112-page annual report, which explained that the conglomerate that year “achieved a total gain for its shareholders of $24.1 billion.”

With the $142 million media deal, BH Media Group took control of newspapers throughout Nebraska, North Carolina, and Virginia in addition to a number of other small and midsized titles, including the Tulsa World in Oklahoma and the Morning News in Florence, South Carolina.

News wasn’t new to the Omaha-based company. Berkshire Hathaway had for decades owned the Buffalo Evening News and controlled shares of the Washington Post’s former parent company before buying the bulk of Media General’s print properties

In 2018 Lee Enterprises began managing BH Media Group’s newspapers in addition to its own. Less than two years later, Berkshire Hathaway no longer appeared interested in the media sector despite Buffett being described as a longtime newspaper booster, and the investor known for long- term strategies called the industry “toast.”

The Wall Street Journal headlined Buffett’s exit: “Warren Buffett Is Giving Up on Newspapers.” Buffett’s mega-company sold the newspapers to Lee for $140 million, and the Iowa-based chain grew larger, with print and digital products serving seventy-seven markets in twenty-six states.

In January 2020 Buffett wanting out of the newspaper business felt like a severe blow, the final gasp in a long line of death rattles because the grandfatherly Nebraska billionaire couldn’t or wouldn’t help fix it. But like so many stories about newspapers, chains, and their problems, there’s always more beneath the surface. Buffett may have given up on owning, but newspapers are still making Berkshire Hathaway money.

The conglomerate provided financing for the Lee deal through its BH Finance subsidiary and refinanced its earlier debt. Lee Enterprises is scheduled to repay Buffett’s company $576 million at a 9 percent interest rate over twenty-five years.

The deal, built on Lee’s newspapers and its debt, stands to make Berkshire Hathaway nearly $1.3 billion in interest over the term of the loan.

Buffett is the world’s sixth richest person, according to the Forbes 2021 World’s Billionaires List.

Meanwhile, a different financial segment of wealthy private investment fund investors and owners are profiting off newspapers as they simultaneously run them into the ground.

The story of today’s newspaper industry, as it has been throughout American history, in many ways is a story about money. American newspapers in the late twentieth century made stratospheric revenue, earning at the peak 20 to 30 percent profit margins, but that changed in the first decade of the new millennium as advertising revenues plummeted.

But newspaper companies even then pulled 8 to 15 percent profit margins, matching or beating the average earned by S&P 500 companies.

Still, today’s narrative of newspapers in crisis belies this economic reality.

Have a casual conversation with anyone about the newspaper marketplace, and it’s likely to focus on the money lost. It’ll veer toward advertising revenue lost to free internet sites, money lost when subscribers cut and run, and corporate newspaper stock prices plummeting. Someone will mention Buffett’s exit from the business as a sign of its demise rather than a feature of distressed debt markets and the digital future.

In the last two decades, as private investment funds have taken a larger role in America’s top newspaper chains, I would argue that it has become a story not just about money but about a lot of money. Billions of dollars have changed hands as newspaper chains have been swapped and sold.

I don’t think the most important story of contemporary newspapers is a story of money lost, although ours is an industry in crisis. Its most important story is about money being made, often disguised behind the facade and tired trope of a failing industry.

Consider that in May 2021, when hedge fund Alden Global Capital took full control of Tribune Publishing, the newspaper company was “profitable and [had] more than $250 million in cash.”

While the operation of hedge funds has received notable attention in recent years—they’ve been called parasites,

vampires, and vultures—private equity firms arrived to the newspaper marketplace first, pressuring newsroom managers for greater returns, stifling innovation, and pushing for mergers and acquisitions that inflamed the debt.

For two decades, wealthy firms have chipped and chipped some more at newspaper companies by cutting coverage and staff to maximize their bottom line. And counter to those aims, good journalism costs money.

The biggest winners since the private investment era began in 2003, capitalizing off what’s left of the newspaper market and bleeding it dry, have been hedge funds like Alden and private equity firms like Fortress Investment Group, which took tens of millions of dollars in management fees from the GateHouse and Gannett chains.

These firms have profited off an industry in flux, an industry that for years failed to adjust and to pivot to the digital realities shaping today’s media marketplace.

This article examines the money circulating in and around the contemporary newspaper industry by looking at financial firms that own or influence chains, including Digital First Media, Gannett, Lee Enterprises, McClatchy, and Tribune Publishing, though it explains other chains affected by private investment funds, too, including those that no longer exist or were consolidated to form these chains.

In reality, if you view these newspaper chains by their private investment fund owners and investors, a small group appears frequently over these last twenty years, sometimes in unison to finance block- buster deals or sometimes against each other to fight out ownership in court. While in October 2022 three of the top newspaper chains were owned by two different hedge funds, both Gannett and Lee are influenced by institutional investors, too. Gannett has ties to private investment firms Apollo Global Management, BlackRock Inc., and Fortress. Alden in November 2021 put Lee on notice that it wanted to take over the company, and the fight went to court.

As of October 2022, Lee Enterprises won the latest round, but Nasdaq records based on 13-F filings show that institutional investors, among them BlackRock, still control nearly one-third of Lee shares.

Not all American newspapers are owned or influenced by private investment funds, but the aforementioned chains are, and their influence in the name of profit forms the basis for this article’s major arguments and my construction of the private investment era to tell this story.

The private investment era has five defining features: overharvesting, mergers and acquisitions, debt, layoffs, and neglected audiences. These are unique yet interrelated characteristics that stem from private investment funds’ influence and ownership, which have weakened newspapers’ normative role in democracy.

I see…the last twenty years as a way to chart the causes and consequences of this ownership and investment. Certainly, other issues—among them trust, analytics, and social media—exist. I would argue that those are by-products of the same power structures I have studied.

In situating the document and in-depth interview research that led me to conceptualize and chart the private investment era, I believe its five defining features act as a helpful heuristic and entry point to the overarching issues impacting newspapers over the last twenty years that have been influenced by private equity firms and hedge funds.

It is my hope—in characterizing the influence of private investment funds in the marketplace as a newspaper era—that we have a more succinct model to understand the last two decades of newspaper history.

These last twenty years have been similar to past newspaper eras, which have their own unique characteristics born of the economics, social conditions, and politics of their own times.

This work examines and contextualizes the role of private funds in the newspaper marketplace before, during, and after the crucial period of advertising loss to free online sites and 2008’s Great Recession.

Commercialism has been part of the US newspaper marketplace as long as we have had newspapers and, I would argue, has long been its defining feature. By the 1990s, public newspaper companies offered investors steady returns up to 20 percent, with larger takes in some markets.

Brian O’Connor, whose award- winning newspaper career spanned forty years and included a stint as a Knight-Bagehot Fellow in economics and business at Columbia University, worked at Tribune’s South Florida Sun-Sentinel. “The only way you could have made more money was to have the printing presses crank out $10 bills,” O’Connor remembered.

The commercialism of the private investment era should be understood as what it is: a natural extension and progression of the centuries of profitable American print journalism that came before it. Any story about extreme wealth must expand to examine inequality, including inequality between investors and newspaper staff writers who face near-constant pressure of layoffs and inequality between who gets a platform for their issues and who does not.

And, crucial to the debate about newspapers in crisis, there is the inequality inherent between the information needs of citizens in a democracy compared to what is provided to them in the digital and print pages of news- papers beholden to private investment funds.

Into the twenty-first century, efforts to maximize revenue came amid a digital transition, with companies influenced or run by nonnewspaper managers who were seeking to save or to raise those stratospheric earnings that O’Connor remembered. When private equity billionaire Sam Zell used a complex system of leveraged financing to buy Tribune in 2007, internal company records from his

leadership team showed their take on the business. In one memo dated August 9, 2007, an executive from his private equity company wrote to Zell about Tribune: “We want the company to move toward maximizing profit-ability.”

That same document encouraged Zell to appoint someone to the board of directors: “His appointment signals that journalism is an important element of the business—not the only or even the most important element.”

Later, watching companies like Tribune destroyed by debt but still influential and profitable, hedge funds were the sharks that smelled blood in the water and struck, transforming the debt to equity and then dismantling the newspapers piece by piece.

Hedge funds like Alden have earned reputations for redefining even the most cutthroat business practices, and now they’re among the country’s largest newspaper chain owners.

Margot Susca is an assistant professor in the School of Communication at American University.