The news that The International Falls Journal in is ceasing publication is both shocking, and not all that surprising. Most Timberjay readers have undoubtedly heard of the financial challenges that newspapers are facing across the country, with the loss of print advertising to the web and the effects of the COVID-19 pandemic. Those pressures are affecting every newspaper, from major dailies to small town weeklies.
But the Journal fell victim to an even larger problem— the unrelenting focus on the short-term bottom line by its hedge fund owner, Alden Global Capital, based in Manhattan.
Alden is a hedge fund, one that has become notorious in the newspaper industry for its business model of buying up newspapers and gutting newsrooms in an attempt to boost profits in the short-term even as they foster what has become a death spiral for far too many once-proud publications.
Newspapers are a business that provide a critical function in every democracy. In small towns, a newspaper that does its job sends experienced journalists to local government meetings, from city councils and committees to the school board, so local residents can keep tabs on the folks who are running their town or educating their kids. They cover local events, school happenings, and high school sports. Newspapers that are doing their job are also investigating issues, serving as public watchdogs.
All of these functions require ambitious journalists who care about their craft, which means when hedge funds take over and fire all but a skeleton crew of reporters and editors, most of the important news for such a community never gets written. Over time, readers notice and don’t renew subscriptions. Advertisers recognize that the paper doesn’t command the readership it once did and redirect their advertising elsewhere. It’s a downward spiral, which for the Journal, proved fatal barely a year after Alden’s acquisition of Red Wing Media, a regional chain that included the Journal. While the COVID-19 pandemic likely hastened the Journal’s demise, its death was baked in the cake for a predatory company like Alden. One might wonder how it makes sense to buy newspapers only to shut them down. But hedge funds, like Alden, are ruthlessly efficient at extracting profits from a newspaper even as they dismantle it. It can take a few years for the effects of massive staff layoffs to really be felt in the bottom line, since many subscribers will continue to buy the paper if only because there is no alternative source of reliable local news. The cutbacks boost operating profits, although it’s only a short-term sugar high that leads to the inevitable crash. In the meantime, the company has extracted its money in other ways as well, stripping assets like printing presses, real estate, and cash reserves.
Hedge funds like Alden don’t care about news or the sense of community mission that is so intricately tied to small town newspapers. Many, if not most, of their clients don’t even reside in the U.S. In many cases they couldn’t find the communities whose newspapers they own on a map. They care only about money today and couldn’t care less what they leave behind for tomorrow.
This can’t be allowed to continue. When it comes to local news, there is no alternative to the newspaper. While Facebook and Google are happy to direct readers to local news, that original source is almost always from a newspaper. And relying on anything else that appears online is a fool’s errand.
Sen. Amy Klobuchar has proposed a congressional commission to examine the current state of local news and develop new government policies that could help local papers survive. Hopefully, Congress will take action, such as enacting laws that make it easier for a newspaper’s own employees to assume ownership, either through a workers’ cooperative, a non-profit corporation, or the creation of a public benefit corporation. Newspapers have a public mission, which makes them a good fit with non-profit or public benefit governance.
New rules that require more transparency from hedge funds, and which bar hedge funds with majority foreign ownership from buying newspapers in the U.S, would also help.
In truth, most newspapers still make money, just not enough in many cases to satisfy predatory corporate owners. But that shouldn’t be used as justification to silence local journalism and put our democracy at risk. With the right incentives and corporate legislation, newspapers like the Journal could continue to fulfill their mission for years to come. Congress should act, and the sooner the better.