A new chapter in the newspaper industry's tale of financial distress is taking shape -- soon individual newspapers and several whole chains are likely to pass into the hands of creditors in bankruptcy proceedings. In essence, the bankers and their consultants get the chance to see whether they can manage newspaper properties better than failed ownership groups swamped by debt.
New management teams could be in the works for other bankrupt companies like
Journal Register. Looking out further, solvent companies like McClatchy are in some danger too. Just Monday, the two biggest rating agencies
downgraded McClatchy's debt rating and said they thought the company eventually will be forced to default.
So what are banks going to do with newspapers and newsrooms once they are in charge? While such takeovers are common in some lines of business, like luxury hotels, this is uncharted water for newspaper organizations. In better times, newspapers in financial trouble were simply bought and folded into the operations of Gannett and other well-capitalized chains.
Providentially, I met a specialist in bankruptcy workouts and ownership change at a conference last week. He told me what is likely to happen when the bankers become the boss -- but on condition of anonymity because he and his firm are actively involved in several of the cases.
First, the change is not as abrupt as one might think because in the earlier stages of a bankruptcy, creditors are likely to have already brought in one or several consultants to assess strategic and operational issues at the company.
These can be as prosaic as whether the loading dock runs efficiently or as thorny as how best to structure a print/digital sales staff and their compensation incentives.
The bank ownership is typically for a relatively brief period -- six to 18 months -- with the objective of a sale at the end. The consulting team can slide into important operating roles. There is one exception -- the enterprise needs a president/CEO on the scene, especially at a newspaper where the publisher interacts with the community as well as the newspaper staff.
That will typically be an experienced, perhaps retired executive, credible in business and news circles. Two examples from non-bankruptcy situations: Burl Osborne, formerly publisher of the
Dallas Morning News, was appointed
interim CEO of Freedom Communications two weeks ago (after former CEO Scott Flanders left to run
Playboy). Jim Hopson, a veteran publisher and sometimes writer on industry business issues, is now
running the Daytona Beach News-Journal, essentially for the court as details of a complex lawsuit between minority and ousted majority owners are being resolved.
So watch for a cadre of interim publishers and CEOs to take the helm at newspaper organizations over the next months and years, maybe just a few, perhaps a substantial number.
It is fair to assume that there is not deep editorial experience in the ranks of creditors and their consultants. Reporters and editors may well worry that a change in ownership will inevitably bring more slash-and-burn cuts.
But maybe not. "That's a style of intervention that frequently does occur," in creditor takeovers, my source said, "but here there may not be much stubble left to burn."
His own work on newspapers in recent months, he added, convinces him that many, distracted by financial crisis, have taken their eye off the ball of content creation and satisfying core customers. Also, he added, "organizational fatigue," people worn down by the challenge of innovating and cutting back simultaneously, will be an issue for new management to address.
