Whether the Orange County Register, its parent, Southern California News Group, and group parent Digital First Media Corp. are profitable is an open question. They’re all private entities, majority-owned by another—New York-based hedge fund Alden Global Capital, and it doesn’t disclose financials, much less break them out, doesn’t have to.
But following a summer buyout that didn’t devolve into layoffs and some optimistic talk by execs about the efficacy of digital initiatives, the latest restructuring was reportedly surprising to some.
Various sources and media reports confirm the layoffs at SCNG and much of Digital First—it owns about 100 papers, including other venerable titles, such as the San Jose Mercury News and Denver Post—will be enacted this quarter, start with sports, features and photo, move onto news, and then design. The cuts will likely impact all 11 of SCNG’s dailies—L.A. Daily News, Press-Enterprise in Riverside among them—and other publications, like Coast Magazine. Summer buyouts reduced SCNG’s payroll by 65 to a reported 315. Pending layoffs will likely cut deeper.
What will OC’s 112-year-old metro look like come spring? “We’re still having those conversations,” SCNG President and Publisher Ron Hasse told the Business Journal. “Too early to comment. Ask again in 90 days.”
In their heyday, newspapers boasted among the highest profit margins in business—20% to 30% was common. A few under Digital First can make that claim today.
“My home paper is the [Digital First-owned] Santa Cruz Sentinel. It has no paper competition, no TV, its profit margin is in the 20s,” said Ken Doctor, one of the nation’s top authorities on newspaper economics.
“Twenty-five percent. And they just cut out freelancers.” The author of “Newsonomics” said he doesn’t know specifics about SCNG’s bottom line. He nor anyone else suggests salad days are back at the Register.
Hasse has talked about the positive “returns” on digital readership. “Digital audience numbers soared by more than 30% last year. We expect similar gains this year, and will monetize the digital audience gains through advertising,” he said. If he’s moved SCNG into the black, even modestly, the Sentinel example suggests that’s not enough to stave off further cuts, as evidenced last week.
And maybe not enough to stave off a sale. “When I see cuts this deep, I think it’s to ready a sale,” Doctor said.
He knows the marching orders to Digital First’s newspaper brokers. “They’re told if you can get four to 4 ½ times EBITDA, it’s a sale.” Digital First tried to sell its whole roster of papers a few years back. It’s since sold singles, like the Salt Lake Tribune.
“If you’ve brought down expenses to hit a target EBITDA, OK, but there’s concern about quality of the product,” former Chapman University President Jim Doti said. The economist led a consortium of locals who tried to buy the then-Freedom Communications papers a few years ago.
“I don’t have access. It seems investors got back most of their investment in land and asset sales,” Doti said. “If they were able to bring their net investment down to $20 million and have net income of $2 million, that’s a 10% rate of return. But hedge funds, private equity, generally not in business to make annual returns.”
The Santa Cruz Sentinels are the newspaper anomalies. Benevolent billionaires, Jeff Bezos’ Washington Post, John Henry’s Boston Globe, Glen Taylor’s Minneapolis Tribune have invested in the product, added content and talent. But the gains in readership and revenues haven’t been commensurate.
“They’ve done everything in Minneapolis,” Doctor said. “Added people, new sections. Good paper. The financial gains have been skinny.”
“Revenue generation is a long-term proposition here,” Doti said.
“There were seminal studies, white papers in the ’90s that saw these trends coming,” said Norberto Santana, a former Register investigative reporter and founding publisher of the nonprofit Voice of OC, which covers politics and government.
“They talked of digital taking ad revenues, of declining readership of large newspapers. The trends have been borne out.”
SCNG and Digital First haven’t ignored the evidence. Ad dollars are down as much as two-thirds since 2006, according to Pew Research Center. It’s funded Adtaxi, a company-owned digital marketing agency focused on conversions, not impressions, and e-commerce for advertisers.
Unplanned fortuitous events still happen—like the Donald Trump presidency, always good copy, whetting news appetites.
But for every step forward …
Facebook’s decision to pare back news content in its feed is the latest blow. The site accounts for as much as 40% of digital newspaper readership—“trouble for the ecosystem of companies that have come to rely on its platform,” opined the Washington Post.
Barbara Bain’s Dog
The good ol’ days were also reflected in robust content. How robust? A delivery boy tossed an L.A. Times in the mid-80s, so morbidly obese was the paper it crushed “Mission Impossible” actress Barbara Bain’s dog—so the urban legend goes. The unquestioned reality in 2018 is that any canine could have walked off the injury.
“How much more can you ask of advertisers for a weekly buy … with less content and fewer readers?” said Doctor, who spent 20-plus years at Knight Ridder and is a columnist for Harvard’s Nieman Journalism Lab, a center “dedicated to help journalism figure out its future in an Internet Age.”
In different times, last week would have been a celebratory one for the Register. Award-wining journalist Teri Sforza’s summer exposé on the state’s proliferating addiction-treatment centers “moved the needle,” prompting legislation this week introduced by state Sen. Pat Bates, R-Laguna Niguel, in Sacramento.
“Consummate professionals … take pride in what they do,” Hasse said. “That hasn’t changed throughout the Register’s 112 years, or will it change.”
The excellence clashed with economic reality.
“Has to be incredibly devastating,” said Santana at Voice of OC.
“Local papers do a great public service to connect communities, do some accountability journalism,” said Dennis Foley, a 45-year newspaper veteran, many of those as a Register editor. “That just gets less and less as people go away from journalism.”
Voice of OC has grown revenue 50% from a modest base while paring back on donations like Santana received from founding sponsor Orange County Employees Association. He anticipates growing his model—geographically.
“Plenty of people care passionately about their community,” he said. “Without entities like ours, meetings wouldn’t get covered. Things like sports, even prep sports—a lot of places for readers to go.”
Company
SCNG has company among other legacy and mass media, though not to the same degree. Movie theater ticket sales just hit a 24-year low.
Broadcast television? NFL ratings—NFL!—sank double digits.
But it’s clearly a digital and niche world in today’s media.
Doti’s unsure if his group would come together again. “The assets, like the land, are gone. We’d have to look at solely the viability of a slimmed-down paper. A buyer would be looking at significant investment.”
Hasse is sanguine.
“In our ever-changing digital world, I don’t think any media organization has truly cracked the code … in building an equitable model for local journalism,” said Hasse, who’s spent his entire career with Southern California papers, including the Times and Daily News.
“Striking an effective balance between … a strong local voice in our communities while meeting the expectations of all stakeholders is a challenge I fully embrace.”
