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“Tying together two rocks doesn’t make them float”: Why newspapers are facing the end of scale

Years ago, just as the rumours of Microsoft buying Nokia were hotting up, I was speaking at a conference with media futurist Robert Tercek. As we shared a car to an interview, I asked him what he thought about the potential tie up. “Tying together two rocks doesn’t make them float.”

Robert’s assessment immediately came to mind when I heard the latest round of merger and acquisition rumours that are swirling around the large US newspaper chains. More consolidation will be next to pointless unless the savings can actually solve the industry’s business model problems. If it’s just yet another cost-cutting exercise, then it really is just tying together rocks.

‘Bulk Up and Trim Costs’

The major chains have been cutting relentlessly for years, trying to outrun the collapse in print advertising while they attempt to shift readers and advertising to digital and develop new sources of non-advertising revenue.

I know about the cost-cutting first hand. In 2014, I moved from the UK back to US to take a role as a regional executive editor with Gannett. I managed a couple of small newspapers in Wisconsin, just a few hours away from where I grew up. I joke that the role lasted a mere 21 months, and I survived the first six rounds of cuts but not the seventh. It’s not really a joke, though. The cuts came in all shapes from basic budget cuts to hiring freezes, early retirement schemes and a massive reorganisation. The papers have just a quarter of the local staff now that they did when I walked into the newsrooms in February 2014.

The latest rumour is that Gannett, which operates as Newsquest in the UK, is in merger talks with Gatehouse. In the US, Gannett owns 109 daily newspapers, and Gatehouse owns 156. If it actually comes off, the tie up would result in a massive chain of 267 daily newspapers, about one in six of every daily newspaper in the US, according to industry analyst Ken Doctor.

Gatehouse has a reputation for buying up huge swathes of small and mid-market newspapers and then cutting them. They recently cut 200 jobs across their titles. Gatehouse seemed reluctant to talk about the most recent job losses, but then most of the major chains have glossed over or been tight-lipped about their cuts in recent years.

But the logic of these mega-clusters, as Ken calls them, is radically different than it would have been decades ago when the mega-chains were emerging. Then it was about building chains with 20 to 30 percent profit margins.

Now with scale comes savings and a hope for survival. This merger could save $40 to $50m, accoding to the industry analysts Ken quotes, achieved by getting rid of redundant C-level execs and expensive headquarters, centralising production and reducing what little administrative redundancy remains.

Ken has been predicting all year that one major deal could trigger others. The major chains Gannett, McClatchy, MNG (owned by vulture fund Alden Global) and Tribune have all been circling one another. Gannett has just fended off a hostile bid from MNG, and Gannett’s flagship national title, USAToday, reported that its parent company was in talks not only with Gatehouse but also McClatchy and Tribune.

Quoting reports in the Wall Street Journal, USAToday reporters said the goal of Gannett’s merger talks was to “bulk up and trim costs”. That seems like tying together rocks thinking.

What Has Decades of Consolidation Delivered?

My issue with newspaper consolidation is that this strategy didn’t start with the rise of Google and Facebook. It has its roots in the rise of television and radio, and while it delivered the illusion of a golden age of one-paper towns and monopoly rents, it hasn’t delivered a new durable business model.

Aron Pilhofer, who held several senior digital positions at the New York Times and The Guardian, said on Twitter of Ken Doctor’s analysis about the proposed Gannett and Gatehouse tie-up:

Damon Kiesow worked as the director of product for McClatchy until recently and is now the Knight Chair in Digital Editing and Producing at the University of Missouri School of Journalism said:

When I put to him my tying together two rocks observation, he said that this was about buying time. But time to do what? And how long does it buy them?

What about the next recession?

The chains are seeing digital revenue growth but even if they are seeing digital profits, they are still staring into the teeth of a massive print advertising recession, with another 10 to 15 percent drop expected this year, according to Ken Doctor.

However, more than the current business climate, the thing that worries even the most optimistic, forward-thinking editors in the US is what happens when the business cycle turns and the next recession hits. Newspapers have long been a cyclical business. They roar during the booms and weep during the busts. The difference in this business cycle is that US newspapers have been fighting a losing battle during what is arguably the best economy in three or four decades. If their businesses aren’t storming now, what will happen when the next economic crisis comes?

I think I know the answer. When I was at Gannett, the reorganisation that was dubbed the Newsroom of the Future and that I helped with as part of a national steering committee, was supposed to buy the group a few years of breathing room. If one looks at Gannett’s performance, it’s clear-eyed not churlish to say that it bought the company nothing. The cuts have continued unabated and Gannett, once the titan of US newspapers groups, now looks like an aging prize fighter staggering around the ring waiting for the bell to close out the next bruising round.

The savings from this round of consolidation will disappear into the maw of the next recession leaving precious little left for the business transformation that these groups and the communities they serve need.

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