GateHouse Media’s utter disregard for quality journalism

It’s never good news when New Media Investment Group, the parent company of GateHouse Media, buys your newspaper.

Wholesale newsroom cuts and outsourcing come next, as we have seen at five UMG-represented newspapers: The Peoria Journal-Star, State Journal-Register of Springfield, Rockford Register Star, Freeport Journal-Standard and Pekin Daily Times.

The Columbus Dispatch is a classic example. After New Media/GateHouse bought the newspaper, it set out to slash $10 million in costs within two years.

The Providence Journal has suffered similarly suffered under New Media/GateHouse ownership. After the newspaper changed hands, the Journal immediately laid off prominent journalists and scheduled the outscourcing of its entire copy desk.

Like so many other New England newspapers the company owns, the Journal is losing its identity through all the consolidation. Then there is the issue of advertorial content and the newsroom pressure to produce stories about advertisers.

The UMG is seeking journalism integrity language in our first contracts at the Register Star and the State Journal-Register. But negotiations have been difficult.

The company has become increasingly hostile toward the Guild in the past few years, drawing unfair labor charges from the NLRB in Rockford and again in Springfield.
State Journal-Register management is upset that our members at the State Journal-Register are gathering public support in their quest for a fair first contract.

And if all this is not bad enough, New Media/GateHouse is willing to flip properties to an agenda-driven owner — and then help that owner pursue the agenda at the cost of journalistic credibility.

It recently sold the Las Vegas Review-Journal, to the family of casino magnate Sheldon Adelson for a handsome profit — 69 percent by its own reporting. The sale was initially shrouded in secrecy.

But New Media/GateHouse continued managing the property and attempted to orchestrate an investigation of Las Vegas judges, including one presiding over litigation against Adelson.

Eventually a newspaper tied to the new Review-Journal ownership — but outside the New Media/GateHouse empire — printed a dubious story.

This fiasco drew national attention and forced the company to undertake an image clean-up operation.

But even after that move, journalists were essentially told to go easy on the newspaper’s new owner.

Industry analyst Ken Doctor noted that top company executives created a credibility crisis:

Kirk Davis, COO of New Media and CEO of Gatehouse Media LLC, has been publicly quiet, though associates say he now understands the depth of the controversy. Mike Reed, New Media Investment Group’s CEO and the company’s chief acquisitor, has so far shown himself to be tone-deaf to the multiple controversies. Largely declining comment, he told the Review-Journal little. It reported its conversation this way: “He also sidestepped when asked if his company or the casino mogul had already influenced editorial decisions made by Review-Journal Publisher Jason Taylor. ‘I don’t have a comment on that,’ Reed told a reporter. ‘My recommendation is focus your energy on making the brand stronger.’”

A newspaper brand, though, is nothing without the trust of its readers or its community, and that trust has been put into question.

This is what can happen at the dangerous intersection of vulture capitalism and journalism. Media expert Jay Rosen did an excellent job chronicling the whole sordid affair with this comprehensive blog post.

Rosen had this observation:

Gatehouse Media is the one who ordered R-J journalists to investigate three Nevada judges, one of whom turned out to be the presiding judge in a lawsuit against Sheldon Adelson’s company. When asked about it by reporters, Michael Reed, CEO of New Media Investment Corp., the parent company of GateHouse Media, declined all comment on whether Adelson was involved. That was a real confidence builder!

Reed said the effort was part of a “multistate, multinewsroom” investigative effort initiated by GateHouse. Really? What was this project all about? Reed said he did not know who started it or who approved it. Weird. Big investigative efforts are launched but nobody at this company knows why, or who gave the order.

We will continue reminding New Media/GateHouse shareholders that quality journalism is essential to the company’s future.

New Media/GateHouse is not committed to the long-term quality of its properties. GateHouse Media collapsed once under $1 billion in debt, rendering its stock worthless.  Then it emerged from bankruptcy as an even bigger and more ambitious company — New Media Investment Group — spun off from another Fortress Investment Group entity, Newcastle Investment Corp.

Once again it was run by Michael Reed and Kirk Davis. It is managed externally by the folks at Fortress, who collect management fees for building a bigger business, not necessarily a better one. This is how private equity vehicles work. Fortress has drawn scrutiny for its private equity vehicles in other industry, notably sub-prime lending and golf course management.

The Clark Street Value had some concerns about the external management arrangement when New Media Investment Group was born.

The blog noted: “The management fee is based on assets which essentially incentivizes them to increase the asset base irrespective of the price they pay for the assets, and . . . the incentive fee may cause the manager to take unnecessary risks as their payoff is skewed to the upside and they don’t participate equally in the downside.”

Sure enough, last year John Levin, chairman and chief executive of Levin Capital Strategies L.P., sent an open letter to Fortress co-chairman Wesley Edens expressing concern about the eternal management of New Media and two other companies spun off Newcastle.

As the Cole Group noted in its media newsletter:

Levin is calling for Edens and Fortress to separate management of these companies, which will force the chief executives like Reed to focus on all the shareholders, not just Edens. Additionally, Levin wants more independent directors.

That sounds like a great idea in the wake of the Review-Journal fiasco that exposed Reed’s lack of concern over this astonishing scandal.