What The Denver Post did not say about Vulture Capitalism and Newspapers?

The editorial staff at one of America’s greatest newspapers; The Denver Post, made a desperate plea to readers and owners on Sunday April 8, 2018.

Post editors pleaded with the paper’s owner hedge fund Alden Global Capital to stop massive job cuts in the newsroom in an editorial that attracted national attention. The editors want to stop Alden subsidiary; First Digital Media, from laying off 30, nearly one third of the paper’s editorial staff of 100.

The editors lashed out at Alden for what they call vulture capital. Among other things they accused the fund of cutting expenses at newspapers to cover losses from a failed attempt to take over the drugstore chain Fred’s Inc. (NASDAQ: FRED).

Alden hoped to make a killing if Fred’s took over hundreds of locations from the ailing pharmacy operator Rite Aid (RAD) which was being sold to Walgreens (NASDAQ: WBA). That deal collapsed when the Federal Trade Commission (FTC) failed to approve it causing Walgreen to buy a smaller number of Rite Aid locations.

The Denver Post will be rotting bones

The editors fear that The Post will not be able to retain enough advertising and readership to survive because of limited content. The paper might not have enough reporters to all the news occurring in the city.

“The smart money is that in a few years The Denver Post will be rotting bones,” the editorial predicts. “And a major city in an important political region will find itself without a newspaper.”

If that comes true it will be a first for a major American city. Denver’s other daily; The Rocky Mountain News, folded in 2010. Would smaller, regional publications, websites, or TV stations; which are struggling with plummeting advertising revenues, fill the void? Nobody knows, but void left by The Post will be hard to fill.

The Post is a regional newspaper that at one time was the most important news outlet in Colorado, Wyoming, and New Mexico. It also serves as a feeder to the Associated Press; providing content about the federal government, the Colorado State legislature, and regional news to many other publications, websites, and broadcasters.

That is threatened if The Post lacks the resources to cover the news. A danger is that The Post would simply reprint press releases and wire service stories meaning it would no longer be a serious newspaper. There would be no way for the paper to serve as a watchdog, or even provide an accurate view of local events.

Can Newspapers Survive?

It is possible for newspapers like The Denver Post to survive. There are two proven models for survival of independent and effective news organizations.

The first is to set up an independent organization that reinvests all the company’s profits in survival and news operations. To achieve that the organization needs a large footprint and organization, The New York Times succeeds this way but it’s The New York Times. The New York Times Company (NYSE: NST) is a publically traded corporation, but its historic owners; the Ochs-Sulzberger family controls most of the stock. Another newspaper has succeed this way is Britain’s Guardian which is owned by an independent foundation.

The Times operates in a city of 19.86 million people and it has an incredible reputation as the nation’s paper of record, two assets that can generate a lot of cash. More importantly it has owners; the Ochs Sulzberger family who are dedicated to the paper’s survival.

Such a strategy might be viable in today’s world if its practitioners can harvest streams of income like digital advertiser and selling data about readers. One interesting opportunity will be the sale of personal data with the help of blockchain based solutions like Opiria or the Basic Attention Token (BAT).

A second strategy The Times has partially pursued is to find a deep-pocketed owner committed to the company’s survival. This is what The Washington Post did by selling itself to the world’s richest man, Amazon (NASDAQ: AMZN) CEO Jeff Bezos.

Magazines like The Atlantic, The National Review, and The Nation have survived this way for generations. Even the Ochs-Sulzbergers sought the help of one of the world’s richest men; Juan Carlos Slim of Mexico, by selling him a share in The New York Times.

The drawback to this strategy is that when the billionaire savior dies or loses interest the paper will get sold or folded. Many observers expect that the money-losing tabloid The New York Post will fold when its media mogul owner Rupert P. Murdoch dies. Murdoch, an old school newspaperman, has a soft spot for sleazy tabloids in his heart.

A Billionaire to the Rescue

This seems to be what The Denver Post staffers are pleading for. They appear to be begging one of Denver’s resident billionaires; such as Phil Anschutz, John Malone of Liberty Media, Ken Tuchman of Teletech, or Dish Network founder Charlie Ergen to ride to the rescue with his checkbook.

A dark horse savior would be a newspaper-loving out-of-town billionaire; such as Warren Buffett who owns The Omaha World-Herald and The Buffalo News, or Bezos. Unfortunately no billionaire has shown public interest in The Denver Post yet, although the editorial might pique one’s interest.

There is no guarantee that a billionaire rescuer will appear and if one does not Denver might embark on an interesting experiment. It would be the first major US city without an effective daily newspaper. Nobody knows what the effects of that would be on civic life or regional politics.

If The Post dies it will be sad, I have fond memories of reading the paper as a kid, particularly the comics. Back then there were two kinds of families in Colorado; those who read The Post, and those who read The News, I came from a Post family. Tellingly, I have not read a paper edition of The Post in a couple of years — they no longer deliver it to my neighborhood.

What the Post Editorial did not Tell You about Newspapers

There is another side to the newspaper die off that The Post editorial writers did not mention.

American newspapers are struggling to survive because of the way they treated their advertisers. Until the turn of the 21st Century newspapers; especially dailies, had an effective monopoly on most advertising in most American communities.

Newspaper owners abused that monopoly terribly by overcharging, defrauding, ripping off, and fleecing all of their advertisers. High rates, inflated and often fraudulent circulation figures, slimy marketing, horrendous customer service, sleazy circulation scams, and high-pressure sales tactics were the order of the day. Every advertiser in town from the old lady running a want ad for a garage sale to supermarkets was a hostage to this horrendous order and got ripped off through it.

When digital advertising solutions like Google appeared, they easily stole most of the newspapers advertisers and it is easy to see why. Google was able to offer demonstrable and quantifiable readership something newspapers never attempted. Its owner Alphabet (NASDAQ: GOOG) controlled 42.2% of US digital advertising in 2nD Quarter 2017, according to eMarketeer.

Journalists bear part of the blame for this situation because they ignored the abuse of advertisers; while cashing the big paychecks advertising revenues generated. The reporters and editors are now paying the price for not asking how the money was made.

The journalists only realized how important the advertisers were when they were gone. One has to wonder if the software engineers at Alphabet (NASDAQ: GOOGL) and Facebook (NASDAQ: FB); which control 63.1% of digital advertising revenue in the United States, will suffer a similar fate.

Written by

Daniel G. Jennings is a writer who lives and works in Colorado. He is a lifelong history buff who is fascinated by stocks, politics, and cryptocurrency.

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