Peoria Pundit

NOTE: GateHouse Media, the parent company for the Peoria Journal Star, TimesNewspapers and other dailies and weeklies in Illinois and other parts of the country, today saw the price of its stock drop to 56 cents a share before closing at 72 cents. The same stock once sold for more than $20 a share. The company is at serious risk of being delisted from the New York Stock Exchange and there’s speculation the company might have to declare bancruptcy and sell off it’s assets.

Lauren Rich Fine was a newspaper analyst and the managing director-corporate strategy and research for Merrill Lynch, New York, before retiring to become Practitioner in Residence at Kent State University’s College of Communication and Information. She also is a member of the Advisory Board of the Poynter Institute. I contacted her to get her perspective on the GateHouse Media mess and how it might affect the Peoria Journal Star.

Peoria Pundit: It wasn’t all that long ago that GateHouse seemed like the next big thing in the newspaper industry. It was gobbling up newspapers left and right. Was what happened just part of the general downturn in the newspaper business or was it due to GateHouse’s business model in some way?

Lauren Rich Fine: During a period of economic growth coupled with low interest rates, GateHouse’s strategy made sense. They could use the ample free cash flow they were generating to pay dividends, pay interest, and reduce debt. When cash flow gets squeezed by an economic downturn, the leverage can be catastrophic. Personally, I was surprised by the success of the IPO. The short answer is, all newspapers are suffering so it isn’t surprising that Gatehouse’s are as well, but having an increased debt load compounds the pain, much as it is doing with McClatchy and others.

PP: What are GateHouse’s prospect’s for surviving? And what do you think the company’s next steps are?

LRF: I don’t know the company well enough to comment. It depends on whether they go into bankruptcy and/or can financially restructure fast enough.

PP: The Peoria Journal Star is actually one of GateHouse’s largest newspapers in terms of circulation. Can the Journal Star be sold off, and how much would GateHouse get, do you think? What about smaller dailies and nearby weeklies? Who would buy then in today’s market? The JS bought a brand new printing press a year or two before the GateHouse purchase and presumably owns money on it still. Also, the JS is union. Do these issues complicate matters?

LRF: There are no named buyers for papers right now. Landmark properties have been on the block since the beginning of the year. Big papers like Newsday attract big money buyers who can afford to lose a few bucks. If there are wealthy philanthropic people in Peoria or some corporation with a heart or passion for democracy, they are the likely buyers. No way to value the paper due both to lack of data and no sense of how close we are to the buyer. Being unionized isn’t necessarily an issue as a buyer can buy the assets, close the doors, de-unionize and tell folks to reapply for their job.

PP: Wouldn’t any new buyer also want to cut costs, too?

Of course.

PP: On a more philosophical note, what does the decline in value of newspaper companies say about how much Americans value the newspapers? Is all this just part of the eventual migration from print to online?

It is probably both indicative of the migration but also the change in how consumers get their news; more opinionated sites are doing well, like Drudge, huffpo [Huffington Post], etc. Also, economics at play: Excess supply, unchanging to declining demand.