NEW YORK – McClatchy, the publisher of the Miami Herald, Kansas City Star and dozens of other newspapers, has filed for bankruptcy as it struggles to repay debt as its revenues dwindle as more and more more readers and advertisers connect.
McClatchy said Thursday his 30 newspapers will continue to operate as normal as he reorganizes under Chapter 11 bankruptcy protection, aided by $50 million in funding from Encina Business Credit.
The company hopes to emerge from bankruptcy protection in a few months as a private company, majority-owned by a hedge fund that is currently McClatchy’s largest shareholder and creditor, Chatham Asset Management. This would end 163 years of family control.
It is also seeking to offload its pension obligations to a federal corporation that guarantees pensions, so that employees get the benefits to which they were entitled.
McClatchy didn’t announce any layoffs and tried to reassure employees, saying that while “we’re always looking for opportunities to improve operational efficiencies,” the Chapter 11 process is “not focused on cost reductions.” .
The newspaper industry has been deeply affected by developments in technology that have sent the vast majority of people online in search of news. Media companies have attempted to move online, with varying degrees of success, as their advertising revenue and circulation dwindled. To complicate matters, internet companies Facebook and Google receive most of the online advertising dollars.
While some national newspapers, like the Wall Street Journal and The New York Times, are adding digital subscribers, helping them weather advertising declines, many local outlets have fallen on hard times. This has led to a series of consolidations, largely involving investment firms, heightening concerns about declining quality as newsrooms shrink and newspapers close.
Gannett, the publisher of USA Today, was bought last year by GateHouse, a channel run by private equity firm Fortress, in a deal aided by a $1 high-interest loan $.8 billion from another financial company, Apollo. It is the largest newspaper chain in the United States. Another big channel, MediaNews, is owned by a reputable cost-cutting and job-cutting hedge fund, Alden Global.
News companies have gone through a series of Chapter 11 reorganizations in recent years. The publisher of the Philadelphia Inquirer and Philadelphia Daily News emerged from bankruptcy protection in 2010, the Chicago Tribune and Baltimore publisher Sun Tribune Co. in 2012, and GateHouse in 2013.
McClatchy’s bankruptcy filing “sounds alarm bells for local news,” said Rick Edmonds, business analyst at Poynter Media. “McClachy’s problems are very typical of local newspapers,” he said, as the industry grapples with an old business model that is deteriorating faster than digital and other new revenue rises. .
McClatchy’s 2006 purchase of the Knight-Ridder newspaper chain for $4.5 billion added to McClatchy’s debt and contributed to his financial woes as the industry’s decline accelerated in subsequent years. .
Although financial results are not yet final, the company estimates that 2019 revenue fell 12.1% from a year earlier, its sixth consecutive annual decline. McClatchy said its digital-only subscriptions grew nearly 50% to 200,000 over the past year.
But that growth hasn’t made up for the loss of advertising revenue that once accrued to its print newspapers.
In court documents, McClatchy said 40% of his revenue now comes from digital sources. He said he was trying to stop relying so much on advertising. He said half of his income now comes from advertising and the other half from broadcasting. The company said that for 2019, ad revenue fell 19%, while broadcast revenue fell 5%.
McClatchy struggled to pay amounts owed to his pension fund and began negotiations with the Pension Benefit Guaranty Corporation, a federal pension guarantor, to take control of it. In Thursday’s filing with the United States Bankruptcy Court in New York, he seeks permission to name that company as the plan’s trustee. McClatchy said “substantially all” plan participants and beneficiaries should get the benefits to which they are entitled.
McClatchy plans to delist from the New York Stock Exchange as a publicly traded company. Chatham Asset will be the new majority owner. Chatham is also the majority shareholder of the Canadian newspaper chain Postmedia and owns the National Enquirer publisher American Media Inc. American Media is in the process of selling the Enquirer.
McClatchy said he remains committed to journalism.
“When local media suffer in the face of industry challenges, communities suffer: polarization increases, civic ties fray, and borrowing costs rise for local governments,” said CEO Craig Forman. “We are moving with speed and focus to benefit all of our stakeholders and communities.”
In a statement, Chatham said he was “committed to preserving freelance journalism and newsroom jobs.” Chatham said he had been “a supporting investor” in McClatchy since 2009.
Last year, New York Times editor Dean Baquet gloomily predicted that “most local newspapers in America” would disappear within five years, except those bought up by billionaires. Amazon founder Jeff Bezos owns The Washington Post and has invested in its newsroom. California billionaire Patrick Soon-Shiong brought the local property to the Los Angeles Times when he bought it.
But the arrival of financial interests may prove ephemeral. Two weeks ago, billionaire Warren Buffett said he was selling all of Berkshire Hathaway’s publications: 31 dailies in 10 states as well as 49 paid weeklies with digital sites. Buffett said he expects most newspapers to continue their downward trajectory, except for a handful of national newspapers.
McClatchy’s origins date back to 1857, when he began publishing a four-page article in Sacramento, California, following the California Gold Rush. This newspaper became The Sacramento Bee. McClatchy is still based in Sacramento.
“McClatchy remains a strong operating company with an enduring commitment to independent journalism that spans five generations of my family,” said Chairman Kevin McClatchy, the company’s founder’s great-great-grandson. , James McClatchy.
Michelle Chapman reported from Newark, New Jersey. Josh Funk contributed from Omaha, Nebraska.