• by July 20, 2020

Chatham Asset Management's winning bid in a bankruptcy auction of newspaper publisher McClatchy marks another dramatic development for the industry.

In the past 12 months, hedge funds and private-equity firms have taken over publishers that oversee about one-third of all newspaper sales in the United States.

Gannett, the country's biggest newspaper chain, is managed by an affiliate of Fortress Investment Group, while Apollo Global Management is its biggest creditor. Alden Global Capital owns MediaNews Group, the publisher of about 60 newspapers, such as Denver Post and the San Jose Mercury News.

Derided as "vulture investors" for buying companies when they're most financially distressed, they will have a profound effect on how newspapers develop growth strategies during the recovery from the coronavirus recession. More immediately, their focus is on cost-cutting, amid a steep drop in ad spending that exacerbated longer-term trends for newspapers.

The pandemic's negative effect on the revenue for newspaper publishers has been dramatic, as a recent analysis of McClatchy's financial filings to the bankruptcy court found. The company's revenue fell 28% from February 13, the day after the bankruptcy filing, to May 31, while operating income plunged 103% into a loss, according to a report by Joshua Benton, director of the Nieman Journalism Labat Harvard University.

It's likely that McClatchy wasn't alone in seeing such dramatic drops in revenue, making Benton's analysis significant for the broader publishing industry. However, McClatchy showed some underlying strength in its operating income before the pandemic, as Benton notes. That strength may suggest McClatchy can emerge from bankruptcy in a stronger financial position without the steep debts incurred during its takeover of Knight Ridder in 2006.

In the longer term, the financiers that own newspaper publishers must realize they can't cut their way to growth. They will have to push for innovation and the development of revenue strategies that ensure the long-term stability of their newspaper holdings.