How to fight a hedge fund

Last week, employees of the beleaguered Denver Post protested the rapacious policies of the paper’s private equity owner by holding simultaneous rallies outside the firm’s New York headquarters and the Post’s downsized Colorado offices. The rallies attracted a fair amount of media coverage, including a new round of stories in various outlets about the crisis in local journalism.

But they drew no reaction from the intended audience: Alden Global Capital, the private equity firm that owns the Post and 64 other daily “brands,” along with several dozen weekly or niche publications, through its controlling interest in Digital First Media.

Indeed, Alden’s contempt for its DFM employees was on display in the lobby of Manhattan’s Lipstick Building, home of the hedge fund’s offices (and former home of another notorious hedge fund, the Ponzi scheme run by Bernie Madoff). Security guards in the building’s lobby refused the protesters access to Alden’s offices. They also refused to accept petitions with more than 11,000 signatures carried by the Post employees from Denver to plead with the financiers to support or sell the newspapers they are strangling. The guards told the protesters they were not authorized to accept deliveries and ordered them out of the building, threatening them with arrest for trespass.

A normal company even tangentially concerned about its public image would have arranged a simple public relations reception for the protesters. Some lower-level company functionary would have been there to accept the petitions and promise they would be delivered to and reviewed by the appropriate company executives. Whether this delivery and review would have actually happened is an entirely different question. In most cases, probably not. But the P.R. performance would have conveyed a message of reasonableness for the TV cameras and the broader world. Most companies want to be thought of as reasonable, even if they are every bit as fixated on profit to the exclusion of other considerations as Alden Global Capital.

This is because most companies report to a public constituency. It might be their stockholders, it might be their customers, it might even be their employees. A private equity firm doesn’t have a public constituency. It has no exposure to what the world thinks. It is not publicly traded. It has no customers, other than a small number of wealthy investors granted admission based on a single factor: how much money they have.

So if the journalists’ hope was to influence Alden’s behavior, their strategy was not aligned with their goals. Protests designed to move Alden based on public embarrassment are doomed to fail if Alden cannot be embarrassed. Protests designed to influence public opinion are doomed to fail if Alden does not care about public opinion.

Allowing for the exceptions that confirm the rule, journalists as a class tend to maintain a cognitively dissonant combination of idealism and cynicism. The cynicism grows from career-long exposure to the self-serving, the self-important and the self-righteous. They are accustomed to filtering haystacks of propaganda to uncover needles of truth. The idealism is reflected in their choice of vocation. They believe that shining a light on injustice will lead to remediation of the injustice, even if the actual results, historically, are decidedly mixed.

It was this latter trait that was on display during last week’s protests. The Post employees apparently believed that the righteousness of their cause — supporting institutions of a free press protected by the Bill of Rights — would be enough to move a hedge fund notoriously impervious to public opinion. Neither Randall D. Smith nor Heath Freeman, the vulture capitalists whose various mansions are now familiar to those following this story, has felt compelled to respond publicly throughout the now years-long controversy over their policy of stripping newspapers of assets and resources in order to enrich themselves and provide capital for unrelated investments.

This is not to say that the protests were without value. The first step in the fight to save the newspapers that DFM’s policies have sent into a death spiral is to let the public know what’s at stake. This is particularly true in the communities where these papers operate. That was the purpose of the editorial published on this blog last month that had been spiked by the publisher of the Boulder Daily Camera. That was the purpose of the package of editorials and columns published by the Post last month criticizing its owners. But once that purpose has been accomplished — and certainly, what is happening to the Post, the Camera and more than a dozen other Colorado newspapers is now much better known among the general public than it was just a few months ago — it does not make sense to pursue a strategy of publicly shaming a company that has no shame.

Charlie Munger, the 94-year-old vice chairman of Berkshire Hathaway and Warren Buffett’s longtime partner in that enterprise, famously told an audience at the Harvard Business School in 1995 that he has always been among the top 5 percent of his age cohort in believing in the power of incentives to determine human behavior — and he has always underestimated it. Often, an organization’s incentives are multiple and contradictory, making this diagnosis more difficult.

This does not appear to be the case with Alden Global Capital. In fact, Messrs. Smith and Freeman appear to have a single incentive with respect to their control of DFM — harvesting as much cash as rapidly as possible from these properties. Indeed, newspaper industry analyst Ken Doctor recently reported DFM continues to wring outsized profits from these properties even as it starves them of resources. Emissaries from DFM arrive at each property like clockwork to demand their take off the top in the manner of a mob protection racket. The publishers and editors must deliver what DFM demands from their declining pool of revenues and then figure out how to keep the enterprise in business. The result is the dramatic cuts in resources, personnel and news coverage that are the hallmark of DFM properties. Once-robust metropolitan dailies such as the Post, San Jose Mercury News, St. Paul Pioneer Press and Orange County (Calif.) Register are now hollowed-out shells of their former selves, even as Smith and Freeman grow wealthier dining on their remains.

What is it that matters to Smith and Freeman? Cash, clearly. How can those who object to their selfish stewardship of these First Amendment institutions hope to influence their behavior? By depriving them of as much cash as possible. How do they do that? By enlisting advertisers and subscribers to engage in collective action.

The labor union that represents journalists at a declining number of papers has long experience with this tactic in the service of goals less urgent than survival. For many years, when collective bargaining was going nowhere at various newspapers, the Newspaper Guild, since renamed the NewsGuild, a division of the Communication Workers of America, would engage in subscription boycott campaigns as a last resort. The tactic was simple: Launch a public campaign to get subscribers to sign cards canceling their subscriptions. But rather than have them submit those cards individually, the Guild would collect them and then present a choice to management: Come to the table and negotiate in good faith or face a subscription boycott.

The tactic was always controversial because it resembled a suicide pact. Convince enough subscribers to cancel and they may or may not ever come back, even after a particular contract dispute is resolved. That is especially true now, with so many of these properties on life support. A successful subscription and advertising boycott could very well send them over the edge.

But what’s the alternative? To continue encouraging readers in the communities we allegedly serve to shovel their hard-earned cash, in annually increasing amounts, into the pockets of Smith and Freeman? To continue underwriting their unrelated investments while the newspapers these readers intend to support slowly starve to death? To continue doing exactly what these plunderers want? According to Doctor, Alden’s strategy relies on the loyalty of readers to keep feeding it cash even as it destroys the product they are buying. By urging them to do just that, journalists are helping the hedge fund con their readers.

Doctor has estimated that on the current trajectory of draining cash from these properties, most of them have a couple of years left at best. Alden has no long-term plan beyond that. By 2021, Doctor says, Alden will either sell what remains to capitalism’s equivalent of a junk yard or close the doors, as it did with the venerable Oakland Tribune.

So the worst that could happen as the result of a subscription and advertising boycott would be accelerating this timetable by a matter of months. I have heard journalists protest that readers canceling subscriptions would hurt them, the journalists. This is a misguided and unfortunate argument that puts journalists on the same level as the vulture capitalists they are protesting — motivated principally by self-interest. This fight is not about the journalists who remain at these withering properties. It is about their readers. It is about the communities they serve. It is about the future of local First Amendment institutions. If they are being strangled as it is, if their owners are unresponsive to pleas that they alter their self-serving course, then attacking these owners where they live — in their cash flows — is the only recourse remaining.

The NewsGuild has the expertise and experience to organize such a campaign. The goal would be to make Alden’s ownership of these properties less lucrative than it expects and, ultimately, more trouble than it’s worth. It would have to be executed so successfully — enlisting thousands of subscribers and dozens of advertisers — that Alden would lose its one incentive to hold on.

In the best-case scenario, Alden would look at the collapsing revenues and decide to salvage what it could by putting these properties up for sale while they are still worth saving. Local owners would have an opportunity to reinvest in them and bring them back. In the alternative scenarios, where Alden remains as immoveable as before, the tactic would simply accelerate the transition away from these papers and deprive Smith and Freeman of the tens of millions of dollars they are extracting each year. Denver and Boulder both have significant high-tech and startup communities. If their daily newspapers are doomed, better to get about the business of starting something new, 21st-century local platforms designed to ensure that revenues are dedicated to journalism, not avaricious Wall Street players.

It’s no fun contributing to the demise of an institution you love by urging subscribers and advertisers to abandon it. But it’s better than being willing victims, continuing to line the pockets of voracious vultures as they commit strangulation in not-so slow motion. If Alden’s principals had responded to any of the journalism, any of the protests, any of the pleas that they recognize the importance of our free press, less extreme alternatives might be available now. But they have not. Their response to last week’s protest should leave us with no illusions: Alden’s intention is to continue draining these properties of cash until only the husks remain. It has no interest in engaging with its employees or the communities they serve. It has no interest in dialogue.

The only option remaining is to hit these scavengers where they live, in their cash flows. Even that might make no difference. But it’s better to go down fighting than obsequiously feeding the beast that’s killing you.

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Standard

8 thoughts on “How to fight a hedge fund

  1. Tom Koller says:

    Dave, get off this sinking ship, print journalism is circling the drain. Was in Chicago last week (actually Gary In.) couldn’t find the Trib so I purchased USA Today, hadn’t seen it in a couple of years, what a joke of a newspaper, was Monday’s edition, little or no actual news all prewritten features and assorted drivel, worthless, wasted 2 bucks.
    Here’s the panacea for ex journalists, country needs truck drivers, get a CDL and go out on the road, ripe area for new experiences to write about. I did it for 20 years.

  2. Julie Luckey says:

    I’m too outraged and saddened to be articulate. Thanks for being that, as usual. I wonder whether canceling my Sunday Camera will make a difference (no, not me alone. And I am attached to my Sunday paper ritual of 30 years’ standing). I’d be interested to know how circulation and advertising are looking since you first spoke out. I wonder if I should cancel it as a moral stand (yes). I hope that right now there are bright and well-financed and caring people forming a nucleus of something new to fill the void that you say is inevitable. Sign me up to buy and read your new publication (and print it on paper for Sundays 🙂

  3. Lens Cap says:

    Here’s a May 13 Politico article on the deteriorating Colorado newspaper situation (and elsewhere).

    I bit the bullet and unsubscribed from the Daily Camera. Might as well hasten some kind of change — the status quo isn’t working, and the only thing that matters is money. It’s the new vote.

    Another reason to unsubscribe, so far unmentioned in all these discussions, is that Digital First Media forces paper subscribers to agree to arbitration to prevent subscribers from using the judicial system should a dispute arise. A letter from Al Manzi to subscribers explaining this change arrived a year or two ago. The first thing I wondered was, what happens if a Camera article libels a subscriber? Can DFM prevent that subscriber from going to court?

  4. Doug McKenna says:

    In all the discussion on the subject, no one has mentioned that the CEO of the New York Times recently said that the NYTimes expected the paper edition to be completely gone within the next 10 years. The NY Times!

    See <a href="https://www.cnbc.com/2018/02/12/print-journalism-may-last-another-10-years-new-york-times-ceo.html&quot; here.

    Meanwhile, here’s another <a href="https://www.theatlantic.com/entertainment/archive/2018/05/denver-post/560186/&quot; article, by John Wenzel, a (still) reporter of the Denver Post, in The Atlantic on the subject.

    The best solution is for the community to fund a non-profit organization that publishes the newspaper online. Like The Guardian.

  5. Doug McKenna says:

    Apropos the previous postings, here’s an essay from The Guardian’s website by a woman who created a non-profit paper (owned by a foundation, with a board, etc.) in her almost entirely liberal town (East Lansing MI), to keep an eye on government.

  6. (Inadvertently pressed “send” – sorry). I was writing that I couldn’t disagree with Tom Koller more. For me, reputable print media is not a “sinking ship” but a lifeline to the vetted truth, particularly in these times. Do they always nail it? Of course not. But, compared to the alternatives, we’re so fortunate to have such news sources as the New York Times, Washington Post, LA Times and, until recently, the Boulder Daily Camera’s editorial pages under Dave’s leadership.

    I’m hoping Dave approaches the New York Times to help them expose Alden vulture strategies more widely in the national dialogue. It’s desperately needed before more of these local papers are stripped and murdered.

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