The next 48 hours may decide the fate of two of America’s largest newspaper chains that collectively serve almost a fifth of all American local newspaper readers.

And what happens in those hours could prompt a wave of other moves across the rest of the industry.

The dates June 30 and July 1 have called out from the calendar for a while now. On Tuesday, Tribune Publishing will reach the end of two “standstill” periods. Tribune’s two major shareholders — Alden Global Capital, with 33 percent of the company’s shares, and Los Angeles Times owner Patrick Soon-Shiong, with 25 percent — had promised not to actively buy or sell any shares until June 30.

When that restriction ends, you can expect Tribune’s uneasy status quo to come to an end quickly. After a chaotic decade, the chain had been briefly semi-stable after Michael Ferro’s departure from management. But then Alden bought up those shares in November, and since then Tribune has given Alden two board seats, imposed Alden-style cuts, and created Alden-style management chaos.

Then, on Wednesday, final bids for McClatchy’s 30 newspapers are due, as the country’s second-largest chain prepares to wind toward some exit from bankruptcy.

This is the mid-year witching hour for the U.S. daily press, another stirring of the consolidation pot, and another stage in the transformation of newspapers from civic assets to financial instruments. These two big — and potentially interconnected — dramas will determine the futures of the No. 2 and No. 3 local publishers in the country.

The possible combinations and recombinations are numerous. What we know, from a variety of sources, is still piecemeal, with the future of McClatchy’s 30 titles the most uncertain piece.

Here’s one big new possibility to look for: a new potential buyer of McClatchy intent on pulling its newspapers from the clutches of hedge funds and setting up the country’s first major nonprofit newspaper chain. More on that below.

Part of the uncertainty is that the options that seemed possible in December are markedly different now. The one-word reason: coronavirus.

The months of COVID-19 shutdown have only deepened the business issues afflicting the daily newspaper business. Plans that felt like climbable mountains in December now look positively Himalayan. Everyone’s forecasts and valuations have gotten big haircuts. (And some look like they were done in quarantine, with clippers and a mirror.)

With a new wave of infections rampaging across the country, newspaper CEOs now look at another six to 12 months of potential downturn. Small businesses’ struggles will likely leave ad revenues down 35 to 40 percent in 2020, according to Ken Harding, head of FTI Consulting’s respected media practice.

The biggest data point from FTI’s June 1 update: “We project an unrecovered advertising revenue loss between 17 percent and 28 percent as a result of COVID-19 by Q4 2021.”

Those numbers — that projection of extended revenue pain — are driving everyone’s estimations of newspaper company value, which drive their plans for bids and M&A.

The McClatchy drama

Think of this week’s McClatchy action as the beginning of what may become a two-act drama.

Those “final bids” are due on Wednesday. Then one week later, on July 8, a winner will be announced by the McClatchy board. On July 24, bankruptcy judge Michael E. Wiles will review the decision, and either approve it or not. His legal task: resolving the company’s debts as fairly as possible among those owed money.

Finally, they’ll be a formal Department of Justice antitrust review, which should be resolved before year’s end.

In bankruptcy court, wild cards can enter, and one did last week. McClatchy’s unsecured creditors publicly charged what others had been saying a bit more quietly. They alleged that McClatchy’s major 2018 debt refinancing with Chatham Asset Management was “fraudulent.” That refinancing gave Chatham a favorable lien position in bankruptcy; that means Chatham is more likely to be made whole (or more whole) than McClatchy’s unsecured creditors, including pension claimants, who would likely receive pennies on the dollar. While a lawsuit is possible — and could take years, as did some in the Sam Zell/Tribune five-year bankruptcy from hell — it’s more likely there’ll be a settlement that removes that obstacle from finalizing a sale.

Why might July’s drama be only Act I? Because whoever buys McClatchy could then turn around and merge it with another company — or sell off individual McClatchy newspapers, or groups of them. That’s Act II.

Who’s playing in each act?

The one known bidder is Chatham — currently both McClatchy’s lead investor and its largest debt holder. Chatham has already put in a stalking-horse bid of around $300 million.

Auctions like these draw all sorts of lookie-loos. Contemplating a bid can be a great opportunity to examine the innards of a company, to compare benchmarks and metrics — even if the looker has no intention to buy.

This auction has been no different. As the bidding hour approaches, no one expects more than a handful of bids. Likely one, two, or three — maybe, at the outside, four.

Let’s categorize the likeliest bidders:

• The Insider
• The Savior
• The Financial Engineer
• The Roller-Upper

Chatham is The Insider here. It knows McClatchy’s books and operations inside out, and it’s already bid. Its attorneys have said it wouldn’t mind being outbid, and that makes sense: As a hedge fund, it’s in McClatchy for a financial return, not long-term investment or community service. If someone else thinks McClatchy is worth more than they do, they’ll happily take their money.

Most intriguing is The Savior.

Many in the news business have looked aghast at the vultures and financial players who increasingly dominate ownership. They’ve wrung their hands. They’ve offered a vision of new, nonprofit-led future for local news, just as hundreds of smaller sites have set up a shop over the last decade. But nearly all of those startups still pale in size, if not dedication, next to even shrunken local dailies.

The McClatchy bankruptcy has hatched a new idea, one that’s been talked about for at least a couple of years, but mostly hypothetically: Why not buy one of these big struggling chains — and take it nonprofit?

That’s what on the table today. Leaders in the field of nonprofit journalism are deciding over these 48 hours whether or not to make a bid for all of McClatchy, sources tell me. They say they can raise the needed cash of $300 million-plus.

The big question: What then? How would a civic-minded nonprofit approach the tough transformations still ahead for local news, which is still highly dependent on print revenues smack in the middle of the COVID age? In this growing civic-good journalism world, there are many good people with the right motives — but very uneven skills to transform beleaguered companies.

Sources say there’s a newish player in the mix that is strongly considering a bid to be The Financial Engineer, sources say. And it’s not one of the usual suspects — Fortress Investment Group (Gannett’s manager), Apollo Global Management (Gannett’s lender), Alden Global Capital (MNG’s owner, major investor in Tribune and Lee). Those financial giants have each done their share of damage via unending cuts and only murky business transformation.

Then, there are at least two candidates to be The Roller-Upper. No one is putting down a big bet on one of them placing a bid — but no one’s betting against the possibility either.

First, consider the last big roll-up: New Gannett. The combination of Old Gannett and GateHouse, finalized in November, created the most dominant daily publisher in U.S. history, serving about a quarter of daily newspaper readers.

Gannett is highly encumbered by debt. The $1.8 billion loan from Apollo it took to do the deal now feels even more uncomfortable given 2020’s virus-driven ad decline. It just let go its second-in-command CEO Paul Bascobert, who’d been put inside New Gannett by Old Gannett — a scheme that simply didn’t work. It’s also announced an end to at least some of its COVID-related furloughs.

Gannett — and, importantly, Apollo — could make the case to themselves that further roll-up — more scale, more synergies, more cuts — would make the company’s position more secure over the next few years. Gannett + GateHouse + McClatchy is a combination that would reach about a third of American newspaper households. By the standards of old accounting, that’s huge scale. But what is it worth — what’s its value as a bid in bankruptcy court?

The big question for Gannett’s Mike Reed and Apollo’s Leon Black: Will they stay on the sidelines or get in this game?

Then there’s Heath Freeman, the head of Alden. He’s come out of the shadows a bit lately, even giving an interview here and there. His cash-flow-first strategy has worked — for him — with MNG (f.k.a. MediaNews Group and Digital First Media) and he plainly wants to apply it to as much of the industry as he can.

Of course, Freeman may have his hands full with the week’s other big deadline. On Tuesday, his standstill agreement expires with Tribune. While Alden and Tribune have managed to keep their plans very close to the vest, the wide expectation is that Tribune and MNG will move toward formal merger soon — perhaps very soon.

That combination would create a cash-driven newspaper company reaching more than 15 percent of U.S. newspaper readers.

Follow-on civic buyers?

That’s just this week’s potential action. How about Act II?

Whoever buys McClatchy whole may move to either merge it with another player (see The Roller-Uppers above) or sell off some of all of its pieces — whatever’s the best way to maximize its investment. One data point: Apollo’s and Chatham’s leaders have a good working relationship, say sources.

Here we could also see the emergence of more civic buyers. The mayors of both Miami (home of McClatchy’s Herald) and Sacramento (home of McClatchy’s flagship Bee) have publicly raised calls to support community-oriented buyers. We’ve heard such civic calls for several years, in many cities — but the question comes down to, as most do, funding.

There the intrigue is beginning to mount. If McClatchy’s West Coast properties come loose, sources say, philanthropic sources could be tapped for about $20 million within a year, in California (where McClatchy has five titles) and in the state of Washington, where it owns four). There’s also at least one other civically oriented private buyer waiting in the wings if individual properties come into the marketplace.

McClatchy’s bankruptcy is barreling to a conclusion. Tribune’s quietly trimming its board to prepare for a merger. Google and Facebook face unprecedented calls to pay up on at least three continents. And all the while — wait for it — Alden Global Capital’s Heath Freeman is joining the fray, demanding money.

The COVID-19 crisis both threatens and promises to reshuffle business and societal thinking about the role of local news in the 2020s. Call it pandemic panic. The crisis has clearly accelerated the known drivers of industry change worldwide. That could well lead to more consolidation of newspapers and more hedge fund and private equity control.

This earth-trembling change has also raised some new possibilities. What if the platforms finally do give in to decade-long pressures to pay publishers for news? What if governments, in one of the many ways being discussed, actually funneled funding to pay journalists to do local journalism? What if new and more public-spirited buyers/owners emerged, buying up papers that only bottom-feeding financial buyers have seen fit to acquire?

Keep those big-picture possibilities in mind as we first delve back into the important (but by now a little mundane) world of daily newspaper M&A.

First, let’s step into the hyper-real world of federal bankruptcy court.

There, in a speedy eight-minute hearing on Monday, Judge Michael E. Wiles heard from McClatchy that the company had reached an agreement with its “less-protected creditors” to allow a sales process to proceed. Those creditors, having looked at McClatchy’s deteriorating and COVID-accelerated financial state, realized there wasn’t as much blood to squeeze out of the turnip as they’d thought on Feb. 13, when the company filed for bankruptcy. They’ve decided to settle for whatever pennies on the dollar they can out of this process.

The impact: McClatchy will get a new controlling shareholder soon, probably within the next two months. Friday marks the final day for would-be buyers to take an initial look at the company’s financials. Some 20 companies have already done that; most, keen observers say, are sophisticated lookie-loos with no intention of bidding for the company as a whole or individual properties.

The court action hasn’t been without dark humor. “I cannot say strongly enough how crazy that seems to me,” Judge Wiles said last week as the company worked with its main shareholder and debtor, Chatham Asset Management, to put together a quick deal. “Maybe you don’t trust what I will do with a sale process?”

For his part, Chatham attorney Andrew Rosenberg summed up the state of newspaper ownership well. “We are happy to have someone outbid us,” he declared in a Henny Youngman-like, “Take my newspaper company, please” moment. Chatham would indeed like to get whole on its more than $300 million in top-level debt. The company had made a stalking horse bid “well in excess” of $300 million, hoping to attract higher ones.

(We should note that our public understanding of the court action has been provided by Kevin G. Hall, the chief economics correspondent for McClatchy’s Washington bureau. Hall has covered the bankruptcy assiduously and fairly — something that shouldn’t stand out among all the stories newspapers write about their own trials and tribulations. But it’s one more reminder that McClatchy, for all its cuts and woes, still distinguishes itself as a newspaper company that takes journalism seriously and values its civic mission. Among the many questions about McClatchy’s next owner: Will it keep its two-dozen-plus D.C. bureau, which has often zigged smartly where other bureaus have zagged, intact?)

Now that the process is winding towards a close, meaning it’ll soon be time for the lawyers to get paid. (The attorneys for the Official Committee of Unsecured Creditors alone are seeking a payout of $1,951,888.98 for their work on the case, at rates as high as $1,100 an hour. How many journalists could that money have paid? Someone should total up how much has been spent on lawyers and advisors in this decade-plus of newspaper ennui.) Soon, we’ll know who will own and control what is the second or third biggest newspaper chain in the country across 30 cities.

Buyers sniffing around McClatchy

This will be McClatchy’s first new owner since 1857. Who’ll it be? Round up the usual financial suspects.

Most money is on Chatham to emerge with control of the company. The New Jersey-based private equity firm is an industry player. It owns about 80 percent of American Media and its National Enquirer (back in the news for seeking federal stimulus “small business” money) and a major stake in Postmedia, Canada’s coast-to-coast chain, though it doesn’t control the Postmedia board. Within the last two weeks, Postmedia has moved to layoff 80 employees and permanently close 15 newspapers. The company is among that country’s prime movers in a move to win government support for newspapers. (More on that below.)

But there are those 20 undisclosed parties crunching McClatchy’s numbers. They may well include some names familiar to those who have followed the Consolidation Games of the last year and a half.Conventional wisdom holds that the New Gannett can’t play. After all, it’s already burdened by the $1.8 billion in debt it took on to put together its GateHouse merger in November. But what about its lender, Apollo Global Management? Insiders have told me that Apollo has been talking with Gannett CEO Mike Reed about a structuring of their five-year deal, given the immense and immediate impact of the coronavirus crisis on cash flow.

Could Apollo — which strategized a newspaper industry rollup back in 2015 when it almost bought Digital First Media — decide that a 2020s version would make financial sense? For the financial companies — Apollo, Chatham, Alden Global Capital, Gannett manager Fortress Investment Group — it’s all about the numbers.One critical question for them: How do you value McClatchy’s cash flow over the next few years at a time when projections even six months out are deeply uncertain? Industry consultant FTI is now forecasting that 1 in 5 pre-COVID ad dollars might not come back to newspaper companies once this pandemic nightmare concludes. (Though annual ad revenue declines not much smaller than that have become numbingly common at newspaper companies in recent years.)

Another question: How much in the way of corporate overhead and general centralization synergies could be wrung by merging McClatchy into the new Gannett? Such a move would create a behemoth newspaper company (to the extent newspaper companies can be behemoths anymore), controlling about a third of U.S. daily print circulation in more than 160 cities. If the numbers add up, could Apollo end up owing that giant?

Given the many steps that would take and all the vagaries of future cash flow, most financial observers consider that unlikely — at least in the short term.

Quietly, the Alden/Tribune merger moves forward

And then there’s Alden. As we’ve reported, Alden is on a trajectory to takeover/merge with Tribune Publishing this year. Our most recent datapoint:

Tucked inside the company’s April 8 notice of its annual meeting — which of course will be virtual — is this:

Nominees for Director: The Board of Directors has nominated the six individuals listed below for election as directors at the Annual Meeting. All nominees are currently serving as directors of the Company. Ms. [Dana Goldsmith] Needleman and Mr. [Christopher] Minnetian were both appointed to the Board of Directors pursuant to the Cooperation Agreement dated as of December 1, 2019 by and among the Company, Alden Global Opportunities Master Fund, L.P. and Alden Global Value Recovery Master Fund, L.P. (the “Cooperation Agreement”).

It sounds like the usual corporate filing-speak. 

But what’s omitted is the big story. The board currently has eight members, but it’s only nominating six.

David Dreier, who served as the board’s chairman until Alden’s rapid insertion into the company’s affairs six months ago, isn’t being re-nominated. Neither is Eddy Hartenstein, also a former board chair and long-serving board member, as well as former publisher and CEO of the Los Angeles Times Media Group. Both of them received criticism for their acquiescence to Michael Ferro’s Tronckist regime, but both have also been considered relative Tribune Publishing stalwarts, advocates of local journalism.

After Alden bought up Tribune stock late last year, one of its demands was that Tribune grow its board from six to eight members by adding the Alden-affiliated Minnetian and Needleman. Now it’s dropping back to six, with the two Alden picks sticking around.

The arithmetic is clear. Alden’s Heath Freeman — already exerting great influence at Tribune, which dispatched CEO Tim Knight and pushed forward with significant job cuts pre-COVID — is lining up the company for a merger with his own MNG Enterprises. Observers expect that the soon-to-be-reduced Tribune board will move to “explore the best use of its assets.” Then, most likely, would come the appointment of an “independent” board group (without the would-be-conflicted Alden 2), who would then lead a sales process. The likeliest result: a merger, in some form, between Tribune Publishing and Alden’s MNG Enterprises.

(The NewsGuild, which represents newsroom staff at the Chicago Tribune and several other Tribune Publishing papers, is promising a fight. This week, it announced a proxy fight aimed at getting the two Alden directors off the board, questioning whether “their interests are aligned with those of Tribune Publishing.”)

What might that increasingly likely deal mean for a possible further merger with McClatchy?

In its bankruptcy filings, McClatchy has acknowledged what I’ve reported over the past couple of years: multiple failed efforts to merge with Tribune. If Alden wasn’t circling around Chicago, those who know the companies well believe a Tribune/McClatchy combination would make a lot of sense. Both focus on larger metro markets, as opposed to the smaller towns at the core of Gannett. They’ve had similar editorial philosophies and business strategies over time.

The thinking now is that an Alden/Tribune tie-up would foreclose a merger with a post-bankrupt McClatchy. Maybe that’s true — maybe Chatham, if and when it becomes McClatchy’s controlling owner, will just operate it for a while.

Or maybe not. Too much is up the air here. But watch the timing.

An Alden/Tribune merger would likely be announced sometime after it slims its board — its annual meeting is May 21 — and goes through that “exploration” and “process.” That might mean a merger announcement in June or July — the same time when we expect McClatchy to emerge from bankruptcy.

Someone’s taking away chairs

My expectation requires a new metaphor. The Consolidation Games are adding a new event, musical chairs. The industry’s music has slowed, its cash flow down to an adagio. The number of chairs for CEOs decreases by the month, as mergers take what had been independent newspaper chains — most with long histories of civic mission — and turn them into tradable financial assets harvested for short-term gain.

Not long ago — like, last October — a list of the major American newspaper chains would have included Gannett, GateHouse, MediaNews (MNG), Tribune, McClatchy, Berkshire Hathaway Media, and Lee.

GateHouse bought Gannett and then took its name; Berkshire Hathaway loaned Lee the money to buy it out of the business. Depending on what happens with MNG, McClatchy, and Tribune, that list of 7 companies could be down to 4 or even 3 by year’s end. Collectively, the companies who remain would control well over 50% of daily circulation in the country.

Only one survivor, Lee, would still be controlled by “newspaper people,” and most of its papers are smaller; it has only four papers that sell more than 50,000 copies on weekdays (Buffalo, St. Louis, Omaha, and Richmond).

Of course it’s possible that new players might see this as the perfect time to enter the business. The price to buy a newspaper company has never been lower! Recession risk would scare away all but the deeply pocketed, deeply ambitious, and perhaps deeply political would-be acquirers away. It’s the Buffetts of the world who can afford to take a long-term view in such rough times — though even Buffett decries the current uncertainty and says he isn’t buying anything. (He wouldn’t be buying newspapers, anyway.)

So let’s consider one deeply pocketed, deeply political media player that I first mentioned as a possible newspaper industry entrant in January: Sinclair Broadcast Group.“They’ve studied it,” says one source familiar with those conversations. “They believe that major cities will be served by a strong local news company — outputting to both video and text/print — and they believe that buying local newspapers is one way to get there.”

There are some clear hurdles, including the still-on-the-books rules against owning dominant newspaper and broadcast outlets in the same metro. But just three weeks ago, Sinclair was among those petitioning the Supreme Court to review an appeals court decision that had reinstated those rules after an FCC attempt at deregulation. There’s a good chance the court could relax those rules. Sinclair is based in Baltimore; it could be interested in The Baltimore Sun, should it break loose from Tribune or a Tribune/Alden merger. It could be interested in a lot of newspapers: Sinclair currently owns or operates 191 television stations in 89 markets.

Or will platform “licensing” revenue save the day?

Google and Facebook hire some of the best legal talent in the western world, and they’ve been able to swat away, delay, and skirmish interminably with the forces that demand they pay up for their use of news content. For more than two decades, newspaper companies around the world have wanted platforms to pay a license fee — like the ones the music industry and local TV stations get, say — for the snippets of news content they publish. They’ve been largely unsuccessful.

As the Google/Facebook duopoly has come to dominate the digital advertising business, and as the ad revenues of news publishers have fallen off a cliff, the intermittent cries have grown. Now, they’re joining in unison. Will they be able to pry loose big new revenue streams now?

I wouldn’t bet against the platforms — it’s usually not a winning bet — but there’s no doubt that executives in Mountain View and Sunnyvale know they now have a bigger problem on their hands.

In the last month alone, Australia and France have demanded payment. Canada is getting a full-court press for help from its publishers, including imposing new pressure on the platforms. “An urgent message to the Government of Canada from the publishers of Canada’s major newspapers” went out across the nation on Saturday, Canada’s big weekend newspaper day.

Most notably, U.S. publishers are also working — more quietly, but more aggressively — to get what they believe has long been due them. They’ve appreciated what largesse has been provided by both Google and Facebook in their multi-hundred-million-dollar journalism support programs, and they’ve recognized the many earnest people inside those companies who aim to offer local news a lifeline. But no one believes those grants are — or promise to be — the game-changer that society and their businesses require.

“This could be the year,” says one executive involved in the U.S. movement. “The stars may have aligned.”

Among those stars: The platforms have achieved something few others have: bipartisan questioning of their activities. Both Republican and Democratic politicians love to rail against Big Tech, whether they’re citing the 2016 election, misinformation in general, company efforts against misinformation, growing privacy concerns, monopolistic behavior, or the platforms’ impact on the system that long provided Americans local news.

More people have looked into the Black Mirror and haven’t liked what they’ve seen. Techlash 2020 — still powerful despite (or perhaps because) it’s the platforms who will likely weather the coronavirus downturn best — could result in a new stream of revenue to news publishers.

As I wrote in January, the payment issues of who, how, when, and where are gnarly ones. The platform can fairly cite that gnarliness. They also like to cite the humorous algo blindness they like to claim (“How would we ever figure out how to fairly attribute value to news producers?”) while they dodge, weave, and aim to make separate deals with the largest national/global news producers. Separating out the Timeses, Posts, Journals, and Guardians from the larger, bedraggled news herd is an classic divide-and-conquer strategy that’s long been one facet of the game. (Note Facebook’s payments to publishers for its News Tab — individual deals primarily targeting the top of the industry.)

Then, of course, there’s the irony that it’s the very financialization of the industry — the hedge funds and PE firms who stand to benefit directly from any aid to newspaper companies — may be the platforms’ best argument for opposing payments for content.

Alden president Heath Freeman’s recent “Dear Colleagues” letter, circulated by new New York Times media columnist Ben Smith, offers the perfect foil. “Fund vulture journalism?” the platforms can cry. “They’re worse than us!”

Indeed, look at the blowback big corporate players have faced if it comes out that they’ve taken bailout money. While this sort of platform payout wouldn’t quite be characterized as “bailout money,” the optics are less favorable for a news industry that is — at least in the U.S., and Canada — dominated by financial players.

We’re in this pandemic moment in which COVID-19 fears have unexpectedly revalued the sort of experienced, balanced reporting a good local news outlet can provide. And yet we’re stuck talking about the interaction of a few hedge funds, focused on little else beyond profit, and a few tech companies with unprecedented dominance.

Then there’s this to ponder: If Google and Facebook finally began paying for the supply chain of news — something akin to the retransmission-fee revenue stream that revolutionized the local TV business model — what would be the new value of these news companies? Pouring hundreds of millions, if not billions, into their revenue streams would have a real and significant effect. It could offset the profound loss of advertising and semi-stabilize companies that haven’t felt stable since 2007 or so. If that happened, how much more market-valuable would newspaper titles and newspaper companies become?

Factor that into your crystal ball and the “multiples” that newspaper companies might be “worth” produce a few new swirls of possibility. If cash flow were no longer projected to decline inexorably — if they were at least stable —would these old “newspaper” assets, their blackletter flags mostly digitized, become more valued businesses?

That is a big “if.” But it’s one more plausible than a year ago.

Finally, the will-platforms-pay-up question has at least two big implications. First, the money guys — the would-be buyers and consolidators like Alden, Apollo, or Chatham. Heath Freeman’s letter shows he sees the potential for major value creation if the platforms can be pushed to a deal. How does even the possibility of a big platform settlement figure into the immediate questions of consolidation — the ones that’ll be answered within just a few months?

Second, what about all the next-gen thinking in the local-news-revival world? Major foundations, the American Journalism Project, news entrepreneur Steve Waldman, and others advocate a reordering of local news. Among the prevailing ideas is one that Waldman has dubbed “replanting”: buying out and replacing the financially driven owners of the daily press, through something like a “deconsolidation fund.” A couple of billion could do that, and that’s not completely impossible money to ponder. The perhaps bigger question: Where does the money come from to operate a resurgent local news operation — and hopefully to make it grow?

That platform “retransmission” money could be part of a big new idea. By itself, platform money would be meaningful. But combine it with some of the newer proposals now being advanced and an updated financial business model may be possible for the local press of the 2020s.

Part of that is government, government-funneled, or government-incentivized funding. Most immediately, there’s the federal COVID-related bailout money. Some mostly smaller newspapers have been able to take advantage of that short-term loan-turned-to-grant aid; bigger ones are too big or too debt-encumbered to make use of them. Gannett’s Mike Reed has told employees the company benefits from federal programs that allow the postponing of both FICA and pension plan payments; he’s estimated as much as $150 million in delayable bills, according to Gannett sources.

There’s a push to expand coronavirus-related government ad programs, directed toward local newspapers. There are also several proposals to use the tax system to incentivize publishers, investors, and/or consumers to provide more money to pay journalists.

The big national responses, led by the News Media Alliance, could break something loose. It’s asking Congress to give it an anti-trust exemption so its members can negotiate as one with the platforms, as well as pushing forward on multiple industry aid programs.

And in some communities facing financialized ownership, journalists and their supporters aim to separate out once-robust titles from the hedge fund herd. They look to cities like Minneapolis, Seattle, L.A., Charleston, Philadelphia, and Boston for inspiration, hoping to find civic-minded wealthy people to revive a paper. The Save Our Sun movement is trying in Baltimore; it joins other recent efforts in Chicago and Sacramento. All of these efforts have now been made more complicated, at least in the short-term, by COVID-driven uncertainty.

Depending on how you look at it, this virus has changed everything — radically changed what 2020 will look like for local news — or simply accelerated the industry down the path it was pointed toward before all this. Wealthy saviors, platform complaints, nonprofit dreams, hedge fund nightmares — those themes have all been with us for quite some time.

Sixty-three cents. That’s all it took to buy a share of Gannett at market close yesterday.

The entire company — valued at $18.5 billion-with-a-“b” 15 years ago when it owned TV stations but many fewer newspapers, not to mention $823 million-with-an-“m” as recently as January — is today worth just $88 million. Gannett — the largest chain in the nation, delivering 25 percent of the nation’s daily newspapers each morning — now trades at 12 cents below the frozen level of its bankrupt peer, McClatchy.

The company’s board has prescribed a poison pill, announced Tuesday, as one stopgap treatment for its woes. It seemed to work at first; Gannett’s stock price shot up 57 percent, briefly even touching $1. But the optimism faded as the day went on, and GCI ended the day a few pennies below where it had started.

The company’s market value can’t fall much lower, mathematically speaking, but the questions about its future continue to multiply. Why did the stock fall off the cliff? Why the poison pill? What’s the next step with Apollo Global Management, the private equity firm to which Gannett’s owes nearly $1.8 billion-with-a-“b”?

In this new saga of Consolidation Games action, worlds are colliding: the worlds of supposed merger synergies, of coronavirus-driven shutdown, and of federal bailouts. They’ve combined to confront this new company with challenges that seem overwhelming.

Like all newspaper companies (and to some extent all media companies), Gannett has been battered by COVID-19’s assault on ad revenues. In the second quarter, sources tell me, Gannett will be down at least 30 percent in ad revenue, a number that parallels the overall losses industry-wide. (Some publishers continue to report projected losses as high as 60 percent, but 30 to 50 percent is the range most agree upon.) That’s for April; May is now expected to be similar, and at the moment, there’s not much reason to think June will be very different. It adds up to an unimaginable Q2 of losses for great majority of local newspaper publishers.

This pain coincides, ironically enough, with perhaps the most intense period of readership — and appreciation — by local news audiences in recent memory. But the irony has faded quickly as publishers, their employees, and soon their readers confront the resulting ratcheting down of the local news business.

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October 9, 2019

Now the company has announced $100 million to $125 million in additional cuts, first in the form of last week’s announced pay cuts and furloughs. That’s on top of the earlier $300 million-plus.

Let’s look at the action in progress. (Mike Reed declined to comment for this piece.)

Start with the pill. A poison pill is an attempt by a company to prevent or dissuade a hostile takeover by declaring that, should such an event occur, something terrible would happen. The pill in this case gives existing shareholders the right to buy shares at a 50 percent discount should a raider start buying shares in a takeover effort.

Financial observers describe it as a curious move here. We’ve thus far seen no efforts to buy up Gannett stock — quite the opposite, actually. It’s possible that such a buy will be signaled by SEC-required filings in the days to come, but it hasn’t yet been detected.

How desirable is Gannett, anyway, even at a share price perilously close to corporate pocket change? (Jeff Bezos just bought a house that cost almost twice as much as Gannett is worth.) $88 million plus a premium of 10-20 percent seems awfully cheap for a publisher that reaches the doorsteps of a quarter of the American newspaper reading public — many of them voters.

Of course, behind that purchase price lies the outsized debt any buyer would face. The deal makers, led and managed by Fortress Investment Group, took on that debt in what now seems like a case of extremely bad timing. In late February, Gannett announced it had paid down $45.2 million of its $1.8 billion loan from Apollo, a loan with an 11.5 percent interest rate at a time when the Fed is pushing rates as close to zero as possible.

Any Gannett buyer would have to pay off Apollo, or at least make a new deal with it. Who might want to, or could? Even the one player still active in newspaper M&A — Heath Freeman of the dreaded Alden Global Capital — would seem a long shot to put that deal together. The risk in the newspaper business has only gotten riskier.

But it’s unlikely even vaunted risk-taker Leon Black, Apollo’s founder and CEO — and a man Bloomberg recently called “the most feared man in the most aggressive realm of finance” — could imagine the COVID-inflicted damage Gannett has taken.

(That said, here’s a bit from that Bloomberg profile: “Black built his company, Apollo Global Management Inc., by buying struggling businesses with huge piles of debt at bargain-basement prices, imposing austerity measures on the staff, and extracting huge dividend payments and management fees. Many of Apollo’s most lucrative deals have been from companies other firms wouldn’t go near…’We’ve actually made our most money during recessions…Everybody else is running for the doors, and we’re backing up the trucks.’” Sound familiar?)

So, how able will Gannett be to keep making payments to Apollo and keep the business operating?

That’s a cash flow analysis that will change depending on the shutdown’s length and depth. This lost second quarter will eviscerate anticipated profits. In addition, Gannett and all publishers will find it increasingly difficult to collect on some first-quarter-run advertising payments; many advertisers are on life support themselves, unable or unwilling to pay their bills. Small businesses ask publishers like Gannett to “accommodate” them, given the extraordinary circumstances.

Given all that, sources tell me that Reed and Apollo are talking about a similar kind of accommodation that would ease the financial pressures on Gannett.

Apollo is in the catbird’s seat here. As Gannett’s chief lender, it has first call on the company should it be unable to meet its contractual obligations. Beyond the payments themselves, the Apollo loan includes a number of fairly standard covenants that put clear limits on the company’s spending and debt issuance. (You may remember that Gannett was not allowed to issue a shareholder dividend in Q1 because Apollo wouldn’t allow it “in line with our credit agreement.”)

In this deal, Gannett could find itself running afoul of “gross leverage ratios” — essentially how much cash flow it’s generating compared to the debt it has on its books. Violating covenants can provide lenders the ability to make demands on the borrower.

There are contracts, and then there’s the world of the moment. If Gannett’s financial fortunes worsen — as an economy stays shuttered or sputters through soft opening after soft opening — does Apollo really want to push for control of the company? Right now, it’s a passive player, as one financial observer puts it, “but it’s clearly in charge of the capital structure.”

Apollo continues to be one of the most active PE companies in and around news media. After failing to acquire Alden’s Digital First Media in 2015, it bought Cox’s local broadcast properties last year. Just a week ago, it dropped a bid to add to its broadcast holdings, abandoning talks with big player TEGNA, the broadcast offshoot of the Gannett split of 2015. Clearly, it’s got more appetite for the media business right now than most of its brethren. But how much does the barren landscape of local newspapers still offer Apollo a business case for ownership?

Down the road, we could see both the “D” and “B” words arise. Default, on the loan obligation. Bankruptcy, as in Gannett’s inability to go forward given the twin pressures of its debt and advertising depression.

Those aren’t the words being discussed right now, most observers believe, but they could well lie ahead. Chatham Asset Management, long McClatchy’s major lender, will become its major shareholder — and thus controller — when the company exits bankruptcy, likely this summer. That sort of prepack bankruptcy is one plausible scenario that could be forced by Apollo — but only one.

There’s another “D” word that Gannett has already acted on: dividend. Dividends have been pivotal in propping up publicly traded newspaper stocks over the past several years. Even if investors didn’t believe a newspaper turnaround was likely, they knew that predictable dividends would pay out quarterly cash. Last week, assessing the immediate damage, Gannett took the quick step of suspending its planned Q2 dividend, a sign of its duress.

Why did Gannett shares tank to less than a dollar over the last week? A big part of it is that cessation of the dividend, financial observers say. Institutional funds, which had been holding shares for their dividend payouts, began to abandon it. Some had to, given the rules of their funds; others just thought it was a good time to get out.

Open at the stocks app on your phone and check out the next ring of descent in the financial hell of public newspaper businesses. Bankrupt McClatchy is frozen at 75 cents, no longer a creature of the market. Gannett closed yesterday at 63 cents. Lee Enterprises, too, has dropped like a stone, to 85 cents, just a few months after buying Berkshire Hathaway Media. Only Tribune Publishing, because of its likely merger with Alden Global Capital’s MNG Enterprises in the next few months, has maintained any significant value at $7.37 a share — and that’s still down by almost half in six months.

The end of publicly traded newspaper companies will soon be upon us. They may have seemed like a great idea 15, 25, or 35 years ago, but it’s now mostly private owners of financial capacity and vision who seem to stand a chance of finding a way forward for local news.

What about the federal bailout, you may ask? Gannett is too big for the now-chaotic Small Business Administration loan-to-grant program, which is limited to companies with fewer than 500 employees.

It will be eligible for the Treasury program, whose regulations are still in progress. There it will face intense competition. Unlike the SBA program, which is intended to spend taxpayer money, the Treasury program is intended to make, or at least not lose, money — much like the Great Recession’s politically maligned but economically successful TARP. Gannett’s case may be hard to make on that question, especially in the longer term. Plus, bailouts are inevitably influenced by politics. Given this administration’s war on the press, how much will that further disadvantage Gannett and other larger newspaper companies? We don’t yet know.

Amid all this drama, Gannett welcomed a new chief financial officer Monday. That’s a tough job to walk into, but Douglas Horne’s most recent experience may make the challenge seem more reasonable. Horne left his post in November as global controller for the We Company, parent of commercial real estate leasing firm WeWork. The euphoric rise and spectacular collapse of WeWork — now embroiled in a major public fight with its funder Softbank — has been quite a story to behold. So maybe he’s the one person for whom Gannett’s current crisis will seem relatively tame.

Is that a light at the end of the tunnel? Or just the Mnuchin Express coming for the newspaper industry?

The $2.2 trillion CARES Act will likely become law at some point today. It’s a bailout that has got local news publishers and their trade groups scurrying; they’re eyeing two big pieces of it. As details continue to emerge and regulations await writing, we can begin to understand what in this legislation might make a difference to the beleaguered news industry.

(It’s important to understand, though, that much of the information about the bill, not to mention its future implementation, is still fragmentary.)

Publishing companies with fewer than 1,000 employees will turn to the $300-billion-plus allocation for the Small Business Administration. (Estimates for the total range from $349 billion to $377 billion at the moment. Yes, could be a $30 billion rounding error.) SBA will now be able to approve “loans” of up to a million dollars, up from the current limit of $300,000. Even better, these low-interest loans (4% interest max) can be turned into grants so long as payrolls are maintained. (What does “maintained” mean, exactly? That’s detail still to come; SBA is supposed to aim to have its new regulations in place within 15 days.)

Much of America’s daily and weekly press can benefit from the new SBA program. The main idea: Keep payroll in place for the current workforce. It is a program aimed squarely at the onrushing second quarter.

Publishers will be able to apply the money to rent and utilities as well, says Danielle Coffey, senior vice president and general counsel for the News Media Alliance, who has been poring through the legislation.

Already, publishers and their trade groups — notably News Media Alliance and America’s Newspapers (the result of the recent merger of Inland Press Association and the Southern Newspaper Publisher Association) — are combing through the legislation, determining the key points that will inform publisher decision making.

Those publishers, along with many other small business owners, will soon visit (physically or digitally) the SBA-approved banks that will review and distribute the funds. Those banks themselves are sure to be overwhelmed.

Those loans will be a lifeline for some publishers, as society’s great disappearance has taken as much as half of advertising revenue (maybe more!) from the press in shockingly short time. Will this SBA lifeline be enough to make a difference? Certainly, the size of a local news enterprise determines how far hundreds of thousands of dollars can go. Certainly, though, no one can be sure. Barring a major Easter surprise, no one expects this lost ad business to come back big or come back strong. But a million dollars buys one important thing for smaller companies: time.

Between SBA loans and a paycheck protection provision, it’s believed that the most a sub-1,000-employees company could receive would be 2.5 times its average monthly payroll, not to exceed $10 million.

These smaller companies provide vital news across the vast reaches of the country. But the reality is that most of the country’s newspaper readers are now served by dailies owned by larger companies.

Companies with between 1,000 and 10,000 employees graduate into a larger and wildly competitively pool, already dubbed the Mnuchin Fund by some. Treasury Secretary Steven Mnuchin has been given a checkbook of around $454 billion to help these employers.

Who can qualify? Basically, other than airlines, air cargo, and security companies — all of which are covered under other parts of wider bailout — it’s everyone into the big pool. Hoteliers, big restaurant companies, retailers of every kind…and newspaper chains. “It’s very unformed,” says David Chavern, CEO of the News Media Alliance, which represents the largest newspapers, mainly metros and chains, in the daily newspaper industry.

What will the Mnuchin rules be? No one yet knows, as the press raises comparisons to the last crisis’ TARP legislation. That’s the bailout that, some pundits believe, both saved the country from a depression and spawned a political revolt that determined much of the politics of the next decade. (Well described in brief on The New York Times’ The Daily’s Thursday podcast.)

“There are a lot of unknowns, and there will be more restrictions,” sums up NMA’s Coffey succinctly. Among the questions: How much money goes to which companies, on what terms, and with which requirements?

Such decisions are always knotty, contentious, and inevitably political. The financially driven consolidation of the newspaper industry (amply covered here since January 2019 as The Consolidation Games) should complicate what will already be complicated decision making.

(And hey, at least we know The Consolidation Games won’t be postponed a year because of COVID-19.)

New Gannett, the largest newspaper player by far, has been in the process of achieving $300 million in “synergies” between its former GateHouse and Old Gannett halves — largely by reducing headcount. Almost all daily newspaper companies have been laying off employees for years, as their revenues have dwindled. How will regulations take into account declining companies in a distressed industry — whose work still produces the bulk of local news that Americans get?

All these companies still supply vital journalism, but how much will a bailout support that journalism as compared to the maintenance of sometimes significant profit margins? Will it distinguish between a family-held daily that’s reduced its profit substantially to maintain a larger newsroom and a private-equity-owned daily that’s done the opposite?

Is this money for the owners, for the journalists, or for the communities they serve? That’s a major question to watch closely.

Both at the trade groups and in executive offices, newspaper people begin to try to divine what’s likely to happen with the Mnuchin money and beyond.

NMA has been in full swing on these issues ever since the severity of this crisis became clear. Why didn’t NMA try to get a specific piece of dedicated bailout money, as the airlines ($60 billion) did?

“Our lobbying was limited,” says Chavern. They were told they couldn’t, along with all other beleaguered industries. There’s “essential” and then there’s essential. (And then there’s “essential,” like germ-spreaders Michael’s and the Guitar Center.)

Instead, the trade associations began work in several areas:

• Making sure news publishing was defined as “essential.” The lockdown quickly prompted on-the-fly definitions of which businesses were sufficiently “essential” to be allowed to stay open. With the federal government taking its on-again, off-again position of leadership in this crisis, NMA worked with various jurisdictions and state publisher associations to ensure that journalists could continue working — and delivery people could throw papers.
• Outlining a “public service ad” initiative that could serve dual purposes. As the federal government communicates policy, such as the evolving CDC guidelines, it could place a steady stream of ads in newspapers — as well as other media — to get the word out. It’s a proposed twofer: (1) offer factual information more widely and (2) provide support for news media as they endure unprecedented ad revenue loss.

It’s more than an abstract idea. On Wednesday, Justin Trudeau’s administration announced that Canada would spend $30 million on such ads. “To ensure that journalists can continue to do this vital work, our government is announcing new measures to support them,” he said. (Publishers quickly cried too little, too late, pointing to the coronavirus-driven loss of as much as two-thirds of their ad revenue.) “They’ve done that in Europe, too,” says Chavern. Expect the NMA and America’s Newspapers to push for a sum in the nine-digital range.

How much should anyone be concerned about the tried-and-true American line between government and press?

“There’s a lot of apprehension about the independent press and the government getting too close,” Chavern acknowledges, but notes this would be an ad buy — not unlike the still-significant “legal ad” business that’s been in place for hundreds of years. Importantly, newsrooms themselves wouldn’t be involved in the program.

“We’re focused on the next piece of legislation,” says Dean Ridings, CEO of America’s Newspapers, which represents hundreds of newspaper companies, with more emphasis on small and medium titles. Even as the ink isn’t even dry on this bailout, business generally expects another one — and is laying plans to get a piece of that pie.

At first blush, it looks a bit like an old-fashioned newspaper war. (For our younger readers: Long ago, some cities had two or more strong newspapers that fought each other for scoops, talent, readers, and advertisers. Really.)

In Memphis, two newsrooms — each with about three dozen journalists — slug it out, day after day. They both know it’s possible, maybe even likely, that only one will be still standing in a few years.

What’s happening in Tennessee’s second-largest city, given our times of media high anxiety, also takes on the tone of a morality play, a quizzical dot on the landscape of ghost newspapers and deserted communities. Is Memphis an outlier, or is it a sign of what’s to come in the 2020s?

Quietly, The Daily Memphian — an ambitious local news site launched in 2018 — has shaken up the local news landscape in Tennessee’s second largest city.

“I really think that the presence of The Daily Memphian has been a good thing for the market, and it’s been a good thing for our journalists,” says Mark Russell, the executive editor of the incumbent daily newspaper, the Gannett-owned Commercial Appeal. “I think readers are benefiting from it every single day.”

The “newspaper” war even comes some good trash talk. “I think that competing with The DM has been wonderful for Memphis, wonderful for our journalists and theirs,” Russell continues. But…

“Eric Barnes, Andy Cates, and even some of their columnists have said things in the media and said things publicly that have just been, I’ll call them — call it what it is, outright lies. Because they’re describing The Commercial Appeal and our commitment to Memphis and whether we’re controlled by Nashville. And they know it’s a false narrative. And they keep repeating it. They’ve let up a little bit lately, as I’ve called them on it. But I think for almost a full year, that’s all they talked about, how the CA was ‘not committed to Memphis.’”

The Daily Memphian’s very name shows who it aims to compete with. It’s digital only, meaning of course that it publishes news around the clock. The “Daily” part? It calls out to a group of once-loyal print newspaper readers who might be willing to try out a new alternative.

The Commercial Appeal, founded in 1841, went through a decade of cuts that opened the door — and the community’s wallets — for The Daily Memphian. “We launched our online news source as a direct response to the cuts and consolidation that Gannett imposed on our local paper,” says Barnes, the Memphian’s CEO.

Across the United States, there are local newspapers in various rates of decline — some being stripped quickly for parts by hedge fund owners, some fighting fiercely against the tide through smart business strategy and commitment to their communities.

And across the United States, there are hundreds of local news news sites working to find their own niche in the news ecosystem being born.

But it’s still rare to see old and new compete at something that approximates a level playing field. The local daily, no matter how shrunken, nearly always still has a significantly larger newsroom than the biggest local digital startup. That’s one big reason the battle in Memphis is worth watching closely: If current trends continue, it’s a preview of the sort of competition we might see in lots of other American cities in the coming years.

Eric Barnes, 51, is a former president of the Tennessee Press Association who has been on both sides of the newsroom/business wall during his career. He had a hand in launching community papers in Nashville and Knoxville, led weekly papers, and ran the Nashville Ledger business-and-politics paper for 15 years before the Memphian launched.

“Before that, we did city guides and city directories and business directories and coffee table books,” he says. “Our company was based here in Memphis, but we worked around a couple hundred markets around the country. Then I was at a small business magazine up in New York and a reporter in Connecticut. I also host a show here locally on our PBS station, which I’ve done for nine years.”

While the Memphian serves a metro-sized audience, Barnes applies lessons from his experience with smaller community papers. “Being in the Press Association and getting to know a lot of community-level publishers, small-town publishers, was extremely helpful. The way in which they got hit, everybody in the industries got hit. But they often were slower to go to the web because they didn’t have the money, so they didn’t give away as much. I mean, they kept their print alive. They stayed closer to their communities. I think there are a lot of lessons.”

One lesson: “We are a paywall-driven, subscription-based news source,” says Barnes, who believes reader revenue is the absolute key to getting to break-even.

The Daily Memphian has assembled 11,600 subscribers in the 18 months since its launch in September 2018. Those subscribers initially paid $7 a month, a price now increasing. (It’s currently $10.99/month or $99/year.)

That will add up to more than $1 million in annual revenue, and it’s matched by roughly the same amount in advertising. On one hand, $2 million is a lot of revenue. On the other, the Memphian’s current budget is about $5 million.

That’s the story of this one-of-a-kind play in U.S. replacement journalism: It’s about scale. Scale of ambition. Scale of newsroom. And scale of revenue, the elusive elixir of digital news.

A controversial funding runway

The Daily Memphian has so far raised $8.2 million — $6.7 million of that before launch, the rest since. The goal is to get to break-even or better by 2023. “We’re on track,” Barnes says. “I’ve said publicly before that our goal is to get 20,000 to 25,000 people signed up by Year 5 at a [monthly] rate of around $10.”

“I get what The New York Times, Washington Post, and Wall Street Journal are doing,” says Cates, who led the Memphian’s fundraising campaign and chairs its board of directors. “We believe we are a model for how the Fourth Estate can flourish in middle America. We’re in Siberia. We don’t have national funding, Google or Facebook.”

The CEO of RVC Outdoor Destinations, Cates is a prominent civic booster who gets credit for helping bring the NBA’s Grizzlies to Memphis from Vancouver in 2001. Just as people think that metros need sports teams, they need far older civic institutions — newspapers or the digital equivalent. “For a community to be healthy, it must have a healthy newspaper,” Cates told me. “We tried to buy the CA, and thank god we failed.”

That said, The Memphian’s unorthodox and opaque fundraising strategy has been controversial among many both in the bubbling new news landscape and in Memphis. Transparency in funding has become a mantra in the nonprofit news movement, and there the Memphian is lacking.

“Give or take, the original $6.7 million was all raised anonymously, which caused some consternation with journalists and INN [Institute for Nonprofit News],” says Barnes. “I get all that. Even though I carry the CEO title, I have spent most of my life as a journalist one way or another. Locally, there were a lot of questions: Are they going to have bias? Are they going to carry an agenda?”

(At launch, Cates told Poynter that “he hopes that the [anonymity] will avoid the appearance that local high-rollers are treated with deference in Memphian stories.” Keeping the high-rollers anonymous doesn’t typically help with conflict-of-interest worries.)

Barnes says the money was all local and from “many different funders — it wasn’t one funder.” Now, he says, “I don’t ever get asked a question locally” about funders. He says he’s “felt or experienced absolutely zero donor pressure on the newsroom. The board — which is fully public — has high-level, strategic expectations of the operation, including the newsroom. But they’ve not in any way dictated stories that should — or, and this is arguably more important, should not — be written.”

Proudly paywalled

That’s not the only point of some controversy around the Memphian and money. Its paywall, powered by Piano, limits non-subscribers to three stories per month. That’s down from five at launch.

“In the middle of the summer, we started tagging roughly one story a day as subscriber-only, so you have to subscribe to read that,” says Barnes. “That’s done well for us in terms of converting and reinforcing the people that we’re a paid site.” Reducing from five to three stories a month didn’t bring “a huge impact negatively or positively. We’re not quite sure where we go from there. I mean, the business part of me would love to say it was one free or two free, but it’s a balancing act.”

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“We’ve gotten some pushback from some of the other nonprofit news organizations whose mission is free and open content that should be available to everyone. I love that. I mean, I’m an NPR fan. I’m a fan of local PBS, but we just looked at it and said: We don’t want to constantly fundraise. We don’t want to be a drain on the Memphis community, the philanthropic community.”

To counterbalance the paywall, the Memphian is free when accessed in schools and libraries. Those “with limited means” can apply for financial assistance. Some of the Memphian’s journalism also leaks beyond the paywall via local TV and radio partners. “Memphis has a big poverty problem, and we want to figure out how people who can’t afford it can get it,” Barnes says.

But he’s happy to defend charging. “Let’s value the news, let’s charge a fair rate for it. Let’s say our content is worthwhile and try to undo the, what, 15-year disastrous experiment of giving away local and national news for free. People have paid for news for decades, if not ever long. So why wouldn’t we find ways to have people who can afford to pay for it?” Eventually, subscribers are projected to provide about two-thirds of the Memphian’s revenue, with sponsorship and advertising making up the rest.

Are those ad sales motivated by the Memphian’s mission? “Less than 10 percent has been people saying, ‘Hey, we just want to support you to support you.’ We try not to sell that way,” Barnes says. An advertiser’s monthly spend is often in the $500 to $1,000 range. “It’s not terribly expensive to dominate one of our sections or to dominate our business coverage. They have a very strong presence on our email editions or our business coverage or sports coverage.”

So who is in the audience that those advertisers want to reach? The site’s readers do skew a bit older; “it’s traditional newspaper readers who are desperate for a local source, a locally based news publication, paper or not, a news publication,” Barnes says, getting in a few punches at the CA.

The audience also skews toward higher education levels (almost 70 percent have a college degree) and higher income (overindexing at incomes of over $100,000).

That’s in Memphis — the second-poorest large city in America, behind only Detroit. Of the 50 largest U.S. cities, Memphis ranks No. 47 in the share of its residents with at least a bachelor’s degree. And among large U.S. cities, only Detroit and Baltimore have a higher African-American share of its population.

In none of those measures is The Daily Memphian particularly representative of its city, say some critics. At launch, it faced criticism from people like Wendi C. Thomas, a former Nieman Fellow and founder of the local news site MLK50, for having a staff that’s 80 percent white in a city that’s 63 percent black. (The Memphis metro area overall is roughly 50/50 white/black.) They point to a leadership that is overwhelmingly white, and the staff diversity count of 21 percent people of color, 40 percent female. Of its four regular columnists, all are men and three are white.

The Memphian, for its part, is stands by its own record of diversity and of reaching out more widely in its first two years of existence. Its board is majority female and 33 percent African-American. Its new audience development and digital directors are both women; the new head of advertising is African-American; the new executive editor is Latino. “Since launch we’ve gotten more — not less — diverse,” says Barnes.

Beyond that, Barnes says the Memphian has made major inroads in engagement on the news product itself with its diverse communities. “We have two dedicated reporters to north and south Memphis, historically black and under-covered areas. We have a commitment to diverse stories across all reporters and beats. And we have none of the constant crime blotter coverage with the parade of mug shots and shallow, fearful coverage — coverage that has done major damage to black communities nationally. But we do cover policing, criminal justice, justice reform, the local DA, juvenile justice center, a series on the impact of childhood trauma on the brain, and more.”

In the criticism and on the ground, we can see the contentiousness of journalism change. Some may say that it’s one thing to see on-the-surface power imbalances in a decades-old institution that is struggling to adjust to new realities, it’s another to see it in an organization that’s born fresh and new in 2018.

But these are knotty questions. How much should ambitious startups be faulted for finding the early reader revenue from the often-expected sources of more affluent consumers? Further, an important question. How soon should their overall staff makeup resemble their communities covered?

It’s true that Memphis is one of the least digitally connected cities in America. As of 2018, 48 percent of residents have no broadband connection at home — the second highest rate of large U.S. cities, again behind only Detroit.  But of course, we know that, with very few exceptions, digital-only news startups are the only ones to have a chance to find new success in the 2020s. Beyond all the other challenges of reseeding the news deserts, can we rightly expect news startups themselves to deal with broadband neglect? It’s also instructive that the Memphian has already taken early and substantial initiatives, with more planned, to get free access to communities and individuals that can afford to pay for it.

So some paint this picture: anonymous wealthy funders; leadership that doesn’t look much like its community; a digital outlet in a city with limited connectivity; a hard paywall in one of the country’s poorest cities. They say new startups, eventually replacing traditional daily newspapers, are unlikely to be oriented toward a mass audience as what came before.

But it’s far too early to draw that conclusion. The Daily Memphian may be a Rorschach test in what is such a contentious start-up news movement. Critics inside Memphis, and out, can point to numbers they don’t like. The Memphian itself can rightly claim to be doing something that I haven’t seen getting done anywhere else in the country: a high-quality, at-scale, news replacement with a real business model bent on making its way forward with earned revenue.

Much as discussion about its particulars is warranted, and gets the context it deserves, we cannot lose track of that hugely important fact.

The “newspaper” war

While not much has been reported nationally on this competition, big themes emerge for all who care about future of local news in North America and beyond.

First and foremost, The Daily Memphian aims to be a replacement news company — the primary supplier of local news and information for its area.

Metro Memphis has a population of about 1.35 million, a sprawling area that spreads into Arkansas and Mississippi. Roughly half of that population resides in Memphis proper. Unlike the vast majority of hard-working news entrepreneurs planting seedlings in growing news deserts, the Memphian’s model is built on achieving a scale that can try to match the city.

It now pays a newsroom of 34 — the same number of journalists, more or less, remaining at Gannett’s incumbent Commercial Appeal. Another 12 business-side staffers join them. In addition, the Memphian pays more than a dozen regular freelance contributors.

As of December, the newsroom is led day-to-day by Ronnie Ramos, who left a job as executive editor of Gannett’s Indianapolis Star for the Memphian. That move in and of itself tells us lots about the changing momentum in Memphis.

There’s plenty of newspaper DNA in the rest of the Memphian’s staff. (It covers sports, runs restaurant reviews, even runs obituaries — a mix of content much closer to a print daily’s than what you might find at a lot of local nonprofit news sites.) It hired “10 to 15” of its staffers from the Commercial Appeal. And that hiring changed the CA a lot as well.

“We had to go out and get new players for almost every major position,” says CA executive editor Mark Russell. “And we did that and we got better.” The newspaper’s staff is now younger, more digitally savvy, and more diverse — 33 percent people of color now versus 19 percent before the Memphian began hiring people away. (Russell is black; Barnes and Cates are white.)

Memphis’ story is a lot like that of metros from coast to coast. The circulation losses of The Commercial Appeal tell quite a story, underscoring not just a loss of readers but the widening market vacuum that The Daily Memphian is rushing into.

For the third quarter of 2019, The Commercial Appeal reported a Sunday paid circulation of 52,000 and a daily circulation of 29,000. Just three years earlier, those numbers stood at 103,300 Sunday and 67,000 daily. That’s basically half of its paid base of readers gone in three years.

On digital subscriptions, the CA’s numbers have moved in the right direction. It counts 10,063 in that category now, up from 4,045 subscribers three years ago.

The major circulation declines result from changing reader habits, to be sure, but also from Gannett’s cuts to the newsroom and its pricing-over-volume circulation strategy.

By some remembrances, the Commercial Appeal counted about 200 journalists in its newsroom 20 years ago. That’s more than five times the 37 in today’s.

The Daily Memphian’s founders say its birth grew out of the regionalization of the daily press, but the Commercial Appeal disputes the degree of that regionalization. In 2015, Gannett bought the Knoxville and Memphis dailies as part of its Journal Media Group acquisition. Gannett now owns six dailies in the state, with Nashville the largest. Over time, the Tennessee Network developed, a trend we’ve seen all over the country as regional clusters of newspapers looked for headcount reduction and efficiencies.

“You could regionalize backend design — that’s one thing, fine,” Barnes says. “Centralize your accounting. Okay, that’s fine. But you can move [only] so much decision making out of the local markets before it is [no longer] really the Memphis Commercial Appeal.”

Especially since Memphis and Nashville don’t really get along. (For evidence, see this map of NFL fan bases, which shows Memphis’ Shelby County actually has more fans who root for the Dallas Cowboys than for the Tennessee Titans over in Nashville.)

“Everywhere I’ve ever lived, Tennessee, New York, Connecticut, Washington, Oregon, Alaska — I mean, Eastern Washington hates Western Washington, right? I mean, upstate New York and downstate New York are totally different,” Barnes says. “The idea that you can do these sort of regionalized papers…I’ve never lived in a place where that would work.”

Russell’s retort: “It’s a cheap, easy comparison to make when you don’t want to talk about journalism. Let’s talk about journalism. Let’s not talk about this Nashville vs. Memphis thing. It’s kind of a familiar trope though to people here because people in Memphis and people in Nashville don’t like each other.”

Russell wrote his own column in November to respond to the “centralization” charges, “setting the record straight.”

“What I say about that is that the people in Nashville have their hands full making decisions in Nashville,” he says. “And if you think about that logically for a minute, if you’ve worked in a news organization, you know it is hard to control your own organization in your own city, much less one that’s three hours away that you don’t have familiarity with the people, the places, or the issues of the context. So that’s ludicrous on its face that someone in Nashville making decisions here.

“It’s a short trip to the editors, including me, who are in the market, who know this market, who are working hard every day to produce a good report online and in print…Tell me who in Nashville is staying up late like me, reading content and up early reading content. Tell me who in Nashville is out in the community meeting with community leaders and neighborhood leaders every day. No one. They’re not here. They’re in Nashville doing the same thing I’m doing here. And that’s the way it should be.”

Its delightful to hear a bit of trash-talking by head-to-head news competitors. Reminds me of my days in the Twin Cities 20 years ago, when our Saint Paul Pioneer Press took on the larger Star Tribune.

Even with the head-to-head competition, Russell remains evenhanded in his view of the Memphian. “I talk to readers every single day,” he says. “And what I hear from readers is that they see the Memphis being stronger than it’s ever been. And that’s primarily because we now have a competing publication, and they see that the Commercial Appeal has improved since we lost those staffers. They see it every single day. And they see the DM being a really viable, strong news store.

“So you’ve got two heavyweights going at it on important issues. Readers have found the benefits of that: We’re going to have far better coverage of primary topics like government, the environment, demographics, investigative coverage. They’re going to get better coverage overall, and they have been getting it.”

The future

How long will this head-to-head competition last?

One logical question to start with: How soon could the paid readership numbers of the Commercial Appeal and Daily Memphian converge? A legacy business still transitioning from print to digital — and now owned by a megachain with lots of new debt to pay off — is competing with a debt-free, digital-only, deep-pocketed operation bent on growth.

This is no apples-to-apples comparison; there are many moving pieces and radically different cost structures. Then again, there won’t be many more apples-to-apples comparisons in local news going forward. This isn’t the New York Post vs. the Daily News, the Chicago Tribune vs. the Sun-Times, or even the more recent Times-Picayune vs. the New Orleans Advocate — recognizable battles between distinct competitors, but also between fundamentally similar businesses. But digital subscriptions — how many people in your community can you convince to hand over their credit card for digital access to your owrk — can be a common point of comparison.

How much are Memphis news readers reading one or the other or both?

“I don’t know,” the Memphian’s Barnes says. “I know anecdotally that people tell me that they have dropped the CA. I know other people continue to do both, and they do have some good journalists over there. I mean, they have many good journalists over there. I still read them — if not every day, I read them a couple of times a week. I think that’s true of a lot of people.”

(Again with the trash talk.)

One way or the other, given the tight economics of the local news business itself, no one is under any illusion that Memphis’ contrarian news war will last for a long time. “I’m not sure it can,” the CA’s Russell says. “It’s hard to imagine any community our size supporting two full-blown, news organizations. Even when full-blown doesn’t mean what it meant back 10 years ago…it’s hard to imagine that, it really is.”

The Daily Memphian is, like many of its startup brethren, a nonprofit. But it’s a nonprofit with an for-profit attitude, acting as a business-oriented enterprise.

“We are structured as a nonprofit under Memphis Fourth Estate Inc., but we are intensely focused on building a financially sustainable model that relies not on constant fundraising, but on earned revenue through our paywall subscriptions and sponsorships,” says Barnes.

What are his reader revenue takeaways so far? “We launched on September 17, 2018. Our original projection was 4,500 paid for the first year. We hit 4,500 somewhere in October. I mean, it was under full four weeks.” By year’s end, it was close to 6,000; by its first anniversary, it was at 10,000. Churn is relatively low, at about 6 percent annually. Today the Memphian has settled into a monthly net gain of about 300 subscribers. (The site now gets about 1.5 million monthly pageviews.)

The Memphian continues to test both annual and monthly offers, but generally avoided the “$1 for 6 months!!” deep discounting some other sites have used to draw in new subscribers.

The Memphian has clearly tapped into a substantial early paying audience — a cohort of the civically connected who were more than ready for the Memphian. The big question: What do the next cohorts look like? How big will they be, and will they represent a broader slice of Memphis’ population than its well-heeled early audience?

As The Memphian eyes doubling its subscriber base, Barnes knows the strategy will likely get more nuanced. “It’s a pretty high-income, high-educated audience, so, the [price] is not an issue for them. As we get from 11,000 to 22,000, we have to be more price sensitive, I think, with people. It’ll be tricky over the next few years.”

The Daily Memphian is providing a new value proposition to its readers. But in that offer we can see how in-progress the digital experience remains — especially perhaps for older readers. Take the site’s email newsletters. “We push a ton of email,” he says. “It works really well. We get really good open rates. But what we realized with many, many readers — particularly those who are older — they really don’t understand the difference between the email and the website. So they don’t get what’s in what. They’ll tell us, ‘Well, I’m a subscriber. I get your email edition.’”

Those emails are free to all, not part of a paid subscription. “They don’t go to the homepage, they don’t go to the navigation — they just use that email. Which is in some ways great, but creates a massive amount of confusion.”

In its first year of publishing, the Memphian published almost 7,000 stories, ran thousands of staff-shot photos, added nearly 10 weekly podcast series, and held Daily Memphian events almost every week.

It’s all those stories — buttressed by irrational fervor, best-practice business models, and more — that have always made local journalism work, and will someday again.

“It wasn’t local journalism that failed, it was the business behind local journalism,” Barnes says. “It’s a simple fact that gets lost…That’s been a driving issue for us: There is a lot of traditional local stuff that didn’t need to be thrown out the window. It was just that the business model got so wonky, broken. That was really where the problem was.”