What do Media General’s financial woes mean for The Daily Progress?

What do Media General’s financial woes mean for The Daily Progress?

It’s obvious from the “History” section of its website that Media General is proud of its past.

There are  prominent portraits of the four generations of Bryan family men, including current Board Chairman, J. Stewart Bryan III, who have led the company from its inception as a family newspaper business in 1850, through its rise as regional powerhouse in print and TV stations in the mid-20th century, to its current iteration as a publicly traded media conglomerate, which now owns more daily newspapers in the Southeast than any other company.

Those dailies include three metropolitan papers—The Tampa Tribune, Richmond Times-Dispatch and Winston-Salem Journal—and 21 community papers, including Charlottesville’s Daily Progress. Media General also owns 275 weeklies and niche publications, 18 network-affiliated TV stations, 75 online enterprises associated with its print and broadcast properties and three other Internet businesses: Deal Taker.com, an online coupons and shopping site; Blockdot, Inc., an advergaming and game development firm; and Boxerjam, a multimedia producer of interactive games.

Breaking up the mergers and acquisitions narrative are photographs of some of the company’s current bricks and mortar properties, including its newspaper printing facility in Hanover, decade-old corporate headquarters in Richmond, and Tampa News Center.

The big buildings, old mastheads, and ode to the past: It all comes across as very old school. The nostalgia seems misplaced for a company with the business strategy “Web First/Continuous News.” Likely, the history section simply is a necessary homage to the Bryan family, which still owns 85 percent of Class B voting stock and therefore holds disproportionate corporate power. (The Class A voting stock, which represents roughly 98 percent of the economic value of the company, is what’s publicly traded on the New York Stock Exchange under the ticker MEG.)

Until very recently, the site’s history lesson abruptly stopped in late 2006, shortly after Media General made one of its biggest acquisitions to date, paying a whopping $600 million for four NBC affiliate stations in Birmingham, AL; Raleigh, NC; Columbus, OH; and Providence, RI. Nowhere in the record is a description of the precipitous decline in Media General’s share price following that acquisition and from there, a major buy-up of the suddenly cheap Class A shares by activist hedge fund Harbinger Capital.

Harbinger made similarly large and aggressive investments around the same time in The New York Times Co. and Cablevision. And that was all around the time that the pot started boiling for print news business in general. With the industry already contending with the flow of free news content to the Internet as well as classified ads to websites such as Craigslist.com, a combination of massive debt plus the recession seems to have equaled a perfect storm of pending financial doom for Media General.

More unpleasant events have plagued Media General since that time: a nasty proxy fight with Harbinger over seats on the board of directors; three years of declining revenues; a share price that fell to a low of $1.25 from a high of $27.18 in the last 52 weeks; a debt to EBITDA ratio near bankruptcy territory; company-wide furloughs; the freezing of its pension plan; and a reduction in its labor force by 1,500 jobs (21 percent) between 2007 and 2009. More importantly for readers, daily papers have grown so thin of local content that even the family pet struggles to find a spot to pee that isn’t a glorified press release or wire report. 

Or, consider the redundant printing facilities that have been closed in recent years. Those assets include the 30,000-square-foot building that houses The Daily Progress, which was put up for sale last year after printing operations for the DP and The Waynesboro News Virginian were moved to the Hanover site.

How could it get worse? The Daily Progress and Richmond Times-Dispatch already have been hit hard by the company-wide layoffs that forced the departure of veteran journalists such as Mary Alice Blackwell at the DP and Carlos Santos and Rex Bowman at the RTD. Not to mention Media General’s attempts to slow the bleed of cash from falling revenue and debt repayments by cutting back on expenses and employee benefits.

But the pain likely isn’t over. Three of Media General’s small community dailies in North Carolina were forced in recent months to do what was once unthinkable: pull back distribution to two or three days a week. Other media companies across the country have been forced into going online only (The Christian Science Monitor and Seattle Post Intelligencer) or folding entirely (Rocky Mountain News). Even the fabled Boston Globe is at risk of stopping its presses if its union can’t finalize a tentative agreement with its parent, The New York Times Co., which involves $10 million in annual concessions and benefits cuts.

With Media General in serious financial trouble, could Charlottesville lose its only daily paper?

The incredible shrinking paper

At the very least, there is much speculation that the DP could soon drop back from publishing every day.

Before dumping 76 percent of its Media General shares, Harbinger, the activist hedge fund that made an aggressive play for the Richmond-based company that publishes Charlottesville’s daily paper, said it believed “that the Company has lost strategic, operational and geographic focus in recent years and has demonstrated a lack of judgment in its capital allocation and growth decisions.”

“That would be unfortunate,” says Bob Gibson, 17-year political staff writer for The Daily Progress (and seven-year city editor before that), who now serves as executive director for the Sorensen Institute at UVA. “Part of its strength is in offering the news every morning.”

That’s hard to argue with, but what about the strength of its reporting, considering the newsroom has shriveled not only in size but also in experience? 

The loss of Gibson already was a huge blow to the veteran ranks of the DP back when he left in March 2008 to take the Sorensen post. Coincidentally, that was just two months before the first round of major Progress layoffs.

Gibson says he was very fortunate to have found something before cuts were made, but “if there was handwriting, I wasn’t reading it,” he says. “I was very happily and gainfully employed, but an offer came along that I had to consider.”

Unfortunately, for longtime fellow staffers such as Blackwell, no such offers came their way before they got their walking papers.

“I am very sad for a lot of my friends, some of whom are no longer in the business. To have 59 people laid off at the Times-Dispatch, some of them very good, it’s a very sad situation. I doubt they’ve found something in journalism. Higher education, PR maybe. It’s very difficult,” says Gibson, who still contributes his “Blogging Virginia Politics” blog to the Progress (for free).

Wayne Mogielnicki, former editor of The Daily Progress who left the paper in 2000 to direct communications for Monticello, shares Gibson’s sadness for colleagues such as Santos. “Suddenly you’re told what you’ve been doing for 30 years is now obsolete.”

It certainly seems that the recent focus of Media General is less on high quality journalism and more on the cheaper and faster way to push a paper out.

“The Times used to be a paper you went to and retired at. The alumni association is so strong,” says Gibson, referencing folks such as Rick Bomen who got the axe along with Santos, “but the emphasis now is on younger hires and the less experienced.”

Santos, who essentially served as the RTD’s Charlottesville and Shenandoah Valley Bureau during his 20-year tenure before being let go in March, however, is pragmatic: “For them to let go some of the talent they did, it was survival.”

Santos harbors no hard feelings toward Media General despite his fate. “I’ve known [Board Chairman] Stewart Bryan for a long time. He’s a gentleman and they paid me well,” he says. Moreover, Santos doesn’t seem surprised by recent events.

“I had the greatest job in the world. I covered the stories I wanted to do, but you could feel that axe over your head. The migration to the Internet. The cutbacks on the bureau system. Rex Bowman, Bill Geroux and I were doing statewide news and that just wasn’t part of the strategy.”

Well, then that’s a questionable strategy—or at least it is to those readers (and they’re still out there) who want to get high quality state and local news from experienced journalists. On the other hand, it may just be business as usual for Media General, which Gibson says has always been “very concerned about bean counting.”

“The larger the corporation and the further it is away from the readership the more it may have the tendency to look at it as a market rather than a community,” says Mogielnicki. He for one isn’t beyond getting nostalgic for the way daily papers used to be run, when there was “local control and flexibility about what works in that community and what’s important to that community.”

And so are we to be left with a young and inexperienced newsroom (notwithstanding that some very capable longtime reporters, such as Brian McKenzie and Brian McNeill, are still holding down the fort) that has little to no strategy or support for covering the stuff we, the local readers, care about on a daily basis? Who needs the DP to print global and national daily news when we have Google and the other aggregators for that? And for syndicated conservative editorials? Hello, Fox News.

Rats and the sinking ship

Harbinger’s view of Media General’s plight as well as the rest of the  industry is that it will only get worse. The hedge fund has been campaigning publicly to sell its New York Times stake and has drastically reduced its Cablevision and Media General investments. In one month at the end of 2008, Harbinger decreased its holdings of MEG stock by 76 percent to merely 4 percent in December 2008.

That’s quite a signal of defeat for an investment fund that was aggressive enough in 2008 to attempt to install its own slates of directors on the boards of all three media companies. In the case of The New York Times, company management acquiesced to Harbinger’s pressures and endorsed Harbinger’s candidates, but Media General’s executive team, led by CEO Marshall Morton, fought the nomination in a very public battle and engaged Harbinger in a proxy fight for shareholder approval over its own slate of directors.

A former Progress editor, who left before the massive layoffs, reflects on what it’s like for longtime colleagues to get the axe: “Suddenly you’re told, what you’ve been doing for 30 years is now obsolete.” That’s been true for press operators too, who were let go from their jobs at the Progress’ Charlottesville plant last year in one of many Media General cost-cutting moves.

In its solicitation for fellow shareholder support, Harbinger’s representatives criticized Media General’s leadership for overspending and underperforming compared to the company’s peers: “Harbinger believes that the Company has lost strategic, operational and geographic focus in recent years and has demonstrated a lack of judgment in its capital allocation and growth decisions.”

Specifically, Harbinger criticized the company for overpaying for the four NBC affiliate stations in 2006 and for investing in Internet businesses unrelated to the core print and broadcast lines.

“We believe Media General could have purchased online game and coupon features for its websites rather than spend shareholders’ capital to buy the BlockDot and DealTaker.com businesses,” stated Harbinger’s representatives in a presentation to other major shareholders.

Incidentally, in its earnings call for the first quarter of 2009, Media General’s executives predicted that the “Interactive Media Business,” which includes those non-core Internet investments as well as all the websites associated with its print and broadcast assets, will turn a profit of $5 million at the end of 2009 on close to $50 million in revenues mostly attributable to DealTaker. Still, in April 2008, enough of Media General’s other shareholders agreed with Harbinger’s sentiments and voted for their slate of three directors at Media General’s 2008 annual meeting. The three Harbinger-endorsed candidates joined the six other directors approved by a majority of the Class B shareholders (i.e., J. Stewart Bryan III) for a one-year term.

With six of nine directors presumably on the side of J. Stewart Bryan and management, it might have been quite hard for the Harbinger-endorsed folks to impose a radical new agenda. A month before Media General’s fiscal year would reveal a net loss of $632 million, Harbinger began its massive sell-off of stock and by January of this year, forfeited its power to communicate directly with its fellow shareholders. After finishing their one-year terms, the three Harbinger directors are now out of office.

Mistake of strategy or victim of the times?

“We’re doing as well as can be expected in this environment,” said company spokesman Ray Kozakewicz, when asked to comment for this story. But are those expectations as high as they should be? In what way is local readers’ access to the relevant daily information that The Daily Progress could provide at risk, due to a confluence of market and technological forces, and in what way can it be blamed on foolish moves by Media General?

“The fundamental problem is that no one has figured out how to make any money off the Web yet. Then kaboom, the economy tanks. Nobody had time to figure the magic bullet,” says Brian Richardson, Dean of the Journalism School at Washington and Lee University.
Meanwhile, Gary Green of Cribb Green & Associates, a newspaper and publication brokerage, consulting and appraisal firm, thinks the problem of the Internet is overblown.

“Lots of companies that don’t have high debt loans, they are riding through this. They’ve cut back on expenses, hunkered down and are riding through it and still making money. It’s the ones that used leverage to get big and had heavy debt loads when recession hit that are hurting.”

Media General certainly has a heavy debt load. The Company secured a $1 billion revolving credit facility as part of an aggressive acquisition strategy that included the purchase of those four NBC stations. The company has been forced several times over the last two years to negotiate amendments to the bank’s terms and to pay down its mounting debt through operating cash flow and by selling off several other TV stations. Still, a total of $730 million in long-term debt remains outstanding on the balance sheet.

While it’s been in the game of purchasing and selling and, in some cases, repurchasing media, almost since Joseph Bryan began his family’s empire in 1850, Media General’s really high-stakes gambles began in the late 1990s when it purchased several daily and weekly papers and broadcast stations throughout the Southeast and Florida.

They were trying to saturate the regional market from the biggest metro papers and TV stations in the region to the smallest town’s publication. In 1995 the company paid Worrell Enterprises (which was owned by Thomas E. Worrell, the father-in-law of C-VILLE’s owner) $230 million for The Daily Progress and three other Virginia daily and Sunday newspapers, including the Culpeper Star-Exponent, The News & Advance in Lynchburg, and the Suffolk News-Herald. In that sale, Media General also got 20 weeklies and monthlies.

Shortly after that purchase, Media General bought the Danville Register & Bee and the Bristol Herald Courier (which was owned at the time by T. Eugene Worrell, Tom’s father). Then in 1997, Media General merged with Park Communications in a deal valued at over $700 million. That purchase gave the company 10 network-affiliated TV stations, 28 small daily newspapers and 82 weeklies in the Southeast and earned the wrath of its then-largest shareholder. That was Mario Gabelli, who, in Harbinger fashion, lambasted the company publicly for a move he called “pure hubris” and later tried several times unsuccessfully to nominate his own slate of directors as well as force a change of the company’s bylaws to require unanimous board approval for any acquisition over $25 million.

Struggling now to service the debt from those acquisitions and faced with no market for media assets worth far less today than when they were acquired, shareholders such as Harbinger now say Media General made some fatal mistakes with its entire strategy. But industry analyst Green says that’s not necessarily the case: “Markets that ran up really high are the ones that are falling down the hardest right now. Nobody was expecting the downturn. You want to go in the Southeast—that’s where growth is in America. There’s been a lot of migration out of the Rust Belt and growth in that area, so where do you want to be? Geographically, it makes sense—I don’t see any flaw in that plan.”

Washington and Lee’s Richardson agrees: “They invested in broadcast-weak markets and family-owned papers and small papers, which have always been recognized as licenses to print money. With the big newspaper groups—it wasn’t unusual at all for smaller papers to prop up the bigger papers. That’s why the bigger papers can afford to be better papers. I don’t fault them as a business for doing the acquisition the way they did. At least they’ve been thinking of multimedia and what are we going to use the web for.”

For the multimedia aspect, Richardson is referring to Media General’s “convergence model” typified by its Tampa News Center, which it opened in 2001 by consolidating the newsrooms of TV, print and Web. In other words, for example, there’s one sports editor that oversees content in all three of those platforms in Tampa. In that same year, Media General also launched its Interactive Media Division. The website describes this development as “the cornerstone of the company’s efforts to fully integrate Internet technologies into its corporate strategies.”

The Progress’ parent company, Media General, has already scaled some of its other papers back from daily schedules to three times per week. “That would be unfortunate,” if it happened here, says Bob Gibson, 17-year political staff writer for The Daily Progress, who now directs UVA’s Sorensen Institute. “Part of its strength is in offering the news every morning.”

It’s not clear, however, how much of the strategy involves figuring out a way to generate real online revenue from its proprietary news content. While the Interactive Media Division includes local media websites for all of the company’s television and broadcast entities, according to recent earnings releases, the company sees much of its foreseeable future Internet upside from non-core coupon business DealTaker.com. The company also made much of its buyout of competitor Richmond.com, which it consolidated with Media General’s own local information and entertainment website Inrich.com.

The goal? To make the site “the primary gateway for entertainment news and other information about the Richmond area,” according to a company press release. Though the site will aggregate news from various sources in the community, much of the content will come from users themselves through comments, blogs and social networking.

That’s not to say Media General has given up on the online value of its own content. In fact, Media General used the Daily Progress website as its pilot site for a new innovative advertising relationship with Yahoo! called Yahoo Behavioral Advertising just this past March. At the 2009 Annual Shareholders Meeting, CEO Morton said Yahoo! technology delivers “‘smart ads’ to users based on their online behavior” and predicted that the technology would expand the company’s market penetration “exponentially.” Media General plans to roll out the technology on all its sites by the end of the third quarter of this year.
Perhaps it’s encouraging that The Daily Progress was chosen as the pilot site for the Yahoo! technology.

There are lots of arguments about Charlottesville being somewhat insulated from the “pronounced recession” that Media General’s largest market—Tampa—is experiencing. The Tampa operations were responsible for more than half of the publishing division’s overall 17 percent revenue decrease in 2008 and approximately two-thirds of the decrease in 2007. And still, in the same month as the Yahoo! technology roll-out, the DP laid off another four people and the Richmond Times-Dispatch, another 59.

Are The Daily Progress’s cost-cutting measures an unfortunate example of a community paper suffocating under the weight of its parent company’s debts?

Or is The Daily Progress independently suffering significant revenue declines of its own?
Daily Progress publisher Lawrence McConnell declined to comment on specific questions regarding the profitability of the paper, directing us to speak with Media General’s communications department instead, but McConnell did offer the following comment: “Our paper is doing fine, but you really need to speak with Kozakewicz.” 

Similarly,  Santos says the RTD isn’t suffering as much as the layoffs would seem to indicate.

“I had the greatest job in the world,” says Richmond Times-Dispatch veteran Carlos Santos, who was let go after 30 years. “I covered the stories I wanted to do, but you could feel that axe over your head. The migration to the Internet. The cutbacks on the bureau system. Rex Bowman, Bill Geroux and I were doing statewide news and that just wasn’t part of the strategy.”

“It’s general knowledge that RTD isn’t doing badly. From everything that I can glean it’s the other papers. It’s The Tampa Tribune that is taking us down.”

Unfortunately, there’s no way to confirm whether Santos and his colleagues were let go for reasons unrelated to their own papers’ bottom line. According to company spokesperson Kozakewicz, Media General does not provide financial information on individual papers. However, he did seem to quash the notion of The Daily Progress being simply a victim of Media General’s debt management needs when he described layoffs as “a last resort” among the expense-reducing measures that individual papers may choose to take to meet corporate revenue projections. I take that to mean the DP hasn’t been meeting its projections, whatever they are and however realistic.

So now what? Media General has stated in its most recent quarterly earnings that it will continue to take aggressive actions aimed at dramatically reshaping and reducing the company’s cost structure. If the layoffs, company-wide furloughs, pension plan freezing and all the rest aren’t getting it done, something more must be coming. Media General already has illustrated a willingness to cut circulation at three other community papers. It seems more than possible that it could happen to the DP. But Kozakewicz declined to say for sure.

“Every paper is different,” he said, explaining that the North Carolina papers trimmed of their daily status “were much smaller dailies.” Further he said, “We can’t speculate six months down the line. We are reducing expenses at all locations and anything that can be reduced, will be reduced.”

The new normal

“When I took the position at Monticello eight years ago, there was one TV station, one weekly paper, a larger Daily Progress and the Times-Dispatch had a full-time reporter posted in Charlottesville. Now, there are two weeklies, blogs, Twitter and all kinds of other things,” says Mogielnicki, “and look at The Washington Post,” he adds.

“The amount of space, time and personnel dedicated to features, arts and travel has been greatly diminished there too. It’s rapidly changing. The delivery systems have changed and that has meant cutting.”

Perhaps then, this discussion of what may happen in the next six to nine months at Media General or The Daily Progress is  moot. The nature of the newspaper business has changed so radically since the development of the Internet that it seems almost a given that in a couple of decades or so, maybe even less time, there will be no print newspapers, weeklies or otherwise, like we’ve known them for the past century.

“Maybe in this day and age, coming out with a new product, manufacturing it and then delivering it just isn’t viable anymore,” says Mogielnicki. W&L journalism school dean Richardson agrees: “We’re in for a rough patch. The economics of cutting folks loose for a few weeks to work on an investigative project—I worry about that, but if we think of a daily newspaper as killing trees, then yes, its days are numbered. What surprises and dismays me is that people assume that the newspaper is print on paper.
“A newspaper is a function in society.”

And as for filling that function, Mogielnicki, for one, thinks Charlottesville, at least, is doing O.K. for now: “We’re in really good shape—thin as it may be. We are media rich, but I don’t know how long it’s going to last. This town is different from a lot of others. Maybe somebody could make money with a meaty newspaper. Maybe this town could support it. The Progress is doing a pretty good job under the circumstances. It still provides a very valuable service.”

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