Internet, business model put Register at risk of insolvency

At $0.75, a copy of The New Haven Register now costs more than the common share price of its parent corporation, the Journal Register Company, which dropped to $0.22 on Monday.

The Journal Register is in trouble because of a number of factors, including in part a flagging economy and a newspaper industry become increasingly centered in the Internet, that are adversely affecting papers across the country. But the severe financial woes — the Associated Press reported Monday that the company is considering a sale, and the New York Stock Exchange has threatened to delist it if its stock price continues to hover below $1 — are also the result of the company’s expansion financed by massive debt.

But the potential consequences of the parent company’s troubles extend far beyond Wall Street. If the parent company cannot make up the $620 million in debt with which it ended 2007, the coverage of the Elm City’s only daily newspaper, which current Register employees say is already stretched far too thin, will suffer.

Profits and debt

The Journal Register’s immediate debt difficulties can be traced to the $415 million purchase of several Michigan newspapers in 2004. The purchase was financed by JPMorgan, which also refinanced the Journal Register’s long-term debt at the same time.

At the time, JPMorgan’s then-chairman and chief executive, Robert Jelenic, said the acquisitions of the award-winning newspapers “[fit] precisely within our strategy of acquiring community and suburban newspapers in attractive markets that enable us to implement and capitalize on our successful clustering strategy.”

But with Detroit’s automobile industry falling on increasingly hard times, advertising revenues from car companies declined, said Lauren Rich Fine, a retired top newspaper-industry analyst for Merrill Lynch. Ad revenues were already under pressure, she said, from the real-estate crisis, which decreased the papers’ ability to sell housing ads.

The resulting financial demands from the Journal Register have prompted cuts that have left some within the industry shaking their heads with disbelief. On March 11, the Register dismissed its Capitol bureau chief, Greg Hladky, a highly respected reporter who had covered state government for over 25 years.

“I think the Journal Register Company is sort of emblematic of what is happening to a lot of newspapers, in particular at the lower end,” Hladky said. “I think overwhelming concern is keeping up their profit margins, and they will cut whatever they think they can to achieve that.”

As a money-making operation, the company appears to have little commitment to journalism — even less so than other profit-driven newspapers, said Hladky.

“We used to tell the Courant [staff] that we were the canary in the mine shaft,” Hladky said of his time covering the capitol, during which he also reported for the Hartford Courant. “Unfortunately, that is now true.”

The Journal Register Company did not return two calls on Monday for comment.

If the Journal Register were to default on its debt to its creditors, Fine said, the investment banks that would take it over would likely sell its assets — possibly including the New Haven Register — in bits and pieces to whomever would buy it.

The cuts, past and possibly future, make life at the Register increasingly difficult, several current employees said. At present, Register staff are in the dark, being left to discuss the well-publicized financial troubles of their parent company among themselves but lacking any official comment from higher management about possible layoffs other than the press releases the Journal Register puts out.

“There aren’t a lot of people left,” a “worried” Register staffer said. “Everybody is pretty depressed about the whole journalism career.”

Still, while some staff are worried, others are relieved that what many have foreseen for some time is finally coming to a head. One employee said that “everybody wants new leadership” — that is, a change from a Journal Register Company that has left “nothing to cut.”

Even now, the employee added, some stories that should end up in the paper do not.

Paul Bass ’82, editor of the online-only New Haven Independent, said the reporters at the Register are like “survivors” on a ship, always faced with doing more and more work, even as the Journal Register keeps cutting.

“Greedy companies,” Bass said, “have a starvation approach” by which they come into cities and milk the newspaper properties for the greatest possible profit margins without reinvesting.

Bass said the New Haven Register’s current troubles are reminiscent of the situation in the early 1990s, when after massive layoffs resulting from growth funded by “junk bonds,” an investment bank was forced to take over the paper.

A similar introduction of new leadership may be required to help the paper survive today.

“I hope someone with some bucks gets it, someone who cares about the role of newspapers in a free society — and who then [is willing to] invest money to make it into something,” Bass said.

But that hope may be a vain one.

“There are still strategic buyers,” Fine said, “but they are getting harder and harder to find.”

Getting online?

The Journal Register is not the only newspaper business in financial straights. The Tribune Company, for example, which owns the New Haven Advocate and the Courant, appears to also be piling up significant debt, although Fine said its revenue sources were likely more secure than the Journal Register’s.

Fine also pointed to the Philadelphia inquirer, which was sold in 2006, but whose new owner, Fine said, was interested in seeking strategic ways to reinvigorate the business, other than “just laying off 5,000 people.” She said it was an example of more creative response to financial difficulties by paper management.

But infusing a struggling newspaper is not an easy task.

“The best investigative journalism,” Hladky said, “is expensive.”

The continuing explosion of the Internet as a medium for news, meanwhile, has created an industry-wide strain on print newspapers. Since the Web has replaced print as the cheapest and most convenient place to place classified advertising — which makes up just under a third of Journal Register’s revenue stream — the paper is having a hard time collecting enough money. Sites like craigslist.org and yahoo.com offer easily searchable and widely read classified space.

Still, other newspaper corporations have responded to the changing nature of journalism more adeptly, several experts on the newspaper business said.

Mark Oppenheimer ’96 GRD ’03, coordinator of the Yale Journalism Initiative and former editor of the Advocate, said the problems at the Register — the flagship of the Journal Register Company — are emblematic of the company’s inability to adapt.

“The Register didn’t create these problems, but they haven’t handled them as well as they could have,” he said. For one, Oppenheimer said, “they have a really bad Web site and have not managed the transition to the Internet very well.”

The Advocate, too, he noted, had been slow to make the online transition effectively, but its Web site is now “pretty good.” Furthermore, he said, the New Haven Register has failed to reach out to a sophisticated and well-educated local audience, cutting coverage as cost-saving measures instead of seeking out new opportunities.

“It has had a rapidly declining circulation for a number of years,” he said.

And circulation may not get any easier.

The New Haven Board of Aldermen meeting on Monday included an item that could institute a three-year flat fee of $25 to distribute newspapers in the city, plus a $12-per-rack fee.

Comments

  • NewsObserver

    The problems at this company have very little to do with the Internet or changing times.

    Management has been an war with its customers, employees, readers and product for more than ten years. In the end the fundamentals of business won out.

    The former CEO unfortunately has cancer, but he and a few executives did profit handsomely during the time they dismantled the company.

    This was not a mystery virtually everyone in the newspaper industry understood this strategy and JP Morgan very much deserves the loss and aggravation they are going to get.

    The remaining issue when you dismantle a monopoly to this extent can it resurrected in any meaningful form.

    Circulation has dropped from 100,000 to 75,000 and that's with lots of baloney thrown in. Circulation growth is one of the biggest cost drivers in a daily newspaper operation. Considering ongoing attrition the real number will likely be 65,000 or so before long.

    The existing level can't support the advertising costs needed to fund operations as we would expect from a city daily.

    Maybe some rich Yale Alumni will want it, they can rename it the Doodle Two.

  • Anonymous

    If the Register folds, its owners and editors will be chiefly to blame. Over the years, it has offered less and less locally-originated content. Its website is one of the worst of any American newspaper. Its on-line archive is unusable. Why should New Haveners support such a shabby excuse for a newspaper.

    We are far better served by the New Haven Independent and the YDN!

    Peter Dobkin Hall
    hall@sachem.org

  • James Clement van Pelt

    The Register's strategy is like this:
    Suppose Ford Motors had decided, given its falling profits, simply to cut the quality of its cars, over and over, thus making more profit from a given number of car sales. Fallacy: the "given number" keeps declining, setting off a vicious circle that can end only one way.
    I write as someone who receives the Register free on weekdays, I guess to pump up the demographic of their claimed subscriber base. I pay for Sunday, but if it weren't free I wouldn't get it every day--you can practically see through it; or you can actually see through it, depending on the sense of that expression.

  • sunshine on the register

    The michigan investment was the proximate cause, but overall, the JRC's failings were from birth - Jelenic and top execs milked the IPO years ago, pocketing millions. It comes down to why you own a paper. Some who want profit want news too, others, don't care if they are selling news or widgets. JRC has always been the latter.

    JRC is below investment grade, on the verge of delisting at NYSE and is quite obviously for sale - that's why they contacted Lazard Freres -- to sell. As far as debt, the co is in to JPmorgan for over $600 m. (Unlike Zell at Tribune who is way leveraged out)

    It will sell off in pieces - no one will buy the whole co. The connecticut piece/or the register is probably worth $200m and they will be lucky to get that considering the news companies on the auction block these days.

    I think editoral staff should start to face that - the paper is for sale.

    Also, the company will do whatever it takes to make it attractive to buyers - that means cuts.

    Aside from potential interest by Gannett or other large national co's, possibilities for JRC's local papers could include interest by current exectives in buying it and interest by a couple Connecticut-based media companies.

    Likely MediaNews can't buy because it owns the Connecticut Post, which is a large paper -- antitrust rules.

    Insider shareholders such as jelenic don't need a top selling price as they made their money already. He probably couldn't care less about this company. Other shareholders are going to try to get the best deal, but with the possibility of bankruptcy hanging over them.

    I have always put JRC in a category of its own as a pioneer of bad newspapering. It was ahead of the curve in every way we see the editorial/profit struggle being played out nationwide. Jelenic always made Dean Singleton look like a kittycat.

    Before we learn a the next cookie-cutter profiteer has made a deal to buy the Register, lets take a moment to celebrate the death of this wicked newspaper and express hope that it rises from its ashes with a great new owner.

  • joe

    First of all the jounal register (ct)can't even get there paper out on time..Always late..Adifferant time every day always a problem..Carriers have to be at work so when there late the service goes right out the window…We the carriers are not going to be late for work because some moron don't know how to do there job!!!!!!!!!!!!!!!!!!!!

  • theantiyale

    Today’s *New York Times* features an article about excessive force and foul language used on Yale students by New Haven Police conducting a late night raid for liquor violations on a New Haven Night Club boastfully named “Elevate”, as if getting “higher” was the mission statement.

    I was amazed at the “wet-behind-the-ears” quality of the Yale students, not only in the *Times’* report, but in the videos offered on *The Yale Daily News* website itself. It is as if the last fifty-years of current events in America had been erased and we were beginning over again fresh with this 20-year-old generation.

    “Police are brutal? UNBELIEVABLE”, the Yale students seem to stammer.

    This is the country where Ohio males in law enforcement uniforms murdered four unarmed white students on a University campus in May, 1970; where three weeks later in Mississippi, sheriffs murdered two black university students ; where in Los Angeles, in 1991, police beat the African American Rodney King unconscious after he was stopped for possible arrest; where in New York City police sodomized the Haitian, Abner Louima*, with a plunger handle in 1997.

    Why are Yale students so amazed that the police are “brutal”?

    Most American police officers and even National Guardsmen, have not had the luxury of a liberal arts college education which opens their eyes to the values of freedom of speech and freedom of expression. They are, by and large, inarticulate capsules of male hormones, trapped in bodies trained to respond with physical force, unable to express themselves in subordinate clauses but agile with grunts of profanity. Add to this combination the glamour of a uniform and badge and the “clubbiness” of belonging to a well honed group whose chief default is the “power” of armed weapons, and you have the recipe for brutality.

    C’mon Yale students. Open your eyes.

    Paul Keane
    M. Div. ‘80
    M.A., M.Ed.
    [link text][1]

    From Wikipedia, the free encyclopedia
    Abner Louima (b. 1966 in Thomassin, Haiti) is a Haitian who was assaulted, brutalized and forcibly sodomized with the handle of a bathroom plunger by New York City police officers after being arrested outside a Brooklyn nightclub in 1997.

    [1]: http://theantiyale.blogspot.com “The Anti-Yale”