What's next for the Star?

Dateline: Wed 01 Jul 2009

Anthony Schoettle, who covers media for the Indianapolis Business Journal, has written an insightful and chilling piece about the future of the Indianapolis Star.

Now that the union has rejected management's insulting offer, what is the next step?

"The proposed contract calls for an 8-percent pay cut July 1—the day after the vote (that it today) —and another 4 percent Oct. 1. (John) Kridelbaugh (vice president of marketing development) said management will take a 'cross that bridge when we come to it' approach to the proposed July 1 pay cut if the contract isn’t approved.

"Some union members fear a 'no' vote from the union could evoke an even larger pay cut—as high as 15 percent—from management. "

It gets worse. Schettle has found a gold-mine source in Joseph Boyce, a retired Wall Street Journal editor now teaching journalism at IUPUI.

Says Boyce:

“This is it, high noon at the O.K. Corral. I really fear the next moves in this chess match could really hurt the product, and it’s news organizations like The Star that are essential to a healthy democracy.”

Other points (all made on this blog in the past):

There have been rumors that Gannett will roll out massive layoffs July 8 -- 4,500 people will lost their jobs across the nation, according to reports from Jim Hopkins' Gannettblog.

Gannett is in big trouble. "Gannett has seen its operating income decline steadily, from $1.3 billion in 2004 to $747 million in 2008. The company doesn’t detail revenue for individual newspapers, but industry analysts believe The Star has seen a double-digit percentage decline in recent year," writes Schoettle.

Finally, "Gannett has another problem. The company has a lot of debt coming due in the next two years—$712 million by June 2011, followed by $2.8 billion that matures by June 2012. Gannett has little room to change the terms of its debt covenants, leading industry analysts to believe the company may have to start slashing costs and selling off assets in the next two years."

The article also reports on the low morale at the Star and the fear that many employees will leave as soon as they can better-deal the Star.

Here is the money quote from Boyce:

“What’s lost in all this is that the only way for a news organization to maintain trust and integrity is through trained, ethical reporters and editors. But Gannett has no loyalty to that ideal. They only have loyalty to their stockholders, and that has caused them to be incredibly shortsighted.”

Check out the entire IBJ article at ibj.com

No kidding.



Tell The Truth [Member] said:

The Gannett debt problem is the result of some highly-leveraged derivatives rolled out in 2003-4. It was all the vogue.

And as we now know, many such funds crumbled last fall.

So, instead of juicy returns, the speculative investments turned into sinkholes. I'm told the investors intended to roll their speculative debt into long-term fixed debt this year or next. Viola! No such markets exist.

Now mind, you, I'm not talking about diminished markets or depressed markets. NO market exists for this kind of debt. So when Gannett's speculative-ridden debt funds mature in the coming 4-16 months, they can pay or default.

There are ample examples all around us, of debtors who have tried to pay partial amounts, or to restructure. It does not work in this environment.

Default means, among other things, the debt owners can force a sale of assets to cover their position. This is not a small matter. Gannett's Annual Report lists hundreds of millions of debt in these speculative products.

All the personnel cuts in the world aren't going to make up for that rampant stupidity. The CFO and his/her team should be indicted.

The end result will likely mean all the layoffs you've speculated and much more. There are attractive outlets which Gannett could sell to stave off the circling debt buzzards. At current depressed value of those assets, I'd estimate they'll have to sell one-third of their publications.

Maybe more.

Happy Independence Day, such as it is.

It seems to me one potential approach is partial employee ownership of the company. You can probably never buy Gannett shares cheaper than they are today. Maybe employees could investigate pooling resources and finding a lender to finance such a deal? You can probably pick up a few newspapers for pennies on the dollar. I have faith the newspaper product will recover, but only after the overall economy does.

2009-07-01 08:53:21

ruthholl [Member] said:

That's an interesting idea, for employees to buy up the company, That's how they do it in Japan: all the papers are owned by employees and the boards are made up of former employees.
Thanks for all your insight TTT.

2009-07-01 09:05:25

B2 [unverified] said:

I'm certain this is crushing news to the Pulliam heirs who violated the family trust and sold to Gannett.

2009-07-01 15:17:49

doubletalk [unverified] said:

Are yo kidding about the Pulliams? They bailed out of the Star at the peak of the market. They're probably laughing all the way to the bank.

2009-07-01 15:33:43

Dick Hertz [unverified] said:

Yes, Doubletalk, B2 is kidding.

2009-07-01 20:36:34

B2 [unverified] said:

Thanks, Dick. Yes, my tongue was in my cheek, dipped in sarcasm.

2009-07-02 07:48:00

Whitebeard [unverified] said:

Best wishes to those Star employees trying to get out and I mean that sincerely.

Contemplating a future in print journalism is, as my favorite singer Neil Young once sang, like pissing in the wind.

2009-07-03 18:36:29

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