Hazlehurst’s Blog
Insight and commentary from John Hazlehurst

Who will buy the Gazette?

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The Gazette’s parent, Freedom Communications, is expected to exit from bankruptcy within six weeks. Under the company’s plan for reorganization, secured creditors led by JPMorgan Chase & Co. will own all of the company’s equity.

That won’t last. The banks must, by law, divest themselves of their interests in the company within five years. In practice, they’ll probably move a lot faster.

As a company, Freedom, like Topsy, “jest grew.” It owns dozens of far-flung, diverse, and unrelated media properties. The company owns a bunch of little papers in a remote part of west Texas, ditto in Florida, ditto in South Carolina, a random assortment of TV and radio stations, the Gazette, and a sluggish newspaper in southern California, the Orange County Register.

Of the company’s just-appointed six member all-male board of directors, four are private equity guys. Board chair James Dunning heads the Dunning Group, “a private media group which specializes in media leveraged buyouts.”

Director Ross Levinsohn “is a founding and managing director of Fuse Capital, which invests in digital media and communications.”

Sean Moriarty works at the Mayfield Fund, a Silicon Valley venture capital group. Mitchell Stern is a consultant who worked for Murdoch, and subsequently ran DirecTV.

Aside from interim CEO Burl Osbourne, who took over for Scott Flanders (presently Playboy’s CEO) when Freedom declared bankruptcy, there’s only one newspaper guy on the board-Donald Grenesko, who was CFO of the Tribune company until 2008.

These are guys who know how to buy and sell media properties, not operate them for the long term. There’s a lot of high-level expertise there, and it’s reasonable to expect that the new board will move swiftly to sell off the company, piece by piece.

Why so? Because owning old media nowadays is like owning a pay telephone company 15 years ago. The companies are still throwing off some cash, still have strong market niches, but time is not on their side. It’s best to get rid of Freedom’s unwieldy corporate structure, spin off individual properties to local owners, take the money and run.

Both current Gazette publisher Steve Pope and Independent owner/publisher John Weiss are, according to the usual unreliable sources, trying to put together investor groups to make an offer for the gray lady of Prospect Street.

Will either succeed? Will they team up in a Colorado Springs variant of “The Odd Couple?” Will the Gazette be spun off to another media group, such as Gannett or Media News Group?

Who knows? But one thing is certain-the Gazette will find new owners, and it’s doubtful that the new owners will stick with the paper’s proudly eccentric editorial policy. Unless, of course, our unpredictable new councilman, Sean Paige, can round up some moneyed ideologues to preserve Ayn Rand’s tattered temple.

Otherwise, prepare for the end of days!

R.C. Hoiles? Who’s he? Libertarianism? Did you mean vegetarianism?

Sic transit gloria mundi.

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Posted by John Hazlehurst on March 4th, 2010 :: Filed under Blog
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Gazette’s FreshInk gets less ink - like most newspapers these days

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The Gazette has abandoned its ambitious plans to publish its FreshInk as a four-day per week free tabloid newspaper and instead has relegated it to a once-a-week insert.

FreshInk, launched during April of this year, was the brainchild of Gazette publisher Steve Pope, who reportedly told his staff at the time that FreshInk was intended to both compete with the Colorado Springs Independent for younger readers and to eventually become a zoned publication available throughout the region.

At the time, some speculated that Pope had created FreshInk specifically as an Independent-killer, in revenge for that paper’s revelations concerning his fudged resume when he first joined the Gazette.

But I don’t think that was ever the plan - the Gazette, like many floundering dailies, was struggling with the recession and with a swiftly changing business environment.

The Gazette’s parent, now-bankrupt Freedom Communications, had tried the same strategy with its publication in Mesa, Arizona, the East Valley Tribune. The strategy didn’t work, and Freedom announced plans to close the paper unless a buyer could be found. Apparently, there’s a buyer in the wings, and freedom has deferred plans for shutting the pub down pending the bankruptcy court’s approval of the proposed deal.

When launched, FreshInk was published with racked distribution throughout Manitou, the west side, and downtown Colorado Springs. During July, a zoned edition of the paper began distribution in Fountain.

But, it appeared that few businesses chose to advertise in FreshInk.

The paper had formidable competitors, including the Independent and the West Side Pioneer, Ken Jordan’s feisty neighborhood weekly, which routinely scoops every other news medium in the city.

During the last two months, FreshInkhad shrunk from 16 pages to 12, and most ads were so-called ‘house ads’, for which little or no compensation was received. And two weeks ago, the paper announced that it would henceforth be available three days weekly, rather than four.

In a curiously-worded announcement in the Gazette yesterday morning, FreshInk editor Tim Bergsten announced that “changes are coming to the Gazette’s citizen journalism platform…it’s natural to shy away from change, to assume that it’s going to be bad.”

“Beginning Jan. 6,” Bergsten continued, “FreshInk will print Wednesdays. On Feb. 3 we’ll launch two more neighborhood papers (serving the Powers Boulevard and Briargate areas). All four neighborhood papers will be delivered in the Gazette to home subscribers.”

In retrospect, it’s easy to say that FreshInk was doomed from day one, a bad idea that somehow implanted itself in the mind of a stubborn boss.

Maybe so - but it takes a certain amount of journalistic chutzpah to launch a print pub of any kind in today’s market, and FreshInk was often interesting and readable. Many observers believe that metro dailies are a dying breed, doomed to follow passenger pigeons and passenger trains into extinction - so I applaud the Gazette for at least trying something, rather than passively accepting what fate may bring.

“Stand by,” Liz Cobb, the Gazette’s Vice President of Marketing said, “More changes are coming.”

And change, if inevitable, is not always good.

When ‘The City of New Orleans’ immortalized passenger rail 40 years ago, Colorado Springs had two competing dailies, as did Denver, as did San Francisco, as did Seattle. America’s network of passenger trains had largely disappeared, leaving only a few faded reminders of a glorious past. Trains were made for songwriters - and newspapers are made by writers.

I suspect that dozens of laid-off journalists are banging away at their keyboards as I write this, hoping to write the book that will define and celebrate the end of journalism as we knew and lived it.

Good luck. And I know you’ve given up on fortune - but don’t expect fame either. Here’s the chorus from ‘The City of New Orleans’, which was written not by Arlo Guthrie, not by Willie Nelson…but by Steve Goodman.

“Nighttime on The City of New Orleans,
Changing cars in Memphis, Tennessee.
Half way home, we’ll be there by morning
Through the Mississippi darkness
Rolling down to the sea.
And all the towns and people seem
To fade into a bad dream
And the steel rails still ain’t heard the news.
The conductor sings his song again,
The passengers will please refrain
This train’s got the disappearing railroad blues.”

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Posted by John Hazlehurst on December 23rd, 2009 :: Filed under Uncategorized
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WSJ blogs about Hoiles, Freedom

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Peg Brickley’s blog on the Wall Street Journal’s Web site might be of interest to Colorado Springs residents.

Titled “Bankruptcy Beat,” it’s devoted to Springs resident Tim Hoiles, who reportedly cashed out his 8.6 percent stake in the family business, Freedom Communications, which owns the Gazette, for a cool $142 million. He’s sitting pretty - and that’s why unsecured creditors, including a lawyer he once employed, of the now-bankrupt company are snapping at his heels

Here’s a sample from the blog:

“If creditors of Freedom Communications are hoping to recoup “illegal dividends” from Timothy C. Hoiles, motorcycle aficionado, patron of the arts and ex-scold of the family who owns the company, good luck to them… Creditors haven’t named any names when it comes to insiders who could be tagged with lawsuits, and Hoiles cashed out years before the company filed for Chapter 11 protection in September.”

Click here to read the blog.

Posted by John Hazlehurst on December 9th, 2009 :: Filed under Uncategorized
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Freedom bankruptcy may cause local FCC problem

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Here’s yet another twist in the convoluted saga of the bankruptcy filing of the Gazette’s parent, Freedom Communications.

In the palmy days of yore, JP Morgan Chase, Freedom’s largest secured creditor, apparently had an insatiable appetite for short-term debt issued by now-forlorn media titans.  The bank is also the lead secured creditor of two other media bankrupts, the Tribune Company and the Journal Register Company.  To add to Morgan’s woes, the bank is also the largest creditor of Citadel Communications, which describes itself as the “largest pure radio play” in the investment universe.

Citadel’s not feeling the love any more, as advertising revenue has plummeted during the recession, so the company is negotiating with Morgan and other secured lenders to convert $2 billion in debt to equity.

That creates a series of complex legal dilemmas for Morgan, particularly in the Colorado Springs market.

Rules enforced by the Federal Communications Commission generally prohibit cross-ownership of media in a market when such ownership would create, or be likely to create,  a monopoly.  Here in Colorado Springs, Citadel owns six radio stations (KATC, KCSF, KKFM, KKMG, KKPK, and KVOR), twice as many as does competitor Clear Channel, and has a substantial chunk of the local advertising market.

So what happens when/if Morgan emerges as the de facto owner of both the Gazette and of Citadel’s local stations?  The bank would have to clear its ownership with the FCC.  In theory, the FCC could require that the bank immediately divest itself of certain such overlapping properties, which occur in a number of markets served by both Citadel and one of the three bankrupt media companies. 

Colorado Springs may be a particularly egregious case, since it would be hard to argue that ownership of a monopoly daily newspaper and six local radio stations would not tend to create a local communications monopoly, to the detriment of both competitors and the public.   

It’s possible-even likely-that the clever lawyers and investment bankers that represent Morgan will figure out structures that will satisfy the FCC, at least in the short run.  But in the long run (and “long” means within a year or so), Morgan and its fellow creditors will have to bring their ownership positions into regulatory compliance.

If, after a year, Morgan owns/controls both Citadel and Freedom, the bank might solve its FCC problems by selling either the radio stations or the Gazette to local investors.  Morgan might find lots of potential buyers, particularly if they offered attractive terms-for example, no money down, no payments for 90 days, free checking, and a six-slice toaster!

 

  

Posted by John Hazlehurst on September 21st, 2009 :: Filed under Uncategorized
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Bankrupt Gazette parent to sell Arizona newspapers

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As I speculated, the Gazette’s bankrupt parent company, Freedom Communications, has begun the process of shedding assets.

The East Valley Tribune reported yesterday:

“Freedom Communications, parent company of the East Valley Tribune, has asked a bankruptcy court judge to allow the company to hire a broker in order to pursue the possible sale of the Tribune and several other Valley publications it owns.

The filing is part of the ongoing proceedings related to Freedom’s Chapter 11 bankruptcy filing earlier this month to allow a restructuring of the company’s debt.

Officials for Freedom, based in Irvine, Calif., would only confirm that the filing seeking a broker took place. A potential buyer was not specified.

In addition to the Tribune, Freedom publishes the Sun City Daily News-Sun, Ahwatukee Foothills News and the Clipper coupon booklet in the Phoenix area. The company also publishes the Yuma Sun.”

Our sister publication, the Arizona Capitol Times, had earlier revealed that negotiations concerning a possible sale were under way prior to the bankruptcy filing. Whether this possible deal signals the beginning of a fall fire sale, with dozens of Freedom’s marginal properties on the block, or whether it’s just the continuation of business as usual should be clear within a few weeks.

Meanwhile, if you’d like to buy a nice mid-market daily, just call Freedom Communications. They’re in the book…

Posted by John Hazlehurst on September 18th, 2009 :: Filed under Blog
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Freedom to sell off properties?

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Our sister publication, the Arizona Capitol Times, reported yesterday that just prior to declaring bankruptcy, Freedom Communications made a last-ditch effort to sell most, or all, of their Arizona pubs to a group of local investors.

As Matt Bunk reported,

“It’s not clear whether any agreement is under consideration now - there was a deadline to act by Aug. 31 - but an industry source offered some details about how the deal was structured.

First, it would have been a two-phase deal that included the purchase of two commercial buildings, four newspapers, a marketing company and a web-design business. The four newspapers included in the deal are reported to have a total circulation of 100,000. They have about 265 employees.

The deal would have cost the buyers $2 million, with a first-phase payment of $200,000 due by noon on Aug. 31. Because the deal didn’t close at that time, it’s not clear whether any arrangement is still in the works…The industry insider I spoke with said two California businessmen were behind the deal to buy Freedom’s Arizona assets. One was David Ganezer, of the Santa Monica Observer, and the other was Steve Hadland, who runs the Culver City Observer and is CEO of the Santa Monica Media Company …it’s not clear which of the other Freedom papers in Arizona would have been part of the deal. The East Valley Tribune’s sister publications include the Ahwatukee Foothills News, the Daily News-Sun, Freedom Politics, Glendale Today, Peoria Today, Surprise Today and YourWestValley.com.”

What does this mean for the post-bankruptcy future of Freedom Communications and for the Gazette? It may be that Freedom was planning to divest itself of its Arizona properties in any case, and that this failed deal was just done in the normal course of business. Freedom’s Arizona papers have, like most Sun Belt pubs, been hit hard by the recession, so divestiture might make sense, bankruptcy or not.

On the other hand, maybe this signals that a partial breakup of Freedom’s publishing empire is possible, even likely.

When the company emerges from bankruptcy, the new owners will have both a free hand and no attachment to the past. They’ll have three options.

-Keep the company intact, and hope for a “dead cat bounce.” Post recession, print newspaper revenues should recover somewhat, even if the long-term prognosis remains grim. If company-wide cash flows improve, the company might be able to further reduce debt, and perhaps sell selected properties at better prices than can now be realized.

-Shrink the company now, by selling unprofitable properties, reducing corporate staff, and concentrating on the company’s crown jewels-or, if there aren’t any, their ankle bracelet zircons.

-Sell everything! Owning a newspaper is like owning a pay phone company during 1993 - it may still be profitable, but it becomes less valuable every day. Get rid of it - remember the investment adviser who used to lead off his TV show with the words “It’s (insert day of the week) - and it’s a great day to sell your airline stocks!” He gave his viewers the same advice for years - and he was always right.

So maybe the venerable old G may be for sale after all - and maybe, as you read this, a group of cold-eyed investors are thinking about puttin’ up some cold cash to take over the dismal old building on Prospect Street.

Didn’t there used to be a pay phone right by the front door…?

Posted by John Hazlehurst on September 16th, 2009 :: Filed under Blog
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Freedom’s just another word…

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 For nothin’ left to lose.

Yesterday afternoon, at 3:29 PM, the Wall Street Journal reported that Freedom Communications, the parent company of the Colorado Springs Gazette, would file for bankruptcy this week.

How did I know the precise time that the WSJ reported the story?  Because the Google alert, sent within microseconds of the WSJ web post, hit my mailbox at 3:29.

Shortly afterwards, the news was up on Facebook, in a post that twitted the Gazette for not reporting the story.  A few minutes later, a Gazette employee responded indignantly, and still later the Gazette’s Web site ran the AP wire story about the impending bankruptcy, along with a “localizing” quote from editor Jeff Thomas.

The story isn’t the story-as Marshall McLuhan so presciently remarked decades ago, the message is the media-or was it vice versa?

We no longer organize our lives around the daily newspaper-in fact, most of us are scarcely aware of daily print media. We go where the news is-and newspapers no longer have the news.

Freedom’s long-rumored demise surprised nobody.  Take an irrelevant business model, add a recession, thrown in predatory competitors (Craigslist, anyone?), load up the company with $770 million in debt, and what happens?  Ask General Motors, ask the Tribune Company, ask Pan American World Airlines, ask the New York Central Railroad.

Yet Freedom’s bankruptcy seems particularly sad and ironic, in view of the company’s staunchly libertarian philosophy.

As a corporation, Freedom didn’t exactly hew to libertarian principles, as articulated by founder Raymond Hoiles.  In fact, it was run by feckless, delusional managers who, like so many of their peers, thought the good times in the media industry would never end-and bet the farm on it.

But Hoiles would have been proud that the company’s libertarian heritage was, and is, still prominent on the editorial page.  Led by argumentative, articulate, and extraordinarily bright guys like the two Dans (Griswold and Njegomir), Sean Paige, and Wayne Laugesen, the G’s editorial page has always been interesting-not to mention occasionally infuriating.

And I, of course, owe a great deal to the Gazette.  The paper gave me my first job (newspaper boy back when there were actual newspaper boys), the news of my hometown for all those years, coverage of my so-called political career, free trips to Spain & Monaco, a couple of Bronco games, and, best of all, my wife-whom former publisher Scott Mckibben hired from Cincinnati a couple of years ago, and whom I met five days after she arrived in town…through today’s equivalent of newspaper personals, Match.com.

 

Posted by John Hazlehurst on August 31st, 2009 :: Filed under Blog
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