GateHouse rewards shareholders, not journalists

New Media Investment Group, parent company at GateHouse Media, has delivered on its promise to reward shareholders with dividends.

The second quarter produced free cash flow of $19.6 million, or $0.65 on a per-share basis. So the New Media Board of Directors voted to issue a 27-cent quarterly dividend.

An analyst participating in New Media’s quarterly earnings call wondered if that dividend was a bit generous. CEO Michael Reed noted that New Media’s plan all along was to pay strong dividends.

Indeed, from the outset New Media has aimed to convert free cash flow into dividends. The goal was to stand apart from similar media companies still grappling with crippling debt.

That makes sense, but the company is holding a firm economic line in negotiations with the United Media Guild at the The State Journal-Register in Springfield, the Pekin Daily Times and the Rockford Register Star. The company’s position is that is has the money to offer raises in its collective bargaining agreements but chooses not to do so at this time.

In fairness to company, it is also using some of the free cash flow to fund acquisitions. This certainly is smarter than borrowing heavily to buy new properties, a practice that plunged GateHouse and other media companies into bankruptcy.

And the pending purchases of the Providence Journal could bolster New Media in several ways. Its strong position in New England will became even stronger.

But . . . the failure to reinvest in New Media’s core product of “compelling, high-quality local news”, as Reed likes to put it, could cause long-term audience erosion.

The UMG hears the old “if you don’t like it, leave” refrain when it presses GateHouse officials about its treatment of journalists. Churning the newsroom is a bad business strategy. That practice erases institutional knowledge and severs connections in the community.

Excessive staff reductions are also a bad idea. The profitable Rockford Register Star has proposed language that it would allow it to replace its two surviving staff photographers with free-lancers.

That would represent still another harmful cut to a newsroom decimated by lay-offs on GateHouse’s watch.

Since the foundation of New Media’s newspaper business is “strong and trusted local brands”, as Reed likes to say, diminishing the product doesn’t seem like a great long-range strategy.

We have been engaging readers in Springfield, Pekin and Rockford to see what they think of their local newspapers. Consumers notice the product erosion and many are willing to support our efforts to maintain quality journalism.

As for New Media, the company offered earth-shattering revelations during its latest earnings call. Here were a few highlights:

  • New Media recently gained more favorable financing for past, ongoing and future purchases.
  • Print advertising was down again in the second quarter, but digital advertising was up slightly (4.4 percent) and classified advertising stabilized.
  • Revenues from Propel Marketing more than doubled in one year, up to $4.5 million.
  • Circulation revenues remained stable. (But how long will readers be willing to pay more for less?)
  • Commercial printing revenues rose nearly 15 percent.
  • GateHouse/New Media remains in acquisition mode, although Reed declined to offer specifics. Disclosing how much money he had in the acquisition “pipeline” could hurt the company during purchase negotiations.

Elsewhere on the GateHouse/New Media front:

GateHouse CEO Kirk Davis made nice with Providence Journal readers with a full-page ad.

New Media Investment Group apparently will not honor existing collective bargaining agreement when its purchase of the Journal becomes final. The seller, A.H. Belo Corp., will pay the severance on up to 40 employees who lose their jobs due to this purchase.

Folks in Providence wonder what will become of The Journal now that it is in the GateHouse/New Media family.

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