When Freedom Communications, a company that owned several TV stations and newspapers including California’s Orange County Register, decided to sell off a 40 percent share of its news holdings to private equity firms, it became the “canary in the coal mine,” showing what might happen when hedge funds take over newsrooms.
Margot Susca, American University’s first professor of journalism, accountability and democracy, began working on her new book, “Hedged: How Private Investment Funds Help to Destroy America’s Newsrooms,” back in 2017 after being asked by an NBC News reporter for evidence that the possibility of layoffs in newsrooms would be bad for journalism.
As a researcher and investigative journalist for most of her career, with a special expertise and focus on local news, Susca thought she had a “pretty solid foundation” for making this conclusion. But she wanted some evidence and to test her hypothesis.
“I started compiling and looking at major newspaper chains that were publicly traded. I started looking at layoffs. I started looking at their consolidation over the years. That took several months,” she says. In talking with other friends in the news industry, many of whom had risen into leadership roles in their organizations, “I was looking at Gannett, I was looking at Gatehouse, I was looking at McClatchy, but the real story was the level above, it was the investment firms.”
Freedom Communications had a profitable quarter after the sale was announced and private equity firms purchased some of its news organizations, with 15 percent profit margins, but declared bankruptcy not long after.
“With private equity, it’s never enough. Nothing seems to be enough for them,” Susca says. “When you look through bankruptcy court records, which I was able to do, you start to see how, between 2003 and 2008, the pressure from private equity firms, putting pressure for profit, starts to mean cuts, starts to mean layoffs, and it starts to mean bad news for the news organizations in that chain.”
Layoffs are now front-page news as papers like the Wall Street Journal and other major dailies are cutting their staff. But layoffs have been a somewhat regular occurrence at the local news level for a long time now. As a result, there’s a severe shortage of reporters covering what’s happening in communities. That might not feel important to the average person on the street, but Susca says it is a critical loss.
“There’s a lot of value in local journalism; there’s a lot of value in the study of local journalism,” she says. “The work of democracy gets done in school board meetings, in city council rooms, in county commissions, in planning and zoning rooms, in small towns and communities everywhere in the United States. The coverage of those issues and events is disappearing at alarming rates in the United States,” because when hedge funds and private equity firms come in and take over newsrooms, “everything becomes just a line item. It’s a sad reality that journalism, news, is just another widget, as if they were selling sneakers or milk cartons. It’s just another thing. It has no connection whatsoever to a community’s information needs. It really is the saddest thing to see these investment firms treat (news) as an item on a balance sheet.”
