You’ve arrived at a blog about transforming the companies that publish newspapers. And it’s a blog with an unorthodox point of view.
Here it is: News will not save you.
Why not? Because the disruption that’s pounding newspaper companies is not about people Read the rest of this entry
Twenty years ago, my family had a problem.
We were the sole and devoted owners of a successful stand-alone daily newspaper in Monroe, MI. But our principle shareholders — my father and his brother and sister — were advancing in years and had no solution in place to transfer ownership into my generation.
It seemed we had two options. We could keep going until one of the three died, which would force a distressed sale. Or we could move immediately toward sale, but take our time in finding a buyer who would continue our tradition of good journalism and service to the community.
Months passed without a decision. Then, almost by chance, I happened upon a book about Employee Stock Ownership Programs, or ESOPs. As I read, it began to seem that this might be the perfect solution for our family.
The ESOP concept (for more, see here and here) was hatched in the 1950s and was recognized in U.S. law in the 1970s. It was designed as a way to enable and encourage company owners to share ownership with their employees.
ESOPs are authorized and governed by federal ERISA (Employee Retirement Income Security Act) and tax-code regulations. The regulations are complex and the creation of an ESOP takes time and involves significant legal costs, but the benefits are substantial.
In our situation, the ESOP solution seemed ideal. We had no desire to transfer our beloved company to some third party. Through an ESOP, our family could transfer ownership to the people we worked with every day, who shared our commitment to the community, to good journalism and to good business.
And, thanks to the incentives built into the U.S. tax code, we could do this with no sacrifice to the selling members of the Gray family, and at no cost to the employees.
With the family’s blessing, I began attending ESOP conferences and exploring the mechanics of creating an ESOP to suit our situation. The board approved going forward, and we began to structure the transaction, the necessary loan and the ESOP’s enabling documents.
In our case, what made sense was a 401(k) ESOP in which the employees’ retirement accounts would, over time, receive the Monroe Publishing Co. shares purchased from the Gray family.
Trying to keep it simple, here’s how it worked:
- The company borrowed several million dollars in a long-term loan.
- The company lent the money to our newly created ESOP Trust.
- With an independent appraisal to set value, the Trust purchased shares from the Gray family.
- From then on, profits from the company would go into the ESOP Trust and would be used to make the payments on the loan.
- As the loan payments were made, shares would be allocated from the Trust’s general account into employees’ individual accounts.
- Gradually, in proportion to their 401(k) deferrals, they would become owners of the newspaper company over the life of the loans.
In the first transaction, the ESOP purchased 58 percent of the shares. Five years later, with a second round of borrowing, the ESOP bought the rest of the shares. So, in 1999, the Monroe Publishing Co. became 100% employee-owned.
That describes the mechanics, but the change in the company was far greater than that.
As employees became shareholders, we moved the company to open-book management. We shared full financials with the employees — at first quarterly, then monthly. We believed that employee shareholders who understood how the company made money would become more effective as employees. They did: Productivity and profitability improved.
Just as importantly, full disclosure became a foundation of the company’s culture. We created ways for employees to participate in more of the company’s decisions. Our internal education and communication programs taught employees the fundamentals of the business and earned us awards from the ESOP Association.
We also opened to employees additional seats on the board of directors. Ultimately, we wound up with four internal directors and five external directors.
Three years after the creation of the ESOP, with a long-term solution in place, I accepted a job as managing publisher of The Christian Science Monitor and moved my family to Boston. Lonnie Peppler, (now Peppler-Moyer) our VP of Sales, became publisher.
I remained and still remain on the board of directors, serving as chairman since my father’s death in 2007.
The Monroe Publishing Company was an ESOP success story. Under Lonnie’s leadership, the company prospered, the ESOP worked beautifully, and employees saw their retirement accounts grow handsomely. Share prices — determined annually by an independent appraisal — clicked upward nicely. In 2007, the ESOP Association named us the ESOP Company of the Year.
But with the advent of the Great Recession, the whole newspaper industry’s fortunes changed, and ours along with it.
At the Monroe Publishing Co., as elsewhere, revenues and profits declined most years. Pay cuts became unavoidable. Staff cuts were frequent. We outsourced printing and took every step we could see to create new solutions and products to produce new revenue streams.
Along with the industry, we rode downward, struggling to maintain cash flow and to find strategic and operational solutions to stop the decline. The company’s share prices fell most years.
On the board of directors, we oversaw all of this with great consternation. Each year, in our October strategic planning meeting, we would take stock of the situation again and look for alternative strategies to replace revenue.
We were ever mindful of the fact that our declining share prices meant that our employees and retirees, for whom MPC stock was the bulk of their retirement accounts, were losing ground.
The question always loomed — should we consider selling the company?
During the worst of the recession, when sale would have been unthinkable, we did our best to deploy new strategies to offset the annual declines in revenue and cash flow. We hoped we could figure it out and restore at least stability to share values, if not growth.
Among other things, we started a digital (and non-digital) ad agency. We tried to double down on digital advertising sales. We acquired a digital printing company.
By fall of 2014, however, it was clear that all of these efforts were not making enough difference. I polled the board in individual interviews, asking each director his or her view of the sustainability of the company and of our ability to halt the declines in share value.
The picture that emerged was clear. A company our size — and getting smaller every year — simply didn’t have the scale to generate the new revenues needed to stop the decline. We believed that our employee and retiree shareholders were likely to keep losing share value for the foreseeable future.
That was simply unacceptable. The decision we needed to make was painful but obvious.
In the fall, the board approved exploring a sale. We engaged Dirks, Van Essen and Murray to represent us and pushed ahead. When the bids were received, our decision to sell was unanimous.
But an ESOP company must pass the vote through to the shareholders. (Oddly, U.S. law provides an exemption for newspaper companies, but our board chose not to exercise it.)
So the board took the case to the ESOP participants. As chairman, I explained our reasons for recommending the sale, both in writing and in a well-attended shareholder meeting.
When the votes came in, 99.7% of the shares were voted in favor the sale.
For me, this is a bittersweet end to a 20-year story. But it is also clearly the best possible outcome for our shareholders, given the circumstances faced by the newspaper industry. It’s also possible that it may also give the local newspaper a longer life, through the scale advantages of a larger organization.
My family certainly never anticipated this outcome. But in the end, we achieved what we set out to do. Although it took 20 years, we succeeded in transferring full ownership of the Monroe Publishing Co. into the retirement accounts of our employees.
And now they are free to invest that value in industries that can grow.
When your comfortable, well-established business model is being disrupted, one of the toughest challenges is looking beyond your old business model to visualize what you must become.
In past posts on this blog, one by one, I’ve pointed out a host of new opportunities that are emerging in local media markets. In this post, I’m going to roll them up into a single new business entity we can visualize and work to develop. Read the rest of this entry
For local news media, the most crippling disruption served up by the Internet isn’t in news — it’s in advertising.
And it’s not just other players getting the ad spending we used to get, although there’s plenty of that going on.
The more insidious advertising disruption is that local businesses need less and less advertising than they once did. Read the rest of this entry
Sounds like a great session for a publishers’ conference, doesn’t it? It’s a big topic for local media businesses these days, as mobile web traffic surpasses desktop traffic for more and more newspapers, magazines and broadcast stations.
That’s why I spent an afternoon searching the Web recently. Read the rest of this entry
A recent email from Internet Retailer grabbed my attention.
Its purpose was to plug their new annual Top 500 Guide — a huge directory packed with stats on who’s big in e-commerce, who’s growing market share and who’s not.
But what caught my eye was their take on what’s new in the data.
For years, it said, previous guides had shown big-box stores getting drubbed in e-commerce sales by web-only e-tailers.
“But,” the email said, “…that began changing in 2013, when the chains closed the gap by growing their online sales by 16.7%, taking market share away from manufacturers and catalogers…. Read the rest of this entry
Lots of people understand that the traditional business model around news is breaking down. Far fewer realize it’s not just the business part — advertising — that’s broken. It’s also news itself.
Why is this so hard to understand?
A planet full of people is going from a daily diet of a newspaper and a couple of news broadcasts to constant access to almost everything there is to know. Inevitably, this is causing people today to want and expect different things from their time spent on content than people did 20 or 50 years ago.
But what we produce as news has hardly changed. Read the rest of this entry
For those of us in traditional media, it’s the source of our problems, and it’s also the uncharted space of our new opportunities.
With bandwidth rising toward infinity and costs falling to near zero, it’s enabling all sorts of new content models to eat our lunch. “Free” digital bandwidth has enabled all of our disrupters, from early ones like Craigslist and Facebook and to newer ones like BuzzFeed, Instagram and SnapChat. And more will keep coming. Read the rest of this entry
It’s the Year of the Millennials, according to Pew. In 2015, at ages 18 to 34, they will surpass Baby Boomers in the U.S. to become the largest living generation. And a major new report by the Media Insight Project, just released at the NAA mediaXchange, sheds a lot of new light on their consumption of news.
The report (pdf, html) emphasizes the bright side, stressing the finding that most Millennials do value news and consume it regularly. But the most worrisome finding for newspaper companies is that they rarely go to traditional news providers to get it. We are far back in the loop, when we’re in it at all. Read the rest of this entry
Media folks, can we all agree on this statement?
- We’re in the audience business.
If you disagree, we need to talk, and we’ll do that in a minute.
But first, here’s the nut graf:
As an audience business, we’re overdue for a drastic rethink of what we do. Too often, we’re still doing 20th-century audience thinking amid the starkly different realities of the 21st century. We’re getting pounded on the audience front, and we have to figure out what audience strategies will work in this new environment. Read the rest of this entry
In the local media business, whatever hurts retailers hurts us, too. They’re feeling a big hurt right now, and we need to help them fight back.
That big hurt is a steady and continuous decline in store traffic. This means loss of sales, and that leads nowhere good for them — or for local media.