One draconian prescription for ailing community newspapers gaining some national traction: a shift to nonprofit status.   7/14/2009 by Wayne Nelson

(Photos: Superior Publishing chief executive Charles Johnson, left, and Forum chief executive William Marcil.)

First came the bailout of the nation’s financial services sector, then the auto industry. Is the struggling newspaper industry next?

U.S. Sen. Benjamin Cardin, D-MD, is the choir director in a growing chorus calling for tax-exempt status for community newspapers restructuring as nonprofits. In March, he proposed the Newspaper Revitalization Act that would give struggling newspapers the option of operating like a public radio or television station. They would be free to report on all issues, including political campaigns, but could no longer endorse candidates. Their advertising and subscription sales would be income tax exempt, and contributions to support their newsgathering operations would be tax deductible.

Unlike the bank and auto industry bailouts, however, there would be no taxpayer liability, Cardin said in a statement, because money-losing newspapers aren’t paying federal income taxes.

“We are losing our newspaper industry,” Cardin said. “The economy has caused an immediate problem, but the business model for newspapers, based on circulation and advertising revenue, is broken, and that is a real tragedy for communities across the nation and for our democracy.”

Cardin’s Senate and House colleagues aren’t rushing to sign on. His bill hasn’t picked up additional sponsors, but his proposal is resonating within an industry that already has spurred nonprofit online experiments, including Minneapolis-based MinnPost.com.

“Nonprofit status could be the saving grace for community newspapers,” said Marti Buscaglia, president and publisher of Duluth~Superior magazine, and former publisher of the Duluth News Tribune, one of those struggling newspapers. “When I left two years ago, the paper was healthy, doing okay. I’m afraid for what’s happening here,” she said.

Elements in the region’s philanthropic sector also are watching the downhill slide of newspapers. The mission of the Grand Rapids-based Blandin Foundation, the region’s largest, is to stabilize and strengthen rural Minnesota communities. Wade Fauth, the foundation’s grants director, said it views the situation with concern. “We recognize the media industry is under stress . . . and the role they play in building healthy communities,” he said. “We’re planning and thinking around that right now.”

The Blandin Foundation is a longtime funder of nonprofit media in outstate Minnesota. It underwrites rural programming at Minnesota Public Radio, and KAXE Northern Community Radio in Grand Rapids. It also has provided startup grants for a KAXE Web-based community journalism project, and the nonprofit www.MinnPost.com. The foundation also has developed a statewide “editors and publishers” program to help rural newspapers better serve their communities.

But directly financing those newspapers would be a giant leap.

Fauth noted even nonprofit media are cutting budgets in the current downturn, adding that tax-exempt status alone won’t solve newspapers’ dilemma. “Both nonprofits and for-profits have to pay their bills,” he said.

‘The Fourth estate’

Newspapers have special status guaranteed by the First Amendment, and long have operated as unregulated defacto public utilities. Fiercely defending their watchdog role, the industry has earned its moniker as the “fourth estate,” along with the legislative, executive and judicial branches at all levels of government.

But in virtually every daily newspaper market, the shift of readers and advertisers from print media to Internet-based information sources that began well before the current recession has become seismic.

Dailies in Baltimore, Boston, Chicago, Denver, Detroit, Los Angeles, Minneapolis, San Francisco and Seattle that were part of those community landscapes dating to the 1800s have closed this year, are in bankruptcy reorganization, or teetering.

Northeastern Minnesota and Northwest Wisconsin aren’t immune. The dominant newspaper players in this region are Fargo, ND-based Forum Communications, and Superior Publishing, a unit of American Consolidated Media in Houston which in turn is a subsidiary of publicly-held Macquaurie Media Group (ASX:MCG) based in Sydney, Austrialia.

Both Forum and Superior Publishing are scrambling for their corporate lives.

Last fall Forum reduced its Daily Telegram in Superior from six to just two editions weekly. And in May, Publisher Leslee LeRoux was fired in Forum’s latest cost-cutting lurch. It has left the Telegram, Forum-owned weeklies in Cloquet and Two Harbors and the company’s remaining daily in the market — the Duluth News Tribune — run by general managers instead of publishers.

That’s significant because it leaves each publication with its most senior executive focused upon internal operations. Part of the industry’s historic public utility structure, publishers also are expected to represent the newspaper in the community.

Buscaglia said that link to the community is particularly important to a newspaper when it makes the kinds of changes that readers and advertisers have seen at Forum’s Duluth and Superior newspapers, including staff reductions, smaller trim sizes and news holes. “They’ve diminished the size and reduced the quality of the product, that’s what’s happened,” Buscaglia said.

William Marcil, Forum’s chairman and chief executive, didn’t respond to requests for an interview for this story. He engineered Forum’s ill timed $70 million acquisition of the Duluth/Superior newspaper group in mid-2006 when former owner Knight Ridder was liquidated. In the deal, Forum also acquired its longtime Knight Ridder rival Grand Forks (ND) Herald for $65 million. Forum already operated a television station there.

A common thread among troubled newspaper groups is their debt load, stemming from highly leveraged buyouts that in hindsight were vastly overpriced. In June 2006 Marcil acknowledged Forum had used bank loans to finance the deal, but wouldn’t disclose details.

While the role of debt service isn’t clear in the financial pressure driving the changes at Forum’s Duluth/Superior Newspapers, LLC unit, newsrooms, circulation and advertising departments in the group have taken a hit this year.

In June, the group reported a total 227 FTE count — which includes the weekly Duluth Budgeteer News, Living North magazine and Northland Smart Shopper — down from 240 FTEs in December. The biggest change came at the Telegram, reflecting its reduced publishing frequency and closure of its printing plant in Superior.

Another reminder of the problems at Forum came in mid-May when longtime Lake County News-Chronicle editor Forrest Johnson was canned. Holly Henry, who remains editor at Living North, replaced him.

Superior Publishing

Meanwhile, Superior Publishing may be in marginally better condition because its dailies and weeklies are in more remote communities with smaller Internet penetration. Still, most of those markets are heavily dependent upon mining, wood products or both, sectors hard-hit in the current recession.

Macquaurie-owned Superior Publishing operates two clusters of dailies and weeklies in the region. The epicenter of a Minnesota cluster is the Iron Range with newspapers in Chisholm, Grand Rapids, Hibbing, Virginia and Walker. A second group in rural Northwest Wisconsin includes newspapers in Ashland, Hayward, Park Falls, Phillips and Spooner.

The group is what remains of the former Duluth-based Murphy McGinnis Media. It was acquired by an East Coast venture firm in 2003 that sold the papers in Cloquet, Superior and Two Harbors and Budgeteer News to Knight Ridder in 2004. Macquaurie acquired the remaining properties in 2007.

In mid-June, chief executive Charles Johnson said revenues and profitability in the company’s fiscal year ending June 30 would be below year-earlier levels.

“We’re doing everything we can on the operating side (to control costs) that will have minimal impact on our communities and employees,” he said.

That’s not to say no impact.

A company imposed two-day unpaid furlough for employees to be taken in May and June was expanded to five days.

In June, Hibbing Tribune editor Mike Jennings was voluntarily laid off, effectively advancing his planned retirement. It leaves an already thin editorial staff for a six-day daily newspaper even thinner with just four news and sports reporters. Publisher Wanda Moeller has assumed an expanded role as interim editor.

“The Hibbing Tribune is doing a great job of covering the town with the staff we have,” Johnson said, suggesting any significant new resources likely will come from the newspaper’s affiliates in Grand Rapids (Herald-Review) and Virginia (Mesabi Daily News.) “We’re going to increase the level of shared resources” among the three newspapers, he said. “We’re looking at all departments to maximize efficiency.”

Johnson said he was reviewing how to permanently fill the editor’s role at the Hibbing newspaper in a company wide business plan for the new fiscal year beginning July 1.

That 12-month budget will anticipate a flat to moderately stronger economy, he said.

In February, the company shut down the remaining part of the ambitious Murphy McGinnis Interactive/Superior Broadband division it launched in 2000 to provide Internet access, custom computer networking, and Web hosting services. The move eliminated about 10 positions. With the change, American Consolidated Media is hosting Superior Publishing newspaper Web sites, Johnson said.

With computer system integration, Superior Publishing and its parent also have centralized accounting functions for the Minnesota and Wisconsin newspapers.

The Ashland Daily Press is performing all billing for advertising and all payables now are processed in Houston, Johnson said.

Meanwhile, a once-bustling company headquarters at 1105 Tower Ave. in Superior has been reduced to a skeleton crew. A visit in mid-June found Johnson and just one other employee there amid an expanse of empty cubicles. In acknowledgement, Johnson said he is searching for much smaller quarters in Duluth/Superior and will give up that leased space.

Editorial: Newspapers must save themselves.

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