Guild versus MediaNews in East Bay

I am a member of the Newspaper Guild which is trying to organize the Contra Costa Times and the other Northern California papers owned by Dean Singleton’s MediaNews. What follows are two sets of extracts, the first a downbeat analysis of the company’s finances from the Guild Newspaper and the second being a memo that leaked from Singleton and appeared in Los Angeles Observed.com.

Here are some Guild comments:

MediaNews, has grown into one of the largest U.S. newspaper chains . . . and now employs more Guild-represented workers than any other U.S. publisher . . . the company (has an) extended financial exposure. Net income for the fiscal year that ended June 30, for example, was only $35.6 million on total revenues of roughly $1.33 billion, a 2.7% ratio . . . MediaNews is straining under debt that now exceeds $1.12 billion. Interest coverage ate up 57% of operating cash flow last year . . . (it) had to renegotiate its loan agreements and, in the process, got its interest rate bumped a half a percentage point and was required to pay an additional “amendment fee” of 0.25%. To remain in compliance with loan terms, the company reported, it has to either “increase or maintain” its existing cash flow or reduce its overall debt . . . For MediaNews, looking only at the properties it has held for two or more years, the specifics for the last fiscal year included a 6.6% slide in advertising revenues and a 5.6% haircut in circulation revenues.”

Here are extracts from a memo from Singleton’s management:

You all know how we as an industry have arrived at this point.  Despite the growth of radio beginning in the 1930’s and TV in the 1950’s, we continued to enjoy growth in revenue even as our market share declined.  Life was good.  But in the 1990’s something began to change for us.  Was it the proliferation of cable news channels, the inexorable trend toward two wage earners per household working outside the home, time pressed lifestyles, the emergence of the Internet, or the explosion and fragmentation of all forms of media?  Was it the consequence of consolidation in our industry, combined with public ownership and subsequent pressure from institutional and large shareholders?  It was all of these factors. 

“Advertising revenue for the industry is estimated at $49 billion, or 18% of all U.S. ad spending, and our share of local advertising is twice that. Average profit margins for the newspaper industry are approximately 21%, and while at times it has been painful, we have been extremely resourceful in finding ways to protect our financial health. 

“Circulation has declined by an industry average of 1 to 2% per year over the last 5 years.  

“We have been very successful at consolidating manufacturing facilities—also known as clustering.  For example, following last year’s acquisition of the California newspapers in the Bay Area, we shrunk from seven production plants to four . . .  In the San Francisco Bay area, we have consolidated reporting and editing functions to eliminate costly duplication, just as we’ve merged production, administration, accounting and circulation of our newspapers.

“Over the next year, we will publish new magazines in 50 markets tapping 10 of our designated categories.  In total, we will publish nearly 200 new magazine issues—mostly at bi-monthly frequencies. In order to help accomplish this, we, along with Hearst, have purchased an ownership interest in Publications Services of America, a publisher of healthcare, home shelter, weddings, and Hispanic magazine titles, and we will be working with PSA to introduce these titles in our markets.  In every case, we will also include an Internet component to our publications,

“This year, we’ll generate 89% of total revenue from our core, 7% from online and 4% from niche products . . . .  In five years or 2012, we expect 68% of revenue to come from core, 20% from online and 12% from niche.”