Sunday, January 31, 2010

Bankruptcy filing squeezes free daily

Fifteen years after it started, there is cause for concern about the future of California's first and most successful free daily, the Palo Alto Daily News. Its owner, MediaNews Group, has made several damaging changes and now has filed for Chapter 11 bankruptcy.

For many years, the Daily News was the poster boy for free daily newspapers. The Daily News grew and dominated its marketplace south of San Francisco. It was acquired by Knight Ridder for $25 million in 2005 — a record price for a paper its size.

The timing of the paper's owners to sell was fortuitous. A year later, shareholder revolt later that year forced Knight Ridder to sell off its papers and shut down. The Palo Alto paper was shunted off to MediaNews, a chain known more for cost cutting than great journalism. Not surprisingly, the Daily News closed the sister editions it has started in Berkeley, San Mateo, Burlingame, Redwood City and Los Gatos. It also stopped printing on Sunday and Monday.

In the past year, the Daily News dropped its distinctive page size (16 inches deep by 10 3/4-inches wide, known as a long tab). First it went to a short tab, which is almost a square (11-1/4 by 11-3/8 inches). Then, as reported, MediaNews chief executive Dean Singleton became irate when he learned of the change. He ordered the paper become a broadsheet, like its other newspapers in the Bay Area.

Now MediaNews is in bankruptcy court in Delaware, hoping a judge will reduce its debts from $930 million to $178 million. The filing is a "prepackaged" bankruptcy where the creditors (mostly banks) agreed upfront to allow the debt-reduction deal. The company's two top executives, CEO Dean Singleton and President Jody Lodovic, will be paid up to $1.49 million and $2.25 million, respectively, if the bankruptcy plan is approved March 4, according to the San Francisco Peninsula Press Club.

Once the bankruptcy is over, and huge debt-service payments are no longer an issue, MediaNews will be expected to produce profits that are within industry averages. Assets that don't produce profits will be closed.

Cost-cutting has crippled the Daily News, and it remains to be seen if its new format is a success. Given the need of Singleton and Lodovic to impress their owners with profits, one wonders how much time the Daily News will have to return to health.

Newspapers owned by MediaNews have avoided reporting information concerning its bankruptcy filing (Example 1, Example 2). Ironically, two of the most insightful stories about the case ("Post owner: don't shut off our phones" and "Execs cash in on Post parent bankruptcy") have been printed in the Denver Daily News, owned by the original owners of the Palo Alto Daily News, Jim Pavelich and Dave Price.