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Wednesday, Nov. 14, 2007 04:15 pm

The state of the State Journal-Register

Industry-wide trends catch up to IllinoisÂ’ oldest newspaper

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ILLUSTRATION BY Keith Claxton/MCT
Untitled Document Almost as if on display, Sue Schmitt and Barry Locher — publisher and editor, respectively, of the State Journal-Register — were seated in the front of a Crowne Plaza ballroom at this year’s Illinois Press Association “Best of the Press” awards luncheon in September. The event’s theme was “News on the Edge: Riding the Wave of Change,” and it rang perhaps more true for the SJ-R than for any other newspaper represented there. In many ways the luncheon served as the official end to the Copley era and the start of a new one under GateHouse Media, which took control in May and has made its presence felt in Springfield, signing up to co-sponsor the IPA lunch and supplying enough pens, notepads, and calendars for a modest back-to-school fair. Despite the eventful year they’d experienced, the Springfield daily’s newsroom staff collected nine first-place awards and 23 prizes overall — four better than last year, when the paper was still under the ownership of La Jolla, Calif.-based Copley Press.
“Change has been the theme of many messages that I have sent in the last year. We’ve seen a lot of it in the last year, and there is more to come,” Schmitt told employees in a memo this fall.
Some changes were in the works before the  SJ-R was put up for sale. The paper introduced readers’ comments to its Web site in May 2006. This year photojournalists were equipped with digital camcorders to capture footage to post online, and reporters started appearing on camera to discuss big stories. The paper is trying to generate revenue through the use of niche publications such as SO Magazine, too. Now run by a public company under scrutiny by shareholders, Wall Street analysts, and to a lesser extent, the national media, the SJ-R, Schmitt says, has had to make adjustments. She adds that the paper’s management and staff was fully aware that things would be different when GateHouse entered the picture, but changes had less to do with who was now signing the paychecks than with how newspapers have evolved.
Daily newspapers have faced intense pressure for years now as readership has dropped and ad dollars have been spent elsewhere. Circulation declines at the SJ-R have been consistent with those of newspapers across the board. The most recent information from the Audit Bureau of Circulations shows that circulation has dropped by about 3 percent in the past year to a current level of 50,212 on weekdays and 59,548 on Sundays. Conventional thinking — up until now — held that small- and midsize papers serving small markets such as Springfield would be immune to the intense pressure endured by the metropolitan dailies in major markets. That seems to have been the main thrust of the GateHouse strategy, which emphasizes the acquisition of little papers that are dominant in their communities. As it turns out, though, the smaller papers are just as vulnerable as the big ones — it just took a while for the problems to become apparent. Schmitt acknowledges this: “It took a little longer for the forces that all media companies are dealing with to come to this market, but make no mistake: The SJ-R is not immune to the same issues that so many others are experiencing.”

The announcement came one year ago that the Copley family would unload the SJ-R, the Peoria Journal Star, and five other Illinois and Ohio publications. By spring, Fairport, N.Y.-based GateHouse had emerged as the successful bidder, offering to purchase the Midwest group from Copley for $380 million. Before closing that deal, GateHouse bought another large Illinois daily, the Rockford Register Star, from Gannett as part of $410 million trade, giving GateHouse ownership of the papers of record in three of the state’s 10 largest cities.
Employees at the State Journal-Register seemed upbeat at the time, bantering about making sure to use their health benefits before the paper changed hands — but not long after the ink dried on the deal and the first few editions of GateHouse-produced papers, the reality of modern-day newspapers hit without warning, and nine staffers were shown the door. Columnist Paul Povse, who at one time served as the SJ-R’s features editor and was the only editorial employee released in May, refers to the day as “Black Wednesday.” Now a journalism instructor at Southern Illinois University at Carbondale, Povse says he is still not interested in discussing his termination or his former employer, nor is he discouraging his upper-division students from working for newspapers.  “I feel for the stress and tension that probably exists,” Povse says of his former colleagues. The changes did not stop with those dismissals. In addition to canceling the annual company picnic, usually held at Knight’s Action Park, and dropping its lease with a nearby parking lot that accommodated spillover, the paper dumped some freelancers’ contributions, such as Tara McAndrew’s regular history column, and made all freelancers sign a revised agreement that basically ensured that they’d lose all rights to their published material after payment.
Such changes are par for the course at today’s newspapers, and the SJ-R has probably been lucky to have avoided upheaval until now, when Wall Street’s infatuation with GateHouse appears to be waning and the company is looking more and more like every other newspaper company. In October, the SJ-R announced that it would offer voluntary severance packages to as many as 200 full-time employees, including most of the newsroom staff. Workers have until Dec. 3 to agree to sign an agreement that would pay them one week and one day of salary per year of employment, with the separation date for some coming soon after. They get a week to reconsider their decision after the deadline. Asked whether he would take the buyout offer, political columnist and reporter Bernie Schoenberg says he likes what he’s doing. Several other newsroom employees tell Illinois Times that they would like to remain at the paper, citing loyalty to top editors and a good work environment, but they are also worried that the optional buyouts may be a prelude to outright cuts and wonder whether they should just take the money and run. Says one: “They’ve said there will be changes but have been unspecific about what those will be, which creates more uncertainty and nervousness. People are doing their jobs with a black cloud over their heads.”

GateHouse has become one of the nation’s largest newspaper-publishing chains almost overnight. In addition to its 19 daily titles, GateHouse also holds 43 paid and seven free weeklies, plus 26 shoppers in Illinois. Once it completes a deal with Augusta, Ga.-based Morris Publishing Group, GateHouse will own 100 dailies, 200 weeklies, and 100 shoppers.
The company was formed as Liberty Group Publishing in 1997 to buy newspapers from Hollinger International Group, the company built by Canadian financier Conrad Black. In 2006, Mike Reed joined Liberty as chief executive officer, changed the company’s name, and moved the corporate headquarters from Downers Grove, Ill., to New York, and by the end of October he had taken the company public.
Stockholders salivated over GateHouse’s business model of buying small newspapers (5,000-10,000 circulation) and heavily emphasizing local coverage in smaller towns such as Lincoln, Mass. (population 8,056) and Lincoln, Ill. (population 15,369). GateHouse’s parent company, Fortress Investment Group LLC, had a reputation for spinning companies into gold. A glimpse at GateHouse’s editorial-support Web portal, ghnews.com, speaks volumes about what the company values: Nearly 50 stories are posted in the “Innovation” section, which boasts of how GateHouse papers have been redesigned and are using the Web, whereas “Awards” contains just over a dozen entries, including 150-word mention of its papers’ successes at the IPA awards. Though Gatehouse has posted impressive revenue numbers, in large part because of its Illinois acquisitions, the company reported its first loss since going public last fall — $2 million, roughly 5 cents a share — during the second quarter of this year. GateHouse’s stock has had its share of problems, too, falling by nearly 50 percent since the initial public offering. Fortress, which went public in February, has also experienced a sharp decline in the value of its stock, from $37 at the time of its IPO to around $17 now. Nevertheless, many financial analysts continue to recommend both GateHouse and Fortress with buy ratings. This week, Fortress and Gatehouse reported third-quarter losses. Fortress’ profit sunk by $38 million, down from $65 million in the same period in 2006. GateHouse reported a third-quarter net loss of $8.8 million, compared to a loss of $10.8 million in the year-ago quarter.
There’s no debate: These are bleak times for the daily-newspaper business.
Paid circulation is in steady retreat, the print-advertising base continues to erode, and most of the nation’s largest newsrooms have witnessed heavy cuts. The trend is toward “smaller local papers with diminished ambitions,” says the Project for Excellence in Journalism’s 2007 “State of the News Media.”
According to the report: “The stage seems set in 2007 for more business turmoil, a negative industry image, and further cuts in the newsroom’s capacity to do public-service reporting with distinction.”
The uncertainty has led to great upheaval, including a “flurry of ownership changes,” and forced newspapers to adapt, albeit painfully, to stave off the extinction. Schmitt succinctly boiled it down for SJ-R employees in a recent memo: “It’s not just about the supposed death of print — we are all in a struggle over a smaller pie. Every time that an advertiser goes out of business in this market (Sports Authority, Jewel, K’s Merchandise, Leath), we struggle to make up the thousands of dollars that we have lost.”
In the meantime, she’s at least trying to keep morale up. “We need some fun. Costumes are OKnext Wednesday for Halloween as long as they do not interfere with your work duties,” Schmitt told employees in an e-mail on Oct. 25. “I’m not sure if ‘GateHouse Executive with Ax’ through the head will be considered acceptable, since the blood might stain the carpet, causing an expensive unbudgeted repair.” She did add a caveat, however. “For the humor-impaired: This is a joke. Of course we would never wish this to happen. Ever.”

Contact R.L. Nave at rnave@illinoistimes.com
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