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Thursday, Jan. 13, 2011 10:40 am

Weighed down

A struggling parent company creates tension at the State Journal-Register

From its starting price of $21.60 in October 2006, GateHouse's stock value has plummeted to its current price of 10 cents.

The State Journal-Register is as much a part of Springfield as Abraham Lincoln. In fact, the city’s only daily newspaper even carries an accolade from Lincoln on its editorial page. Formed in 1974 from the merger of the Illinois State Journal and the Illinois State Register, the SJ-R has become an integral part of the community and the state’s media environment. That’s part of why the condition of the paper is a cause of concern among many current and former SJ-R employees.

“This newspaper has been a part of the fabric of this city for years and years,” says one former employee who asked to remain anonymous. “Residents of this city, whether they loved the paper or hated it, felt like they owned it.”

Changes at the paper have made some past and present employees nervous about the paper’s future and its reputation. They speak quietly, always off the record, about tense meetings, rumors of layoffs and alleged ethics breaches. But the paper wasn’t always that way, they say. Under the ownership of Fairfield, N.Y.-based GateHouse Media, the environment at the SJ-R has turned sour.

“When GateHouse and [executive editor Jon] Broadbooks came in, it was with a fury,” says a former employee who requested anonymity. “They were very determined to remake the newspaper. They looked at it as broken and in need of fixing.

“What was happening was that they were losing touch with Springfield and its people,” the same former employee continues. “When GateHouse and Broadbooks took over, there was no respect for that relationship between the paper and the people. It was horrible to watch.”

The State Journal-Register was purchased by GateHouse Media in April of 2007 from the now-defunct Copley Press. The paper was part of a package deal including the Peoria Journal Star, the Lincoln Courier and six other Illinois and Ohio newspapers owned by Copley, which sold together for $380 million. According to the Audit Bureau of Circulations, a private company which tracks newspaper circulation, the SJ-R has a weekday circulation of 45,622, with Sunday circulation reaching 54,610 as of September 2010.

From its starting price of $21.60 in October 2006, GateHouse's stock value has plummeted to its current price of 10 cents.

According to the Pew Project for Excellence in Journalism, GateHouse owns 98 daily newspapers nationwide, the most of any media company. GateHouse also owns 82 free weekly papers, 203 paid weekly papers and 127 classified papers in 21 states, according to the company’s website. Twenty of the company’s daily papers are in Illinois.

Now, having such a broad reach may actually be weighing down GateHouse and the SJ-R. Formerly known as Liberty Group Publishing, GateHouse went on a buying spree from the company’s start in 1998 until the late 2000s, purchasing hundreds of papers and incurring massive debt at a time when credit was easy to secure and the economy was growing rapidly. However, in 2007, at the climax of GateHouse’s gamble and just as the financial crisis hit, advertising revenues industrywide were tanking, falling a total of 23 percent over the two-year period of 2007 and 2008. Ad revenues dropped another 26 percent in 2009, meaning the largest source of profit for newspapers was drying up just when GateHouse needed it most. In a tough economic time that has seen many papers – if not most – losing revenue, GateHouse’s "precarious financial position has been intensified by the sheer number of papers under its control."

“We have experienced recent declines in advertising revenue streams and increased volatility of operating performance, despite our geographic diversity, well-balanced portfolio of products, strong local franchises, broad customer base and reliance on smaller markets,” says GateHouse’s 2009 annual filing with the U.S. Securities and Exchange Commission.

Since becoming a publicly-traded company in 2006, GateHouse has seen its stock plummet from about $21.60 in October 2006 to its current price of only 10 cents. The company’s revenues have also fallen drastically. According to filings with the SEC, GateHouse’s revenues fell by 13.8 percent in 2009 compared to 2008, putting their total revenue for 2009 at $585 million. The company’s reported net loss for 2009 was $530.6 million, according to a press release from GateHouse. The company’s most recent quarterly filing with the SEC shows revenues of $137.9 million in the third quarter of 2010, down 4.8 percent from the same quarter in 2009. The 2010 fourth quarter and annual report has yet to be filed.

“The newspaper industry and the company have experienced declining same store revenue over the past few years,” says GateHouse’s third quarter SEC filing. “This has led to increased losses, reduced cash flow from operations and the need to record impairment charges for certain long-term assets. It has also made it more difficult for us to meet certain debt covenants and has eliminated the availability to us of additional borrowings....”

Indeed, GateHouse’s credit rating was downgraded to “below-investment grade” by both Standard & Poor’s and Moody’s Investors Service in 2008 and was further downgraded in 2009 and 2010. The company also reports carrying $1.2 billion in long-term debt – more than twice the value of the company’s total reported assets.

GateHouse reported heavy losses in 2007, 2008 and 2009, with $1.2 billion in debt looming. The company has yet to release 2010 numbers.

Despite GateHouse’s heavy debt and extended season of losses, the company paid large bonuses to its top executives in 2009. GateHouse CEO Michael Reed received a $500,000 bonus, which was equal to his salary that year. Altogether, the company’s top five executives received $1.1 million in bonuses, atop their collective $1.7 million in salary payments. Bonuses for 2010 will likely be announced in March 2011.

GateHouse’s financial trouble has burdened the State Journal-Register with reorganizations and vacant positions, say current and former employees. The size of the paper’s newsroom staff has decreased in recent years, due mostly to workers who left not being replaced. In 2007, before GateHouse bought the paper, there were 68 newsroom employees, including newsroom editors, clerks, photographers, graphic designers, columnists and reporters, according to interviews and employee lists reviewed by a former employee at Illinois Times’ request. A count by the same former employee this month showed 52 newsroom employees at the paper. In the state capital, where important political litigation is regularly filed in state and federal courts, the only daily paper doesn’t have a dedicated courts reporter. One former SJ-R employee, who requested anonymity, says the real effect of the attrition is a loss of specialized coverage.

“Clerks are writing ‘news stories’ for the web; classified people take obits,” the former employee says. “There isn’t really a permanent courts reporter or a solely dedicated police reporter. Positions are now split between several things. This leads to a loss in coverage of meaningful issues and an increase in pre-planned fluff. The front page ‘centerpiece’ story is planned out days in advance. Rarely is it scrapped for real news. It’s disheartening.”

Meanwhile, the paper is working to move its printing operations to Peoria, to the in-house presses used by the GateHouse-owned Peoria Journal Star. That consolidation is expected to eliminate 32 full-time and 32 part-time positions, according to an SJ-R announcement.

GateHouse has come under investigation by the U.S. Department of Labor for failure to contribute to the company’s employee Retirement Savings Plan in a timely manner. A Department of Labor spokesman would not comment on or even confirm or deny the investigation, but documents obtained by Illinois Times show contributions to employee 401k plans were not deposited on time for about two years, from 2007 to 2009. It is unclear whether any deposits at all were made during this time, but the documents show GateHouse made a corrective deposit to employee accounts in July 2010 after working with the Department of Labor to determine how much was owed.

A telephone message seeking comment from SJ-R publisher Walt Lafferty was not returned. SJ-R executive editor Jon Broadbooks refused via telephone to discuss any issues regarding the SJ-R.

“Due to the fact that we have had problems with accuracy with Illinois Times in the past, I’m not going to comment,” Broadbooks said. “If we have something to say, we would say it in our pages.”

While several current and former SJ-R employees declined to speak to Illinois Times on the record – some out of fear for their jobs and others out of respect for a publication they hold dear – one former GateHouse employee who now competes with his former paper in Missouri had little hope that GateHouse’s fortunes would change.

Darrel Maurina worked at the GateHouse-owned Waynesville Daily Guide in St. Robert, Mo., from 2004 through 2008 before leaving to start his own Internet-based daily newspaper in the same community. With two decades of reporting experience, Maurina could see the writing on the wall – the media industry is changing, he says, and GateHouse is behind the curve.

“The GateHouse Media model of lots of monopoly newspapers under a single corporate umbrella … is a wonderful model, predicated upon the continued existence of monopoly markets in small towns – which the Internet is destroying,” Maurina says. “In my last few years at GateHouse, I felt like I was a blacksmith attempting to make horseshoes in the dawn of the automobile. It doesn’t help, no matter how hard I work or if I’m the best horseshoe maker in the world, if my market share is going to be five percent of what it was before the automobile took most of my business.”

GateHouse is struggling just to survive, Maurina says, and the company is mistakenly punishing middle managers for declining revenue. Maurina points to the case of the Waynesville Daily Guide, in which the longtime publisher was fired and replaced when GateHouse took over because of declining advertising revenue and circulation.

“You get rid of a long-term, experienced publisher who knows the community, knows the advertisers, and replace them with someone from out of town who doesn’t know the community, doesn’t know the ad climate and ends up having even worse problems,” he says. “How can anyone who values the news media hope to succeed in an environment where your goal post is moving, where you don’t know what constitutes success and where you constantly have the fear that no matter what you do, you’re going to get in trouble?”

The SJ-R’s former publisher, editor and managing editor each resigned from their positions in December 2007, just a few months after GateHouse acquired the paper.

Maurina projects that GateHouse could go bankrupt in as few as four years, and many of the company’s smaller papers will likely be discontinued. Larger papers like the State Journal-Register, he says, will probably be sold “for pennies on the dollar” to local investors “who actually value newspapers.”

“I feel bad for the people of GateHouse because they’re in a company which is financially incapable of surviving,” he says. “I don’t believe the people running GateHouse are stupid. They aren’t kleptomaniacs. They’re not trying to kill newspapers. They made a mistake that will cost them their jobs and cost their employees their careers, and that’s sad.”

A former SJ-R employee, who asked to remain anonymous, says despite the pressure building in the newsroom, the staff there continues to do its best at putting out quality news stories.

“And they do it because they love the newspaper,” the former employee says. “They love the community. And, they love each other. It’s quite a family there. And, they remain forever hopeful that there’s going to be a change in the way things are run.”

Contact Patrick Yeagle at pyeagle@illinoistimes.com.
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