Through Buy Outs And Sellouts, Alt Newspapers Lost Identity

August 19, 2012

Ten years ago, in 2002, one of my best friends, Steve Sherman, and I hatched a plan. We would raise capital, seek out alternative newspapers in second markets like Knoxville and Charleston, buy them, tighten up their business practices and sell them for a profit. It was a sharp idea at the time, since many “alt” owners, usually the founders, were hitting their 60’s and thinking about retirement. Better yet, despite their loose operation standards, back then many alts had margins well above 20 percent and Steve and I figured that with some tweaking, we could get it well above that.

With our plan, and Steve’s money connections, we quickly raised enough capital to buy at least one paper; so we started contacting every one of the 150 or so alternative newspapers in the country at the time. In today’s economy it’s hard to believe that two thirty year-olds with no real newspaper experience could get a pile of cash so quickly to buy real, actual newspapers, but, Boy! was it a different time.

We quickly learned a few important things: Alts as a class had very little handle on what the Internet could do for them; Alt editors had almost no sense of what their publications were supposed to do other than run some A&E coverage, rebellious stories about pot and manage ad pages for “adult escorts”; and there were some other companies actively on the hunt for alternative newspapers.

The first point stunned us. By 2002 it was plain that the Internet was transforming news; Craiglist was steadily dismantling classified revenues, a bulwark of newspaper profits. But at the annual Association of Alternative Newspaper (AAN) meetings, there was little serious talk of how to counter or sidestep Craigslist, merely a question of how long it would take before Craigslist came to town and took away your cash cow. And then, in 2003 we witnessed a demo from one major alt paper, held as an example of a great website, on how their site’s most popular page was a jpeg of the city’s ZIP Code map. Listings were still bare, and most alt websites only revealed the opening sentences of their content, with a directive to, “Pick up a paper copy nearby for the full story.”

But then when we talked with editors and publishers, we learned a sad truth that has played out again and again with alts in cities across the country: Most alternative newspapers were little more than greying-hippy butterfly collections, built to satisfy the tastes and interests of a dying crowd. “They’re all tracking their demos,” one angry twenty-something editor told me over too many drinks in a hotel bar. “The dirty secret is that most alt readers are fifty-plus. Let’s hope the advertisers don’t find out.”

My editor informant’s fears were right, but it wasn’t the advertisers he needed to worry about: it was competition. Fueled by the Internet, cheap A&E listing web sites dismantled alt newspaper’s domination of the last real value-add they had, and readers were peeled off to Metromix, Time Out: New York/Chicago and other listing sites run by metro dailies.

But the most surprising thing we discovered was the rise of nascent alt newspaper chains. At the start of the millennium, three new groups (backed by “major New York investors,” went the rumors) had sprung to life: New Times Media, Village Voice Media and Creative Loafing. The three groups were buying papers across the country and paying top dollar, we were told by independent publishers we solicited. When we started discussing buyouts with publishers in late 2002, 6-8x EBITDA was the going rate. But by mid-2003, talk was of 10-12x EBITDA. In less than a year, the going price for alt newspapers had almost doubled.

The big jump in asking price was certainly not coming from a sudden rise in profits, it could only come from piles of cash raining down on the market. Steve and I, committed to buying at least one paper, grimaced as we talked about sky-high valuations with publishers. How could we possibly manage the debt load and turn a profit from a future sale? Was there really that much operational fat we could trim? We spent many hours talking through these questions with no real answers.

Fortunately for us, it turns out, we could never close a deal. It seems that the combination of our lack of pedigree and lack of giant piles of investor cash kept publishers from selling. Instead, we saw papers across the country get rolled up into the new alt paper chains and then get forced into templates recreated for different cities. All the New Times papers looked the same. All the Creative Loafing papers looked the same.

As we know now, that was no big deal in comparison to the evaporation of the display ad market in 2007. By the end of the decade the heavy leverage used to purchase alt papers with inflated price tags had been exposed and alts began to drastically cut staff in a bid to stay ahead of the debt payments. Most alt staffers had long reconciled with the idea that they’d never earn as much as their daily newspaper competitors, but now even those super-low salaries were too much for the chains bleeding barrels of red ink.

Through it all though, most alternative newspapers have yet to figure out their real mission. Is it arts and entertainment coverage? Lefty investigative reporting? Or just a place to run Savage Love and “Ernie Pook’s Comeek”?

Back in 2002, the one defining characteristic every alt publisher would adhere to was “independence,” the key value for alt newspapers. In fact, at the 2002 and 2003 AAN conference, there were a series of heated closed-door meetings between member publishers over whether or not to admit a small alt paper with less than 20,000 weekly circulation to AAN because it was owned by a just-as-small three newspaper regional chain. It wasn’t independent of the big dailies, decried many publishers.

In an age of alt newspaper chains, and when a major alt, the Chicago Reader, is owned by the same company that owns the Chicago Sun Times, such an argument over independence seems quaint, doesn’t it?

And yet, it seems that alt newspapers still haven’t figured out exactly what they’re really here for. The counter culture has been absorbed by post-modernism, while classifieds, A&E coverage and escort services have been absorbed by the Internet.

What’s left? Exactly.