No immediate changes as company reorganizes finances; chairman calls it a ‘positive step forward’
The Charlotte Observer’s parent company, McClatchy Co., filed for Chapter 11 bankruptcy protection this morning — a confirmation of the struggles that newspapers have had adapting to a digital world.
Although widely seen as a mark of failure, bankruptcy could actually be a blessing, allowing McClatchy to shed a large portion of its $700M in debt and reorganize as a leaner company. Firms in bankruptcy continue running, and the Observer will keep operating as usual as its parent company works with creditors to reorganize its finances.
In a statement, McClatchy put a rosy spin on bankruptcy filing, calling it a “positive step forward”:
“McClatchy remains a strong operating company with an enduring commitment to independent journalism that spans five generations of my family,” commented Kevin McClatchy, Chairman of McClatchy’s Board of Directors and great-great grandson of the Company's founder, James McClatchy. “This restructuring is a necessary and positive step forward for the business, and the entire Board of Directors has made great efforts to ensure the company is able to operate as usual throughout this process. We are privileged to serve the 30 communities across the country that together make McClatchy and are ever grateful to all of our stakeholders — subscribers, readers, advertisers, vendors, investors, and employees — who have enabled our legacy to date. We look forward to the continued success of such an outstanding group of colleagues long into the future.”
Pivot to digital: McClatchy also hailed its “significant progress in its digital transformation in the past three years,” even though its news websites are widely regarded as inelegant and feature annoying pop-up ads. But it has increased its number of digital subscribers — sometimes by offering subscription plans that cost as little as 99 cents a month. It says digital subscriptions have risen nearly 50% year over year. The Observer is believed to have nearly 15,000 digital subscribers.
It has not recently released print circulation numbers. The Observer reported daily print circulation in March 2019 at more than 75,000, a number that has surely declined since then. The chain is eliminating Saturday print editions starting next month.
What’s the plan? McClatchy says it already has a bankruptcy plan, which includes dumping off its pension obligations to a government agency, canceling its stock and wiping out about 60% of its debt to lenders in exchange for a stake in a reorganized company. It says it hasn’t completed all those negotiations, and in bankruptcy court, there is no assurance that the company’s plan will prevail.
As a McClatchy news article on the filing put it, “McClatchy and its creditors fell short of a fully pre-arranged bankruptcy, leaving open the possibility of a legal battle that could drag out.”
It would also mean new ownership. The article says that “the likely new owners, if the court accepts the plan, would be led by hedge fund Chatham Asset Management LLC.”
Analysis: As far as the day-to-day operation of the Observer, the bankruptcy filing shouldn’t mean much. The paper, like others around the country, is still under financial pressure, but it still employs a lot of talented journalists. It still probably has the biggest newsroom between Atlanta and D.C., with about 40 journalists — a far cry from the 250 or so it had more than a decade ago.
The bankruptcy filing is a confirmation of industry struggles that have been around for years — and that management was unable to respond effectively to rapidly changing conditions after taking on a lot of debt.
Having a new hedge-fund owner doesn’t sound like an ideal solution. But there probably is no ideal solution to the newspaper industry’s woes.
(Earlier Ledger article: “The future of Charlotte media is digital and niche.”)
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The Charlotte Ledger is published by Tony Mecia, an award-winning former Charlotte Observer business reporter and editor. He lives in Charlotte with his wife and three children.