Feb 17, 2020 - News

Analysis: The Charlotte Observer’s owner filed for bankruptcy. What will that mean for Charlotte?

Charlotte Observer newspaper bankruptcy

Charlotte Observer newspaper bankruptcy

Last Thursday morning, the Charlotte Observer published the results of the kind of reporting needed in our eager, corruptible city.

“District drops Centegix crisis alert system,” the headline read.

The story’s author, Annie Ma, along with fellow reporter Fred Clasen-Kelly, discovered in recent months that the local public school system invested more than $1 million in taxpayer money in a security system intended to protect our schoolchildren — and that security system did not work.

Ma and Clasen-Kelly learned of the trouble after reviewing hundreds of pages of documents they obtained through public record requests, and started asking questions. They published their first story on January 10.

One month later, CMS dropped the security system. The story about that decision ran in a humble position down the right rail of Thursday’s front page. For a local journalist, mornings like that, when your work has directly resulted in a policy change, make the long hours and low pay worth it.

It was a cruel coincidence that as Thursday’s paper landed in driveways, the Observer’s parent company, McClatchy, was sending out a scoop of its own: It had filed for bankruptcy.

McClatchy says its Chapter 11 filing will help the company eliminate some of its $703 million in debt and shed the growing burden of unsustainable pension obligations — McClatchy has 10 pensioners for every active employee.

The hedge fund Chatham Asset Management, LLC, would then assume ownership of McClatchy and its 30 newspapers.

The news ricocheted around social media and into email inboxes. Former Observer employees on the pension plan wondered what it meant for their retirement. Current employees wondered what it meant for their jobs. People took the expected swipes at the paper, saying it’s gotten too thin, or too liberal, or too old, or too clunky to view online. But all that doesn’t change the fact that the Observer is one of Charlotte’s most important institutions.

The Charlotte Observer's old headquarters on South Tryon, as seen in early 2016
The Charlotte Observer’s old headquarters on South Tryon, as seen in early 2016

No organization has driven the discussion in this city over the past century and a half like the Observer.

But changing readership habits and subscriptions over the past 20 years have contributed to a gutting, from 250 newsroom employees to less than 40.

On Thursday morning, executives said that McClatchy’s newsrooms would still operate as usual, committed as always to journalism. “There are no changes in your day-to-day work and responsibilities, or wages, salary, and benefits as a result of today’s filing,” CEO Craig Forman said to employees in an early morning email.

That afternoon, Forman held a company-wide conference call to address a few emailed questions from staffers. He didn’t respond specifically to questions about potential layoffs, though.

The story of the McClatchy family filing for bankruptcy and giving up ownership of the newspaper chain it’s owned for 163 years appeared on page 5A of Friday’s Observer.

Editors in McClatchy’s local markets took boxer’s stances, saying they’d continue to stay and fight. “Our commitment to this kind of work remains unchanged despite the economic challenges we face,” wrote Robyn Tomlin, executive editor of the Raleigh News & Observer, McClatchy’s other big newspaper in North Carolina.

But they’ve made similar comments after layoffs and buyouts over the past decade: This will make us stronger. And then it doesn’t.

The question now isn’t the commitment of local journalists. The people who work in newspaper offices across the Carolinas today are among the most devoted journalists in the country. The question is whether their employers give a damn.

For now, the Observer newsroom is in a watch-and-wait period. The Agenda contacted more than a dozen former and current McClatchy employees. But corporate leaders instructed current newsroom employees in Charlotte and Raleigh not to share anything about the bankruptcy on social media.

The two newsrooms that have for more than a century led the fight for transparency in North Carolina, a state whose motto is “to be, rather than to seem,” were told to direct questions from outside reporters to McClatchy’s public relations department.

What’s unspoken is also obvious.

Hedge funds, we know, don’t usually invest in more reporters. Hedge funds don’t often suddenly make health benefits better.

Hedge funds, unfortunately, reduce expenses and overwork staff. Hedge funds increase prices of the paper and take advantage of the most loyal subscribers.

They siphon out as much money they can from the business, get a nice return for investors, and leave them hollow.

One of the most high-profile examples is the Denver Post, the nine-time Pulitzer-winning newspaper that an Alden Global Capital-owned company purchased in 2011. The hedge fund slashed the Post’s newsroom headcount by 70 percent, leading to a rare public rebuke from newsroom employees.

The paper published an editorial calling Alden “vulture capitalists,” guilty of eroding the quality of the journalism and jacking up subscription rates. Ten Post employees left and started the Colorado Sun, a digital outlet funded with start-up money from a cryptocurrency and blockchain technology company.

So McClatchy isn’t alone in its struggles.

Between 2008 to 2018, newspaper employment nationwide dropped by 47 percent, from 71,000 to 38,000, according to the Pew Research Center. Over that same period, advertising revenue plummeted 62 percent.

The recession compounded newsrooms’ troubles, forcing them to shed staff as advertisers cut back. But McClatchy’s woes began before that. When the company bought Knight Ridder for $4.5 billion in 2006, it assumed a massive debt load. Since its takeover, McClatchy has slashed its full-time workforce by 82 percent, the Washington Post reported.

We’ve talked to people from several different outlets in Charlotte over the past few days, and nobody takes joy in the Observer‘s struggles. Especially us.

We both grew up in newspapers. Michael spent much of his early career at the Fayetteville Observer, covering the city with the world’s largest military installation, Fort Bragg, during the height of the wars in Iraq and Afghanistan. Katie worked at the Charlotte Observer for four-and-a-half years, covering business in a city built on business. We love newspapers and the people who work for them.

Last week, we emailed Observer executive editor Sherry Chisenhall to ask for an interview for this story. We wanted to discuss what the bankruptcy meant for the future of the Observer, and for Charlotte. She responded to say that she thought having Katie report on this story was “a clear conflict of interest for her given her previous employment.”

We disagree on that. It’s common practice for media outlets to cover other media outlets, and even for reporters to cover their former places of employment. One of McClatchy’s own writers covered the company’s bankruptcy last week. Former Observer writers have written about the company for years.

Chisenhall said the Observer isn’t giving interviews. In a statement sent to the Agenda on Monday night, she said that it’s essentially “business as usual for us in Charlotte and our sister newsrooms in the Carolinas. No one ever wants to be in this position, but more than 20 U.S. newspaper businesses have been through similar reorganizations since the Great Recession, and it’s a move that’s necessary to give us resources we need to build our digital future.”

“Our team remains focused as ever on our mission to provide independent local reporting that serves our community’s interest,” Chisenhall wrote.

All journalists are familiar with being on the receiving end of company lines. Banks, school systems, politicians — they deploy small armies of people to tamp down stories that might hurt the institution’s image.

Employment data show that there are now six public relations employees for every one journalist in the country.

What news organizations don’t — and in many cases can’t — acknowledge is that their corporate leaders are often as reluctant to be transparent as the institutions they cover.

Last year, when McClatchy needed to trim its pension contributions, it offered buyouts — a “voluntary early retirement program” — to 450 employees. At the Observer, nine journalists took the offer. Together, they had a combined 311 years of experience.

You wouldn’t have known, though, if you weren’t connected to the newsroom in some way. Longtime employees such as Kathleen Purvis, a food writer who worked for 34 years with the paper, took to Facebook to share their farewells, after they were told not to write goodbye columns. The Observer published no sendoff to the employees, but Charlotte magazine named them Charlotteans of the Year for 2019.

Charlotte Magazine Charlotteans of the Year
Charlotte magazine’s Charlotteans of the Year included nine veteran Charlotte Observer reporters who took buyouts last February.

“There’s just a natural tendency of people with power to use it on other people and more reluctantly on themselves,” former Observer publisher and chairman Rolfe Neill told the Agenda. He was speaking generally and not specifically about the Observer.

“It is just like if some staff thing, some juicy staff matter occurred in the newsroom, you weren’t likely to read about it in your newspaper. But if it occurred at Belk or IBM, you’d have it in your newspaper.”

Neill, 87, is a Charlotte media legend who ran the Observer as publisher and chairman from 1975 to 1997. A public art display called The Writer’s Desk outside ImaginOn in Uptown is dedicated to quotes from his Sunday columns.

When he heard the bankruptcy news last week, his concerns started with his retirement income. The company already cut some pension for him and other “highly compensated” employees at the end of 2019 — although Neill laughed when he said the January payment arrived by accident, but quickly disappeared.

Neill went to work for the Observer in 1957, when he helped open a bureau in Gastonia. The next year, he moved to the main office and became the business editor. He moved to Miami and New York and Philadelphia, then came back to Charlotte in 1975 to be publisher.

When he retired 22 years later, someone asked him to list his proudest accomplishments. “One of the greatest achievements was that we never laid anybody off,” Neill remembers saying.

For most of those 22 years, Neill said, profit margins were between 25 and 30 percent.

The Observer, which was owned by Miami-based Knight Ridder at the time, won three of its five Pulitzer Prizes during Neill’s run. More importantly, it was a regional economic force. Neill was part of a small group of business leaders that included Bank of America CEO Hugh McColl and First Union CEO Ed Crutchfield, who made decisions about the city’s future. It’s become a sort of local legend that the group would think up an idea, the Observer would write about it, and suddenly the idea became reality.

Of course it was more complicated than that, but the point is, the paper’s influence at the time was unlike anything Charlotte had seen, or will likely see again.

“It was about as good as it could get,” Neill said. “We just baled money and shipped it to Miami.”

Now, though, Neill says he doesn’t have an answer.

“Gosh I have no idea, except that I have no idea,” he said. “I’ve never seen any industry destruct as quickly as the newspaper industry has.”

Walk into the Observer newsroom today, and you’re greeted by a massive bank of flatscreen TVs facing the editors’ desks. The so-called “media wall,” which the paper spent thousands on a few years ago, shows about a dozen live news shows. A couple of screens display analytics from a company called Parse.ly, which measures web traffic for online stories.

Pageview counters can be helpful in weeding out stories that readers generally aren’t interested in, McClatchy’s leadership determined a few years ago. There’s value in that when your newsroom is thin. But such counters also show the immediate rewards of sensational news.

Reporters at the Observer have annual click goals. They aren’t rewarded for meeting those goals or punished for falling short, but still the goals are there and the clicks are counted. Editors often discourage reporters from writing stories they fear won’t get enough pageviews.

(If you’re reading this, you know that Agenda publishes pageview totals on each story. But they’re not used to determine a story’s value.)

The tension at a place like the Observer is clear: A local publication that serves a local audience must also serve the traffic desires of its parent company’s national digital advertisers.

If you look at Charlotte’s media scene as a whole, though, it’s quite strong compared to other markets in North Carolina.

Mix recent niche startups like the business publication Charlotte Ledger with now-established online platforms like the 5-year-old Agenda and the 10-year-old QCityMetro.com, add in legacy television stations like WBTV and WSOC that have uncovered numerous scandals, then respected print publications like Charlotte magazine and the Charlotte Business Journal and the Charlotte Post, an alt-weekly in Queen City Nerve, and a blossoming news organization over at NPR affiliate WFAE — and consumers have quite a bit to choose from.

WFAE, specifically, has doubled its newsroom in the past decade, an expansion that included adding former Observer writers Steve Harrison, Ann Doss Helms, and Tommy Tomlinson. The station has boosted its investigative coverage, too, with podcasts such as She Says, which deals with CMPD’s handling of sexual assault cases in Charlotte, and the The List, which examines the local Catholic diocese’s reluctancy to release the names of clergy accused of sexual abuse.

Still, the station brings in Observer reporters to help explain big stories on air, news director Greg Collard says.

“We depend on each other a lot,” Collard says of WFAE and the Observer.

“We want the Charlotte Observer to be successful and continue its history of investigative journalism.”

Newspaper industry analyst Ken Doctor spent 21 years at Knight Ridder. He says there are a few possible outcomes for the Observer and the 29 other papers McClatchy owns.

In the next six months or so, McClatchy newsrooms might actually enjoy some stability, Doctor says. That’s because Chatham will assume roughly 60 percent, or about $420 million, of McClatchy’s massive debt load.

Chatham could opt to keep Forman on as CEO and if that’s the case, newsrooms should expect “more of the same,” Doctor says.

The Observer and other newsrooms this year will cut Saturday’s print paper, a decision corporate leaders announced in December. They could look to eliminate other days, too, as a way to trim expenses, Doctor says.

“It’ll be an exercise in more of the same,” Doctor says. “There’s less chance of immediate job cuts.”

The second part of the year is when things get even more unclear.

If Chatham determines that the company is a solid business, it could continue to run the newspaper chain on its own. But Chatham would still have to make a profit somehow, Doctor says.

The new hedge fund owners could also opt to merge McClatchy with another newspaper chain. Gannett and GateHouse combined last year to create the county’s biggest newspaper chain. Or Chatham could turn to Alden Global Capital, which bought a 25 percent stake last year in the Tribune Company, the parent company of papers like the Chicago Tribune and the Baltimore Sun.

With much of its debt wiped out thanks to bankruptcy, McClatchy becomes a much more attractive “merger partner,” Doctor says.

And a newspaper operator can generate bigger profits through consolidation. Those buyers all have different strategies and different visions on the mission of newspapers.

“They’re all financial players with no long history in the trade,” Doctor says. “They’re willing to make big tradeoffs of community mission for profits.”

Chatham would not make any executives available for an interview to discuss the hedge fund’s plans.

In an emailed statement, a company representative said that Chatham is committed to “preserving independent journalism and newsroom jobs. We look forward to working with the company in the best interests of all stakeholders.”

Perhaps the most hidden and persistent effect of the decline of newspapers has been the erosion of discourse.

Living in a city where fewer reporters are trying to cover more people and information completely alters the nature of discussions.

Conversations between reporters and sources such as the mayor or city council members have become more transactional in the past five years. When we call on city officials for a story, they’re often primed to respond in short, snappy sentences, rather than thoughtful explanations with nuance. The best zings get aired or printed, and the result has been the rise of social media banter and a decline in understanding.

Despite that, and all of the other outside forces, the Observer has continued to produce important journalism that’s helped to hold public officials accountable.

There was the investigation a few years ago that uncovered that drugs, sex, and other corruption was rampant within the state prison system thanks to guards who enabled it. And before that, there was the series that dug into the competency of state-appointed medical examiners. Both prompted a response from state officials.

It was the Observer’s researcher, Maria David, who, months before she was laid off, uncovered that the FBI was investigating Charlotte businessman Rick Siskey. The Observer later broke the news that Siskey had been operating a massive Ponzi scheme for years.

Doctor, the newspaper analyst, fears the day when the local newspaper might not be able to undertake those projects. “What I’d be most worried about is will it be able to marshal its resources and still do good community work?” Doctor says.

And of course there’s the work from Ma and Clasen-Kelly on the schools. Months and months of investigation, collecting communications and documents about a school system with 148,000 children and 18,000 employees.

Charlotte needs more of that, wherever it’s published.

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