Hedge Funds & Antitrust
The Local News Crisis Illustrates the Inadequacy of the Current Antitrust Approach
This paper was submitted by Steven Waldman to the Federal Trade Commission and Department of Justice in response to a request for comment about the effectiveness of current antitrust enforcement. Waldman is Chair of the Rebuild Local News Coalition and President of Report for America.
The nation’s system for providing local news is in a grave crisis. Although there are many causes, certain types of mergers have severely aggravated the problem and made solutions harder. Yet the approach to competition policy that has dominated in recent decades does not provide the tools to deal with this significant instance of consolidation harming consumers, communities and the nation as a whole.
We will not attempt to parse whether the harms we are going to describe can fit within existing anti-trust law or require new statutory language. Rather, we will make the case that some media consolidation has caused great harm and has been unaddressed by traditional antitrust approaches. And we will suggest some new ways of thinking about consolidation that better adapt to modern news-market realities.
The Local News Crisis
The collapse of local news has been well documented. Since 2004, 2,100 newspapers have closed. Some 1,800 communities that had at least one newspaper now have none.
News deserts are appearing across the country, but are more likely to be in communities that have higher poverty rates and lower median incomes. “The residents of America’s emerging news deserts are often its most vulnerable citizens. They are generally poorer, older and less educated than the average American,” reported the “Expanding News Desert,” by Professor Penny Muse Abernathy. Significantly, in 90 percent of these communities that lose a newspaper, no digital-native startup has appeared to fill the gap.
Most importantly, the number of reporters has dropped dramatically. The number of newspaper newsroom employees dropped 57 percent between 2004 and 2020, according to the Bureau of Labor Statistics data, analyzed by the Pew Research Center.
These drops have happened, of course, at the same time both population and state and local government spending has increased. As a result, the number of newspaper newsroom staff per 100,000 population has declined 62 percent, and the number of reporters per $100 million in local government spending has declined 67 percent.
In addition to the 2,100 newspapers that have shut, there are at least another 1,000 that are what is known as “ghost newspapers,” defined as papers that have lost at least half of their staff. Larger newspapers have cut back on coverage of counties outside the city center, and significant beats affecting residents’ lives such as education, health care, and criminal justice.
Not surprisingly, the decline in the number of local reporters and newspapers has led to a decline in the amount of local reporting. Between 1999 and 2017, coverage of local politics dropped by 56 percent, according to a study of 121 newspapers by Professors Danny Hayes and Jennifer Lawless. “The smallest papers experience the biggest proportional cuts to coverage of local government,” they wrote. “Local coverage was reduced 300% more than other topics at the smallest papers but only 30% more than at the largest papers.”
This has hurt the ability of Americans to get crucial information about urgent topics affecting their lives, such as education: “One out of every three stories written about school boards in 2003 had disappeared by 2017.” Again the trend was more alarming in small outlets. “Among those with less than 15,000 circulation, the average reduction in schools’ coverage was 56%.”
Americans in these communities have less information to guide their decisions in local elections. “In Boise, Idaho, for example, as mayoral coverage in the Idaho Statesman fell from 7.7% (2001) to 3.5% (2011) of the news hole, mayoral turnout declined from 24.8% to 11.4% Remarkably that’s a virtually identical 54% drop in both,” according to Hayes and Lawless.
Typically, newspapers that have cut back on local reporting fill more of their pages with national or regional material. One study of 16,000 stories in 100 communities conducted by Duke University’s Phil Napoli, only 17% of the content in local newspapers was about local communities and addressed a critical information need. One in five newspapers had no locally-produced journalism at all.
Consequences for Communities
There is a growing body of research demonstrating what we know intuitively — that the decline in local news causes, or is correlated with, a wide variety of serious harms to consumers and communities. According to rigorous academic studies, communities with less local news have:
Lower voter turnout and less choice in candidates
Those who regularly vote are more likely to follow local news (52% of regular local voters, compared to 31% of those who do not always vote).
Communities with less local news had fewer contested races.
In Cincinnati, after the closure of a city’s second newspaper, the Cincinnati Post, fewer candidates ran for office, “incumbents became more likely to win reelection, and voter turnout and campaign spending fell.”
Less voter knowledge about candidates
A decline in local coverage (based on a study of 10,000 articles from 2010 to 2014), led to voters being less likely to have an opinion about their member of Congress.
Residents in areas with less local news are less likely to be able to name things they like or dislike about their representative.
They are less likely to be able to place their representative on an ideological spectrum.
They had less knowledge about public officials.
They were less likely to Google the mayor.
In all, the collapse of local news appears to have contributed to a significant drop in the knowledge of local civic affairs in the United States. In 1966, 70% of voters could name their mayor. In 2016 only 40% of voters could.
Less civic engagement in their communities
After the closure of newspapers in Seattle and Denver, there was a significant drop in the likelihood that people would volunteer in civic organizations such as the PTA, the American Legion or a neighborhood watch.
Those who follow local news closely are more likely to engage in activities with civic organizations such as sports leagues, church groups or charity organizations’ civic activities.
Americans who have a close attachment to their community are twice as likely to be regular local news consumers as those with minimal attachment.
Those who rate local news highly are more likely to speak highly of their communities.
Less well-functioning local government
Communities with less local news had lower bond ratings, higher financing costs, and higher taxes.
They have more government corruption.
Those districts get less government spending on public benefits.
The members of Congress who get less coverage in the local press are less likely to appear as a witness before a congressional committee to advocate for their district.
In communities with less local news, voters are more likely to vote on a party line basis, splitting their tickets less frequently.
The members of Congress who get less coverage in the local press are less likely to vote against the party line.
Public health and corporate crime
Communities with less local news are more likely to have more toxic emissions.
Public health officials say the decline of local news has made it more difficult to track disease outbreaks.
Companies are more likely to have serious regulatory violations — including environmental and workplace infractions — in communities that have lost local news coverage.
In sum, after reviewing the academic literature on the decline of civic participation, Lawless and Davis conclude that most analyses “don’t account for the most dramatic change in the civic life us communities have experienced in the last 20 years: the decimation of the local news media.”
The Role of Media Consolidation
Media consolidation was not the primary cause of the collapse of local news — but in many cases it has seriously intensified the harm, promises to make the situation worse in coming years, and has limited the ability of communities to address the crisis.
The crisis in local news stems primarily from the Internet undercutting the traditional business models. Specifically, many advertisers reduced or eliminated their spending in local newspapers and instead placed ads on websites, search engines or social platforms. The combination of factors led to a dramatic drop in revenue in the newspaper industry — a staggering 81% decline in ad revenue from 2000 to 2020.
The nature of newspaper consolidation has changed in the past few decades as acquisitions by private equity and hedge funds have increased, and made matters worse. From 2004 to 2016, more than 300 newspapers had been sold or traded. In 2004, the 25 largest chains owned less than one third of the daily newspapers. By 2020, they owned 70 percent. In the past 15 years, as a result of serial acquisitions, the number of newspaper owners has dropped from about 4,000 to 2,400. “Massive consolidation in the newspaper industry has shifted editorial and business decisions to a few large corporations without strong ties to the communities where their papers are located,” concluded the major study of news deserts completed by Professor Penny Muse Abernathy, when she was at the University of North Carolina school of communications.
Many of these transactions involve private equity firms or hedge funds. “At their peak in 2016, six of the 10 largest newspaper chains were owned and operated by private equity firms or other investment entities,” the same study found. Since then some of the iconic newspapers — the Chicago Tribune, the Baltimore Sun, the New York Daily News and dozens of others — have also been acquired by private equity or hedge funds. The study also found that more than 1,000 newspapers are now controlled by “hybrid” companies that are both publicly traded and yet controlled by financial institutions.
These mergers have likely accelerated and intensified harm to communities. A recent study by Michael Ewens, Arpit Gupta, and Sabrina T. Howell found that newspapers acquired by private equity firms were more likely to cut the number of reporters and the amount of local coverage. “The composition of news shifts away from local governance, the number of reporters and editors falls, and participation in local elections declines,” they concluded.
The number of reporters fell from 6.2 to 3.8 at newspapers that were acquired by a private equity firm. By comparison, for other types of newspapers, the number of reporters fell far more modestly, from 7.3 to 6.1. The number of editors at these papers fell from 9.1 to 6.1, compared to a drop of just 5.7 to 5.4 at other papers.
The number of articles about local government at newspapers acquired by private equity firms fell from 5,700 to 2,500 after an acquisition, “a significant negative effect.” For those newspapers not owned by private equity firms, the drop was smaller, from 5,200 to 4,400. They even found that these changes in coverage led to lower voting turnout and a greater percentage of residents having no opinion about their member of Congress.
By contrast, the study showed that family-owned newspapers were more likely to maintain higher levels of local news coverage and reporting staffs. An increasing number of local news organizations, both nonprofit and commercial, have been able to achieve financial sustainability when they don’t have the burden of debt payments or high EBITDA goals required by publicly-traded companies.
The Ewens, Gupta and Howell study did not consider Alden Global Capital to be a private equity firm. Alden has cut reporting staffs more than other companies. So their inclusion could make the numbers even more alarming. Abernathy in 2018 found that newspapers owned by Alden cut staff at roughly twice the rate of the national average.
Another study by Benjamin LeBrun, Kaitlyn Todd and Andrew Piper looked at 130,000 articles at 31 corporate-owned local newspapers. They concluded that “corporate acquisition leads to a significant reduction in the amount of local news disseminated by affected publications.”
In some cases, a central problem is that the mergers were financed with large amounts of debt at a time when newspaper revenues were declining. For instance, the 2019 acquisition of Gannett by Gatehouse, a smaller company, was financed through $1.8 billion in debt financing. The firm now owns 479 newspapers. Since 2019, the company has shed almost half of its staff. During much of that period it was managed by the private equity firm Fortress, and much of its debt is held by the private equity firm Apollo Capital Management. Even if managers are well intentioned, their options are limited. In its 2021 annual 10k filing with the Securities and Exchange Commission, Gannett declared that one of its risk factors was that “we are required to dedicate a substantial portion of cash flow from operations to fund interest payments.”
Of course, these are general tendencies. There are exceptions and nuances. For instance, there may be some instances in which a local newspaper is on the edge of closing and an acquisition by a private equity firm is, in the short term, the only way to keep the newsroom open. The Ewens-Gupta-Howell study found that while newspapers bought by private equity firms were more likely to cut the number of local stories, they were less likely to shut down the newspaper. The McClatchy newspaper chain, now owned by the private equity firm Chatham Capital, has stated that it is maintaining or growing staffing levels. It could well be that the problem is not bigness per se but mergers involving particular types of entities (with particular ROI needs) and/or involving particular types of financing, especially in an economically declining sector..
In some cases, the loss of newspaper reporters might be offset by the growth of robust nonprofit local news organizations. Although this scenario is currently rare, they could become more common over time, and should be considered as part of an analysis of whether a merger would harm a community.
The acquisition of a newspaper by a chain controlled by a financial institution does not make it more likely that a newspaper will have local monopoly status, but it does make it more likely that that newspaper will use its monopoly status in a way that harms the community and reduces the availability of certain types of information — local reporting.
If we look at the newspaper consolidation through the narrow lens of the antitrust interpretations that have guided judicial and legislative action in recent decades there is nothing to be done about these mergers or acquisitions. In most cases, the town goes from having just one newspaper to still having one newspaper. Within a market, there is often not a reduction in the number of news competitors. Nor is there significant evidence that subscription prices rise at private equity-owned newspapers vs. those not owned by private equity firms. In some cases, the community goes from having a monopoly newspaper to no news source at all, a scenario which, ironically, does not tend to trigger antitrust scrutiny because there’s no loss in competition (i.e. there was no competition to be lost).
By traditional antitrust measures, there is no actionable harm.
And yet, as we’ve seen, there is, in fact, significant harm – to residents, to communities, to workers and to democracy.
We do not presume, in this paper, to lay out a fully-baked strategy for how to use antitrust or anti-consolidation policies to save local news. Nor do we have knowledge about how the limitations of antitrust policy affect other sectors of the economy. Our point is simpler: In the case of local news, consolidation is causing massive harm to consumers, workers, communities and democracy. The damage is severe, accelerating and spreading. Yet the most common antitrust approaches offer no policy tools to address the crisis.
Here are some analytical frameworks that would maintain the spirit of traditional antitrust law but adapt to the modern nature of the local media economy:
The harm to residents: Residents have a reduced supply of an important commodity — local reporting and local news. While it is unclear whether consumers pay higher subscription prices, there is abundant evidence that residents are harmed in other ways — in terms of their ability to protect their own physical, economic and psychic well-being. They may not be deprived of product choices, but they are deprived of candidate choices. They may not have fewer newspapers to choose from, but they have less local information to guide their lives. As a result, they are less able to guide their children’s education because they have less information about the quality of their schools and the decisions being made by school boards. They are less able to protect their families, in some cases, because there may be more pollution. They are less likely to have good city services, and more likely to pay higher taxes, because such communities are more likely to have more corruption and waste. They are less able to shape their communities because they have less information about who is running for political office or what the important issues are.
We recognize that these impacts may sometimes be harder to quantify than price changes. But the losses to these “consumers” are often far more serious than those assessed by traditional antitrust analysis. So policy makers bear an obligation to consider these impacts.
The harm to workers: Acquisitions of newspaper companies by financial firms undermine the well-being of workers in a more direct way: eliminating many of their jobs. From 2014 to 2020, the number of newspaper newsroom employees declined 57 percent. While not all of that is attributable to consolidation, there is evidence that mergers accelerated the trend. As Michael Ewens, Arpit Gupta, and Sabrina T. Howell found the number of reporters fell dramatically at newspapers that were acquired by a private equity firm, while it fell slightly at other types of newspapers. The same pattern holds for editors.
Journalists often view job availability in both local and national terms; it’s been a long tradition that reporters will go to other communities if that’s where the jobs are. But with a diminishing number of companies owning the newspapers, those choices are declining.
Harm to communities and “localism”: In the case of broadcast regulation, policy makers have long considered the consequences of mergers (and regulatory actions) on “localism,” which is to say the availability of information services on a local level. “Fostering localism is one of [the Federal Communication] Commission’s core missions and one of three policy goals, along with diversity and competition, which have driven much of our radio and television broadcast regulation during the past 70 years,” wrote Michael Powell, the Republican chairman of the FCC in 2003. Stations were required to maintain a studio in the community and track programming about the community. The FCC saw local control and programming as necessary aspects of a community, a view which was affirmed by the Supreme Court. Congress reasserted the sentiment when it came time to regulate cable television, declaring in the 1992 Cable Act, “A primary objective and benefit of our Nation’s system of regulation of television broadcasting is the local origination of programming. There is a substantial governmental interest in ensuring its continuation.”
Historically, localism has been a vibrant theme in antitrust debates, too. When the 1914 Clayton Antitrust Act was amended in 1950, Congress stressed concerns about the effects of business mergers on local control. One of the lead authors of the 1950 amendments, U.S. Sen. Estes Kefauver, explained that “local independence cannot be preserved in the face of consolidations such as we have had during the past few years. … The control of American business is steadily being transferred … from local communities to a few large cities in which central managers decide the policies and the fate of the far-flung enterprises they control.” In United States v. Aluminum Co. of America, 148 F.2d 416, 429, Justice Learned Hand wrote, “Throughout the history of these statutes, it has been constantly assumed that one of their purposes was to perpetuate and preserve, for its own sake and in spite of possible cost, an organization of industry in small units which can effectively compete with each other.” In United States v. Von’s Grocery Co., the Court quoted one of the prime sponsors of the antitrust amendments of the 1950s, Rep. Emanuel Celler: “Small, independent, decentralized business of the kind that built up our country, of the kind that made our country great, first, is fast disappearing, and second, is being made dependent upon monster concentration.”
Concentration of newspapers tends to harm the interests of local communities even if the mergers do not result in less competition in a single market. In 2021, Alden Global Capital, a hedge fund with a reputation for slashing local newspaper staffs, bid to acquire the Tribune Newspapers company, which owned the Baltimore Sun, the Chicago Tribune, the Orlando Sentinel and other major papers. A businessman, Stewart Bainum, organized a counteroffer that would have involved local buyers taking over the Sun, Sentinel and Tribune and the other papers. The newsrooms would have ended up with local ownership, in most cases led by nonprofit groups committed to greater investment in local journalism. But Alden outbid the philanthropic group, and refused to sell the papers themselves to the buying groups. And without any scrutiny from the Justice Department on antitrust grounds, Alden had no pressure to negotiate in good faith with those that wanted to keep the papers in local hands. Alden was in a position to set unreasonable sale prices for the local papers.
Antitrust enforcers could apply the same standards previously considered for local TV and radio to other types of information provision. Mergers could be assessed as to whether they are likely to increase or decrease the values of localism, including the origination of local reporting.
Diminution of media diversity: Federal Trade Commission Chair Lena Khan has written that the consumer welfare standard “disregards the host of other ways that excessive concentration can harm us,” including “undermining media diversity.” Indeed, in the past the Justice Department has attempted to block newspaper mergers that might lead to a reduction in media “voices.” The Federal Communications Commission has also blocked mergers that would reduce “viewpoint diversity.”
Many conservatives share the concern about consolidation, albeit for different reasons. Former Attorney General William T. Barr told the National Religious Broadcasters:
In 19th-century America, the press was so fragmented that the power of any one organ was small. The multiplicity of newspapers, even in one city, cultivated a wide variety of views and localized opinion. Tocqueville contrasted this to the situation he saw in Europe, where news outlets were consolidated in major urban centers, such that a few voices were capable of influencing the opinions of the entire country….The key to restoring the press in that vital role is to cultivate a greater diversity of voices in the media.
Media diversity is usually considered in terms of the number of news outlets. But the current environment prompts us to consider a different type of diversity — the need for residents to have access to both national and local reporting and information. Only having access to national journalism is as consequential a constraint as a paucity of outlets. Residents have fewer tools for important life choices, whether it is where to send their child to school or for whom to vote in local elections. Studies have also determined that a shift of media diet from local to national tends to harm communities by increasing polarization. Media diversity assessments must now consider localism.
Another type of media diversity that should be considered is whether a merger is likely to mean fewer media entities owned by historically marginalized groups. Study of mergers between TV station mergers between 1999 and 2006 found that the relaxation of consolidation rules led to a 27 percent drop in TV stations owned by “minorities.”
The harm to democracy: All of the above-mentioned impacts lead to less well informed communities, lower civic participation, more polarization, and less ability for citizens to hold elected officials and other powerful stakeholders accountable.
There is now ample evidence that newspaper consolidation — especially transactions involving private equity or hedge funds — has often caused additional harm to communities, workers and residents. Indeed, they have sapped the health of democracy.
We must vanquish the sense of inevitability that a healthy local news environment is simply something we cannot have. We must create a reasonable, First Amendment-friendly public policy strategy for blocking or restricting mergers that are self-evidently bad for communities.
The remedies need not be limited to a binary rejection or acceptance of mergers. In the case of acquisition by hedge funds, the best step may be for the government to force a pause that would allow for the formulation of bid offers from local community groups or businesses. Mergers may be assessed not only in isolation but compared to other alternative acquisitions, such as a buyer’s group organized by a place-based foundation. The parties in a merger could be required to make a good faith effort to find a buyer that would do less harm (or more good) for localism, the community or the employees. What’s more, the damage of mergers seems to relate at least in part to the levels of debt that were incurred to finance the consolidation. So efforts to predict whether particular mergers would hurt consumers, communities or democracy may need to consider not merely size, but debt levels incurred by the transaction.
At a minimum, the local news economy would benefit from the Department of Justice or Federal Trade Commission conducting a “line of business” study that would analyze the effects of mergers on local community information. Laws directly addressing the unique incentive structures of private equity firms could play a major role. Some elements of the Stop Wall Street Looting Act of 2021 could help.
Of course, curbing consolidation is only one piece of a broad strategy to help rebuild local news. We need improvements in business models, better engagement with communities, a greater role for philanthropy, and public policies that help facilitate sustainability. For instance, the Local Journalism Sustainability Act would provide payroll tax credits to encourage the hiring and retention of local reporters, plus tax credits for small businesses to buy advertising in local news organizations and a tax credit for consumers to subscribe or donate to local news publications. A wiser, more assertive antitrust policy should be coupled with legislation that would provide financial incentives for local organizations – including community foundations and other 501c3 groups – to acquire newspapers from chains. As suggested in the Rebuild Local News Coalition’s “Replanting Agenda,” the government could waive capital gains taxes for chains that sell newspapers to nonprofits, and offer special refundable payroll tax credits for those organizations that acquire newspapers.
We applaud the FTC and the Department of Justice for analyzing the standards for antitrust enforcement. We humbly offer the case of local news as proof that the current set of policy tools are not adequate to address at least one type of consolidation that causes severe harms to American residents and communities.