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MILSTEAD: Denver Post also negotiating a rocky road

By David Milstead, Rocky Mountain News (Contact)

Published January 21, 2009 at 12:05 a.m.

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The ticker outside the Denver Newspaper Agency building at Broadway and Colfax Avenue announces Dec. 4 that the Rocky is for sale.

Photo by Dennis Schroeder / The Rocky

The ticker outside the Denver Newspaper Agency building at Broadway and Colfax Avenue announces Dec. 4 that the Rocky is for sale.

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Most of Denver, it seems, has a specific scenario in mind for the fate of the Rocky Mountain News: Once E.W. Scripps announced Dec. 4 it would try to sell the paper, the Rocky would fold as soon as possible.

Make no mistake, the imminent demise of the Rocky is the likely scenario. Yet there still are plenty of questions about what's happening now, and what will happen next.

Answers are not forthcoming from any of the parties. Cincinnati-based Scripps is offering little comment, and MediaNews, the owner of The Denver Post, has grown silent. The Denver Newspaper Agency remains unwilling to discuss its challenges.

We do know this: MediaNews CEO Dean Singleton has asked unions representing workers at The Post and the agency to reopen their contracts so they can grant cost-saving concessions. The reason cited by Singleton, the Rocky has reported, is a need to renegotiate the agency's bank loan of roughly $130 million, used to update and consolidate the newspapers' production operations.

At first blush, it seemed odd: The agency has a favorable interest rate and need not repay the balance of the loan until October 2010. Why renegotiate?

The answer may come in the agency's performance. Scripps said in December it had received only $5 million in profit distributions from the agency all year - well short of the $20 million-plus needed to make payroll for the Rocky newsroom.

Most commercial lenders require their borrowers to maintain a certain level of earnings in relation to their debt. If the agency couldn't distribute enough profits in 2008 to cover the Rocky's newsroom costs, it seems likely to have broken the earnings promise it made to its lenders.

The agency may not have reached the point where it agrees that it's formally noncompliant. Even so, the bankers may have stepped in and reached the subjective conclusion that deterioration in the Denver newspaper business required the loan renegotiation. (Representatives of the Denver Newspaper Guild told its members Monday night that the agency told union leaders the banks have declared a violation of the loan terms. The agency, according to the union, denies it.)

It's important to note that the agency's debt is "non-recourse" to Scripps and Media- News, meaning the banks can't pursue the two companies' assets if the loan goes bad.

However, a violation by the agency may have an impact on other credit agreements at Scripps and the highly leveraged Media- News. Commercial lenders often have corporations sign "cross-default" agreements in which they agree that if a subsidiary or joint venture goes into default, it sends their other loans into default as well.

This leads to the key question: What will benefit Scripps more? Helping MediaNews craft a plan for a one-newspaper Denver by quickly agreeing to shut the Rocky? Or letting the bankers' pressure on the agency, and by extension, MediaNews, increase?

All this assumes Scripps will find no buyer for the Rocky - probable, but not certain.

Understand that no one will have to pay anything for the paper. In the current setup, with the Rocky and The Post splitting agency profits before paying for their newsrooms, both papers are now losing millions of dollars a year. As part of their joint operating agreement, both papers are worse than worthless, since there's negative value to an unending stream of future losses.

Any winning "bidder" will be the one who takes on the most obligations from Scripps, including some portion of the agency debt and a piece of the unfunded agency pension liability.

Are there bidders? Scripps let the Jan. 16 deadline pass without comment. It wouldn't be surprising if the economics deterred anyone from submitting a formal offer. On the other hand, Scripps says it sent out information to several parties willing to kick the tires. One or more may see value in the Rocky brand and try to come up with a plan for a vastly different business model, one that likely doesn't include a 50-50 partnership with Singleton and MediaNews.

Or, an interested party may skip the Scripps bidding process and start talking to the agency's lenders about the best way to get value out of the bad loan and the Denver newspaper business.

The additional complication is language in the original JOA between The Post and the Rocky that gives MediaNews a right of first refusal on the sale of the Rocky. Singleton made clear on Dec. 4 that MediaNews, if necessary, would acquire and close the Rocky.

(What does the federal Justice Department, which blessed the two papers' JOA in 2000, think about that? Hard to say, but the federal JOA law hasn't kept papers from folding even when they were still profitable. Who will argue that the feds will force millions of losses on the Denver owners in the name of preserving the competing editorial voices?)

Financially, MediaNews is not operating from a position of strength. It has already renegotiated its loans twice in this downturn, selling off assets and accepting higher interest rates to keep the bankers at bay.

That's why many employees of the Rocky shrugged off the "failing newspaper" label it used to achieve its 2001 JOA and hoped Scripps would outlast MediaNews, stepping in as the winner in Denver.

It has increasingly become clear, however, that Scripps not only sees no value in operating one of two newspapers in Denver, it sees little or no value in operating the only newspaper in Denver. The "prize" isn't worth one more quarter of losses in Scripps' eyes.

Singleton believes most of the industry's current revenue problems are cyclical, and most of that revenue will return. He has to hope so: At current Denver newspaper revenue levels, there isn't enough money to support one newsroom. The two papers will have lost more than $30 million in 2008, and eliminating the Rocky newsroom only saves $22 million. If revenue declines continue in 2009, the situation gets worse.

Perhaps The Post can hang on to a significant number of Rocky subscribers if the paper closes, revenue will improve, and MediaNews will have more than a pyrrhic victory.

I don't think so. I will make two predictions, which may be my last in this column. One is that 18 months after the Rocky closes, The Post will have retained very few of the Rocky's subscribers, loyal to the tabloid format.

And two: Once we stop speculating when Denver will become a one-newspaper town, we will begin to ask when the Post will close as well.

David Milstead and James Paton take turns writing Up and Down 17th Street.

Comments

  • January 21, 2009

    4:18 a.m.

    Suggest removal

    bgamboa writes:

    One newspaper town? You're forgetting the Denver Daily News! Laugh all you want (you're arrogant journalists, so of course you're laughing), but the Daily News makes money and has loyal readers. I guess it's beneath you to admit that a free daily newspaper is more likely to survive than your own newspaper. Good luck on the unemployment line.

  • January 21, 2009

    6:26 a.m.

    Suggest removal

    LOUIE writes:

    BGAMBOA, I am not laughing as a reader, I'm crying. We advertise a 3/4 page daily in the Denver Daily News. but it is a far cry from the Rocky pal. If the parakeet poop soaks through the Denver Daily News because it's a little thin, what good is it? No, the Denver Daily is a great "little" free paper for sure, but it's nowhere near the calibre of the Rocky or even the Post which I never have read.

  • January 21, 2009

    8:03 a.m.

    Suggest removal

    4shortofa100 writes:

    It's sad, but instructive, that all of these goblins crawling out from the woodwork have their own, real-and-true reasons the Rocky is failing: not conservative enough! Too conservative! Didn't pay more attention to my pet conspiracy theory (see above, and whoever you are, take your meds)!

    It's called loss of revenue from classified advertising. The internet. Craigslist. Not "you ignored ___."

    But hey, go ahead and sit there feeling somehow happy about this--says a lot more about you, I'm afraid.

    Also, anyone who thinks the Denver Daily News--which is nothing but wire stories (you know, from those big arrogant journalistic organizations like Reuters and AP) tacked over pitches to buy from its advertisers, and not even a Colorado company--is a "real newspaper" has probably recently suffered a head injury. Do you think the same thing about Tidbits? The Thrifty Nickel?

  • January 21, 2009

    8:25 a.m.

    Suggest removal

    LaszloPanaflex writes:

    The papers make most of their revenue through advertisements, especially the large packets of coupons in the Sunday and Wednesday editions. Why are those coupons not made available on-line to print out? That revenue source appears to be lost once readers go on-line, but why? The papers could still get advertising revenue, on-line readers would have access to the coupons that are now only in the print edition, and advertisers would have a way to reach those who only read on-line. Coupons are the reason I occasionally get a hard copy; why is that revenue source abandoned on-line?

  • January 21, 2009

    8:57 a.m.

    Suggest removal

    TheDenverB writes:

    CRTF,

    why do you bring up columbine in EVERY SINGLE POST YOU MAKE ON THIS WEBSITE???

    you come off as a complete NUT JOB who is obsessed with getting and spreading MISINFORMATION about the tragedy.

    really, seek out some professional help.

  • January 21, 2009

    9 a.m.

    Suggest removal

    Dub writes:

    If I understand correctly, the Rocky wants the UNIONS to help absorb some of the pain of falling revenues? There is no way in Hades that the union will give an inch. They will scream and moan about "Robber Barons" and ignore current market conditions. As long as they have theirs, the devil take the hindmost. It couldn't be that the unions had a disproportionate share of the blame for the dire straits the Rocky finds itself in, now could it? By the way aren't there 6 unions at the Rocky? There must be at least one union in charge of unions. Just saying.

  • January 21, 2009

    9:02 a.m.

    Suggest removal

    TheDenverB writes:

    that national geographic 'report' you ALWAYS point to has been proven again and again to be a sloppy and inacurrate representation.

    i have even pointed you to places that prove that, including commentary from Columbine parents who said that was a piece of trash.

    so, yes... this is you PET CONSPIRACY THEORY that you need to realize is completely off-base.

    REGARDLESS, however, you have still failed to answer a question i have posed numerous times: EVEN IF your (completely false) conspiracy theory is correct... how would it change anything? would police brutality justify the killings in your mind??? do you REALLY think that it was just ONE thing that led these kids to pull this horrible stunt?

    really, you have CLEARLY not thought out ANY of this and simply spout out things you learned by google searching what you wanted to hear.

  • January 21, 2009

    9:19 a.m.

    Suggest removal

    timeandagain writes:

    Death to unions!! They have destroyed this country!!

  • January 21, 2009

    9:20 a.m.

    Suggest removal

    primafacie writes:

    A "coverup" of Columbine? OK, since you missed it: Two disturbed kids killed a bunch of people. There, it's uncovered.

    Is this mysterious coverup the same reason the New York Times is having cash trouble? The reason that either the Chicago Tribune and Chicago Sun-Times will likely shrivel away? The reason the Cincinnati Post and the Houston Post are already gone? The reason the little daily in my California hometown is no longer a daily?

    Nope, it's all advertising revenue, specifically from classified advertising. There's ... uh, there WAS a ton of money in used-car and help-wanted ads. Display ad rates are determined by readership, which is declining in papers of all stripes -- liberal, conservative, Inquirer. And operating costs are up, especially printing. The cost of paper itself has really spiked the last few years, and the debt load of the News and the Post in particular because of their new printing plant and building has coincided with a down economy.

    This applies to every paper in the country. It's just not a simple situation.

  • January 21, 2009

    10:49 a.m.

    Suggest removal

    SlouchingTowardBoulder writes:

    Why, oh why was it seen to be a good idea to move the Post from across the street and the News from down the street into that super-expensive new building? What a huge error in judgement was that.

  • January 21, 2009

    11:19 a.m.

    Suggest removal

    prk166 writes:

    The real question here isn't if Denver will be a one major newspaper town but if it'll be a no major newspaper town.

  • January 21, 2009

    12:02 p.m.

    Suggest removal

    Romanesco writes:

    The parent company of the Denver Post is "MediaNews Group", not simply "MediaNews". Get your facts straight.

    Couldn't agree with you more, Slouching. The inside is horribly extravagant, and is a waste.

  • January 21, 2009

    12:20 p.m.

    Suggest removal

    jeffdragon writes:

    Wasn't it yesterday the guild leader of the RMN said in Westword how proud she was of her paper's coverage of this whole story, and how it stayed away from potentially hurtful speculation and gossip about the other paper?
    Guess that went out the window with this sour-grapes column.

  • January 21, 2009

    1:21 p.m.

    Suggest removal

    jerseycorn writes:

    God bless unions -- the reason we have weekends, vacation time, sick days, health care, higher salaries, a middle class. . . sad how people are so willing to put the noose around their own neck. The thought of the Rocky shutting down is also pretty damn sad -- I hope something works out. They have done some good reporting over the past year or so -- unlike Singleton's Post.

  • January 21, 2009

    1:25 p.m.

    Suggest removal

    jime writes:

    Great catch, Romanesco. You must be an investigative reporter.

  • January 21, 2009

    5:55 p.m.

    Suggest removal

    ObviousOne writes:

    So the average pay in the newsroom is $100,000? That might explain something.

  • January 22, 2009

    8:50 a.m.

    Suggest removal

    kam writes:

    Given the columnist's lack of clairvoyance in his prediction last July that it would be the Post -- not the Rocky -- folding, it's easy to dismiss his latest musings.

  • February 28, 2009

    2:03 a.m.

    Suggest removal

    Proudmale writes:

    I truly hope that the Post goes under sometime in the very near future, only after Mr. Singleton has spent another $100 million or so in the local economy. The Post has a liberal bias and I see no benefit to having a one paper town if that paper has a strong liberal bias.

    I grew up in the 50s and the old saying was "Better dead than Red". Well, the Post is not that far left -- yet. But where will they go when they do not have a voice of reason pulling them back into the center?

    I say let them go under and then we can move on to the next evolution of local news coverage. I would be willing to pop something like $5 per month for local coverage. The paper and distribution costs would no longer exist so this might be the real wave of the future.

    In the meantime, do not fall into the trap of saying at least we still have the Post. Get rid of it NOW. I did my share by cancelling my subscription. If Singleton gets far below the 80% retention rate he as promised the banks he will be in big trouble. Cancel now!!!