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When Media General woke up

Michael Schwartz May 29, 2012 20
The Media General headquarters.

The Media General headquarters.

The deal to sell Richmond’s main newspaper took shape quickly.

Media General, The Times-Dispatch’s parent company, needed two things: to sell its newspapers and to refinance hundreds of millions of dollars in debt with a looming due date.

Marshall Morton, who has been at the helm of the Richmond-based media company since 2005, never dreamed that one company would meet both needs.

But then along came a nibble out of Omaha.

“Here comes Buffett, who doesn’t need to worry about whether the bankers like it or not,” Morton said.

Marshall Morton

Marshall Morton
(Courtesy of Media General)

Media General put forth a proposal on a Thursday, and Berkshire Hathaway, Warren Buffett’s investment company, came back with questions and terms of its own by the following Monday.

A few days later, Morton and the top brass at Media General were in business with Buffett.

Morton sat down with Richmond BizSense last week at his office on the top floor of Media General’s downtown headquarters to discuss how the deal came to be, how the company got in trouble in the first place and what he’s learned as a leader.

As part of the deal, which is set to close at the end of June, Berkshire Hathaway’s BH Media Group will purchase almost all of Media General’s newspapers, including the Richmond Times-Dispatch, for $142 million in cash.

The larger side of the deal includes $445 million in loans and credit lines that give Media General better terms on its debt than it could find elsewhere. In addition to taking the newspaper, Buffett’s company also grabbed a 20 percent ownership stake in what’s left of Media General.

It’s a deal that made national headlines for giving newspapers a shot in the arm. It also bailed out Media General after years of big losses, declining newspaper revenue and a seeming inability to solve its print vs. online conundrum.

When Media General began to seriously consider selling its newspapers, it put the word out through investment bank JPMorgan.

“The decision was something that had been percolating for several months,” Morton said.

Interest came from all over.

There were private equity firms that Morton said “perhaps saw themselves as the middleman for quick flips.”

Large media companies kicked the tires, as did area residents who wanted to keep the Times-Dispatch locally owned.

“They were the emotional players — local hometown men and women or families that have a lot of dollars,” Morton said.

Even Media General Chairman J. Stewart Bryan’s family roots at the paper weren’t enough to keep it out of the Berkshire deal.

“It was a very difficult decision,” Morton said. But keeping the Times-Dispatch in the fold for nostalgia’s sake wasn’t an option.

“It was never entertained,” Morton said. “It had to be an all-or-nothing kind of approach.”

In the end, Media General was guided by its status as a publicly traded company. That means shareholders, investment banks, bond companies and credit rating agencies all come before hometown loyalty.

Many of the company’s newspapers have managed to stay profitable via reductions in staffs and printed pages.

But those cuts couldn’t maintain the kinds of profit margins that shareholders had grown to love in the heyday of the newspaper business.

“As a public company, you have to go after the best opportunity for shareholders,” Morton said. “The best opportunity lay in the digital/broadcast side.”

For Buffett and Berkshire, the smaller margins are acceptable because they are part of a huge pool of investments.

“He’s spread his risk over a lot of things,” Morton said.

Although the bulk of its cash flow — 87 percent in the first quarter — comes from its TV stations, owning newspapers put Media General at a disadvantage when it came time to renegotiate its huge debt load.

That blindsided Media General, Morton said.

“The banks who had lent us the money no longer wanted to lend to media companies,” Morton said. “They just don’t have confidence in newspapers. You can talk until you’re blue in the face about the value of newspapers in communities, but if you can’t get capital …”

Beyond the debt, Media General faced a double whammy: a revenue-killing recession and the “free news” reality of the Internet.

Publishing revenues are down about 50 percent over the past five years, Morton said, but much of the costs — printing presses, delivery drivers, etc. — have held steady.

“There was nowhere to hide from these revenue declines,” Morton said.

“Over the past five years, our first thought was that this was heavily due to the recession and, like many other recessions in the past, that this was a cycle. You tighten your belt, freeze hiring and even drop the number of people.

“So we went through a couple years thinking that was the way to handle it. But it kept going.”

It wasn’t until the second quarter of 2011, Morton says, “that we realized the world had changed.”

Born in Chicago and raised in Charlottesville, Morton came to Richmond in 1989 to work for Media General after leaving a textile company in Georgia.

A UVA grad, Morton was a number cruncher, not a newspaper man. Stewart Bryan, now the company’s chairman, was on the verge of becoming chief executive at the time. Morton was hired as CFO.

“I was looking for a job at the same time Media General was looking for a finance guy,” he said.

He took over as CEO in 2005.

“Obviously, I’ve learned on the run about the media side,” he said.

When asked whether he blames himself for company’s losses or for not better balancing print and online products, Morton said: “Of course you question whether there were things you could have done otherwise. You don’t try to sidestep the responsibility.”

Morton said he is well aware of the criticism that has been aimed at him over the past few years. That includes finance bloggers who said Morton’s compensation was far too generous given the company’s performance.

“I’m not going to dispute that we got in trouble,” he said. “But there have been some bloggers who never talked to us or tried to explore issues. They are drawing conclusions from a 50,000-foot analysis. It’s fun to take potshots at people’s decisions.”

Morton said he’s also learned some lessons.

“I learned how to distinguish between a cycle and a trend,” he said, referring to the difference between a recession and the Internet’s effect on newspaper revenue.

“I failed to appreciate what we thought was a cycle but clearly was a trend.”

The lingering problem facing big newspaper companies is perhaps best expressed through Morton’s thoughts on the future of print.

Print, he said, is on its way out.

“They know they are the odd guy out,” he said of people holding on to the print version of newspapers. “The tactile aspect is just a habit.”

But he’s among them, he said.

“I’ll keep getting the paper as long as I can.”

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20 Comments »

  1. Mighty Casey May 29, 2012 at 7:15 am - Reply

    Morton is an example of the dinosaur mentality that is the root cause of the collapse of newspapers in the 21st century – thinking that the revenue downturn was due to the recession? Newspaper revenue has been in decline since the millennium turned. The TD lagged far behind other small-to-mid-sized metro dailies in truly embracing digital, and they still do an only-OK job there.

    I for one am dying to see how BH Media makes a pay-wall work. I’m rooting for them, but they’ll have to have a heck of a product for me to be willing to actually fork over $$. Will it be as good as the NYT?

    Stay tuned …

  2. Jen DeSantis May 29, 2012 at 7:16 am - Reply

    i worked for mg/rtd for a handful of years and it’s a wonderful company with a strong sense of community. they struggle daily to provide the best news they can to the capital region. folks who live in richmond and the surrounding areas who don’t get the rtd delivered should rethink their decision. it cost less than a cup of coffee these days. the newspaper is an iconic part of american history, and we should fight to keep it alive.

    • Ryan May 31, 2012 at 5:39 am - Reply

      Jen, me reading this comment on this story, online is the reason that the paper is not sustainable. You don’t keep things on life support for nostalgic reasons in a profit based world.

      Goodbye newspapers and welcome a much more fluid, better form of text based news. You are staring at it right now on your computer, phone and tablet.

  3. Brian Glass May 29, 2012 at 8:23 am - Reply

    I now get the RTD online 6 days a week and the print copy on Sunday, so that I don’t miss the advertising inserts.

    It means that 6 days a week I can read the RTD anywhere, and the on-line delivery is almost flawless in its delivery.

    A awful lot of trees could be saved if more people read the RTD online.
    .

  4. Dave May 29, 2012 at 9:01 am - Reply

    With all due respect, Jen, the manual typewriter was also “an iconic part of american history.” Should we have fought to keep that alive too?

    The daily print newspaper needs to differentiate itself and provide something of value that the online-based competition cannot.

  5. Cindy May 29, 2012 at 9:25 am - Reply

    I think the bigger issue here isn’t print vs. electronic media but one large company buying and controlling the media. While hometown papers might be “an iconic part of American history,” I would say the real reason they are worth preserving is because of their importance in and to a community and journalism overall. With a diversity of smaller businesses owning these news outlets, the opportunity for different view points and unbiased reporting is far greater than with one entity owning the media.

  6. neil g May 29, 2012 at 10:27 am - Reply

    If I was Mr. Buffett and read the last line from Mr. Morton ” print is on its way out” I would shove the deal you know where ” No wonder with that kind of mentality under his leadership RTD and others didn’t do well. I hope no one buys his Florida papers because in his opinion it has no value.He is also telling advertisers to not to advertise in he newspaper any more.. How stupid can you get

    • Bill Doak May 29, 2012 at 4:04 pm - Reply

      Right on! The daily newspaper is on its way out because it clings firmly to the fact that it needs to print once each day. The value is still there, as another reader observed who gets the Sunday paper and relies on the website the other 6 days of the week. That is precisely what I do with my subscription to the NYT. The daily newspaper needs to devolve into a weekly. People want up-to-the minute news, and a weekly model will also retain loyal readers, such as Mr. Morton who still wants his palpable print product. Daily newspapers have concentrated on downsizing in the wrong areas – staff and page count. Ever since the Industrial Revolution, journalists are hard-wired to believe you must print every day to be an authoritative newspaper. If you say that isn’t true you redefine the model for success.

  7. Mark May 29, 2012 at 10:49 am - Reply

    Cindy’s remarks are spot-on. The type of journalism that newspapers produce is above blog level and covers issues that matter. Most websites aren’t profitable, and the trend that new media wonks need to be concerned about are shrinking ad dollars and depressed online CPMs. No the typewriter shouldn’t have been preserved because it was taken over by something improved. I’m not sure new media rules for journalism are an improvement.

  8. Tom Davidson May 29, 2012 at 11:28 am - Reply

    Anyone else note the irony here? The most-incisive (and jaw-dropping) quotes about MEG’s sale are published by an enterprising, decidedly non-print local biz-news website … started by a reporter the RTD wouldn’t/couldn’t hire in its halcyon days.

  9. Brian May 29, 2012 at 11:40 am - Reply

    They RTD’s on line subscription management system is horrendous. We totally dropped our subscripition to the RTD after weeks of frustration. If they can improve it, more power to them!!

  10. Mark McD May 29, 2012 at 12:57 pm - Reply

    “But those cuts couldn’t maintain the kinds of profit margins that shareholders had grown to love in the heyday of the newspaper business.”

    MG is destitute and faces a deadline to pay off a substantial portion of its $600 million debt with little-to-no positive cash flow. The person in charge of running up that $600 million debt — the president and CEO since 2005 — is Marshall Morton.

    Somehow, even at this late date of the Media General nosedive, Mr. Morton claimed $1,438,540 of compensation for 2011 (down from $1,986,713 in 2010). As an exercise in stretching one’s imagination, try to visualize what Mr. Morton would have been paid were he not running the business into the ground! And yet Mr. Morton in this article almost admits: “I don’t know what I’m doing.”

    I’m not analyzing from 50,000 feet: I’m one of the thousands who lost their jobs because of the executives at Media General. Perhaps some of our voices might be included in this article. Or another one.

  11. CLP May 29, 2012 at 2:18 pm - Reply

    I have watched MG (from inside and outside) deny the trends even in the face of history and facts. Marshall Morton should take some of the blame but Stewart Bryan is the real culprit. He hired Marshall and endorsed this attitude.

  12. Former MG May 29, 2012 at 3:19 pm - Reply

    If you are familiar with Media General, then you understand the issue. If you sit at the top and believe that you have all the answers while refusing to listen to anyone who actually works in the media that you are attempting to run, then you will see the warning signs as threats and ignore them. I’m sure BH Media Group will dump the entire corporate team from Media General because they are merely Bottom Feeders wearing Bow Ties. they have no chance of running a company, except into the ground!

  13. m6string May 29, 2012 at 4:36 pm - Reply

    The only surprise here is that MG got lucky enough to receive a hail Mary bailout from BH. Blame can be put on Stewart Bryan and Marshall Morton because the culture of that company was cast as a media company run by accountants. Every decision was made with two things in mind: 1) what the CFO would think, 2) what their Wall Street analysts would think. In my experience working with the company, savvy media veterans with circulation, advertising and news expertise would come to work for that company and be gone in less than two years because newspaper savvy professionals couldn’t thrive in that environment. Marshall Morton expresses regret because he ran that company into the ground. Even he sees that.

    • Jeremy Kirkland May 31, 2012 at 9:27 am - Reply

      I sat in a room with the CEO and CFO in 2006 as part of an investment tour by buy-side equities analysts. The writing was on the wall then and when directly confronted with the question of why they failed to adjust any/all their strategies, especially print and digital, they doggedly reiterated a business as usual mentality. They weren’t making anyone on Wall Street happy, they were just clueless.

  14. GoodGothGirl May 30, 2012 at 10:25 am - Reply

    Here’s a question that no one else has asked: Who owns the websites for these newspapers? Even when MediaGeneral owned the print products, the websites were separately managed by corporate. The people who run the websites are MediaGeneral employees – they have never been the employees of the newspapers they put online. So did BH take on the print products only, and will they have to pay MediaGeneral to run the websites? If so, then MG was clearly the winner in this deal.

    • Ryan May 31, 2012 at 5:43 am - Reply

      yes, they receive the online rights and this is the only piece of value they knew they were getting. Outside of a couple of markets expect the printed versions to die. The online versions will be licensed into larger nationals and take their place in the future of media.

  15. Lynn Robins May 31, 2012 at 10:21 am - Reply

    Will Mr. Marshall get his pay cut since he now only over sees the TV stations?

  16. Jan Cook August 3, 2012 at 10:40 am - Reply

    As a long time MG employee, I sat in meetings back in 2007 where the question was asked, “who are our competitors”. The answers were simplistic – local community rags, small time radio, etc. When I said we were losing out to Googe News, Yahoo and the like, I got blank looks.

    The leadership team only been able to manage the decline of this enterprise, rather than try to innovate or face the new paradigm. Oddly, many international newspapers in Africa, the Far East and South America are growing. It’s a global world, and local news has to embrace that.

    So long Marshall, enjoy your bonus money and have fun with the grand kids.

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