Mar 2
2023
The latest Buffalo News woes
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by Jim Heaney, editor of Investigative Post
Lee Enterprises, the parent company of The Buffalo News, has filed its overdue annual financial report with the Securities and Exchange Commission. Its failure to meet a filing deadline, due to what Lee said was its failure to “maintain effective internal control over financial reporting,” prompted a threat in December from the Nasdaq Stock Market to delist the company. That would mean no more stock sales for the publicly traded company.
So it’s good news that Lee has finally complied. There’s not a lot of good news in its 10-K report, however, certainly not enough to allay fears about what’s happening at The News, the second-largest paper in the 77-newspaper chain.
That’s not the only development of note on The News front this week. The sale of its office building at Washington and Scott streets, which would have fetched Lee $9 million, fell through, and unions who represent journalists and other employees at a dozen of its papers called out the company for what they consider its counterproductive, cost-cutting ways.
More about those developments after I detail what I culled from Lee’s new filing with the SEC, for the fiscal year ending Sept. 30, 2022.
Lee’s revenues fell by 1.7 percent, to $781 million, while expenses grew by 2.3 percent, to $762 million. When you factor in taxes and non-operating expenses, the company’s net revenue, i.e. profits, dropped from $24.8 million in 2021 to $97,000 last year.
The reasons are many, including the time, energy and money Lee expended last year to fend off a hostile takeover attempt by Alden Global Capital.
“Alden’s unsolicited proposal to acquire us diverted management’s attention and resources, caused us to incur substantial costs, and such actions have an adverse effect on our business,” Lee stated in its 10-K report.
Alden gave up its pursuit last year after losing a court case and apparently deciding Lee was no longer an attractive buy.
On the bright side, growth in Lee’s digital subscriptions was substantial, up 32 percent, resulting in a revenue increase of $11.9 million. That was more than offset, however, by a drop in print subscription revenue of $16 million.
The report doesn’t provide details on individual papers, aside from circulation numbers and website traffic. The numbers for The News are a mixed bag, as the chart below shows.
In short, print circulation continues to tumble while website traffic has steadily grown. The web numbers are especially encouraging when you consider traffic to news sites has fallen across the industry since Donald Trump left office.
The problem: You can start a digital subscription to The News for $1 for six months, and the maximum price is $240. Home delivery of the print edition will cost you $1,300 unless you can wrangle a deal. In short, digital may be the future, but it’s not paying the bills at the present. Print dollars and digital dimes, as they say.
The challenge for The News, and every other newspaper, is to grow its digital revenue, both subscriptions and advertising, to the point where it can sustain its newsroom and other key operations such as sales. It’s basically a race against time, as newspapers can only cut so much before, well, they’re not really newspapers anymore. Some papers are bordering on that already.
I found the section of the 10-K report on executive compensation to be of interest, and I think Lee employees will find it infuriating.
- Kevin Mowbray, president and chief executive officer, didn’t get a raise off his $900,000 annual salary. But his other compensation, primarily stock options and a cash performance bonus, boosted his earnings from $2,174,612 in 2021 to $2,331,835 last year.
- Timothy Millage, the vice president, treasurer and chief financial officer, received both a raise and a boost in other compensation, raising his earnings from $789,728 to $1,051,336.
- Nathan E. Bekke, the vice president of operations and audience strategy, also received both a raise and increase in other compensation. His earnings grew from $692,054 to $1,117,618.
In addition, the eight non-employees who sit on Lee’s board of directors received compensation ranging from $124,516 to $430,000.
This, for a crew that is running a break-even operation whose stock price has fallen by more than half. Oh, and is asking rank and file employees to make financial sacrifices for the good of the company.
Deal off for sale of News building
In another development, the deal to sell the now-abandoned News building at the corner of Washington and Scott streets has fallen through. Uniland, the would-be purchaser, backed out of the deal, saying the downtown office market is too soft to justify the purchase and redevelopment of the five-story building.
“Unfortunately, the market demand for large, downtown office space remains soft,” Uniland said in a statement. “To add another 150,000 square feet in capacity does not make sense at this time.”
Jonathan Epstein has a detailed story in The News on the aborted deal.
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Unliand’s decision to walk away from the deal reflects the state of the downtown office market. There’s 2 million square feet of vacant office space — that’s a vacancy rate of 21 percent — and veteran broker Jim Militello tells me things are likely to get worse in the years ahead.
The reasons are many, not the least of which is remote work. Employers are learning they don’t need as much office space as they used to and are leasing less square footage when their leases come up for renewal. They’re also able to drive a hard bargain on rent rates.
“I think there’s going to be a big adjustment in the office market,” said Militello, president of J.R. Militello Realty. “It doesn’t look good for the office environment.”
That said, can you blame Uniland for backing out?
And, as The News reported, the deal Doug Jemal cut to acquire the HSBC Atrium across Scott Street appeared to help sink the deal. Jemal paid $30 a square foot; The News building was going to cost Uniland nearly $57 a square foot.
Lee Enterprises is out the $9 million the sale would have fetched. It will now attempt to market not only the building, but the adjoining structure that houses its print and distribution operation, which is going to be outsourced to Cleveland in October. There’s also a parking lot, which might be the most valuable piece of real estate in the package.
You’d think the building’s proximity to Canalside and related development — some of it heavily subsidized by taxpayers — would make it an attractive buy, but I guess not.
Unions call out Lee
On another front, the unions at a dozen newspapers owned by Lee Enterprises, issued a sternly worded communique Wednesday challenging the company’s cost-cutting.
The unions, which include the Buffalo Newspaper Guild, called on Lee “to stop taking resources from its newspapers, which is costing jobs, weakening communities and harming the company’s ability to become a sustainable digital operation.”
Zeroing in on The Buffalo News, the statement went on to say: “Lee just announced plans to get rid of 160 Buffalo News employees, outsource printing to Cleveland and demanded $1 million in cost reductions to the Buffalo newsroom, which spent the last nine months covering tragic news that made national headlines.”
Jon Harris, president of the Buffalo local, said some Lee newspapers have been hit even harder than The News. The World-Herald, in Warren Buffett’s hometown of Omaha, Nebraska, has lost a quarter of its newsroom staff.
One month ago @LeeEntNews gutted our newsroom with layoffs & buyouts in an unprecedented cut of 25% the guild. We're still hurting & struggling to re-organize after these losses, but we're still fighting to bring Nebraskans the news coverage they expect & deserve from @OWHnews pic.twitter.com/bwhWnomdkO
— Omaha World-Herald Guild (@owhguild) February 27, 2023
The communique is an unusual step; I can’t recall unions collectively calling out chain ownership in the past, although some individual units have done so. It’s a sign of how frustrated journalists have become with the relentless cost-cutting at their newspapers.
“We understand and appreciate the local news business is struggling. We live that every day,” the communique said. “But this much is clear: Creating a local news product worth buying and advertising in requires local investment. Lee Enterprises cannot just be an extractor.”
You can read the entire statement here.
This week’s developments underscore the challenges facing The News. I reported three weeks ago yet another round of cuts to the newsroom staff, then a push by Lee for employees to take furloughs and the threat by the stock exchange to delist Lee, and then the decision to outsource printing to Cleveland.
“It's been one thing after another,” Harris, of the Buffalo Guild, told me. “You ask yourself, ‘What else can Lee do?’ and you come in the next day they’ve found something else.”
