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Daily Star owner furloughing reporters over CV-19 ad decline

With ad revenues falling about as fast as coronavirus cases are increasing, Lee Enterprises — the national chain that runs the Arizona Daily Star — is telling journalists to stay home for two weeks without pay.

Employees, including the reporters and editors at the Star, were informed of the coming furloughs in an early-morning email Tuesday.

That followed an announcement Monday by Gannett Inc., the other media conglomerate that holds a 50-percent share of the operating company that puts out the Star, that it would cut salaries and furlough employees. Gannett, the largest newspaper chain in the country and now controlled by hedge fund Fortress Investment Group, is the owner of the Arizona Republic, USA Today, and hundreds of others.

"Thank you for being there when it counts most," Lee CEO Kevin Mowbray wrote to company staffers.

Seven paragraphs of background and praise about "resiliency" later, Mowbray got around to his buried lede:

Unfortunately, even our best efforts cannot overshadow the fact that our advertising revenue has been dramatically impacted now and for the near future. To ensure our own sustainability, it’s important that we manage the economic impact to our company. The sacrifices we make now will minimize the long-term damage the pandemic could have on our business.

Consequently, we are implementing a combination of pay reductions and furloughs. In the third quarter, the executive team will be taking a 20% reduction in pay on top of a pay reduction implemented in Q1. All other employees will be subject to either a pay reduction or furlough equivalent to two weeks of salary also in the third quarter.

Star Publisher John D'Orlando followed with a note about "the incredible work your ALL doing" (sic) telling workers here that they must take their unpaid time off between April 1 and June 28.

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Despite the shared Lee/Gannett ownership of TNI (Tucson Newspapers), workers throughout the building were told they would be required to take a two-week furlough under the Lee plan.

Staffers at the Republic and other Gannett newspapers who earn more than $38,000 annually will have to take one unpaid furlough week each month in April, May and June — effectively a 25 percent pay cut.

"If you receive guidance relating to expense reductions from Gannett please disregard it," D'Orlando told Tucson employees.

Several TNI staffers declined to comment for the record about the furlough order, citing concerns about their positions.

Still highly profitable — at least until now

While overall revenues have drastically declined in the past decade, and Lee and Gannett have cut expenses to match, the Star has remained highly profitable. The operation netted about $9.3 million split between the two partners last year out of $43 million in revenues, with the profits distributed from "all available cash" on a weekly basis.

Each of the two prior years, the Star partners split about $10 million in profits out of $47-48 million in revenues.

The majority of a daily newspaper's operating expenses involve the production and distribution of the physical print product — often more than 70-80 percent of all costs. The Star has followed the industry standard among print newspapers of spending about 10 percent of revenues on newsgathering, including paying reporters and editors.

The last year specific spending numbers were disclosed, 2016, the Star had continued its longstanding pattern of putting about 10 percent of its revenues into "editorial operations," including the total salaries of all the reporters, photographers and editors.

Back in 2006, the combined Star/Citizen operation brought in $121 million in overall revenues in Tucson, with $37 million in profits split between the two corporate owners.

Monday, the entire 77-newspaper Lee chain had a total market capitalization of $56 million, with stock trading right around the $1 dollar mark. Gannett, which owns about 260 newspapers, was worth a total of about $210 million, with stock priced at about $1.60.

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About 15 years ago, Gannett stock traded in the range of $90 per share.

The Star's website has shown the severe impacts of the outbreak on advertising — to start the week, the newspaper's online presence was rotating only banner ads promoting the Census and a promotion for swag from the canceled Tucson Festival of Books, with no other local advertising apparent.

Mergers & acquisitions

Before the COVID-19 outbreak, newspapers were already economically stressed, with conglomerates undertaking leveraged buyouts to pull together massive chains of bare-bones operations, looking to squeeze out the last bits of profit.

Gannett was essentially taken over by hedge-fund operated chain Gatehouse, although it kept the more recognizable corporate moniker. Lee just completed a takeover of the newspaper holdings of billionaire investor Warren Buffett, who bailed out of the print publishing business.

In what was a highly leveraged buyout, Gatehouse — a national chain known for being even more penny-pinching than the frugal Gannett — just borrowed $1.8 billion to take over Gannett, forming the largest newspaper chain in the nation.

Using Corporatespeak, Gannett honcho Paul Bascobert told his entire chain on Monday that more layoffs are coming:

It is important to note that our integration work will continue. This is our plan for the future and despite the challenges of today, we must stay committed to creating an efficient operating structure. So yes, as I have said to you all in the past, that means we will see some permanent reductions during this period.

Both the Star and Republic, and the others owned by Gannett and Gatehouse, as well as those owned by the Lee chain, have been slashed and cut again and again over the past decade, as corporate owners have striven to maintain profits and print newspaper readership and revenues have dropped off a cliff.

Both Gannett and Gatehouse have cut reporting staff precipitously over the past several years, as has Lee, the other corporate partner in the remaining Tucson daily — even as executives at the companies have enjoyed large salaries and extravagant retirement payouts.

And the company plans to cut at least $275-300 million in annual costs over the next year. Some industry experts have forecast those cuts may be more than double — up to $500 million knocked off the budget for each year. And the $1.8 billion borrowed from Apollo Global Capital to swing the deal comes with a steep 11.5 percent interest rate.

The staff of the Arizona Republic voted to unionize late last year, citing the cuts that have dropped that newsroom from about 425 journalists in 2007 to about 130 now. At the Star, a newsroom of more than 150 has been reduced to about 60 total — a staff smaller than that in the Tucson Citizen newsroom when that newspaper closed a decade ago after having been slowly hacked and throttled by its owner, Gannett.

At the Star, 60 jobs were lost in the pressroom when the newspaper moved its printing to the Republic's plant on the north edge of Phoenix earlier in 2019.

While the Tucson paper has hired some fresh new talent over the past year, there are plenty of empty desks in the newsroom at the Star.

Last winter, the Star offered buyouts to a dozen of its older newsroom staffers, with a number of veterans taking the offer of a limited severance package, and a group of younger reporters left the paper.

The South Park operation under which the Arizona Daily Star is held is a partnership between national newspaper chains Gannett Inc. and Lee Enterprises, with each holding a 50 percent share. Lee is the publisher of the Star, while Gannett was formerly the publisher of the Tucson Citizen, which ceased printing in 2009 and folded up its small blogging site in 2014.

In 2016, the Star laid off at least nine journalists — about 15 percent of the newsroom staff at the time. In 2011, the newspaper handed 52 employees their walking papers, including about 15 from the newsroom.

Last spring, the Star ran the final locally printed edition of the newspaper on its press here, moving daily printing to the north side of Phoenix at the Republic's press.

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The Star's operation is now so shrunken that the company has put its vast building up for sale, with the newspaper interested in moving to a facility just a tenth of the size if the current plant is ever sold, internal sources said.

The Star is asking just less than $4 million for the property; the full cash value assessment on the parcel and structure is nearly $9 million. The company repeatedly appeal to have its taxable value reduced to about $6.2 million for years. Last year, it filed a petition to have the property valued at just $4.4 million for tax purposes.

While the current plant, to which the Star and Citizen moved to after leaving Downtown in 1973, is nearly 208,000 square feet, the Star is looking for about 20,000 square feet to contain "advertising, newsroom, everything," newsroom sources said last year.

Newspapers folding

While the newsrooms at the Star and Republic are continuing to work, others around the country are going dark. Since 2004, more than 2,000 newspapers across the country have stopped published — about 25 percent of the former total.

And the COVID-19 pandemic has increased the pace of news organizations folding.

Over the last month, dozens of established publications have simply stopped publishing, citing the precipitous drop-off in advertising.

Alt-weeklies, with their reliance on concert and restaurant advertising, have been particularly hard-hit. The Phoenix New Times cut staff salaries by 25 percent (as did other Voice Media Group publications in Denver, Dallas, Houston and Miami), with layoffs likely in the future.

Among the publications to shut down since the start of the year, and the coronavirus outbreak, have been:

Isthmus, of Madison, Wis., founded in 1976, "went dark for an undetermined amount of time."

The Stranger in Seattle suspended print publication.

The Chicago Reader is ending some print publication.

The Pulse in Chattanooga, Tenn., the Portland (Ore.) Mercury, the Sacramento News & Review and sister publications in Chico, Calif., and Reno, Nev. The Oklahoma Gazette. The Riverfront Times in St. Louis. And on and on.

The Tucson Weekly is continuing to publish, but Editor Jim Nintzel said Tuesday that he's had to cut some columnists and freelancers, such as music writer Xavier Omar Otero.

"You won't see movie reviews for a while but then again, theatres are closed," he said. "Same with live theatre reviews or gallery openings and the like. We are still trying to figure out exactly how to repurpose sections of the paper that are dedicated to telling people all the fun stuff to do in Tucson. Calendar has shifted, for example, into a collection of resources to help folks through this."

Correction: An earlier version of this story incorrectly reported the year that the Star/Citizen operation had profits of $37 million annually. That was in 2006. Revenues have taken a haircut since.
Disclosure: The Pima Association of Governments has also run paid Census promotions on TucsonSentinel.com.

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Dylan Smith/TucsonSentinel.com

A 'for sale' signed appeared outside the Arizona Daily Star offices in August.