Illustration by Victor Juhasz.

In 2013, a reclusive New York tycoon and his wife began buying up expensive Palm Beach real estate—lots of it. First they bought seven mansions for a total of $23 million. Then another four “moderately priced” homes for $8.4 million. Then five more for $23 million. None of them were purchased in the tycoon’s name. They weren’t purchased in his wife’s name, either. Instead, the homes were deeded to limited-liability companies, including L. Jakes LLC and 124 Coconut Row LLC.1

Think of those luxury homes as the shuttered offices and fired workers of hometown newspapers across the United States, because gutting those newspapers helped make spending $57.2 million on 16 Palm Beach mansions a trifling expense for the tycoon.2

His spending spree began after the tycoon acquired two firms, the Journal-Register and MediaNews Group, which would merge into one of America’s largest newspaper chains, Digital First Media. It continued under the veil of yet more limited-liability companies that likewise owned luxury homes. The only thing linking all these purchases was the same postal address in Manhattan’s glamorous Lipstick Building. There, within the tycoon’s privately held investment firm, his personal real-estate deals were commingled with the sales of scores of newsrooms, printing plants, and office buildings that previously belonged to small hometown newspapers across the United States.3

The tycoon continued to finance his lavish lifestyle by purchasing and then destroying newspapers. His henchmen—young executives in expensive suits with no experience in the news business—laid off hundreds of journalists and other news workers. They ultimately closed or radically downsized such venerable papers as the Oakland Tribune, the San Jose Mercury News, the St. Paul Pioneer Press, and The Denver Post. At the Mercury News, the newspaper’s printing press was literally dismantled and carted away, which one staff reporter likened to “watching a heart being ripped out.”4

The tycoon behind all this private profit and public destruction is Randall D. Smith, a seasoned Wall Street operator in his mid-70s who shuns publicity. Smith is the founder and chief of investments at Alden Global Capital, which manages $2 billion worth of assets. He has no experience with actually managing a newspaper, and his professional history reflects no interest in journalism beyond profiteering. Rather, he is what is known on Wall Street as a “vulture capitalist.” Or, as he prefers to phrase it in one of the company’s brochures, Smith invests in “distress.”5

“Distress” is an apt word for the current state of America’s newspapers, and Smith isn’t the only financial mogul gobbling them up. On September 4, the New York Daily News was purchased by Tronc, the media conglomerate whose majority shareholder is Michael W. Ferro, the business magnate who founded the investment firm Merrick Ventures.6

The shrinking and disappearing of hometown newspapers has done incalculable damage to Americans’ knowledge of the world around them. Democratic self-governance presumes an informed public, but the -hollowing-out of America’s newspapers, in both their online and print versions, leaves citizens increasingly ignorant of vital public matters. It also undermines the press’s ability to hold elected officials and powerful interests to account. When vulture capitalism eliminates reporters and closes hometown papers, where can citizens turn for in-depth local news? Who will cover City Council meetings, school-board decisions, election campaigns, and other staples of civic life? And who will call out corruption and incompetence on the part of local officials or private companies?7

The most commonly cited culprit for the decline of America’s newspapers is the Internet and the assumption that no one needs to pay for news anymore. But simple capitalist greed is also to blame. Since 2004, speculators have bought and sucked dry an estimated 679 hometown newspapers that reached a combined audience of 12.8 million people.8

Unlike large corporate owners in the past, the stated goal of the investment firms is not to keep struggling newspapers alive; it is to siphon off the assets and profits, then dispose of what little remains. Under this strategy, America’s newsrooms shriveled from 46,700 full-time journalists in 2009 to 32,900 in 2015—a loss of roughly one journalist out of every three. The American Society of Newspaper Editors stopped trying to estimate the number of working journalists in 2016 because “layoffs, buyouts, and restructuring are a norm.”9

Over the past six years, Digital First Media has become America’s second-largest newspaper chain in terms of circulation. Even as Digital First has downsized or closed its papers, it has held its edge in circulation by continually buying up more publications, such as last year’s acquisition of The Orange County Register. Digital First’s annual profits have averaged a handsome 10 to 12 percent under Alden Global Capital’s management, according to industry analysts, with its smaller publications yielding more than 20 percent. (Because Alden Global Capital is privately held, its financial statements are not publicly available.) Since 2015, the company has intensified its cost-cutting to the point that it imposes budget cuts and layoffs at twice the average rate for US newspapers.10

Alden Global Capital’s strategy appears to have worked, at least for its investors: A memo that CEO Steve Rossi sent to employees in July stated that the company was “solidly profitable” in fiscal year 2017, and that “The company’s performance in advertising revenue has been significantly better than that of our publicly traded industry peers over the past couple of years.” Rossi’s memo did not mention the new round of layoffs he had overseen just a week earlier.11

Neither Smith nor Rossi responded to The Nation’s repeated requests for comment.12

There’s a reason that hedge funds like Smith’s are known in Wall Street parlance as “vulture funds”: They seek out struggling, bankrupt companies—or countries—to invest in at rock-bottom prices. Then they find ways to squeeze out maximum profit, from cutting costs to collecting debt repayments at high interest rates. When the investors sense that profits are drying up, they leave the bones behind as they fly off in search of the next opportunity.13

Often these funds are shrouded in secrecy. Originally incorporated in the Bailiwick of Jersey, Alden Global Capital bases many of its funds in the Cayman Islands, another location known as a tax haven. Other Alden funds are based in Delaware, whose tax-privacy laws are more generous than New York’s.14

Like Donald Trump’s myriad firms, Alden’s investments are difficult to track through the maze of limited-liability companies. Alden’s few Securities and Exchange Commission filings show that in March 2017, its primary company, Alden Global Capital LLC, managed $2.1 billion in assets for 10 unnamed clients. The minimum investment is $2 million.15

This lack of transparency, along with investors’ devotion to maximizing profits no matter the social cost, troubles critics. “These private-equity firms, their first obligation is to their shareholders,” says Penelope Muse Abernathy, a former Wall Street Journal and New York Times executive and the author of The Rise of a New Media Baron and the Emerging Threat of News Deserts. Community service is not part of the media barons’ vision, Abernathy notes: “Hedge funds and private-equity companies have a very short time horizon.”16

In less than a decade, newspaper ownership in the United States has changed at a dizzying pace; these days, it rests increasingly in the hands of a few largely anonymous investment funds. Of the 10 largest newspaper owners in the country, six are now investment firms, Abernathy reports. In addition to Alden Global Capital, the major players include New Media/GateHouse, Community Newspaper Holdings Inc. (CNHI), Tronc (formerly Tribune Publishing, owner of the Chicago Tribune and the Los Angeles Times), and Warren Buffett’s Berkshire Hathaway. Another large chain, Gannett, is publicly traded, but nearly 95 percent of its stock is owned by investment firms, according to the financial website Post Analyst.17

While some may shrug off this development as irrelevant in the era of Facebook news, a December 2016 Nielsen Scarborough study found that newspapers and their websites still reach 69 percent of the US population every month. And it’s not just old folks clinging to their old-media ways: “Younger readers now account for a greater percentage of newspaper readers,” the ratings agency reported. “Notably, Millennials 21–34 make up 25% of the US population and now represent 24% of the total monthly newspaper readership” (a total that includes online readers).18

Little-known investment firms like Civitas Media have bought up newspapers in “the poorest and most rural” communities, Abernathy notes, where those outlets are often the only source for local news. These companies then “pursue a harvesting strategy in which they ‘manage the decline’ of the assets in their portfolio. If their newspapers fail, and viable alternatives do not arise, many communities across the country are in danger of becoming news deserts.”19

In the San Francisco Bay Area, for example, Smith’s Digital First Media has shut down many of its small-town papers, including the Alameda Times-Star, the Fremont Argus, and the Hayward Daily Review. In 2016, it also closed the 142-year-old Oakland Tribune, folding it and the former Contra Costa Times of Walnut Creek, California, into brief sections of a new daily named the East Bay Times.20

Even in areas that aren’t complete news deserts, the decrease in coverage is having dramatic effects. “It’s not just the towns without a paper, but the places where you’ve lost coverage,” Abernathy says. “Reporters barely have time to even fact-check. They end up covering nothing but events or meetings—and then they have to cut back on the meetings.”21

According to a study by Patrick Sims, a former research associate at the University of North Carolina’s School of Media and Journalism, the state’s “investment-owned” newspapers scored the worst when it came to coverage of Hurricane Matthew, which devastated parts of North Carolina in 2016. The stories in investment-owned papers on Matthew’s aftermath “tended to be less in-depth—and provide less context—than the stories that appeared in the independently owned [newspapers],” Sims wrote. The investment-owned papers also scored poorly for their coverage of the local elections in 2016; only a locally owned paper, The Pilot of Southern Pines, published important voter information well in advance of Election Day, an important service in an era when more citizens vote early by mail.22

Vulture capitalism’s longer-term impact on newspapers is, paradoxically, to drive away the business’s customers. When news-business analyst Ken Doctor gives presentations, he likes to show a picture of two Coke bottles. One is a two-liter bottle that used to sell for a buck; next to it is a one-liter bottle that is now being offered for $2. That’s exactly what downsized newspapers are pitching to their readers today, Doctor says, so it’s no wonder that circulation, subscriptions, and advertising are tanking: “Tell me another industry that’s been able to halve the product and sell it for twice as much.”23

Pete Carey is a two-time Pulitzer Prize winner and investigative reporter who left the San Jose Mercury News last year in a round of buyouts that included the departure of Harvard Nieman fellow Joe Rodriguez and longtime editor David Early. Carey was there when the Merc swelled to 100 daily pages and a newsroom of 400, bolstered by Silicon Valley help-wanted ads. “Then Silicon Valley took the money back—and how,” he says, referring to the abrupt shift of classified advertising to the Internet. After revenues sank and the 2009 recession hit, Alden Global Capital seized the opportunity, scooping up the Merc’s bankrupt parent company, MediaNews, in 2011.24

The sharp young men at Alden first sold off the building that had housed the Mercury News since 1967, Carey recalls. “Then they sold off the real estate. I watched the presses being dismantled…. The guy who installed the presses was back there with tears in his eyes.”25

Thomas Peele is another prize-winning investigative reporter at the Merc. He won a Pulitzer for leading and writing a series of investigative stories following the Ghost Ship warehouse fire in Oakland, a prize shared by several others in the Merc and East Bay Times newsrooms. Days after the prize was announced, Digital First Media proceeded with another round of layoffs, gutting the staff by 20 percent. It was all part of meeting a preordained profit margin set by the higher-ups at Alden.26

Doctor believes it doesn’t have to be this way, and he’s trying to make the case for reinvestment in newspapers—facing head-on the disruption that new technology brings while exploring ways to innovate and survive. That usually means putting cash back into a business, not siphoning it away.27

One encouraging example is blossoming in Doctor’s home state of Minnesota. In 2014, Glen Taylor, the owner of the Minnesota Timberwolves, purchased the Minneapolis Star-Tribune from the investment firm Avista Capital Partners. Taylor charted a long-term course for the paper that didn’t require it to reach large profit margins every year in order to be sustainable.28

On a recent visit, Doctor was thrilled to see how thick the Star-Tribune was—“like an old-fashioned Sunday paper!” The management team “are very good businesspeople,” Doctor says. “They’ve added another DC correspondent and another at the Statehouse. They understand what keeps people reading, because they have a long-term vision. They know that at the root of it is their service to the community.”29

Abernathy cites another success story, The Pilot in Southern Pines, North Carolina, whose circulation of 14,000 is roughly equal to the town’s entire population. With a newsroom of 12, The Pilot publishes twice weekly in print and frequently online. It provides the staples of local news—high-school sports scores, town-council election results—but it also publishes five arts-and-culture magazines, a statewide business journal, and a few telephone directories. And it operates a cozy storefront called the Country Bookshop. “We felt this community would be less without a local bookstore,” says Pilot editor John Nagy. “So we went out and bought it. And it’s finally making a profit.30

“What all that’s done is diversify our revenues, diversify our outlook, and diversify our business skills,” Nagy adds. “Part of the print industry’s problem today is, they don’t believe in themselves. Publishers like GateHouse, Gannett, McClatchy, Berkshire Hathaway, they’re managing margins. They’re not looking for real, aggressive growth strategies that have a little risk attached.”31

Some will argue that only a nonprofit model can keep local news safe from the clutches of the vultures. It’s an experiment being played out in Philadelphia, where, in January 2016, philanthropist H.F. Lenfest donated the Inquirer, Daily News, and Philly.com to the Philadelphia Foundation. In August, Britain’s The Guardian announced that it had formed a nonprofit US adjunct to produce the kind of important journalism that investors see as too costly.32

Ultimately, it may be a mix of altruistic investors, nonprofits, involved local owners, and citizen demand that keeps local news alive. Whether that news is printed on paper or pushed to a smartphone isn’t nearly as important as society’s willingness to invest in the act of reporting itself—an act central to our founders’ vision of democracy.33