A provocative new research paper confirms many of the fears about private equity firms buying up America’s newspapers.
For those concerned about dwindling local news coverage, the paper offers an ominous preview of the ghost of Christmas future. That is, if the country doesn’t find ways to save its independent, local free press system and prevent further consolidation.
As they acquired hundreds of newspapers in recent years, private-equity firms cut reporting staff and reduced local coverage more than other types of owners, the paper reports.
This has serious consequences for democracy, because of the role local newspapers provide in civic engagement, note the authors, finance professors Sabrina Howell and Arpit Gupta at New York University and Michael Ewens at the California Institute of Technology.
“We were surprised to see such a marked decline in local governance content,” Howell told me.
“Local Journalism under Private Equity Ownership,” a working paper that has not yet been published in a journal, is timely. Policymakers in Congress and some state legislatures are exploring ways to sustain local newspapers and prevent further collapse of the industry. Newspaper publishers are also looking for ways to preserve their companies and adapt to the increasingly digital media marketplace.
A clear-eyed look at the financial performance of newspapers owned by private equity is useful. At the same time, it raises questions about what’s being saved and who will continue to provide critical local news coverage.
The paper found that private equity firms increase their share of America’s newspaper industry from around 5 percent in 2002 to 23 percent in 2019.
Private equity investments “can actually be good for an industry,” Ewens said. But “news is complicated because of the societal benefits it provides.”
Hard decisions are required when anyone tries to increase efficiencies in a declining business. Pain may be inevitable to save the patient.
The study makes a comparison with private-equity’s involvement in other sectors “characterized by public goods provision” such as education and health care, where other research found “negative effects on student and patient outcomes, respectively, after private equity buyouts.”
As the authors note, more research is needed. One open question is whether the private-equity approach works long-term, after these investors have already had their payday, or whether the thinned-out papers will eventually lose subscribers and revenue.
The paper is a timely addition to the conversation about saving local news. It provides additional evidence that there’s hope for making local news a sustainable business.
At the same time, it makes clear that the local journalism crisis, and resulting civic problems, will worsen if consolidation continues under owners prioritizing profit over community service.