Baltimore City Paper writer wants the staff to buy the paper

Baltimore City Paper staff writer Edward Ericson is leading a campaign to buy the alt-weekly from Times Shamrock, which is selling some of its papers.
“My idea — which is not even half baked at this juncture — is that the paper’s existing staff should pool its money and, with the help of a kindly lender (or partner?) with somewhere between $1 million and $2 million, buy the paper and operate it as a for-profit co-op,” he writes.

Ericson adds: “We are not high right now.”

His proposal is after the jump.

From Edward Ericson

Dear everyone:

A few of you know that my employer, Times Shamrock, announced last Monday it was putting up for sale its Alt Weeklies, including Baltimore City Paper.

The announcement surprised the staff and generated the inevitable rumors about how our evil overlords had certainly already sold us to some even eviler overlord. But that seems to be not the case.

My immediate reaction on hearing the news was to blurt out “we should buy it.” As a consequence I find myself exploring the arcana of Co-ops and searching for money.

My idea — which is not even half baked at this juncture — is that the paper’s existing staff should pool its money and, with the help of a kindly lender (or partner?) with somewhere between $1 million and $2 million,* buy the paper and operate it as a for-profit co-op.

I am sending this out to all of you–and many others–on the odd chance that someone whose email I have either knows someone with money or co-op expertise–or has such themselves . . .

And cares enough about me or the City of Baltimore to help us out.

The background:

City Paper was founded in 1977 as an alternative newspaper (read hippie dippy rag) and soon enough found itself published as a free weekly, much like about 120 others now associated into a thing called AAN.

The paper prospered, changed hands, matured, professionalized and was able, over the past couple of decades, to tell some pretty interesting and occasionally important stories that the Baltimore Sun managed to miss–or botch. In short, we’ve played the roll of the scrappy underdog, the tiny counterweight to conventional thinking.

What we are not: We are not a leftist political propaganda organ. We are not a repository for mere snark. We are not a lightweight vehicle for strip club and bar advertisements wrapped inside a canned celebrity interview.

We are not high right now.

What we are: We are the only place in Baltimore that you will learn about the real workings of the city’s billion-dollar underground economy. We are the only place where a person who legally cannot advocate on her own behalf might get her story told.

We told everyone about gangster prison guards years before it became national news.

And we were writing about this guy, and these guys, and this charming specimen months or even years before the Feds busted them.

It was Baltimore City Paper’s expose of shit pouring into the harbor from the city’s storm drains that got state and federal regulators to force the city’s Public Works department to address the problem.

At our best–and I admit that we have not been at our best for about three or four years–we are a key resource for civic minded people in the city. We are the place where whistle blowers get a hearing, and stories are checked before dissemination.

We are also the only media outlet that consistently covers the local art scene critically and treats it like a grownup. This is the kind of thing that makes arts scenes improve and grow.

The big Problem:

As most people now understand, the business of newspapers has collapsed. The old model of selling a paper package of news and ads, entertainment and puzzles, listings & etc. for a fixed price has been destroyed by the internet, where anyone can choose Craigslist for their (free) classified ads, Yahoo or any of a billion other places for their (free) news, and literally billions of sites for (free) music, (free) snarky commentary, (free) funny cat pictures and the like. Daily newspapers (such as the Sun’s owner, Tribune Corp) have been going bankrupt. Recently the Boston Phoenix, a venerable alt weekly, closed down.

It is my information* that City Paper’s revenue has fallen by 70 percent since 2008.

This is no time to be getting into the newspaper business. Our evil overlords, who own radio stations and some daily papers in Northeast PA, are getting out–though they are keeping their core daily because Northeast PA is, for the first time in three generations, a boomtown. Fracking has changed their lives, and they are doing the smart thing.

Why jump in?

Given the state of the industry, I’ve heard plenty of people tell me it’s a fool’s errand to buy City Paper now at any price, no matter the proposed corporate structure. “It’s like buying a tie factory,” one of our correspondents told me (before emailing a bad contact for a good lawyer). The previous owner Tweeted derision at us and told me personally he would not invest even $100,000 to buy his old paper back. When I told him we had 24 people on staff he blurted “half that!” as if firing more of us might improve the outlook.

Since 2008 we’ve already been, basically, halved. Everyone here now is battle-hardened. Long hours, low pay (and no raises–save an insulting one percent last year–since 2007) have weeded out everyone not dedicated to the proposition. And therein is a strength–and a potential opportunity.

For years the staff here has worked hard to enrich the Lynett and Haggerty families. Profit margins below 15 percent were not acceptable, regardless of economic conditions. New ideas–staff generated, many potentially viable–were shelved because they might require some investment.

Stuff that would cost even a few hundred dollars was rejected. And and idea that would have saved the paper $70,000 annually while improving the product was shelved, apparently because the parent company would have taken a hit.

In short, there is potential for growth straight away, even in a deteriorating field like print newspapers.

Then consider this. Baltimore is not a normal market.

As John Waters has accurately depicted in about 20 movies, Baltimore is Old School. Baltimoreans are not just weird–they are creatures of weird habit. Reading print newspapers is one such weird habit that abides in Baltimore even as nearby cities join modernity. Baltimore is also chock-a-block with locally-owned restaurants and bars–the backbone of City Paper’s advertising base. Add to that the city’s outsized non-profit sector and the environment is rich–much richer than in most other cities.

This is why City Paper is still profitable*, even as similar papers in other cities (including some of those in the Times Shamrock stable) are not.

It is my belief that City Paper could remain as profitable as it is today–and probably increase its profitability during the next several years as the economy grows–without changing anything. I further believe that these profits could easily repay a $1.5 million loan at 6.5 percent APR over 4 to 6 years.

The question is, then what?

Why Co-op?

The Co-op idea would allow the paper to improve profitability and remain a cultural resource in Baltimore. Instead of paying 10 or 15 percent of revenue to an outside owner interested in little other than that revenue, the staff itself–which has already demonstrated its masochism and taste for penury–would decide how much to rake off in bonuses, and how much to invest in the new ideas that will help the paper grow into the on-line media resource it needs to be down the road.

The prospect of profit will spur the staff it to even better work. And it won’t take much.

Because we are normal working people, we don’t require or expect six-figure pay for little or no work like a lot of passive and VC investors do. The money we don’t pay to the buyer will be reinvested in the product.

To do what, exactly?

Frankly, we’re not quite sure yet. We do know that nobody knows the city and the City Paper’s business better than we do though, and no one from the outside has yet found the magic key to return newspapers generally to the sort of embarrassing profit levels most enjoyed in the ’70s, ’80s and ’90s. We think there will be no return to those profit levels in the foreseeable future, but that a lean, creative and property incentivized staff will find small but significant ways to improve productivity and transition the paper to the next phase while maintaining its commitment to actual journalism.

Given recent trends in the industry, it is obvious that that commitment could be lost if the staff itself is not at least part of the next ownership team.

Co-op newspapers are rare. The ones I have found tend to have been started during the Great Depression. But that’s not necessarily a bad thing either. City Paper could reinvigorate the concept, garnering the attention of the wider world. That potentially means more readers, and more advertisers, from outside Baltimore.

Other ideas–why not non-profit?

The IRS had made it extraordinarily hard for news organizations to incorporate or operate as non-profits. It is being done; it’s not impossible. And it’s not off the table here in Baltimore. Nor is Tom Stites’ idea of a reader-owned co-op structure, which he is fleshing out with his Banyan Project. It is my belief that a version of capitalism would best spur the staff here now (and future staff) to do its best work.

What about the “wall of separation” between advertising sales and editorial?

The wall has always been porous at every newspaper, but most–including City Paper–have done their best to respect the prerogatives of the reporting staff because all the enterprise’s value is in the credibility of that staff, and all the credibility comes from its independence.

I fully expect the tension between ad sales and editorial to continue as it always has. Staff ownership means only that the tendency of an owner to try to deploy reporters against business rivals or other perceived enemies (something we have seen elsewhere & at other times) will be null.

So What is Required?

City Paper needs help from a lawyer or lawyers with experience in media, business acquisition and in Co-op structure. We also need the kind of investor who would be happy lending $1 million or more at reasonable terms. It is possible we could take equity investor(s) but we don’t yet know how that could fit with the co-op structure.

*What are the Numbers?

I have only preliminary and sketchy EBITDA figures pending my signing of a nondisclosure agreement (today), which will afford me access to the “real” numbers that any interested bidders can receive–and prohibit any emails like this one, which is why I am sending it out now.

The figure I am working with–which may or may not prove accurate–is $440,000 net profit over the past 12 months–and that is despite spending significantly over our expense budget. As a percentage I believe–but am not certain–that it is the low single digits. Say 4-6 percent.

I believe the paper should sell for about 3-4 times EBITDA–that any more than that would be a death knell–though I fully expect the current owners to want more money. That is another reason an employee co-op might make sense: to pressure them into letting the place go for a reasonable amount instead of forcing someone to leverage it up and then try to hack their way to profitability. They’ve already made many millions on this place.

I further believe that a 5 percent rate of profit, as depicted in EBITDA, could be sustainable in a co-op situation, even though we’d all like to see it do a better. Hence our search for a relatively non-rapacious lender or partner.