The latest Buffalo News woes

The latest financial report from the newspaper’s parent company paints a sobering picture. Buy, hey, the executives all got their raises last year.

Reporting, Analysis and Commentary
by Jim Heaney, Editor of Investigative Post

Lee Enterprises, the parent company of The Buffalo News, has filed its overdue annual financial statements with the Securities and Exchange Commission. It is Failure to meet a registration deadlinebecause of what Lee said his failure was, “maintaining effective internal control over financial reporting”, triggered a threat in December Nasdaq exchange to delist the company from the stock exchange. That would mean no more stock sales for the listed company.

So it’s good news that Lee has finally caught up. There isn’t a lot of good news in its 10-K report, but certainly not enough to allay fears about what’s happening at The News, the second largest newspaper in the 77 newspaper chain.

That’s not the only notable development on the news front this week. The sale of its Washington and Scott Street offices, which would have netted Lee $9 million, fell through, and unions representing journalists and other employees at a dozen of its newspapers called out the company over what they saw as counterproductive, costly routes cut.

More on these developments after detailing what I gleaned from Lees new filing with the SECfor the year ended September 30, 2022.

Lee’s earnings declined 1.7 percent to $$781 million while spending rose 2.3 percent to $762 million. If you include taxes and non-operating expenses, those are those of the company Net sales, meaning profit, fell from $24.8 million in 2021 to $97,000 last year.

The reasons for this are multiple, including the time, energy, and money Lee has expended over the past year fending off a hostile takeover attempt by Alden Global Capital.

“Alden’s unsolicited offer to win us has diverted management’s attention and resources, has caused us significant costs, and such actions are adversely affecting our business,” Lee stated in his 10-K report.

Alden gave up his pursuit last year after losing a court case and apparently deciding Lee was no longer an attractive buy.

On the bright side, Lee’s digital subscription growth was substantial at 32 percent, resulting in a $11.9 million increase in revenue. However, this was more than offset by a $16 million decline in print subscription revenue.

The report does not provide details on individual papers, apart from circulation numbers and website traffic. The numbers for The News are mixed, as the chart below shows.

In short, print runs continue to fall while website traffic steadily increases. The web numbers are particularly encouraging given that traffic to news sites has declined 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 top price is $240. Home delivery of the print edition will cost you $1,300 unless you can negotiate a deal. In short, digital may be the future, but it’s not paying the bills right now. Print dollars and digital dimes as they say.

The challenge for The News and any other newspaper is to grow their digital revenues, both subscriptions and advertising, enough to sustain their editorial office and other vital operations like sales. It’s basically a race against time because newspapers can only cut so much beforehand, well, they’re not really newspapers anymore. Some papers are already bordering on it.

I found the executive compensation section of the 10-K report interesting and I think Lee’s staff will find it annoying.

• Kevin Mowbray, President and Chief Executive Officer, did not get a raise from his $900,000 annual salary. But his other compensation, mostly 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 pay rise and an increase in non-cash benefits, increasing his income from $789,728 to $1,051,336.
• Nathan E. Bekke, Vice President of Operations and Audience Strategy, also received both a salary increase and an increase in other compensation. His income increased from $692,054 to $1,117,618.

In addition, the eight non-employees who serve on Lee’s board of directors received compensation ranging from $124,516 to $430,000.

This is for a crew running a break-even operation whose stock price has fallen by more than half. Oh, and encourages humble employees to make financial sacrifices for the good of the company.

Deal off for the sale of the News building

In another development, the deal to sell the now-abandoned News building on the corner of Washington and Scott Streets has fallen through. Uniland, the potential buyer, went out of business, saying the downtown office market was too weak to justify buying and refurbishing the five-story building.

“Unfortunately, market demand for large downtown office space remains weak,” Uniland said in a statement. “Adding another 150,000 square feet of capacity doesn’t make sense right now.”

Jonathan Epstein has one detailed story in The News about the canceled deal.

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Unliand’s decision to walk away from the transaction reflects the state of the downtown office market. There’s 2 million square feet of vacant office space — that’s a 21 percent vacancy rate — and veteran realtor Jim Militello tells me things are likely to get worse in the coming years.

There are many reasons for this, not the least of which is remote work. Employers are learning that they don’t need as much office space as they used to and are renting fewer square feet when their leases are renewed. They are also able to negotiate rental prices hard.

“I think there will be a big adjustment in the office market,” said Militello, president of JR Militello Realty. “It doesn’t look good for the office environment.”

Can you blame Uniland for pulling out?

And as The News reported, Doug Jemal cut the deal to acquire that HSBC Atrium on the other side of Scott Street appeared to be helping the deal fall through. Ever paid $30 per square foot; The News building was expected to cost Uniland nearly $57 per square foot.

Lee Enterprises lost the $9 million the sale would have raised. It will now seek to market not only the building but also the adjacent building which will house the printing and distribution operations which will be moved to Cleveland in October. There is also a car park which is perhaps the most valuable piece of property in the package.

You’d think the building’s proximity to Canalside and the development that comes with it – some of it heavily subsidized by taxpayers – would make it an attractive buy, but I don’t think so.

The unions call out Lee

On another front, unions at a dozen Lee Enterprises newspapers issued a strongly worded communiqué on Wednesday questioning the company’s cost-cutting efforts.

The unions, which include the Buffalo Newspaper Guild, urged Lee to “stop siphoning resources from his newspapers, which is costing jobs, weakening communities and hurting the company’s ability to become a sustainable digital operation.”

Referring to The Buffalo News, the statement continued, “Lee has just announced plans to lay off 160 Buffalo News employees, outsource printing to Cleveland, and called for $1 million in cost cuts for the Buffalo newsroom , who has spent the past nine months reporting tragic news that made headlines nationwide.”

Jon Harris, President of the buffalo local, said some Lee newspapers were hit even harder than The News. The World-Herald in Warren Buffett’s hometown of Omaha, Nebraska, has lost a quarter of its editorial staff.

A month before @LeeEntNews has eroded our editorial board with layoffs and takeovers in an unprecedented 25% guild cut. We’re still in pain and struggling to reorganize after these losses, but we’re still struggling to bring Nebraska residents the coverage they expect and deserve @OWHnews pic.twitter.com/bwhWnomdkO

— Omaha World Herald Guild (@owhguild) February 27, 2023

The communiqué is an unusual move; I don’t recall unions collectively demanding chain ownership in the past, although some individual entities have. It’s a sign of how frustrated journalists have become with their newspapers’ relentless cost-cutting.

“We understand and appreciate that the local news business is struggling. We live that every day,” the statement said. “But this much is clear: creating a local news product worth buying and promoting takes 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 another round three weeks ago Cuts in editorial staffthen a push from Lee to get employees to take vacations, and so on Threatened by the stock market to delist Leeand then the decision to outsource the printing to Cleveland.

“It came one after the other,” Harris told me at the Buffalo Guild. “You’re like, ‘What else can Lee do?’ and they come the next day, they have found something else.”

Posted 14 hours ago – March 2, 2023