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Last week, Village Voice Media (VVM) announced a deal with the other major chain of alternative weeklies in the U.S., Phoenix-based New Times (NT). Before the deal, VVM had seven papers, and New Times had 12, but the only two markets where they competed directly were Cleveland and Los Angeles. Now the companies have said in effect, there's not enough room in these towns for both of us. In that spirit, NT agreed to stop publishing New Times Los Angeles (ceding the market to VVM's L.A. Weekly), and VVM agreed to stop publishing Cleveland Free Times (ceding the market to NT's Cleveland Scene).
Fair trade? Commercially speaking, VVM didn't give up a trophy. There aren't a lot of ad dollars going around Cleveland. But VVM paid NT a steep price for the monopoly on the alt-market in L.A.more than $8 million, according to The New York Times. There were other small trades. Both sides are said to have been forced into the deal in order to pay lenders and free up cash flow.
Asked how the deal will affect the content of the Voice papers, VVM CEO David Schneiderman said, "I believe in the content of these papers. I don't want to damage them for the bottom line." He said the deal "makes us a stronger company. If you're no longer losing money, that's a good thing."
This depressing twist is the latest sign of an imploding economy, a downturn that has darkened the alternative world. Throughout the 1990s, the Voice was owned by pet-food magnate Leonard Stern, who expanded it into a profitable chain and talked about it as his enduring legacy. Then in 1999, when none of his three children stepped up to manage the company, Stern put the Voice on the block. In January 2000, he sold the majority stake to Weiss, Peck & Greer, a private equity firm associated with the Canadian Imperial Bank of Commerce.
Meanwhile, NT owners Jim Larkin and Mike Lacey were working on their own expansion plan. In 1996, they launched New Times Los Angeles, buying and shutting down two small alt-weeklies in the same market. In 1997, the same year Stern moved into Minneapolis and shut down a rival paper there, Lacey declared his intentions for the Voice chain, saying, "My business is to retire their ass. I'm going to send them off to fucking Tahiti, cash them out, get their money."
Then in 1999, when the Voice went on the block, NT tried to snatch it. Larkin lined up financing from Evercore Partners, which runs a chain of tabloids, but the deal fell apart when his investors insisted on a majority stake. The following year, Larkin sold a stake to venture capital group Alta Communications, which allowed him to continue expanding.
From a business point of view, the latest deal makes sense because in any given marketplace, there are only enough ad dollars to sustain one profitable alt-weekly. According to Schneiderman, the L.A. Weekly is profitable, while New Times L.A. and the two Cleveland papers were not. He says the Voice's Cleveland paper was losing more than $500,000 a year.
In a statement to VVM employees, Schneiderman said he was "very sorry" to close Free Times, which he called "a well-written, feisty and respected newspaper." So why did he do it? When the opportunity arose to "consolidate and strengthen our position in L.A.," he wrote, he found the deal "just too attractive to pass up." He called the transaction "consistent with the strategic direction of the company."
David Eden, editor in chief of the now defunct Cleveland Free Times, praised VVM for giving him the editorial freedom to "kick ass and take names. The only thing I regret is that they sold us down the river." According to Eden, the decision to close Free Times does a disservice to Cleveland, because the NT paper is weak and "no one trusts" the local daily, the Plain Dealer. Says Eden, "The management philosophy of VVM is making money for our investors, period."
Schneiderman, a former editor in chief of the Voice, is a shrewd, stand-up guy who to my knowledge has never interfered with the editorial freedom of this newspaper. But these days, he sounds like the apostle of profit. Last week he told the Los Angeles Times that his first move will be to "absorb as many of New Times' advertising dollars as we can get." And his next move? Pinching ad dollars from the L.A. Times.
Asked what happens to ad revenues, Schneiderman told me, "Some of the profits go to investors. Another part gets invested back into the newspapers." He declined to state the Voice's current ratio of ad pages to editorial pages, but said the editorial budget has grown every year, even though "we have dropped huge numbers of ad pages in the last few years."
To one alt-weekly watcher, the Cleveland-L.A. trade is a non-event. The more interesting story, this source says, will be when VVM investors decide to cash out. When a private equity firm buys a company, the typical pattern is to raise money, invest it, and at some point, liquidate and return the money to the investors. The investment window can extend as long as 10 years, but one observer speculates that VVM could go on the block as early as two years from now. Says Schneiderman, "The company could be sold tomorrow or in 10 years."
Who will buy the Voice the next time around? One school of thought says a potential buyer might be a daily newspaper chain. According to this argument, alternatives have the young, affluent readers that the dailies want. Plus, there is a precedent: in April 1999, Times Mirror bought New Mass Media, a chain of alternative papers in the Northeast. But there are drawbacks: If you own a daily and an alt-weekly in the same town, you probably won't want the alternative bashing the daily, and traditional advertisers for the daily may be squeamish about the sex ads in the alternative.
The other school of thought is that one of the alternative chains will buy the other out, a fantasy both sides seem to be savoring these days. And as for Schneiderman, who at 55 has been with the Voice 24 years? "I don't have an exit strategy," he said. "I'm here for as long as whoever owns it wants me here."