Digital First purchase of O.C. Register parent approved by bankruptcy judge

A drama-filled bankruptcy auction of leading Southern California newspapers ended Monday when a judge in Santa Ana approved the sale of the Orange County Register and the Riverside Press-Enterprise to Digital First Media.

Next to be answered: whether the resulting newspaper industry consolidation will deliver more, or less, for readers.

Digital First’s $52.3-million offer for the assets of Freedom Communications prevailed over a higher bid from the parent company of the Los Angeles Times and San Diego Union-Tribune, which faced an antitrust battle in its effort to build a media empire stretching from the Mexican border to Los Angeles.

The sale underscores a changing and challenging environment for newspapers, which have looked to share costs as they struggle in the digital age.

“They feel there is a strength to a regional approach to news gathering,” given consolidation of printing, distribution and reporting costs, said Jeffrey Brody, a professor of communications at Cal State Fullerton and a former Register reporter.

He said he hoped Digital First, which says it owns 63 dailies nationwide, could put the papers on a firmer financial footing by offering advertisers a greater reach. But he noted it will be tough, given declining readership.

O.C. Register reporters, who declined to be named because of potential retribution from the new owners, said the sale to Digital First has unnerved the newsroom. The company, whose controlling owner is New York City hedge fund Alden Global Capital, has a reputation for cutting costs and running a lean operation.

Earlier this month, Digital First announced it would consolidate several newspapers in the eastern San Francisco Bay Area, including the Oakland Tribune, into a new daily named the East Bay Times. It also will fold the San Jose Mercury News and the San Mateo County Times into a new paper called the Mercury News.

The San Francisco Chronicle reported that about 20% of the Bay Area newsroom staff of 200 would lose their jobs. The company disputes those figures, but acknowledged staff reductions.

In the Los Angeles region, Digital First owns the Los Angeles Daily News, Daily Breeze, Long Beach Press-Telegram, Pasadena Star-News, San Gabriel Valley Tribune, Whittier Daily News, Inland Valley Daily Bulletin, San Bernardino Sun and the Redlands Daily Facts.

The daily papers share reporters, eliminating the need for multiple journalists covering the same regional issues.

“This is a company that has hollowed out newsrooms” in the Los Angeles area and cut significantly elsewhere, said media analyst Ken Doctor.

Doctor said the Register may fare better than other Digital First properties, because Orange County in many ways is an urban area separate from Los Angeles and would need a local reporting staff.

But he said that will be determined by what Alden Global Capital thinks it needs to reap a reasonable profit. He said the hedge fund isn’t a long-term owner; in 2014, Digital First was itself put up for sale, although it’s now off the market.

“It’s been successful by Alden standards of short-term profitability,” Doctor said. But “they are slowing destroying the product.”

Ron Hasse, publisher of Digital First’s Southern California papers, did not return a call seeking comment. But he told the Register earlier this month that Digital First would invest in the Orange County daily and the Press-Enterprise to “keep them, strong, local and independent.”

In a statement Monday, Hasse said Digital First remains committed to the Register and the Press-Enterprise.

“We are dedicated to bringing stability and a renewed sense of purpose to these two great newspapers,” Hasse said.

The newly named Southern California News Group, with 11 dailies, would have a combined Sunday circulation of nearly 600,000, according to the latest data from the Alliance for Audited Media. That compares to a combined Sunday circulation of about 880,000 for the L.A. Times and San Diego Union-Tribune.

Digital First itself is a product of consolidation.

It was formed in 2011 as a management group to run papers owned by Journal Register Co. and MediaNews Group, whose chief executive, William Dean Singleton, was known as a cost-cutter. By then, MediaNews had already acquired several papers previously owned by the now-defunct Knight-Ridder chain, including the Long Beach Press-Telegram and San Jose Mercury News.

In 2013, MediaNews and Journal Register formerly merged.

Like Digital First, Tribune Publishing sought to extend its reach in Southern California and save money by streamlining some business operations at a time when newspapers struggle to remain profitable.

But an acquisition by Tribune would have become a monopoly, allowing it to raise prices to advertisers and subscribers, the U.S. government argued.

The company’s bid hit a roadblock Thursday when the U.S. Department of Justice sued to stop a sale hours after the L.A. Times’ owner was selected the top bidder at an auction. A day later, a U.S. District Court judge approved a temporary restraining blocking Tribune from moving forward.

If the deal closed, Tribune would have controlled 98% of English-language local daily newspapers for sale in Orange County, the government said. In Riverside County, Tribune would have owned four of the top five English-language newspapers by circulation, according to the department.

Although Tribune’s $56-million cash bid was the highest, Freedom asked U.S. Bankruptcy Judge Mark S. Wallace to approve a sale to Digital First. Tribune’s antitrust issues would have left it unable to close a deal before Freedom ran out of financing.

Tribune and other media and antitrust experts have criticized the government's argument as outdated, given the many choices consumers and advertisers have via the Internet.

Tribune spokeswoman Hillary Manning said Digital First “will be less able to reduce cost and achieve efficiencies, with the likely effect being that the journalism serving the local communities will be diminished.”

Assistant Atty. Gen. Bill Baer of the Justice Department's Antitrust Division took another view, saying readers will benefit from the sale to Digital First, which is expected to close by March 31.

“Preventing the Los Angeles Times from combining with the Register and the Press-Enterprise will ensure that citizens and advertisers in Southern California continue to benefit from competition and from a diversity of views in their local news coverage,” he said in a statement.

A sale to Digital First marks the end of Freedom Communications' long run in Orange County.

In 1935, Freedom founder R.C. Hoiles, the libertarian son of an Ohio farmer, scooped up the then-Santa Ana Daily Evening Register, three decades after a group of Santa Ana businessmen founded the paper.

The Hoiles family owned the Register for decades. Family control ended in 2010, when Freedom emerged from bankruptcy and Wall Street investment firms, including Alden Global Capital, took the helm.

Two years later, former greeting-card executive Aaron Kushner and Eric Spitz, who had been an executive in a New England brewing company, purchased Freedom. They soon made headlines with an aggressive expansion of print publications.

But the bet failed and Freedom shut two of its new dailies in Los Angeles and Long Beach. It filed for Chapter 11 bankruptcy protection in November after losing more than $40 million over two years.

Spitz, who was part of an insider group that backed out last week of a bid to purchase the Register and Press-Enterprise, said it’s too early to know how the papers will fair under Digital First.

“The proof is in the pudding,” he said. “Let’s wait six months and let’s compare this to that and see how people like it.”

andrew.khouri@latimes.com

Twitter: @khouriandrew

Copyright © 2016, Los Angeles Times

UPDATE

7:45 p.m.: Updates with additional details and background

10:39 a.m.: This article was updated with a quote from a Tribune Publishing attorney.

The original article was published at 10:01 a.m.

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