O.C. Register owner Aaron Kushner bets heavily on print
Over the last year, the Orange County Register has been furiously paddling against a riptide that has newspapers around the country laying off journalists, shrinking coverage and in some cases cutting back home delivery.
The Register has doubled the number of reporters and editors to 350 and fattened the paper by adding 22 weekly sections. On a recent Tuesday, it had 72 pages while the Los Angeles Times had 42.
The Register’s parent company, Freedom Communications Inc. in Irvine, has expanded its 26 weekly community newspapers and turned two into five-day-a-week operations.
On Monday, it launched the Long Beach Register in a community wedded for so long to its hometown paper, the Long Beach Press-Telegram, that previous incursions by the Register and the Los Angeles Times fell flat.
And, according to industry sources, Freedom is negotiating to buy the Press-Enterprise in Riverside County.
Behind these surprising investments is a 40-year-old former greeting-card executive named Aaron Kushner, who acquired Freedom a year ago. As other publishers prepare for a digital-only future, Kushner is betting heavily on print, confident that intensely local — and often upbeat — news will attract advertisers.
It’s a bold experiment that media executives around the country are watching closely. Many believe that it defies the economic realities of a business whose readers and advertisers are increasingly abandoning print and going online.
“It’s a bit like the Wizard of Oz,” said Alan Mutter, an industry blogger and former newspaper editor. “If you believe, he’s a wizard. And he might be a wizard. I might be wrong.”
In an interview, Kushner declined to provide details of his company’s financial performance. But he said his contrarian strategy is already showing promise.
“We were profitable last year,” said Kushner, Freedom’s chief executive. “We will be profitable this year, profitable next year and profitable the following year. Every controllable category of advertising is up, and circulation revenue is up.”
A spokesman said later that by “controllable category,” Kushner meant local advertising other than legal notices.
Kushner’s message to the Register staff has been less upbeat. He told employees this month that the company’s financial performance had fallen short of expectations for the second quarter. As of January, Freedom stopped matching employees’ 401(k) contributions.
As privately held companies, Freedom and its parent, 2100 Trust LLC, are not required to disclose revenue, profit or other financial information.
Circulation figures are public, however, and they show that over the last year, the Register’s average weekday print circulation has fallen 2%, to 159,411, according to the Alliance for Audited Media. Web readership is expected to decline sharply because the Register put up a subscriber-only pay wall in April.
In contrast, average weekday print circulation for Freedom’s community newspapers has nearly doubled to 181,000.
Kushner’s acquisition of Freedom and his recent investments in the Register, which he estimated at $10 million to $15 million, have been backed by a handful of wealthy individuals whose names Kushner will not reveal.
Three knowledgeable sources said they include Robert Epstein, a Boston developer and managing partner of the Boston Celtics. Epstein did not return calls seeking comment.
Another early investor, former Time Inc. Chief Executive Jack Griffin, has sued Kushner, seeking more than $13 million in damages. Griffin contends that Kushner failed to pay him for advice he gave on the Freedom acquisition, and that while negotiating the deal, Kushner falsely told financiers that Griffin was a “director” of 2100 Trust. In court filings, Kushner has denied the allegations.
The Orange County experiment comes as newspapers around the country are finding that big investments in the digital side of the business have failed to pay off.
“It’s a mantra of the newspaper business that digital is the future,” industry analyst John Morton said. “Clearly digital is going to be important, but Kushner understands that right now 90% of revenue and 100% of profit comes off the newsprint.”
Kushner is trying to increase print revenue by pumping the Register — and the community papers that come bundled with it — full of features about high school sports, community events and other good news while preserving the Register’s tradition of hard-nosed local and investigative reporting.
That combination, Kushner says, will entice people to pay $1 a day for the papers. The price is the same whether subscribers get their news online or in print. It’s a sharp increase from the deeply discounted rates the Register used to offer readers. To sweeten the deal, Freedom throws in extras such as tickets to Angels or Ducks games.
Key to the strategy is increasing advertising in the 26 community papers. As major national retailers have pulled back on newspaper advertising, Kushner sees untapped potential in Orange County’s 85,000 local businesses, which often can’t afford the cost of ads in metropolitan dailies.
In the last year, all but one of the Freedom’s community papers have been redesigned and expanded from tabloids to broadsheets with bold graphics and deep community coverage. Many are filled with ads for Realtors, exterminators, pet groomers and other small businesses.
“The Register has paved the way for a lot of small-business owners to grow,” said Jeff Keiffer, a sales representative at Gomez Heating and Air Inc., which spends more than $100,000 a year on Register ads. “I wish there were more papers like them.”
Keiffer said he used to advertise with the Los Angeles Times but could no longer afford it.
Several advertisers said they were drawn to the Register by a pay-for-performance system in which the cost of advertising is based on how many phone calls from potential customers an ad generates. Calls are tracked through a special phone number monitored by the newspaper.
LifeSource Water Systems in Pasadena has paid about $8,000 for eight to 10 Register ads over the last month under the pay-for-performance arrangement, marketing manager Cherie Harris said.
“And this seems to be pulling better than other newspapers we’ve used,” she said.
Many people on the Register staff — which includes recent refugees from other newspapers and dozens of interns — are enthusiastic about the results so far.
“It’s been a breath of fresh air,” said business news columnist Jonathan Lansner, who started at the Register in 1986. “I go to meetings and we’re talking about growing and grand plans and how can we do our best work.... It’s like you’ve woken up out of a bad dream and everything is OK.”
Kushner’s strategy will face a test this month with Monday’s launch of the 16-page Long Beach Register with 20 reporters and editors. It will cover a city of almost 500,000 residents, bigger than any in Orange County.
The move into Long Beach pits Kushner’s approach against that of the Long Beach Press-Telegram, whose owner, Digital First Media, has emphasized the online business and curtailed spending on print. The company last year acquired MediaNews Group, owner of the Press-Telegram and 28 other California newspapers.
“He’s going to spend a lot of money, we’re going to spend a lot of money, and then he’s going to go home a loser,” Digital First Chief Executive John Paton said about Kushner.
Kushner also has expressed interest in buying the Tribune Co.'s newspapers. Tribune owns eight daily papers across the country, including the Los Angeles Times.
Friends and competitors alike describe Kushner as smart, brash and supremely confident. A former Stanford gymnast, Kushner started a technology company before buying Marian Heath Greeting Cards, which he ran until 2009.
In 2012, after failed attempts to buy the Boston Globe and a newspaper group in Maine, Kushner bid on Freedom, which had filed for bankruptcy in 2009 with more than $770 million in debts.
When Freedom emerged from bankruptcy a year later, the investment banks that controlled it sold off many of the chain’s most valuable assets, leaving the barely profitable Register, a smattering of other newspapers and more than $100 million in unfunded pension liabilities, several industry sources said.
The San Diego Union-Tribune’s chief executive, John Lynch, said he was eager to buy Freedom but backed out when he saw the books.
“They would have had to pay us to acquire it,” Lynch said.
Kushner saw potential and an opportunity to buy at a bargain price.
He and his investors paid between $50 million and $60 million for Freedom, according to three sources with knowledge of the transaction. Most of that was borrowed, with Kushner’s group providing $5 million to $10 million in cash, the sources said.
Kushner disputed those figures but would not provide his own. He has since paid back some investors, the sources said. Kushner said he has also made substantial pre-payments to Freedom’s pension plan, which is now 80% funded.
Kushner appears unfazed by the mix of confusion and frustration prevalent in the industry. Donald Graham, chairman and CEO of the Washington Post Co., this month explained his family’s decision to sell its namesake newspaper to Amazon.com founder Jeff Bezos by saying, “The newspaper business continued to bring up questions to which we have no answers.”
Kushner believes that he has answers that industry veterans have overlooked.
“The whole answer isn’t in yet,” said Morton, the industry analyst. “But there are a lot of people watching.”
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