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The Weekend Pitch |
February 21, 2021 
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Presented by Masterworks |
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Hedge funds are used to bad press. But it is rare for one to become as widely reviled as Alden Global Capital, a fund that's grown infamous among journalists and politicians alike for its parsimonious approach to newspaper ownership. Alden's empire of media outlets is vast, and its list of critics is impressive. Impressive might not be the right word there.
This week, Alden added to its portfolio with the acquisition of a 173-year-old newspaper icon, prompting fresh outcry about the fund's outsized impact on an industry that's more integral than most to the functioning of a healthy democracy. Meanwhile, half a world away, two of the world's biggest tech companies were engaged in a high-profile battle of their own with the Australian government, one that could have major implications for the future of newspaper economics.
Welcome to The Weekend Pitch. I'm Kevin Dowd, and you can reach me at weekend@pitchbook.com. A quarter century in, the news industry is still struggling to adapt to our internet age. And that's one of nine things you need to know from the past week: |
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| The famed newspapers in Alden Global's portfolio keep piling up. (Peter Dazeley/Getty Images) |
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1. Read all about it
For most of the 20th century, a steady stream of print advertising revenue was the lifeblood of local newspapers across the US. That model was obliterated by the rise of the world wide web, and in the first decade of the 2000s, a reckoning arrived.
Subscriptions plunged. Advertisers fled to the internet. Newsrooms were forced to cut staff and cut back on coverage. And a downward spiral began, with reduced coverage leading to even fewer readers, which in turn led to fewer advertisers, all adding up to create widespread worries about how the industry would survive—and about how millions upon millions of Americans would remain informed about what was going on in their cities and towns.
As economic distress in the industry mounted, a new type of investor took notice. In 2010, Alden Global took control of Digital First Media, a newspaper conglomerate that owns the Denver Post, the Boston Herald, The Orange County Register and other major papers across the US. Jobs were lost. Real estate was sold. Budgets were slashed, then slashed again.
In 2018, the Denver Post published an editorial describing its owners as "vulture capitalists." Joshua Benton, the director of Harvard's Nieman Journalism Lab, wrote in the Boston Globe that "short of setting the place on fire, being bought by Digital First is about the worst outcome possible" for a newspaper.
Which brings us back to this week, when Alden Global struck a deal to acquire Tribune Publishing for $630 million. Tribune is best known for publishing the Chicago Tribune, a staple in the Windy City since 1847, but it also owns several other prominent titles, including the New York Daily News, The Virginian-Pilot and the Orlando Sentinel. All will now likely continue to pare back their journalism in the hunt for increased profit.
Colin McMahon, editor of the Chicago Tribune, gave his employees a preview of what's to come, according to a tweet from NPR media correspondent David Folkenflik. McMahon reportedly told the Tribune's journalists that their fears of Alden Global were "valid," that the paper would likely have to cut back its ambitions, and that Alden Global would seek to increase the company's profit margin from the 10% to 13% range to more than 20%.
Why would a newspaper agree to sell itself to such a buyer? The sad fact is that, in most cases, there's no better alternative. (The Baltimore Sun, which is part of Tribune, is an exception: It agreed to spin out and pursue its future alone under the ownership of a nonprofit led by hotel tycoon Stewart Bainum Jr.). For so many papers that have been integral parts of civic culture for decades, the economic forecast remains bleak.
Huge newspapers like The New York Times have held steady in recent years, buoyed by new subscribers and new digital initiatives. Others, like the Sun and The Washington Post, have found wealthy patrons. But Jeff Bezos isn't going to buy everything. And even a wealthy patron might not be permanent: The Wall Street Journal reported Friday that biotech billionaire Patrick Soon-Shiong, who bought the Los Angeles Times from Tribune Publishing for $500 million in 2018, was considering a sale of the publication. Soon-Shiong and a Times spokesperson both tweeted that the report was inaccurate. But it's a reminder of just how swiftly such a newspaper's future can shift.
And for many, that's the best-case scenario. The vast majority of publications are battling to stay afloat and find some sort of sustainable business model in this not-so-new reality where advertising dollars have dried up and online readers expect to be able to access anything they want for free.
As fate would have it, Alden's purchase in Chicago coincided with another major news-industry story from 9,000 miles away.
For some time now, the Australian government has been on the front line of a global effort to force Google and Facebook to pay news publishers for the content the tech giants display on their respective platforms. This week, the two companies addressed their disputes in two very different ways.
Google struck a deal to pay Rupert Murdoch's News Corp for using the conglomerate's coverage on its search engine, the latest in a series of signs Google is willing to play ball with regulators. Facebook, on the other hand, implemented a ban on all sharing of news coverage on its platform in Australia, opting to eliminate such content from the site entirely rather than pay for it.
It's a highly complicated issue that I won't try to cover in full here. Personally, though, I can see both sides of the larger debate. Facebook has argued that being promoted on its site is a net positive for news outlets, driving traffic and new readers who otherwise would have stayed away. That's probably true. But Facebook and Google are also very much not in the business of charity. They benefit financially, too. And in an ideal situation, it would seem like a good thing if two of the world's richest companies were a little bit more willing to work with an industry that serves as a unique blend of business and public service.
It's a puzzle to which there seems to be no good solution. Which is also a fair way to describe the state of the modern newspaper industry at large.
2. Getting spacey
On Thursday, NASA's Perseverance rover touched down on Mars, the latest step in humankind's ongoing efforts to learn about our planetary neighbor. The successful landing came not long after SpaceX raised a new round of funding, according to a CNBC report, bringing in $850 million at an eye-watering valuation of some $74 billion. Elsewhere, Houston-based startup Axiom Space raised $130 million in funding for its mission of building a commercial space station in low Earth orbit.
3. Amazon's influence
Amazon was active in its own right this week with the purchase of Selz, an Australian ecommerce company that provides Shopify-style services to online merchants. But it was also a busy stretch for companies that might not exist without Amazon's example. Locus Robotics raised $150 million for its autonomous warehouse robots, capitalizing on the widespread embrace of ecommerce. And Standard Cognition raised $150 million from SoftBank and others to help fuel its cashier-less, AI-powered stores, similar to the model of Amazon Go.
4. Dot-coms
Public.com, which operates an app that blends retail stock trading with a social network, raised $220 million this week at a $1.2 billion valuation. Blockchain.com, the developer of a cryptocurrency wallet and operator of a crypto exchange, raised $120 million of its own. Look, there are a whole lot of differences between our current investing climate and the bubble of two decades ago. And these two specific companies may very well both turn out great. But if literal dot-com startups keep raising mega-rounds, I might get more concerned. |
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Once again, dot-com startups are all the rage.
(AlexSecret/Getty Images) |
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5. Green SPACs
My colleague James Thorne wrote recently about the rise in SPACs looking to invest in socially conscious companies. This week brought a pair of new examples. Li-Cycle, which works to recycle lithium-ion batteries, agreed to go public in a deal worth nearly $1.7 billion. And Origin Materials, a creator of carbon negative materials designed to replace petroleum-based products, is set to go public in a merger valued at about $1.8 billion.
6. Litigiousness
Major names in both venture capital and private equity were caught up in legal wranglings this week. Sixth Street sued Dyal Capital Partners in a bid to block the GP stakes investor's planned $12.5 billion combination with Owl Rock Capital, arguing that the deal would turn the combined company into a competitor of Sixth Street, in which Dyal already owns a minority stake. Dyal says the suit is based on a misreading of the contract between the firms. Bloomberg reported that Golub Capital, another lender backed by Dyal, has also "confronted executives" at Dyal to voice its displeasure. In Europe, meanwhile, VC-backed unicorn Epic Games filed an antitrust complaint against Apple, alleging the company's firm grip over the iOS ecosystem is anticompetitive.
7. PE meets policy
A group of Democrats in Congress introduced new legislation this week taking aim at the carried-interest loophole, the latest in a series of recent efforts to scale back a significant tax break for many private equity investors. My colleague Adam Lewis has more on all the details. And in another piece of news at the intersection of Wall Street and Washington, Apollo Global Management appointed former SEC chairman Jay Clayton to be the lead independent director on its new-look board.
8. Betting on betting
When Sequoia, Henry Kravis, Y Combinator and Charles Schwab (the man, not the company) all team up to invest $30 million in a startup, it's probably worth taking notice. Particularly when that startup is as intriguing as Kalshi, which plans to launch a federally regulated marketplace where users can trade "event contracts," essentially allowing them to gamble on yes-or-no questions about future events. The idea is to allow a new way to hedge against other investments—betting on poor weather might offset an investment in crops, for instance. But it's not too difficult to imagine a plethora of other uses, too.
9. No joke
The Second City is a famous name in sketch comedy circles, a Chicago-based troupe that's helped spark the careers of future stars such as Tina Fey, Amy Poehler, Stephen Colbert, Steve Carrell, Chris Farley and many more. Now, it's getting into business with private equity: ZMC, a firm led by veteran media executive Strauss Zelnick, has acquired The Second City, with the Financial Times reporting a price tag of around $50 million.
View the full list online |
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| (Malte Mueller/Getty Images) |
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Corporate venture capital investors have gradually been assuming a larger and larger place in Europe's startup landscape, including a record-setting year in 2020.
What firms are leading the way, and what sorts of companies are they targeting? PitchBook's Leah Hodgson offers a data-fueled look at the current state of play.
Their status as publicly traded companies means some of the biggest private equity firms could also be described as corporate investors, although of a very different sort. A new note from Wylie Fernyhough details how a new focus on fee earnings is shifting strategies at KKR, The Carlyle Group and other powerful PE firms. |
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| No assembly required. (Say-Cheese/Getty Images) |
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At first glance, it would be difficult to think of a more generic name for a company than General Assembly Holdings Limited, as this week's honoree is listed in the press release announcing its new $13 million Series A. Read on, though, and you quickly realize the "assembly" the startup is talking about is what you or I might describe as "making pizzas"—which makes the name either amusingly arch or a wee bit overwrought, depending on your disposition.
I tend toward the former, myself. But by the time I encountered the description of General Assembly's founder as a "sommelier, pizzaiolo, and franchise restaurant wunderkind," there were some second thoughts. |
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Recommended reads
A Texas "energy guru" helps explain want went wrong with the state's energy grid during this week's catastrophic cold front. [Texas Monthly]
Boasting about one's wealth has long been a major motif of rap music. That hasn't changed in the age of the SPAC. [The Wall Street Journal]
Investing has been described as a "fundamentally human activity," one that experts have long believed a computer could never operate profitably on its own. Are they right? [Institutional Investor]
How to have better arguments online. [The Guardian]
Last year's passage of Proposition 22 was a key victory for tech startups in their ongoing battle with labor. Now, the fight over the future of the gig economy is moving into its next stage. [Bloomberg]
This week's successful arrival of NASA's Perseverance rover on Mars could spark a gold rush of scientists seeking to bring back a chunk of the red planet. [The Atlantic]
A look at some of the startups trying to make ecommerce more ecologically sustainable amid an ongoing surge in online shopping. [The Washington Post]
The internet has transformed modern life in an incalculable number of ways. It's changing the novel, too. [The New Yorker] |
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Quote of the week
"If you were a Robinhood user and bought those top 10 stocks every day, you would have lost 97 percent of your money over two years. It's probably one of the biggest negative returns documented by academics."
—Christopher Schwarz, faculty director of the University of California Irvine's Center for Investment and Wealth Management, speaking to Recode about new research on the poor performance of the top 10 newly purchased stocks on Robinhood |
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The Weekend Pitch is produced by editor Kevin Dowd.
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