America’s local newspapers are struggling to stay afloat. Since 2005 roughly 2,200 of them have folded. Private-equity firms, which often swoop on companies in distress, have descended on the industry. Nationwide the share of newspapers owned by private equity increased from 5% to 23% between 2001 and 2019. The covid-19 pandemic has presented new opportunities for private-equity firms to purchase troubled media companies. Many fear that their readiness to slash costs while seeking out new revenue sources will be bad for newsrooms. New evidence suggests that it’s not quite that simple.

Private equity is keeping newspapers in business. In a new working paper, researchers at the California Institute of Technology and New York University compare how newspapers that were purchased by private-equity firms fared relative to those that were not. They found that newspapers that were bought were 75% less likely to shut down. Daily papers were also 60% less likely to become weekly publications (a common downgrade for suffering newspapers). Buy-outs, this suggests, could be a lifeboat for the struggling industry.

But there’s a catch. After private-equity buy-outs, papers laid off reporters and editors. Across a sample of 766 American newspapers (accounting for around 45% of total circulation), the researchers found that payrolls were about 7% lower at papers with new private-equity capital than if they had not been bought out. They also found a 16.7% relative decline in the number of articles written within five years of the buy-outs (though, admittedly, that is better than going out of business). And they identified a change in focus from local to national news: the share of articles on local politics dropped by about a tenth.

For investors who want to make profits fast, local coverage is a losing battle. But its absence is taking a toll. Readers are increasingly apathetic towards local news—a survey in 2018 by the Pew Research Centre, a think-tank, found that only 14% of respondents paid for local papers that year—and instead seek out national online media. Local reporting is expensive, because it requires journalists on the ground and cannot be syndicated. In a study published last year, researchers at Colorado State University, Louisiana State University and Texas A&M University concluded that when readers consume national news their views become more polarised. Poor local coverage is also associated with less competitive mayoral elections, and newsroom staff shortages are linked to lower voter turnout.

The authors caution that they cannot estimate the general causal effect of private-equity buy-outs, but only the effect on the newspapers in their sample. Private-equity firms do not purchase newspapers randomly. They target failing newsrooms with potential for turnaround; papers with low circulation but high advertising rates were more likely to be bought, they found. But for the newspapers studied, the buy-outs may have been what allowed them to survive. The accompanying weakening of newsrooms may be the lesser of two evils. ■

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