Dave Danforth19.TIF

Hedge funds will fry your brains. They gobble up newspapers, lured by the scent of bargain-basement prices. These papers, in turn, are selling so cheap because their owners are still intent on selling copies, one by one, to readers in an era where most compelling content is “free” instead.

Hedge funds represent Other People’s Money, out shopping to make a buck. Originally meant as “hedges” against turbulence, they’re generic today. It’s OPM, often bound for trouble.

Like business buyers, the first thing that hedge funds do when they set up shop is look for a way to cut costs. In the world of printed news, they head straight for the newsroom. Why not whittle down the pile of money being wasted on “the news?”

What’s left are boring papers, shorn of in-depth pieces. In the end, the papers become a listing of rosy 4-H club events and other news sanctioned by the local chamber, or other arbiters of “good news.”

Sorry to say, but readers will be drawn more to a story on a messy bankruptcy than to one detailing the latest start-up fashion shop.

News is a miserable mess of money that pays for items that have, to the average investor, little value. With a cut, many might get hurt, but few will notice. Investors, all out of state, will do better when the owner is institutional rather than individual.

When the disease spreads, it infects papers once proudly known — and read — because they kept us awake.

The Denver Post, owned by a group controlled by Alden Global Capital, was the scene of a newsroom uprising in which distressed journalists actually printed their pleas for an owner who favored real news. Hedge funds are snooping around in Salt Lake City, where one of the two papers is owned by a Huntsman, from a wealthy family who’s trying to figure out how to “save” his paper.

There’s a new class of owners whose money gives them the luxury to spend time in search of a solution. Amazon’s Jeff Bezos is credited with beefing up the Washington Post so much that Donald Trump simply assumes Bezos is out to get him.

Today there’s a huge upside to being branded “failing” by the president. It’s a little like the distinction awarded to a member of Richard Nixon’s “enemies list.”

The Sulzberger family of the New York Times annually renews its vows for journalistic excellence. The Los Angeles Times and Boston Globe are in the hands of owners who appear to be motivated at least as much by making their products worth reading as by return on investment.

The ROI fever is a crisis for smaller papers because, as their values plunge, hedge funds smell blood. A paper, like any business, is valued by a multiple of cash flow, which varies by industry. It is boosted by growth (which made Uber such a risky lure). Some investors will assume the product won’t live forever. Berkshire Hathaway, the Warren Buffet-owned conglomerate, has been interested in small papers, taking into account life expectancies.

What does this mean for the mass of small dailies left in the U.S.? A hint is right here in Aspen, where the two dailies don’t rely on selling single copies. When the Daily News grew in the late 1980s as a “free” paper, it could rely on rapidly-increasing circulation to fuel advertising sales. This prompted the Aspen Times, a weekly with a faithful paid-subscriber list, to go daily in 1988 with a free paper. Today, the competing papers are each larger than any comparable paid paper in most of the U.S., while competition keeps ad rates far lower than they’d be in monopoly, single-paper markets.

The lesson here is that the network television model would work better for papers than their usual “granddad did it this way” approach. Make the content free, boosting circulation and advertising. Calling a free paper a “throw-away” ignores what’s in it. Free programming doesn’t hurt TV networks, and streaming is decimating cable TV rates.

This doesn’t hold much hope for the remaining paid dallies with circulations under 10,000. Most can’t imagine how to convert to free circulation, but they’d be better off if they did. They’d face the “dilution” of losing paid subscribers, but their circulations would take off towards 20,000 or more, drawing the “stimulative” effect of advertisers in search of higher circulations.

A handful of start-up, free dailies over the last 30 years proves the point; we haven’t seen a paid daily undergo a straight-up conversion. Yet that’s the logical next step to ward off the march of hungry hedge funds.

The Palo Alto Daily News, begun in 1995 as a free paper, grew rapidly and sold to a (non-hedge fund) chain in 2005.

The chain, sadly, ran it as a hedge fund would. Today, local critics all it the “Not-Palo Alto Not-Daily Not-News.” To save money, the owners fled Palo Alto and moved their headquarters to Menlo Park. To save more, they print on Fridays only (but maintain a website). And the news has more of the feel of separated-at-birth from the real estate industry which supplies many of its ads.

The ideal conversion, done to save a daily from hedge-fund purgatory, is still a bright idea in search of a flag-bearer.