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Finance Plays a Role in Decline of Newspapers

Adam R.'s picture

Posted March 26, 2009

The mortgage crisis dominates headlines these days.  It is the main focuses of these entries.  That said, there is another problematic trend that is somewhat related to poor lending decisions.

I am talking about newspapers.  For years, people have been expecting print to succumb to the advantages of electronic news delivery. The differences are dramatic.  Newsrooms are probably guilty of not changing with the times.  They are somewhat insulated, and their lack of new readers reflects that.  Newspaper readership is getting older and older.  The obituaries and stock quote listings remain popular for a reason.  Circulation reflects the loss of relevance, or the loss of content. Oh, and craigslist didn't help.

Content is a problem, too.  Young people find fewer and fewer reasons to subscribe to a paper.  A few years back, when I returned to graduate school, I remember realizing that I was the only person in our cohort who subscribed to a paper.  Twenty years ago,  a group of late 20 early 30-year olds with a college education and an interest in civic life would have had a different reaction.  Most would probably have a paper, some, perhaps two subscriptions.  So, the papers weren't cultivating new readers.  Simultaneously, job cuts meant that papers were getting thinner and thinner.

Less content means less readership means less revenue means less content....

Our local paper was sold in 2005.  It had been a family operation.  Now, it is owned by Paxton.  Paxton immediately cut about 15 positions.  There is less coverage, less news, less content.  They do not have a business reporter on staff.  This is always a nail in the coffin.  People won't pay for a product that keeps getting weaker.

Finance has a role in the downfall, nonetheless.  A few years back, the newspapers suddenly seized on the idea that they could enhance profitability by achieving new scale, particularly in back office functions.  The idea was that circulation could work out of one office, for readers in say, Dayton and Atlanta.  Or for readers in Sacramento and Raleigh, I suppose.   Except that this was way off the mark.  It turned out that newspapers were fundamentally a local enterprise.  Surprise!  Local reporting, local readers, service from another state.  What's incongruent here?  Imagine calling a phone bank in India to put a vacation hold on your paper.  Well, that's sort of what they envisioned.

With the vision of new profits, banks went on a buying spree.  You will remember that Knight Ridder was purchased by McClatchyTimes Mirror was purchased by Tribune.  Tribune later sold Newsday, acquired in that deal, for $650 million, to Cablevision.  Thomson shed its newspapers, selling them to Cox.  Lee Enterprises bought Howard.  Lee bought Pulitzer.  In a smaller deal, Ottaway (since 1970 a part of Dow Jones) sold four papers to Community Newspaper HoldingsThe rest of Ottaway became part of  News Corp , when in 2007, News Corp bought Dow Jones.

At the time, the public was less concerned about the impact this would have about the ongoing viability of the model.  Some did complain about the lack of diversity of opinion.  The people at the FCC appeared to have no problem with it.  So, there is another similiarity - regulators put their faith in markets, in spite of citizen protest.

These turned out to be awful deals.  Tribune, having paid $8 billion for Times Mirror, recently wrote down the value of its acquisition by approximately $3.8 billion. It has filed for bankruptcy protection.  Cablevision wrote down about more than half ($402 million) of the value of Newsday.  Lee is almost bankrupt as well. In 2008, it took write-downs of $1.4 billion on its recent spending spree, and another $180 million at the end of this year. The list goes on and on.

Where is all of this heading?  Well, our civic life is going to suffer.  Citizen blogging may have its place, but it is hard to imagine that it will be the same.  Where will the revenue streams appear to support the number of reporters (skilled) that print once employed?

Like a lot of Americans, these papers have more debt than they can handle.  Many newspapers never should have gotten the financing for these acquisitions.  Lee is a classic example - they are still witnessing an operating profit, but debt service is killing them.  KPMG may not be willing to certify them as an ongoing concern.  We'd still have our papers.

There isn't going to be a TARP for newspapers, though. They are going to pass on.  Non-profits might emerge.  Certainly, Poyntner has done a great job in St. Petersburg. We'll see.