Posted on 01/24/2008 5:28:09 AM PST by abb
Chris Harte and Brian Tierney aren’t enemies of newspapers. They are just messengers reporting the danger the industry will face if it doesn’t adjust its economics to the new realities of the marketplace.
Sniping at them won’t change the message. So, hold your fire and listen closely to what they have to say:
Newspapers like the Philadelphia Inquirer and Minneapolis Star Tribune are getting dangerously close to defaulting on their debt – a development that would require far more draconian layoffs and expense reductions than anyone has imagined to date.
Worst case, and no one is saying the worst case is upon us, some newspapers could go out of business. Then, where would be?
In the interests of saving as many jobs and as much quality journalism as possible, it’s time for journalists – and their colleagues in the sales, production, circulation and other departments – to stop whining about the glories of yesteryear and start thinking of creative ways to make or save more money.
The deteriorating economics of the industry were underscored for the third day in a row this week when publisher Brian Tierney told union representatives of the two Philadelphia dailies that their company will face “a dire situation” by summer if it he cannot cut operating costs by 10%, according to a Newspaper Guild press release.
The Philadelphia meeting was reported the day after Chris Harte, the publisher of the Minneapolis Star Tribune, issued a strikingly similar warning to his staff.
Two days earlier, editor Jim O’Shea departed the Los Angeles Times after excoriating the evidently modest reductions in the $120 million newsroom budget that had been requested by his publisher, David Hiller.
At each newspaper, the story was the same. Profits are being sapped to an unimaginable and alarming degree by rapidly declining advertising revenues and rising expenses for everything from newsprint to payroll.
Tightening cash flow is a particular problem for the Philadelphia, Minneapolis and Tribune Co. newspapers, because each company has been bought within the last two years with vast sums of borrowed money. As such, a great portion of the operating profit at each company is earmarked to pay interest and principal on the newly acquired debt.
But an unprecedented and sustained deterioration in newspaper ad sales has brought profits in Philadelphia and Minneapolis dangerously close to the point that the new owners won’t be able to remain current on their loans. Purchased little more than a month ago, Tribune has more runway than the other two companies, but a steady decline of its profits, if unabated over time, could put it in a similar position.
Because all three companies are private, they don’t have to publicly discuss their finances. But it is possible to piece together the situation in Minneapolis, based on Chris’ comments and certain public pronouncements by his financial partner, Avista Capital Partners. And here’s the chilling picture:
The Strib’s operating profits fell by 50% in one year’s time to approximately $41 million in 2007. As recently as 2002, profits would have been more than triple that amount, according to knowledgeable sources, who asked not to be identified.
Chris declined to comment on these calculations, saying the newspaper does not publicly discuss its finances.
Based on what I estimate to be the structure of the financing that enabled the Strib to be bought from McClatchy in late 2006, I would put the annual interest on the debt at about $33 million.
If I am right, this would have left the Strib a scant $8 million last year to cover the costs of everything from website initiatives and new video cameras to replacement vehicles and updated pressroom equipment.
While the interest costs would remain essentially the same in 2008, weaker sales or higher costs could quickly erode the $8 million cushion. If the company could not fully pay its interest payments, it would default on its loans and the bankers would step in to restructure the business as rapidly and pitilessly as possible.
In the worst case, Chris and his partners at Avista could lose some or all of the $125 million that I estimate they invested in the newspaper.
Like Chris and Avista, Brian Tierney (plus his investors) and Tribune’s Sam Zell have put hundreds of millions of their own dollars at risk to try to save a few newspapers at the most perilous time in the history of the industry.
Who among us would have been willing to do that?
ping
ping
"There was a land of Publishers and Editors called the Newspaper Business... Here in this pretty world Journalism took its last bow... Here was the last ever to be seen of Reporters and their Enablers, of Anonymous Sources and of Stringers... Look for it only in books, for it is no more than a dream remembered. A Civilization Gone With the Wind..."
With apologies to Margaret Mitchell...
Ahhh! Thursday morning good news. Couldn’t happen to a nicer bunch of folks....LOL
Thanks for the ping!
How is the Washington Times doing financially? Just curious...
Oh please....oh please....
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Not too well. E. W. Scripps is staying about even, as is the Washington Post. But the WaPo is making money only in their Kaplan education division which is like Sylvan Learning Centers - you pay to have your kids taught what government schools failed to teach.
Scripps makes most of their money off cable and tv.
I’ve not perused their pages lately, but I don’t imagine their slant has changed much. Newsies don’t change their biases, even when a new owner takes over. And the Inky’s rot was as deep as any.
The disdain the journalists show for the bottom line will be their downfall. They are shocked that they are part of a profit making enterprise!
To hear them tell it, they do the Lord's Work. You know, delivering The Truth to all us lumpen out here in flyover country.
I don’t think I’ve ever been called “lumpen” to my face before. LOL!!
Yet another confirmation that paying down debt claims most of fishwrap's storied 20% - 40% margins.
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