Tribune Bankruptcy Tops List of Newspaper Stress
Important Details: If December 21st is the darkest day of the year in the Northern Hemisphere, it looks like it is arriving early. The week’s news in the US newspaper industry has cast a pall, as newspapers gird for a first half of 2009 that makes their 2008 look relatively good. And that would be quite a trick, with revenue numbers getting increasingly worse through the year, the third quarter coming in at an 18% decline year over year.
- The Tribune Company declared bankruptcy on Monday. Owner of 10 daily newspapers (including the Chicago Tribune, the L.A. Times, the Baltimore Sun and the Hartford Courant), 23 television stations, WGN America, WGN-AM and the Chicago Cubs baseball team, the Tribune’s massive $13 billion debt overwhelmed its diminishing cash flow, as ad revenue turned down. It was less than a year ago that buyout artist Sam Zell took Tribune private, assuming much debt (see Insights 3 April 2007, Tribune Sale Concludes in $8 Billion Deal). His company has since walked a tightrope with lenders, as cash flow increasingly failed to meet debt payment needs. When the market for selling newspapers seized up, in part because of the wider credit freeze, Tribune was forced to declare bankruptcy.
- The Star Tribune, the Twin Cities’ largest paper, acknowledged that it had missed a $9 million quarterly debt payment to senior creditors. As it restructures debt, it said bankruptcy was an option in consideration.
- Scripps announced that it is putting its 150-year-old Rocky Mountain News title up for sale, with bids due by mid-January. The paper has been losing $15 million a year, according to the company. Given the current glut of newspapers on the market, officially and unofficially, it’s unlikely the paper will find any buyer, and will close in the first quarter of the year.
- The New York Times said it has plans to mortgage its new signature building in midtown Manhattan, gaining up to $225 million. The Times owns 58% of the 52-story, 1.5 million-square-foot tower on Eighth Avenue. One of the Times’ credit lines is due to expire next year, and company explained its move as making sure it has adequate cash flow in 2009.
- Fitch Ratings Service issued a dire prediction, saying, “Fitch believes more newspapers and newspaper groups will default, be shut down and be liquidated in 2009 and several cities could go without a daily print newspaper by 2010….Much of the business risk for the media sector is likely to continue to be concentrated within the newspaper sub-sector. Fitch expects newspaper industry revenue growth will be negative for the foreseeable future as both ad pricing and lineage will be under pressure within each of the four main components of newspaper companies’ revenue streams: circulation and local, classified and national advertising. Newsprint costs could rise, and it could be difficult to offset revenue declines with cost cuts.”
Unfortunately, that’s just the tip of the bad news iceberg, as all newspaper companies struggle to prepare for a down 2009.
Implications: “Bankruptcy” has certainly sent a chill down the spine of newspaper executives and their lenders. That chill is felt despite the fact that renegotiation of debt is nothing new for embattled publishers, as many have taken prudent steps to restructure terms with their bankers over the last six months. Smartly, they are girding for a poor first half of 2009 and an uncertain 12 months following.
In essence, Outsell believes, all the market moves noted above reflect a bid to buy time. It’s an uncertain bet, but the only one publishers can make. As they accelerate their development of their digital businesses, winding down their print ones with such models as East Valley Tribune’s (see Insights 21 November 2008, The Promise and Peril of Flipping the Switch), they’ve got to smartly conserve cash, cut costs and preserve the content and sales cores that will determine their abilities to recover. That’s a narrow channel to navigate, as newspaper companies face winter and hope for a better spring.