Dan Gross has an excellent discussion of why so many newspapers are going belly up. No, its not the internet — though “every time a newspaper company closes or files for bankruptcy, someone is quick to hammer another nail in the coffin of the printed word.”

The actual reason is really boneheaded moves by really dumb management. Slate:

“Let’s review. Sun-Times Media is the name given to the company formerly run by convicted felon Conrad Black. Black and his colleague, Publisher David Radler, who confessed to his crimes, improperly took tens of millions of dollars in fees from the company and caused it endless legal heartache…

In 2007, legendary real estate investor Sam Zell decided that a talent for good timing in flipping office buildings made him an expert on the ailing newspaper industry. In December 2007, he closed on the $8.2 billion purchase of the Tribune Co., which owned the Los Angeles Times, the Chicago Tribune, and the Chicago Cubs. Zell put down just 4 percent of the purchase price—$315 million—and borrowed much of the rest, leaving the company with a $13 billion debt burden. This deal was the purest expression of the “dumb money” mentality . . . Tribune Co. filed for bankruptcy Dec. 8, 2008.

Two of the other large newspaper companies that went bust in recent months have similar back stories. A bunch of private-equity types bought the company that owns the Philadelphia Inquirer and Philadelphia Daily News in June 2006, borrowing about $450 million of the $562 million purchase price. The company filed for Chapter 11 bankruptcy protection in late February but not before paying top executives $650,000 in bonuses in December. Among those getting a bonus: Brian Tierney, the former public relations executive who was one of the architects of the deal. The Minneapolis Star Tribune, which filed for Chapter 11 in January, was another private-equity train wreck. About two years ago, Avista Capital Partners bought the paper for $530 million, loading well over $400 million of debt onto the company.

In other words, the newspaper companies that have failed wholesale were essentially set up to fail by inexperienced managers who believed piling huge amounts of debt on businesses whose revenues were shrinking even when the economy was growing was a shrewd means of value creation.”

I often rail on the MSM, so let me say something non-critical for a change.

Its easy to notice all of the high profile banlkruptcies, we often over look the non events — the papers getting by, transitioning to the internet, serving local audiences.

Blame selective perception . . .

>

Previously:
Don’t Follow Wealthy Investors, Part 14 (February 2008)

http://www.ritholtz.com/blog/2008/02/dont-follow-wealthy-investors-part-14/

Source:
Paper Money
Newspapers aren’t assets to be flipped, leveraged, and stripped.
Daniel Gross
Slate, Wednesday, April 1, 2009, at 4:19 PM ET

http://www.slate.com/id/2215154/

Category: Financial Press, Markets

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

40 Responses to “Why Newspapers are Dying (not what you think)”

  1. i believe one of the biggest investors in the philadelphia papers was bruce toll of toll brothers. you could put him in the sam zell column.

    perhaps for him there was more symbiosis with purchasing a major media outlet in the areas he sells in. either way it was foolish.

    _____

    on the market side – xlf/bkx is showing weakness compared to the overall market breakout. just took a swipe on the short side.

  2. bernandoo says:

    What about the NYT and WAPO? They’re both in hard times and neither are run by private equity…

  3. JustinTheSkeptic says:

    Off Topic: Anyone got a handle on the 61.8 Fib, on the Dow? I have it at 8,090.19…

  4. Hal says:

    kind of makes you wonder if Zell has been more lucky than talented. The right place at the right time theory.

    On the other hand, he was smart enough to use other peoples money in buying the Tribune. Very little downside for him, not great for the business and the people. But does he really care about the people. Proobably not–just the closest to him.

    btw–mark to fantasy is not much different than subprime–lie about assets and earnings in application–no checking. Lie about balance sheet value–no problem. Pre approved.

  5. tawm says:

    The NYTimes in particular mostly publishes crap — pushing opinion and biased editorializations as “news.” Paul Krugman used his column to rail about politics more than contribute valuable economic views. Frank Rich is a pompous bore? It’s hard to separate the news from the editorial page.
    On a business level, how much demand is there for pretentious, elitist, faddish, New York City- liberal viewpoints? The true believers (Environmentalism as the new religion) can get the same propoganda for free from many other media.
    After all their leftist dogma and destructive attacks on other institutions — the police (racist), the Catholic church (child molesters), Christianity (hypocritical), white Corporate America (corrupt), and anything conservative (vast white-ring conspiracy) — it’s deliciously ironic that they’re stuck in a high-cost city, heavy organized labor burdens, and a shrinking market of employed consumers who can afford / desire to pay for a regional rag posing as an international “paper of record.” The gray lady is dying, but no tears are shed here. Good riddance.

  6. “In other words, the newspaper companies that have failed wholesale were essentially set up to fail by inexperienced managers who believed piling huge amounts of debt on businesses whose revenues were shrinking even when the economy was growing was a shrewd means of value creation.”

    “…have failed wholesale were essentially set up to fail ..”

    who lent the ‘money’(wholesalt)? who, subsequently, bought the ‘loan’(retail)?

  7. tawm,

    at least the NYT is up front about it, they’ve been telling peep, for years, that it’s: “All the news, that’s fit to print”
    ~~
    also, above, spelling error: (wholesalt) t=e

  8. xlf severely lagging – this should exhaust itself TODAY.

  9. Mannwich says:

    For years now executive management has been incentivized to basically loot their own companies for their own personal gain, everything and everyone else be damned. Who cares about reality. Just dress it up a bit so I can get my bonus, goose the stock price, cash out my stock options, collect my golden parachute/pension, and move onto the next con, I mean, job. We have a crisis of leadership everywhere you look. It’s all about “getting mine” while I can. “Who cares what collateral damage it leaves behind in its wake. I’m a capitalist, dammit and capitalism is God.” Dishonesty, fraud, incompetence and preying on our others have become the norm. Pretty nice, isn’t it?

  10. Marcus Aurelius says:

    bernandoo’s comment about the NYT and WAPO is too important to overlook.

    We have experienced the dumbing-down, politicization and propagandizing of what were formerly true “news” organizations. What was formerly an adversarial relationship – that between the newspapers and the interests they investigated – has become a cozy relationship marked by access to “inside” information and functionaries, for the cost of repeating the party line.

    Too often, what passes for news is misinformation, at best. A good example is Chris Whalen’s earlier post here at TBP – AIG: Before CDS, There Was Reinsurance. I doubt many papers will run stories related to this chicanery, and those that do will bury the story in favor of fluff.

    The public wants less reporting and more investigation. If they can’t get hard facts and critical analysis from traditional sources, they’ll turn to non-traditional. The public (a.k.a. The Market) is speaking clearly to Big Corporate Media.

  11. some things should be re-read:

    Marcus Aurelius Says: April 2nd, 2009 at 11:10 am

    bernandoo’s comment about the NYT and WAPO is too important to overlook.

    We have experienced the dumbing-down, politicization and propagandizing of what were formerly true “news” organizations. What was formerly an adversarial relationship – that between the newspapers and the interests they investigated – has become a cozy relationship marked by access to “inside” information and functionaries, for the cost of repeating the party line.

    Too often, what passes for news is misinformation, at best. A good example is Chris Whalen’s earlier post here at TBP – AIG: Before CDS, There Was Reinsurance. I doubt many papers will run stories related to this chicanery, and those that do will bury the story in favor of fluff.

    The public wants less reporting and more investigation. If they can’t get hard facts and critical analysis from traditional sources, they’ll turn to non-traditional. The public (a.k.a. The Market) is speaking clearly to Big Corporate Media.

    “We have experienced the dumbing-down, politicization and propagandizing of what were formerly true “news” organizations. What was formerly an adversarial relationship – that between the newspapers and the interests they investigated – has become a cozy relationship marked by access to “inside” information and functionaries, for the cost of repeating the party line.”

    and, file under: Ripley’s, if you must: “The public wants less reporting and more investigation. If they can’t get hard facts and critical analysis from traditional sources, they’ll turn to non-traditional. The public (a.k.a. The Market) is speaking clearly to Big Corporate Media.”

  12. tCA says:

    @Mannwich 11:08 am-

    Your take sounds like a smaller version of what happened with the banks. Not a lot of publishers/editors talking about the nasty mis-management of newspapers. I guess it wouldn’t sell as many papers. We have to have one of the best examples with the Strib/Avista Partners deal back a few years ago.

  13. Marcus Aurelius says:

    Thanks, MEH.

  14. ” Dishonesty, fraud, incompetence and preying on our others have become the norm. Pretty nice, isn’t it?”

    “”Lenin is said to have declared that the best way to destroy the Capitalistic System was to debauch the currency… Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million can diagnose.”
    from our favorite Poli-Sci Dean, JMK
    http://quotes.liberty-tree.ca/quote_blog/John.Maynard.Keynes.Quote.2BCF

    Mannie,

    like Night follows Day, and the Day divides the Night..

  15. tCA says:

    MEH and the rest of you-

    If you wanted to diversify your currency (USD) exposure, not as a trade, but as a longer-term strategy, how do you do it? Whose currency do you buy and do you do it by holding the actual bills, an ETF, a diversified portfolio denominated in that currency, or some other way? Or, do you just buy hard assets?

  16. Mannwich says:

    I’m starting to come around to the reflationista (karen, leftback) camp. Is there still room for me on the R Train? All of these actions (every single one) points to reflation. I’ve been thinking it’s too soon for it but am now thinking I might have been wrong. Time to load up in preparation for it.

  17. It’s little wonder a Toll Brothers brother bought a newspaper in his home town. He probably already half-owned it anyway with the real estate ads he bought.

    Local newspapers are dying because they are heavily reliant on automobile and real estate advertising revenues, both of which have crashed in the last six-twelve months.

  18. tCA Says:

    April 2nd, 2009 at 11:35 am
    MEH and the rest of you-

    If you wanted to diversify your currency (USD) exposure, not as a trade, but as a longer-term strategy, how do you do it? Whose currency do you buy and do you do it by holding the actual bills, an ETF, a diversified portfolio denominated in that currency, or some other way? Or, do you just buy hard assets?

    Like Bono would sing…”silver and gold”.

    Or, copper, oil, corn, wheat, rice, palladium, you name it, if it’s traded on international markets and can’t printed, it can act as a hedge against too much money.

    Personally, I prefer gold and oil. And bullets.

  19. Good article. I think I posted a related article here a while back about the threatened closing of the SF Chronicle being an attempt at union busting the printers union and moving all paper printing operations to a brand new, non-union $200 million printing plant in northern CA. So, as usual, all is not as it seems in this crisis induced faux newspaper crisis that is more about exposing incompetent management than it does a dying industry

  20. tCA says:

    Crumudgeon,

    When I lived briefly in northeast Indiana, not too far from the county that allowed the KKK to rally at the county courthouse, we saw a store that may be a solid investment play. It advertised being a story for “booze, butts (cigs), and bullets.”

  21. tCA,

    Curm gives the heads-up, Paper, no matter who’s it is, can be defaulted on.

    also, ETFs, CONEX, et al. are, just, different Papers..

    and, Bank ‘Safety-Deposit’ (boxes) should be viewed as the oxymorons they, truly, are.

    also, remember, if you can’t eat, you can’t do much else..

    Maslow’s hierarchy should be kept in mind, and, the old adage: “Trade what you cannot Keep, for that which you cannot Lose.”

  22. tCA,

    up the pyramid, from that, I like ‘developing’ Economies with Trade Surpluses..

    and, keep in mind, we live in a ‘political’ World, thereby, Geo-Political Risk is, anywhere, found..

  23. zitidiamond says:

    Gross overlooked a principle culprit in the dramatic readership decline in msm titles: High Broderism or a view of the world as seen from the perspective of Washington (DC, of course.) I like Daniel Gross, but Slate should have stayed in Washington State.

  24. tCA says:

    Thanks, guys!

    MEH,

    I’m guessing the “economies with trade surpluses” would start with China and include the Brazil’s and India’s of the world. Yes, I ignore Russia.

    I long for the day that “the market” isn’t the S&P 500 and it’s more of a global benchmark. As an American, maybe that wouldn’t be entirely good, but that’s where we’re heading. However, when talking to other Americans, particularly operational managers (e.g. CInvO’s, etc.) of mutual fund families, there’s great discomfort in talking about using a benchmark that doesn’t put the US in the center. I don’t think it’s because they’re stupid, but rather how they get paid. In other words, it is what it is (…if I knew what the definition of “is” is) and at least we know their bias.

  25. Darmah says:

    I’m shocked, shocked that there are more examples of executives mismanaging and running companies into the ground.

    Kinda what happens when the culture extols the virtue of megalomaniacs and sociopaths — if not by word, then certainly by action.

  26. Paul S says:

    Of course it’s the internet, and the prevelance of new techonolgy in general- or have you all somehow not noticed everyone walking around staring at their Blackberries, Palm Pilots, Iphones and Ipods?
    Nobody has the time or the interest to read newpapers anymore- it’ all out of date hours after it’s printed anyways- that and the cost of the damned printed versions- $1.25 for the Times!?!
    Of course it’s new techonolgy and cultural changes- I can’t believe anyone would think otherwise.

  27. Anonymous Jones says:

    This article shows a fundamental misunderstanding about poor capital structures. Bankruptcy does not mean that the business in question is not viable. It means that the equity in the capital structure is valueless (insolvency) or that the company is not able to meet certain payment obligations currently (illiquidity). Neither of these things necessarily implies liquidation must occur or that poor management (other than in capital structuring) is the cause of the bankruptcy.

    In other words, newspapers were not run out of business because of “too much debt.” They were merely put into bankruptcy by creditors because of too much debt.

    Obviously, if newspapers are in fact becoming less viable, it is probably because of structural changes in their market, like low price competitors (e.g., free provision of the news over the internet and MORE IMPORTANTLY, lower advertising revenue on the internet vis-a-vis print circulation).

  28. tCA,

    w/this: “I’m guessing the “economies with trade surpluses” would start with China and include the Brazil’s and India’s of the world. Yes, I ignore Russia.”

    I’m a sucker for the old “Monroe Doctrine”, and while I don’t mind that ‘the week’ starts on Sunday Evening, most peep, myself included, like to sleep at Night.

    LSS: managing Globe-Girdling supply/trade-chains will, if there’s any Sense left, be, more rapidly, seen as Ecological/Economic Nightmare it really is..even the fickle Finance boyz are starting to figure it out..

  29. Nobody has the time or the interest to read newpapers anymore- it’ all out of date hours after it’s printed anyways-

    If you think about that, and I have before, then magazines should have died years ago. They don’t provide up to the minute content. I think that is probably the secret to the future of newspapers, if they have any future at all. If they start to focus on providing information content where they can compete instead of up to date news and stats, which is where the ‘net will kill them, then I think they can have a chance. Instead of reporting the news cycle they have to spend their resources on driving the news cycle with information their readers want and need, something the net does well, and I think then they will keep their readership.

    They need to get past the attitude of the bully pulpit and seek to be a voice for their readers. I think gone are the days that newspaper content is used to push an agenda

  30. JasRas says:

    Homogenization. That is what killed newspapers. That is what is killing radio. Homogenization.

    You can talk debt. You can talk managers out of their element. But the death nell has been a complete lack of differentiation among most papers. Gannett and other aggregators really started it. When you replace local stories and local flavor with column inches of wire stories that can be attained anywhere, you have removed the unique value prop of the local newspaper. If I want that, I use the internet. But I have no good source for city council meetings, school board mtgs, local business happenings, school sports, etc. because most of those reporters were let go.

    Local radio suffers from the same plight. Clear channel and others made them all the same. Is there a part of the country that doesn’t have JACK-FM? Or a show by that one dude who is on American Idol, E!, and a half a dozen other shows? There is still good music being made, but DJs and radio are either too lazy to ferret it out and play it.

    The problem is lack of vision. If the path one takes is down the middle, one is sure to fail by impressing no one.

    We suffer from management with no balls. That’s it. The entertainment industry (newspaper, radio, tv, music) is full of people with no vision, no thought, “me too” Babbets…

  31. Mannwich says:

    Great point, JasRas. Totally agree.

  32. JasRas,

    nice points, though re: Homogenization. thank the SPX..it’s the ‘benchmark’, wouldn’t you know?

    S&P 500-ization of yon’ countryside, from coast-to-coast-to-coast, full-speed Ahead, 168. .

  33. flipspiceland says:

    Running any business, whether it’s newspapers, auto companies, retail stores, software, banks, investment banks, housing, state government, the Federal Government—any business– has gotten tougher and tougher and tougher. More and more just an escalating gamble.

    The forces pulling at nearly all enterprises require a set of skills, intelligence, imagination, and energy that few humans possess.

    Aside from the Federal government which can do anything it wants (and that, for only so long) all other entities have entered a world that is riven by ever more complexity and game changing paragdigms.

    To believe that some other person could have saved, say, GM, when it has devolved over many labor contracts to an unprofitable juggernaut incapable of effective change from within, is folly. The new guy won’t fare much better. He will subsist on government handouts, a ward of the people, because the most natural thing will not be permitted to happen (liquidation) on a government watch.

    Running the United States is equally fraught with peril, chance, and dice rolls. It just can’t be done. It is too complex, takes on too much responsibility, and is populated with lunatics, crooks, and psychopaths, masquerading as politicians.

    Our hospitals, medical programs, health insurance companies, are all in trouble and have been for years.
    The administrators of these firms not up to the task of managing a casion environment. And now even the casinos cannot thrive.

    Our models are failing and new ones are not evolving quickly enough with the veterans protecting their own turf until the roof falls in.

    I don’t know if any one on earth possesses enough vision to turn around any failing entity without a “fix” being put in like it has with the remaining investment banks.

    I don’t think we appreciate–we are stunned yet–by the complete and swift failure of our institutions, and our corporations like Merrill Lynch, AIG, Lehman, Bear Stearns, GM, Ford, Chrysler, and their suppliers and all the banks that have closed up shop.

    It’s as of there was a war with no bloodshed, and all around us is devastation, walking wounded, and even more danger on the horizon.

  34. impermanence says:

    Newspapers are dying because they suck.

  35. willid3 says:

    maybe media are dieing because their customers (the ones buying advertising. like car companies, airlines, etc) quit buying. since they are all in trouble, and their customers have also quit buying their offerings. which tend to be consumers. and we know they have quit buying. cause they can’t afford to buy any thing any more.
    won’t be long a lot more companies will be failing cause they took on to much debt betting the consumer would keep buying stuff. well thats stopped
    and maybe its this http://www.star-telegram.com/ed_wallace/story/1270541.html

  36. S Brennan says:

    “Newspapers are dying because they suck.”

    The reason they suck…this will sound counter intuitive… drum roll please…

    is that they print their advertisers and publishers views FAR too often. Those views tend to be antagonistic to their readers, WSJ, being an exception. So while their advertisers are happy, the readers are not.

    Even though the advertiser is the real customer, sometimes your customer does not have YOUR best interest in mind.

  37. dunnage says:

    Personally I’ll stick with blaming all the newspapers going out of business.

  38. tmccart says:

    If you’re inclined to revisit the Conrad Black trial, you’ll find that he and Radler charged the company, with board approval and full disclosure, a non compete fee upon the sale of one of the Sun Media tabloids. This was a charge agreed to and paid by the “aquired” company and not the Sun Times.
    I believe you may want to have a conversation with Gord Paris and the former Secretary of the SEC, Bandeen to enquire as to the whereabouts of the hundreds of million of shareholder equity that evaporated while Black was defending his reputation in a Chicago court room against the state, intent on ruining the Chicago Tribune and running for public office.

  39. look, see something like this:

    “Ain’t this just great !

    First Cleveland, now Columbus.

    The TVNewsday and TVB/Television Broadcast trade websites report that Columbus is now the second Ohio TV market where two different newsrooms will “pool” news footage of events such as press conferences or other planned events.

    The players in Central Ohio dipping into the News Sharing Pool? Media General NBC affiliate WCMH/4, and Sinclair ABC affiliate WSYX/6-Fox affiliate WTTE/28.

    Quoting TVNewsday’s report:

    The stations’ assignment desks have built a back channel to communicate with each other and a workflow to schedule shoots.

    According to WCMH, “content sharing between stations has been done for years through pool type situations and now the NBC, ABC and Fox affiliates in Columbus will work together to share resources. Instead of sending two crews to shoot the same press conferences, for example, the stations will send one crew allowing more efficient use of other station crews.”…”
    http://adap2k.blogspot.com/2009/04/cleveland-columbus-newsrooms-will-pool.html

    read some stuff like this: http://w2.eff.org/effector/22/

    see: The bill, authored by Sens. John Rockefeller, D-W.Va., and Olympia Snowe, R-Maine, moves cybersecurity authority to an as-yet-unnamed cyber adviser who will report to the president. The wide-ranging measures also include sweeping new regulations to plug the vulnerabilities in both government and the private sector that could leave the nation open to cyber attacks or data theft.

    In fact, the new provisions go beyond extending security rules to all government agencies, government contractors and software vendors selling to those groups. They would also be stretched to the private sector’s so-called “critical infrastructure” companies–those typically deemed crucial for national security.

    But given that the words “critical infrastructure” aren’t defined in the bill, Center for Democracy and Technology (CDT) President Leslie Harris argues the new regulations could cover not just water distribution, the power grid and banks, but also telecommunications, Internet service providers and even Internet application companies like Google ( GOOG – news – people ) and Microsoft ( MSFT – news – people ). …

    LSS: consolidation is easier to control, it’s Kissinger’s “Realpolitik” applied, con mucho gusto, to our domestic Economy~”Stability” is preferable to Liberty..

    whack out the # of ‘official’ Sources, clamp down on would-be competitors, tag n’ bag anyone moving around, and, presto, the World is your Plantation~

    should be fun..

  40. curmudgeon2000 says:

    Despite all the hand-wringing about poor journalism, entertainment
    presented as news, and political bias in reporting, I’ve always thought the
    reason for the ongoing demise of the printed newspaper is pretty simple.

    As I understand it, the biggest piece of newspapers’ revenue by far was
    the classified ad business. With the aid of the Internet, one man with a
    plain, text-only web site just about single-handedly sucked hundreds of
    millions of dollars away from them. Craigslist, and to a lesser extent
    eBay, along with all other similar sites, are the biggest cause of the
    newspapers’ financial troubles today.

    Starting in the mid-90s, newspaper pundits wrote column after breathless
    column about how the Internet was going to change everything. It would
    appear that newspaper executives and owners don’t read their own product,
    or pay no attention to it if they do.