The Way To Save Newspapers? Kill Some More Of Them

 Ad Age Digital  DigitalNext  MediaWorks The death knell for newspapers has been sounded too quickly. Newspapers are suffering from a confluence of factors, but many of their woes are self-imposed and have solutions, albeit painful ones. Newspapers have an enduring place in today’s fragmented media world. The industry’s survival depends on curing its structural ills and reshaping a new strategy for post-recession recovery.

Cutting away the deadwood
Like millions of American homeowners, many newspaper companies are buried in debt. It was piled on with the anticipation of never-ending profit growth and readily accepted by bankers and optimistic buyers. Tribune Co., the Minneapolis Star Tribune, and the Philadelphia Inquirer and Daily News are already in Chapter 11 bankruptcy, and a number of other major companies will fall soon. They were not capitalised to survive a severe recession; Chapter 11 will provide them with a capital structure to see them through to a better economy.

The big U.S. air carriers have survived Chapter 11, and the big newspapers will too. Industry EBITDA (earnings before interest, tax, depreciation and amortization) margins are 14% to 16%, according to a recent J.P. Morgan analysis of public newspaper companies. While that’s well below the peak of 25%, newspaper companies are generally still reasonably profitable.

The double whammy of excess debt and a severe recession exposes the broader structural issue of excess industry capacity: There are still too many newspapers in America. The newspaper industry will inevitably consolidate further. This is not a new phenomenon. When Horace Greeley published the New York Tribune in 1841, there were 12 papers in New York City jockeying for position. There were 1,773 daily newspapers in 1973, and at last count there are 1,422. The demise of afternoon papers accounts for the entire drop, as 886 of them have folded or shifted to the morning.

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