When historians come to write the history of the newspaper industry over the last two decades, they’ll talk about how newspaper companies squandered it all with a series of unfortunate — and often short sighted — decisions.
I want you to read what Alan Mutter had to say about newspapers in his latest blog post. Think about this for a second:
If newspapers had invested in new products even a modest fraction of the bodacious profits they reaped in the last decade and a half, they might have invented anything from MarketWatch to Yelp to Google.
Instead, publishers concentrated on accelerating profits to lift the stock prices that determined their bonuses and/or borrowed what proved to be dangerously large sums of money to buy more of the newspapers they regarded as perpetual money-making machines.
Most newspaper companies are still money-making machines, with profits that far outpace the typical Fortune 500 company. The problem? Massive debt burdens.
Cheap credit earlier this decade led a lot of newspaper companies to make a lot of really bad decisions (well, a lot of industries are facing this same problem right now). Companies were gobbling up newspapers left and right, and now those acquisitions are worth a fraction of what they paid for them. Many of them are simply over leveraged now.
To put this in perspective, Journal Register Co., a publisher that already has defaulted on its reckless debt, still generated a 16.9% operating margin in the last 12 months. That surpasses the margins in the same period of such companies as Exxon (15.7%), General Electric (14.2%), Boeing (8.7%), Wal-Mart (5.8%) and Amazon.Com (4.7%).
This vapid struggle to remain profitability may be the final nail in the coffin for several over-leveraged newspaper companies:
The bitter irony for the newspaper industry is that the desperate reductions in staffing and newshole are compromising dangerously the quality of the products that built each of its valuable franchises. The compromises, which typically dismay most loyal and discerning newspaper readers, are likely to speed the declines in circulation and sales that are the root cause of industry’s faltering profitability.
If you’re a newspaper reader, how much longer will you consume a product that is continuously getting worse? Less news, shorter stories, more ads, less sections, etc.
The Washington Post and The New York Times are two papers that are not owned by over leveraged companies. Their brands have remained strong during these troubled times. Many smaller publications like weeklies are doing fine as well.
But the papers of Tribune, McClatchy, Philadelphia Media Holdings, Journal Register, Lee Enterprises, et al?
Not so much.