Magazine article Editor & Publisher

Appreciating Depreciation

Magazine article Editor & Publisher

Appreciating Depreciation

Article excerpt

Denver JOA book reads well

Blaming its own cut-rate ad deals and low-ball circulation offers for $123 million in losses during the past 10 years, the Denver Rocky Mountain News claims it became a money-loser because it tried too hard to win its war with The Denver Post, according to its request for federal approval of a joint operating agreement (JOA) with the Post.

In JOA application documents filed May 12 with the U.S. Justice Department, the E.W. Scripps Co., owner of the News, said, "[T]he [Denver] papers have remained locked in a death struggle, dueling feverishly with aggressive circulation, advertising and news strategies. ... [T]he consequences of these steps on the News' circulation revenues and costs have been dramatically negative."

But a review of the News' expenses and revenue shows the paper reaped an advertising revenue increase of $76 million over the past 10 years, with overall operating revenue jumping by $67 million. An analysis of the company's $123-million deficit, meanwhile, shows that true cash losses amounted to only about $2 million, with the remaining $121 million consisting of noncash depreciation.

"Depreciation is not money you actually pay out -- it is an accounting charge," said veteran newspaper analyst John Morton. "It is not money you have had to spend."

Scripps countered this position in its application by saying, "[D]epreciation, while not a cash expense, must be taken into consideration because an enterprise that cannot generate enough cash from operations to cover depreciation is not recovering its investment in plant and equipment."

Scripps spokesman Tim Stautberg declined to comment on the specifics of the company's finances, saying only that Scripps is confident its application will be approved by the Justice Department. "You have to prove you are a failing newspaper, and the proposed arrangement satisfies that," he said.

The JOA application blames the News' financial state primarily on its 1995 decision to reduce national ad rates and a penny-per-copy delivery promotion -- which cut some annual subscription rates to $3.12 -- launched in 1997: "Circulation revenue fell $6 million between 1998 and 1999, even as seven-day daily circulation increased 14%. ... Newsprint costs associated with printing the additional copies exceeded $10 million. …

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