Cracks Are Widening in Foundations of Daily Newspapers
Carr, David, International Herald Tribune
Between operational fiascos and flailing attempts to slash costs on the fly, it's clear that the print newspaper business is running out of time.
Between operational fiascos and flailing attempts to slash costs on the fly, it is clear that the print newspaper business is running out of time.
Cracks emerged last week in publishing operations that are both hilarious and terrifying. The Times-Tribune in Scranton, Pennsylvania, published a box score for a baseball game that was never played, after one of the coaches made up a result to spare the other team the embarrassment of a forfeit. The U-T, the daily newspaper of San Diego, published a two-week-old blog post -- on its front page.
And the radio program "This American Life" revealed that Journatic, a content farm owned in part by Tribune Co. that produces local articles on the cheap, was using fake bylines. Some of those hyperlocal pieces, which ran in newspapers like The Chicago Tribune, The Chicago Sun-Times, The Houston Chronicle and The San Francisco Chronicle, were written in the Philippines.
Equally confounding, when The Times-Picayune of New Orleans got around to offering jobs to some of its employees in its lower-cost digital news operation -- the print newspaper will come out three times a week -- many of the more prominent targets took a look at the business plan and said, "No thanks."
Or maybe not so confounding. Maybe they were making a choice to pull back from an industry that by all appearances is coming apart.
"Most newspapers are in a place right now that they are going to have to make big cuts somewhere, and big seams are bound to show up at some point," said Rick Edmonds, a media business analyst at the Poynter Institute.
Some of the bigger cracks cannot be papered over by financial engineering. Hedge funds, which thought they bought in at the bottom, are scrambling for exits that don't exist. Many newspaper companies are hugely overburdened with debt from ill-timed purchases. And though it is far less discussed, newspapers are being clobbered by paltry returns on underfunded pension plans.
Two highly placed newspapers executives I spoke to last week said that while the industry had already experienced a number of strategic bankruptcies, a fresh round will most likely take place to deal with pension obligations.
Mike Simonton of Fitch Ratings said the pension obligations "represent a call on capital at a time when newspapers desperately need to deploy capital toward evolving their business models and adapting to the digital world."
The pension plan at Gannett, which owns 82 daily newspapers, is underfunded by $942 million, and McClatchy, which owns 30 dailies, is short $383 million, according to Mr. Simonton, even though both companies have been pouring tens of millions into the funds. Many U.S. companies have onerous pension obligations, but the decline in revenue gives newspapers a tougher hill to climb.
The employees who earn those pensions are quick to point out that the management in many of the companies still found funds for ill- advised stock buybacks, along with lucrative dividends and executive compensation, neither of which was supported by results.
People take heart that Warren Buffett has been buying newspapers, but it is worth noting that when he bought Media General newspapers, he left the pension liabilities with Media General's parent company.
(The New York Times has taken a very hard line at the bargaining table over pension issues and cites them as a risk to investors in its forward-looking statements. …