Newspaper Decline Shows No Sign of Ending

For a long period of time, there were few businesses more lucrative than owning a newspaper. Many places had become one newspaper towns. The residents of the town had to subscribe to get important local information, sports results, and weather. Advertisers had to place ads to reach local residents. The internet changed all of that and left newspaper owners scrambling for survival.

Many newspapers have pinned their hopes on transitioning to the internet themselves and making up for lost print income from selling ads on their website and getting paid digital subscriptions. The most recent results suggest that those plans are having a tougher time succeeding than even pessimistic observers of the industry thought. As older readers of newspapers die off, younger readers not in the habit of subscribing to a newspaper are not replacing them. Younger readers have generally chafed at paying for news and only a few websites such as The New York Times, The Guardianand The Wall Street Journal have had broad online success.

Although community newspapers were never going to repeat their success of the past, many felt that a leveling off of revenue declines would take place as digital revenue became a bigger portion of overall revenue. The most recent reports from the biggest owners of metro and community newspapers in the United States suggest that if a leveling off of revenue ever comes, it has yet to arrive.

Change in revenue of large community and metro newspaper owners, 2013-2017.

One common theme among the commentary of the companies is the effect that the shifting retail landscape is having on their business. Department stores and other big-box retailers have long been steady customers of newspapers. But, those businesses themselves are in a fight for their lives with the internet and the e-commerce companies rising up in their place are likely to advertise through other means.

Complicating matters is that before the worst of the slide began, many newspaper companies took on large debt loads to buy competitors. They are still trying to crawl out from under crushing debt loads as a result.

Net liabilities relative to cash flow, end of Q1 2017.

As an extreme, McClatchy’s $1.4 billion in net pension and debt liabilities is about 28 times their trailing twelve months cash flow. McClatchey purchased Knight Ridder in 2006 for $4.5 billion. Even though substantial amounts of debt have been retired, lowered cash flows mean that in many respects the corporate balance sheets are simply running on a treadmill. Lee Enterprises had $1.4 billion of net pension and debt liabilities at the end of 2007 and in the intervening ten years, they have paid down about $800 million of this total liability. Only $600 million remains to be paid by the company. But, over the same period cash flows declined from $168 million per year to $71 million per year. As a result, both in 2007 and today, Lee’s debt and pension liabilities are about 8.5x operating cash flows.

It is inevitable that such a change in circumstances will alter the resources companies can devote to journalism and although plenty of coverage remains for national and international reporting, it remains to be seen if any entity can fill the gap for local communities.

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