While falling advertising is hurting US newspapers like the 'Chicago Tribune' and the 'New York Times', the real problem is ill-timed purchases and staggering debt levels
IN DETROIT tomorrow, the city's two leading newspapers are set to announce that they will cease home delivery on all but the most lucrative days of the week - Thursday, Friday and Sunday.
On other days, the papers will publish slimmed-down editions that will be available from shops and newsstands and will direct readers to their websites.
The move comes at the end of a calamitous year for American newspapers, which have seen circulation fall and revenues plunge as readers and advertising migrate to the internet.
Last week, the Tribune Company, which owns newspapers including the Chicago Tribune, the Los Angeles Timesand the Baltimore Sun, filed for bankruptcy. The New York Timeshas taken out a $225 million mortgage on its Manhattan headquarters and Colorado's oldest paper, the Rocky Mountain News, is up for sale.
Gannett, the largest newspaper group in the US, has laid off 10 per cent of the staff, bringing the total number of jobs lost in the industry in 2008 to at least 15,000. Meanwhile, newspapers across the US are making deep budget cuts, shuttering foreign bureaus and in many cases, closing down their Washington offices.
The flood of grim news has set off a torrent of jeremiads heralding the terminal decline of newspapers but the industry's troubles are more complex than they appear at first sight.
Many, if not most, US newspapers are actually in the black - including all of Tribune's major titles, even if the share price of most newspaper groups has fallen sharply. Falling circulation and dwindling advertising revenue have hit most papers hard and although internet advertising is growing, it is not profitable enough to compensate for the decline in print revenues.
However, few US newspapers would now be in mortal danger if their parent companies were not saddled with enormous debts. In many cases, these debts were accumulated through unwise acquisitions such as the New York Timespurchase of the Boston Globe.
The Tribune bankruptcy comes just a year after Sam Zell, a property billionaire with no background in newspapers, borrowed more than $8 billion to buy the company. Despite making savage budget cuts, Mr Zell filed for bankruptcy because he was unable to squeeze enough money from the papers to service his massive interest payments.
Tribune's collapse will have little impact on Mr Zell's personal fortune because little of his own money is wrapped up in the deal. Instead, he used a controversial employee stock ownership plan (which did not require the consent of employees) to finance the acquisition.
Mr Zell has, however, had a profound influence on the newspapers he controlled, bringing bean counting to a whole new level as he measured journalists' performance by the number of column inches they produced.
"During his first year in journalism, Zell has visited the city rooms and Washington bureaus of a number of Trib publications to deliver obscenity-laced warnings and threats to employees that whatever it was they were doing, it wasn't working. There was too much coverage of world and national affairs, he told (LA) Timeswriters and editors; readers don't want that stuff," Harold Meyerson wrote in the Washington Post.
Most industry experts agree that Mr Zell's slash and burn approach is the worst way to deal with the decline of newspapers because it simply gives readers fewer reasons to buy a paper at all. The New York Timeshas adopted a dramatically different strategy, aggressively cutting printing costs and outsourcing distribution but avoiding cuts that affect the quality of the product.
Other papers have set up joint operating agreements with rivals in the same city. Under these agreements, the papers continue to compete editorially but share many operations, including printing and distribution.
A report on the newspaper industry by Deloitte last week predicted that one in 10 print publications could be forced to reduce publication frequency by more than half, move online or close entirely during 2009.
"Not even the most successful online newspaper and magazine sites generate sufficient profit to offset declining margin from print versions," the report says.
While newspapers in Europe and the US look increasingly to the internet to secure their future, Japanese papers have restricted their web presence - and have suffered a smaller decline in readership and advertising.
