Newspapers In A Candy Store

To my fellow students: The newspaper industry is weathering a storm that is at least partly of its own making. Wait. That sounds too cliche. I'll start over.  My opinion is that the newspaper industry has been in a candy store too long.  Okay, well, I'll come back to that.

Everyone has heard about the recession, decreasing circulation, low advertising revenues and, of course, the “horrible” online news craze that is destroying our beloved newspapers. Yes, many companies are pulling the purse strings a little tighter nowadays because of the economy. Sure, circulation is down and many readers are getting their news online now. However, with all of the “bad” news I would have thought newspaper profit margins would be in the negative numbers. Surprisingly, though, that is not the case at all. 

It is true that profits have dwindled because of decreasing circulation and advertising revenue; however, the average newspaper industry profit margin is still considered high when compared to other industries. According to an article on pbs.org, a “typical newspaper with 100,000 circulation makes a 15.6 percent annual pre-tax profit margin.” Compare these numbers to the Wal-Mart profit margin of 5.4 percent. Though recent changes in the industry have cut overall profits, many newspapers are still making lots of money. 

So, why are newspapers going bankrupt? Why, for instance, did the Tribune Company recently file for bankruptcy when their profit margin is 18.3 percent? It is because of the enormous debt load many newspapers have accumulated. The Tribune Company, publisher of five Pulitzer Prize-winning newspapers, filed for Chapter 11 bankruptcy in an attempt to deal with almost $13 billion in debt. According to an article on npr.org, Tribune Chairman and Chief Executive Officer Sam Zell said, "Factors beyond our control have created a perfect storm — a precipitous decline in revenue and a tough economy coupled with a credit crisis that makes it extremely difficult to support our debt." True, the economy and other factors are beyond their control, but if this enormous debt was not strapped on their back would they be filing for bankruptcy? Probably not. 

Okay, back to the candy store. Here's my reasoning. Newspaper conglomerates have been like kids in a candy store, grabbing up loans they really can’t afford, and now they are suffering from a terrible debt toothache. The only thing to do is face the incredibly painful removal of the problematic debt and learn to make purchases much more slowly. It seems to me that newspapers just need a good businessman, err, or a dentist? 

Links: 
http://www.npr.org/templates/story/story.php?storyId=97992293
http://www.pbs.org/wgbh/pages/frontline/newswar/part3/newspaperprimer.html