NY Times and The Boston Globe

The decline in the newspaper industry is pretty amazing. It is not entirely surprising, but it has come as a shock to generations of newspaper readers.

In the past 6 months the Chicago Tribune, Chicago Sun Times, the Philadelphia Daily News, and the Minneapolis Star Tribune have all filed for Bankruptcy.

Most of these newspapers will restructure and come out of this stronger than they did before their collapse. Bankruptcy court will allow them to discharge many of their debts or lower their debts to gain an ability to actually service the particular obligations.

It was not surprising to learn that the NY Times is considering closing the Boston Globe. I have no doubt this would improve their cash flow and help them move away from a possible collapse. But, it is amazing that another storied paper, The Boston Globe, might succumb to the decline in print advertising and the recessionary pressures.

To be fair, the NY Times is offering to keep the paper open if the unions accept concessions, equal to about 20 million dollars of cost savings for the NY Times. Once reader of the Globe, had this to say: “If you took the paper away and I can’t read sports, what am I getting up in the morning for?” he asked.

While that is not exactly a great reason to live, it does reflect the desperation of many New England residents who have grown up reading the Globe. Losing a hometown paper, can be traumatic (in a that's not good kind of way).

Asking the union to take concessions in a down economy and in an industry where the members of the union are not paid salaries or wages that are anywhere near excessive, is asking a lot. However, it is hard to see what choice they have. If they believe the NY Times is real in their threat to shut down the Globe, if they want to keep their job, they only have one option. Accepting the offer of reduced pay, pension benefits, and whatever else is on the table.

The NY Times, who recently cut their dividend, imposed pay cuts, and annouced their known cash concerns have a lot to worry about. Without the cash infusion by Carlos Slim, they would be in even more trouble.

The problem, is not so much declining advertising reveue, as it is the debt levels of these papers. The Tribune was doomed to fail from the beginning after Sam Zell's leveraged S Corp ESOP transaction. In which he over burdened the Tribune and single handily forced the paper into bankruptcy.

The Chicago Sun Times woes can be attributed to IRS debts of over $600 million dollars. And many of the other papers can also attribue their woes to heavy debt loads and poor operating decisions.

It is problematic that revenue is declining, but it is not the sole reason for the demise of the industry. The newspapers are still cash cows, but they made unacceptable assumptions about their future growth and used debt to finance that assumed growth.

***The Wall Street Journal had a recent article about the history of bankruptcy and its importance within capitalism.