Newspapers and the Credit Crisis.

Ironically, some newspaper closures may be contributing to the credit crisis that killed them.

Slate.com writer Daniel Gross points out that the bankruptcy of many major newspaper firms were caused by financial, and in one case criminal, mismanagement.

The actions of the top executives in other bankrupt newspaper companies were criminal only if you consider gross financial stupidity and recklessness to be jailing offenses. Who loads up newspapers—cyclical companies whose revenues are in secular decline thanks to the disappearance of classified advertisements and the rise of the Internet—with tons of debt at precisely the wrong time?

Sam Zell's purchase of Tribune Co., which owns The Chicago Tribune and Los Angeles Times, was made with a credit line of more than $12 billion - his Machiavellian financial move received its counter stroke in the form of an $800 million annual interest bill. Unable to meet the expenses, Tribune Co. began to hemorrhage low income investments, i.e. filing the very newspapers that put them into debt for bankruptcy protection.

This is hardly an isolated case. Daniel Gross goes on to list several other companies which purchased newspapers for a fraction of their cost with the help of cheap credit only to default when they were unable to meet their financial obligations. Sound familiar?



Gross does not mention whether the $12 billion loan Sam Zell took out to purchase Tribune Co. was packaged as cheap credit ala CDO's. If it was, then these newspaper failures are in some ways macrocosms (or microcosms) of the housing market crash - only far stupider. Whereas homeowners were tricked into adjustable rate mortgages, Sam Zell, Sun-Times Media, and everyone else who bought into the newspaper industry with cheap credit are victims only of their own idiocy.

I'm only sharing Daniel Gross's tangible distaste. Blind greed and stupidity are to blame. The sheer metrics of some of these deals are hard to digest. The $12 billion loan that Zell took out to buy Tribune Co., obviously one of the "factors beyond our control", created an impossibly large debt in a time where newspaper revenue is suffering across the country. That Zell only put forth 4% of the purchase price should have raised a red flag, but it didn't.

Gross sums up the motivations and destination of Zell and others:

All newspapers—all print media—have been hit hard in this recession. All face an existential crisis and may ultimately face the prospect of bankruptcy. Those whose owners saw papers as assets to be flipped, leveraged, and stripped are already bankrupt.