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Even for an industry awash in bad news, the newspaper business went through one of its most severe retrenchments in recent memory last week.
Half a dozen newspapers said they would slash payrolls, one said it would outsource all its printing, and Tribune Co., one of the biggest publishers in the country, said it might sell its iconic headquarters tower in Chicago and the building that houses the Los Angeles Times.
The increasingly rapid and broad decline in the newspaper business in recent months has surprised even the most pessimistic financial analysts, many of whom say it’s too hard to tell how far the slump will go.
“They’re in survival mode now,” said Mike Simonton, a media analyst at Fitch Ratings, a credit analysis agency.
“We had very grim expectations for the sector,” Simonton said, and publishers have either met or surpassed his estimates for how bad the results would be.
Last week alone, deep staff cuts were announced at The Hartford Courant and The (Baltimore) Sun—two Tribune papers—as well as at the Daytona Beach-Journal, while The Detroit News and Detroit Free Press said they hoped to reduce the head count in their joint operations by 7 percent through buyouts. The Boston Herald said up to 160 employees would be laid off as it outsourced its printing operations, and in a memo explaining the terms of its job security pledge, the Star-Ledger in Newark, N.J., said it is operating in the red. The week before, McClatchy Co. said companywide staff cuts of 10 percent were coming.
Tribune, meanwhile, told its employees Wednesday that it hoped to wring more value out of its “underutilized” real estate in Chicago and Los Angeles, extending an asset-selling program Tribune is pursuing to service a $13 billion debt load, much of which it took on from going private.
Tribune has already reached a deal to sell one of its largest newspapers, Long Island-based Newsday, but ran into delays early this month in liquidating Wrigley Field, where the Chicago Cubs play, when negotiations for the field’s purchase by a state agency broke down over financing. Tribune is also moving to sell the Cubs.
Tribune has enough money to meet its debt requirements this year, bond analysts have said, but it must make headway on asset sales in order to meet its obligations in 2009.
Tribune’s troubles reflect broader problems in the industry, where a deepening economic downturn is worsening losses from a long-term shift away from print advertising toward online, especially in classified categories like help wanted, autos and real estate, where rivals such as Craigslist, Move.com and AutoTrader.com are thriving.
Advertising is by far the most important source of revenue for newspapers. And in the first quarter, their overall ad revenue slumped 12.9 percent, led by a 24.9 percent drop-off in classifieds, compared with the same period a year earlier.
In fact, the industry group that compiles and releases ad revenue figures, the Newspaper Associa-tion of America, this month stopped putting out quarterly press releases with the numbers, though it quietly updated them on its Web site.
NAA spokeswoman Sheila Owens said in an e-mailed statement that the organization will now put out press releases only with full-year data “to keep the market focused on the longer-term industry transition from print to a multiplatform medium.”
Some say complacency in the industry about the threat the Internet posed is to blame for the current quagmire.
Speaking on the CNBC business news cable channel Friday, Sam Zell, the real estate magnate who is now Tribune’s CEO, said newspapers have historically been “monopolies” in their local markets and “insulated from reality,” according to a transcript of his remarks provided by CNBC.
Going forward, if ad revenues continue to slide rapidly, companies including Journal Register Co., MediaNews Group Inc. and—in the absence of further asset sales—Tribune could then risk violating their loan terms, said Emile Courtney, a media industry credit analyst for Standard & Poor’s.
Already, just two major publishers have investment-grade debt under S&P’s ratings—Gannett Co. and The New York Times Co. The industry is divided between them and “everybody else,” Courtney said.
Given the current poor climate for the business, he said: “I have doubts banks will be as willing as they were in the past to waive or amend covenants.”