It’s hard to imagine any US industry worse off than the automotive sector. That is, until one considers the newspaper business. Many have already started to shutter. The Seattle Post-Intelligencer shifted to the web. The Minneapolis Star Tribune, San Francisco Chronicle, and Boston Globe – whose parent is the New York Times - are under threat of closure.
Many newspaper publishers, like carmakers, suffer from too many liabilities, including debt and commitments to workers. But auto companies have an edge that should allow them to restructure and survive, albeit through the bankruptcy process: Until someone invents an affordable version of George Jetson’s hovercraft, they can be assured of a minimum stream of revenue.
Not so the newspaper. Even if some publishers wiped out all their debt they’d still be stuck creating a product with high fixed costs and declining revenues, as readers and advertisers migrate to the internet, where the economics are unappealing. As a result, unlike say General Motors, closing the presses may be a more viable option than a Chapter 11 restructuring.
Take McClatchy, the publisher of the Miami Herald and Sacramento Bee, which reported losses last week. McClatchy has $2bn of debt, which it took on to buy Knight-Ridder, but sports a market cap of just $45m. Yet it isn’t all that debt that’s making life hard at McClatchy.
Even if its creditors were to convert their loans to equity, cutting out interest payments entirely, McClatchy would still be losing money. In the first quarter, advertising revenues at the chain plunged 29% from the year before to $285m. Sure, costs have fallen too, but by only 12%. As a result, McClatchy has now reached a point where the price of paying its reporters and printing and delivering newspapers to its customers is $11m greater than the income it generates.