News flash: Newspapers still profitable

Alan Mutter has the scoop over at his Newsosaur site: Despite all the whining about newspapers representing the about-to-expire dinosaur of media, on average they remain one of the most profitable bets of any industry.

For 2008, the average newspaper showed just a hair under a 13 percent profit margin. That's way down from the historic highs for the industry -- profits in the 20s and 30s were not unusual in boomtimes. But contrasted with virtually every other major form of business around, it's very good. Many companies lost money last year, and even ones that were considered very successful -- such as oil companies -- had margins about half of what newspapers had.

So even though advertising revenue has plummeted with the economic downturn, and some of it has permanently migrated to the Web, the old ink-on-dead-trees model remains strong.

The problem is not cash flow, but debt. Most newspapers are owned by corporations, which have racked up huge volumes of debt in order to acquire papers or expand into online ventures that have yet to become significant revenue streams. Take the Tribune company, long considered one of the strongest chains. When Sam Zell took over in late 2007, he expanded the company's $5 billion debt load to nearly $13 billion. That was sustainable as long as the newspapers remained the cash cows they had been. But when the current recession descended, bankruptcy became inevitable.

Even Gannett, which has not been leveraged as heavily as some other chains, is now facing huge debt repayments in the next couple of years. So they're forced to cut and cut.

The Indianapolis Star has been through a buyout and (by my count) three rounds of layoffs in the last three years, and is doing another major cutback this week. Word flying around is that the Star is going to take a 100-person hit, with probably 30 to 40 percent of that coming from the newsroom. That would leave the news gathering force at around 140-150 people, down from around 260 when I joined the paper in June 2005. This despite a recent estimate published in the Indianapolis Business Journal that the Star is still pulling in around a 15 percent profit margin.

Newsroom employees are like Boxer, the loyal and hard-working horse from George Orwell's "Animal Farm." They pull more than their fair load, but it's never enough for the indifferent and/or self-serving bureaucrats who run the show. Then they're sent off to the slaughterhouse -- or rather the unemployment line, which in this economy is nearly the same thing.