Arnold G. York
What happened to the L.A. Times?
I was at a Christmas Party the other night and, in keeping with what’s been a difficult holiday season, several people asked me about the Tribune Co. bankruptcy and how did the company and its Los Angeles Times get into such trouble.
The Chapter 11 filing was not unexpected. Rumors have been floating around the trade for months, and I know of several other large metropolitan dailies in California and across the country that are attempting to refinance their existing debt or looking for buyers. It wouldn’t be surprising to see several others follow the Tribune Co. into the bankruptcy court.
As I see it, there are several things going on simultaneously that have taken the Los Angeles Times and probably several other groups of newspapers into this very perilous economic situation.
First, several years ago, the Times ran into problems with the fact that it was owned by several generations of the Chandler family, and many family members were unhappy and wanted to sell out. The problem wasn’t unusual and had hit many of the large, famous family-owned newspaper groups across the country. It’s very difficult to sustain family ownership into the third and fourth generations because often some portions of the family are deeply invested in the newspaper, both financially and emotionally, and other portions just want to be bought out and go away. In the L.A. Times case, after trying various alternatives to keep every one happy, they effectively decided the only answer was to sell. The Times-Mirror Company was sold to the Chicago-based Tribune Co., and the purchase meant that the Tribune Co. would have to borrow a great deal of money to make the purchase, which they did, and that debt today amounts to about $13 billion.
When the deal was made the Times was still very profitable, and although the warning signs were already there, it was thought Tribune could carry the debt. If it got too tight, Tribune always had the option of selling off some of their assets, like some of the newspapers or cable / TV stations, or the Chicago Cubs and the stadium. All other things being equal, the deal probably would have worked.
Unfortunately, we now live in a world where most certainly all other things are not remaining equal and a casual glance at any business page will prove that all sorts of business assumptions that people made only earlier this year no longer apply.
The daily newspaper industry has been hit with two enormous problems, simultaneously. One is a systemic problem, which means it’s built in to the way our world runs and it’s not going to change in the foreseeable future. The problem is the Internet. The Internet is a wonderful way to reach a large audience of readers, but as a business model it’s a disaster for newspapers. No one in the newspaper business makes any significant money on the Internet, and after a dozen years of hearing optimistic projections I’m convinced the business model is not going to change. The Internet has taken over the classified advertising market for things like “help wanted” and “real estate rentals,” which was the backbone of the daily newspapers in the past, providing 25 percent to 40 percent of their income. The old L.A. Times classified went on for page after page. Today it’s a few pages. That means the cash projections on which they built their anticipated revenues don’t work anymore. They all find themselves with a great deal of debt and barely enough income to cover it.
The second problem that’s hit all the dailies is not a systemic problem, just a situational problem, and that is our economy is in the dumps. That means all advertising revenue is down, and has been down for the last year or so, and probably will stay down for another year-plus for all the dailies. Even when it comes back, and I’m sure it’s going to come back, the collective pot is going to be smaller than it was before. The bottom line is, although there were some very bright, experienced people involved in these acquisitions, everything they bought is now worth less and therefore they overpaid for what they got, and Chapter 11 is the way some of those deals are going to have to be renegotiated so the newspapers can survive.
I’ve been talking about dailies in this column, primarily the larger metropolitan dailies. Weekly newspapers, like The Malibu Times and thousands of others across the country, are really in pretty decent shape. We live in a different economy than the dailies. For one thing, we’re local and the Internet has not made the kinds of inroads into our business. When you read an international or national story in the L.A. Times the chances are you’ve already read it online in the New York Times or some other Web site. If you want the local news, you have to read the local newspaper. But even we shift to a daily news cycle, primarily online when some breaking event like a fire occurs. You’ll notice that more and more the L.A. Times is moving to softer news on the front page, including feature material and news analysis, and that’s because many readers now get the breaking news quicker and fresher online.
The weeklies have also been able to retain their classifieds primarily because they’re local, relevant to the immediate community and relatively cheap compared to a classified advertisement in the dailies. True, all the weeklies are feeling the impact of the recession with real estate advertising down, but what’s most important is that we’re not sitting there with a great deal of debt, which is what’s killing all the dailies. The recession will pass in time, hopefully sooner rather than later, but when it does you can be sure there will be fewer dailies and those that survive will be much leaner.