In a further demonstration that the newspaper industry is among the worst hit by the US recession, two Philadelphia newspaper groups filed for bankruptcy protection last week. Philadelphia Newspapers LLC, the owner of the Philadelphia Inquirer and the Philadelphia Daily News, as well as Journal Register Co, which publishes 20 daily and 159 other newspapers including the New Haven Register, have both filed for Chapter 11 proceedings.
They join seven other units, including Philadelphia Media, PMH Acquisition, Philly Online and PMH Holdings, which have also filed for Chapter 11 protection. All of them have cited a slump in advertising revenues as the main reason.
The financial burden from an advertising downturn, rising costs for newsprint, and the migration of readers to the Internet caused Philadelphia Newspapers to fall out of compliance with its loan agreements last year. The same conditions have devastated the broadcast industry.
The company said it decided to turn to Bankruptcy Court after negotiating with its lenders for the last 11 months. During that time, the company was billed $13.4 million in penalty interest and fees.
It is not clear whether the current owners will retain a stake in the company if the debt is successfully restructured with the help of a bankruptcy judge. Ideally, a restructuring would reduce the amount of debt and lower the interest rate.
Philadelphia Newspapers was created in June 2006, when Brian Tierney and his partners, including Bruce Toll, co-founder of homebuilder Toll Bros, bought the titles from McClatchy Co for $562 million. The newspapers were among 12 former Knight Ridder Inc newspapers that McClatchy Co sold after acquiring the chain for $4.1 billion.
Tribune Co, owner of the iconic Chicago Tribune, sought protection on 8 December, a year after going private under Sam Zell (See: Tribune files for bankruptcy protection). The Minneapolis Star Tribune is yet another paper which went bankrupt recently, unable to quell mounting financial pressures, with credit tight and more readers and advertisers switching to the Internet.
Industry-wide print advertising sales endured their worst plunge in at least 37 years in last year's third quarter, according to the Newspaper Association of America.
Philadelphia Newspapers listed both assets and debt of as much as $500 million each in a filing in a US bankruptcy court in Philadelphia. The Chapter 11 cases are "balance sheet restructuring" cases, not "operational restructuring" cases, the company said in court papers.
In a statement, the company blamed its filing on a "rare trifecta of a dramatic decline in revenue, the worst economic crisis since the Great Depression and a debt structure out of line with current economic realities." It said it would continue normal operations of its newspapers, magazines and online businesses.
The Inquirer, founded in 1829, is the United States' third-oldest daily newspaper and has won 18 Pulitzer Prizes. The Daily News, a tabloid, was founded in 1925. The two have had a common owner since 1969, when they were bought by Knight Newspapers Inc.
Five months after buying the publications, Tierney cited weak advertising revenue while eliminating 68 jobs, or 17 per cent of the Inquirer's editorial staff. The cuts came two weeks after the newsroom employees' union agreed to forgo a pay raise and give back $5 million in pension and sick-leave benefits.
"This restructuring is focused solely on our debt, not our operations," chief executive officer Brian P. Tierney, who led the group that provided about $150 million of the purchase price three years ago, said in a news release.
"Our operations are sound and profitable," said Tierney, referring to operating profits before interest and certain other costs.
Intense downward pressure
Journal Register told the bankruptcy court that it would cancel its stock and become a closely held company owned by its lenders under a proposed reorganization plan. It listed debt of as much as $1 billion against assets of between $100 million and $500 million.
"With the increased competition from other forms of media and slumping advertising revenues, the downward pressure on newspaper earnings will likely remain intense in the near term," company chief executive officer James Hall said in the filing.
Journal Register employs about 3,500 people and operates primarily in the Philadelphia and Cleveland areas, as well as throughout Michigan. The publisher paid $415 million for its Michigan dailies in 2004, and has reported losses for four straight quarters as ads from the car industry evaporated.
It reported $596 million in assets as of 30 November and $692 million in debt, including unpaid interest. Since 2006, Journal Register's revenue has dropped by more than 20 per cent, Hall said.
Shares of the company traded for less then one cent on 20 February.
New York Times Co, McClatchy and Media General Inc stopped payment of their quarterly dividend this year, while Gannett Co cut about 4,000 jobs in 2008 and, like other publishers, is seeking to sell assets.
The erosion of the way that most papers make their money portends the possibility of more bankruptcies and raises questions about the gradual destruction of one of the basic ways that people in the United States get their news.