Thursday, October 23, 2008

Do the math

Profits are a recurring theme here at the Stress-Telegram. With so many cuts to staff and coverage blamed on lost profits, a look at the financial health of the newspaper industry is only natural. But that job is easier said than done.

Unfortunately, MediaNews is now a privately-held company with no public disclosure of their finances, and a deal with bondholders last May put MediaNews completely under the radar. So hard numbers are now virtually impossible to find.

But there's one point that should be made. MediaNews has never claimed poverty in their negotiations with the Guild. They will cite the economy and falling revenues ad nauseam, but their statements never address their overall financial position. Part of the reason for that may be because if they did, the company would be legally obligated to open the books and support their claim. Instead, they belabor the financial angle as much as possible, dancing just under the point at which they'd have to show their hand.

At any rate, what do we do about those financials? Since we don't have access to MediaNews' documents, let's look at the rest of the industry.

Alan Mutter has an idea where things stand for the newspaper industry. We've said it before, and we'll say it again - the numbers might surprise you.

After producing operating earnings at an average rate of 27.3% between 2000 and 2007, the industry’s margin this year may average no better than 20%, says William Drewry, a managing director of the global media group of the UBS investment bank. Average earnings before interest, taxes, depreciation and amortization (EBITDA) were 24.6% in 2007, according to UBS.

That's right, 24.6% on average in 2007. That seems pretty good for an industry that's supposedly on death's doorstep.

Mutter continues with a comparison between one of the worst-performing newspapers, and stalwarts from other industries.

As proof of the industry’s amazing power to produce profits, you need look no further than its performance in the first three months of this year. Despite a 14.4% drop in industry-wide print advertising revenues in the first quarter, the average operating profits of the seven largest publicly held newspaper companies fell only two percentage points to 17.6% from 19.5% in the same period, according to Fresearch.Com.

To put this in perspective, Journal Register Co., a publisher that already has defaulted on its reckless debt, still generated a 16.9% operating margin in the last 12 months. That surpasses the margins in the same period of such companies as Exxon (15.7%), General Electric (14.2%), Boeing (8.7%), Wal-Mart (5.8%) and Amazon.Com (4.7%).

If all that's true, then what's the problem? Well, as others have reported time and time again, media conglomerates like MediaNews have been taking on massive amounts of debt for years. In fact, their problems predate the economic morass we're now facing.

The bottom line is that newspaper's current problems have less to do with the economy than simple bad judgment.

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