By Tim Redmond
Clint Reilly calls the San Francisco Chronicle “the greatest wealth destruction machine in American journalism today.” It’s an interesting hit on the situation; he cites a Wall Street Journal interview with investment banker (and media industry expert) Jonathan Knee, who notes:
The reason why most newspaper companies have gone bankrupt or appear perilously close to it is that they have too much debt, not that they have stopped being profitable. For the reasons I have already described, they are certainly less profitable than they used to be, but compared to most media businesses like movies and books, most newspapers still have higher profit margins. Unfortunately, many of these companies maxed out on available debt during a bubble in the debt market just before the debt bubble popped and their own profit margins precipitously declined. That does not mean that these companies cannot continue to generate significant cash flow once restructured into a sustainable capital structure.
Then points out that Hearst’s problem isn’t debt — I suspect the bean counters have already written off as a tax loss most of the $700 million the company paid to buy the Chron. The problem, he argues, is bad management:
With more than 75 percent of its circulation outside San Francisco, the Chronicle is unable to cover The City or the suburbs in depth. The paper’s circulation should have been cut in half many years ago; at 360,000, it remains massively expensive to produce, print and circulate. Resizing alone might have saved the paper by dramatically reducing operating costs across the organization.
All of which, of course, argues against Rep. Nancy Pelosi’s plan to eliminate anti-trust regs and allow the Chron to merge with, say, Dean Singleton’s Media News Group.