Publishers Struggling in This Economy

It's a tough time for newspaper and magazine publishers.

This week, "The Sun," the six-year old daily newspaper, printed its final paper. The conservative-oriented paper searched for new financial backers for nearly a month, and finding no private equity interest, had to shut down.

Meanwhile Variety, the 103-year old Hollywood trade publication, can't find a buyer. Reed Elsevier Group put its Information Business division (including Variety) up for sale. Of 40 prospective buyers, not even 10 made it to advanced talks.

With the frozen credit markets, Reed managed to arrange $1.2 billion of financing for the buyer, even offering to finance up to $300 million with its own money. That would make for a sale of some $1.5 billion-plus for Reed, but so far, no buyers.

Meanwhile newspaper publishers are feeling the pinch—struggling with the fact that short-term financing markets are pretty frozen right now. Gannett said it moved to tap its $9.3 billion in revolving credit facilities.

Tribune Company (now private under Sam Zell) and McClatchy all have significant debt, which means in this environment, slipping ad revenue could spell default or bankruptcy. At the very least, publishers will face higher interest rates and more limitations. The Star Tribune, a Minneapolis newspaper, says it skipped a payment as it attempts to restructure $430 million in debt.

Bottom line: not only do newspapers face declining ad revenues as marketers look for a more quantifiable and reliable audience, but they also face tougher debt environments. A bad situation on two fronts.

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