The Future of Print

The Future of Newspapers in an Era of ‘Unprecedented Plenty’

Posted in Boom by futureofprint on October 26, 2009

Mr. Knee’s article in Barron’s is entitled “This Dying Medium Has Plenty of Life”. In the article, he points out that newspapers are still more profitable than other types of consumer media. Although profit margins have fallen from levels exceeding 30% to the mid-teens today, this still exceeds margins for movies, music, and books which have often struggled to reach 10%. Ultimately, he believes that “news junkies should anticipate an era of unprecedented plenty”.

Inappropriate Capital Structures

One of the main arguments presented in the article is the idea that newspapers remain good businesses but many are encumbered with high levels of debt that are no longer appropriate based on lower levels of profitability:

Even good businesses can have bad capital structures. Many newspaper companies took on debt that could have been easily supported if profitability had been maintained. The problem is that current earnings, even if superior relative to those of other media businesses, are far below what anyone had anticipated.

Mr. Knee goes on to discuss how companies such as McClatchy MNI still had margins of 20% in 2008 but debt service consumed all profits. During earlier times when margins were 30%, this debt was serviceable but ceased to be appropriate as profitability fell. Eventually, the capital structure issues will be worked out one way or another:

One way or another, the capital structure crises at newspaper companies will be resolved, by paying back the debt over time, negotiating with creditors, or by bankruptcy.

Via Seeking Alpha

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