David Carr takes a look today at the fortunes of the Minneapolis Star Tribune, which have stopped plummeting at least temporarily.
It’s nice to read some good news for a change about newspapers, especially ones that have bumped circulation, returned to profitability, and even sent profit-sharing checks to the newsroom.
But I’m skeptical that much has changed and especially doubt that good leadership is all that’s needed to put newspapers, which face devastating structural issues, on a sustainable path.
Carr implies that much of the Star Tribune’s turnaround is due to the hiring of a new publisher, Michael Klingensmith, who spent his career at Time Warner. But surely most of the credit (no pun intended) goes to the Star Tribune’s 2009 bankruptcy, in which it slashed its debt by 80 percent. I’ll concede that it’s a lot easier to hang a column on a person than on an impersonal process like a Chapter 11 restructuring, which Carr gives us in a to-be-sure graph:
By the time Mr. Klingensmith said yes to the publisher’s job at the start of 2010, $500 million in debt had been reduced to $100 million in the reorganization, costs were way down because of the cuts, and revenues from both advertising and circulation had begun to crawl back.
Advertising revenues haven’t begun to crawl back, though, according to Carr’s own column. They’re still plunging.
The reason the company had profits to share is that while ad revenue was down 9 percent in 2010, it was far less than the 15 percent that had been budgeted. According to David Brauer, who covers the paper for MinnPost, a local news site, the difference yielded more than $30 million in earnings before interest, taxes, depreciation and amortization in 2010. And daily circulation has remained essentially flat even though the price of the daily newspaper was raised to 75 cents from 50 cents in May. The Sunday newspaper, which did not increase in price, has gone from a low of about 477,000 in September 2009 to 504,600 in September 2010, according to audit reports.
Just because ads were less awful than predicted doesn’t mean they’re coming back. And it’s important to remember that managements love to make themselves good by predicting results that are easy to beat. Which makes it perhaps worse that the Star Tribune’s ad numbers are running well behind projections for 2011, something Carr doesn’t report.
Then there are the profit numbers. I suppose earnings before interest, taxes, depreciation, and amortization (ebitda) is the only number we have on this non-public company. But the reason the paper ran aground in the first place was because of the “I” that’s excluded from ebitda. Even in brutal 2009, most of which it was in bankruptcy, the paper had $17 million in ebitda, according to the MinnPost.
This isn’t the first time we’ve seen a bankrupt newspaper company’s turnaround credited to other forces. See The Journal Register’s CEO John Paton, who got some buzz in new-media circles a few weeks ago for giving an extra week’s pay to employees for hitting $41 million in “profit.”
But Paton, like Carr, was talking about ebitda, which is not profit—it’s a measure of operating income that doesn’t include critical expenses like taxes and debt payments. Journal Register, which emerged from bankruptcy in 2009 with $225 million in debt, has significant debt payments. Real profit is net income, and Journal Register, which is no longer a public company, didn’t disclose that number.
The implication was that the company’s new-media strategy and its hard-working employees were responsible for a swing from bankruptcy to profitabiity, when the real key (if it is in fact actually profitable on a net income basis) surely was slashing its debt by two-thirds in bankruptcy court. It’s unclear how much the Journal Register’s new strategy has boosted its business. It had a reported $50 million in ebitda in 2008, but didn’t report the number in recession-hammered 2009.
Without those numbers, not to mention the top-line revenue numbers, it’s impossible to say how much better Journal Register is doing, just as the Star Tribune’s $30 million ebitda number isn’t worth much without historical context and reporting that the paper’s overall revenues are still in steep decline (I’m deducing that from MinnPost’s reporting that circulation revenue was flat last year and Carr’s reporting that ads were down 9 percent).
The point is that newspaper companies that went broke in the recession had high levels of debt. But most of them, including these two, had operating profits, which, again, exclude debt payments, when they filed for bankruptcy. It stands to reason that they’d have operating profits after bankruptcy. The critical question is how much more than their debt service those numbers are.
That’s not to minimize important business improvements, like the Star Tribune’s Sunday circulation increase, but you’d expect highly indebted companies with operating profits that emerge from bankruptcy with far less to debt to be turnaround stories, whoever the boss is.