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Newspapers Still Have Life

  • Barrons, Monday, October 26, 2009 9:56 PM

Newspapers face a genuine crisis, but the nature of this crisis is misunderstood. Until recently, many newspapers had profit margins exceeding 30%. By 2008, the industry's average margin had fallen to the mid-teens. The speed and magnitude of this decline have resulted in wrenching changes in the way these historically stable businesses must operate.

"But the continuing drama shouldn't distract from real earnings power," writes Jonathan Knee, director of the Media Program at Columbia University. "Many newspapers still have almost double the profitability of other media sectors, such as movies, music and books." With daily circulation under 100,000, local "monopoly" papers continue to be especially profitable.

It is debt, not profits, that are the industry's problem. One way or another, the debt crises at newspaper companies will be resolved -- by paying back the debt over time, negotiating with creditors or by bankruptcy. Then the underlying businesses will go forward. And when it comes down to it, "there are few markets that shouldn't be able to support a healthy newspaper," Knee says.

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