“We’re awash with cash to spend!”

It would just be that – an oddity – until you read a piece in the New York Times which notes that the newspaper industry over the past few years followed the same bubble of cheap money that drove the housing bubble.

And, like all bubbles, eventually it pops:

The bankruptcy filing of the Tribune Company on Monday is just the latest, largest evidence that the American newspaper industry is suffering the hangover from an immense buying spree in 2006 and 2007 at what turned out to be the worst possible time for the buyers, just as the business was about to enter a drastic decline.

Newspapers would be in trouble either way. The steady leak of advertising and readers from print to the Web has become a widening torrent in this recession year. Most newspapers remain profitable, but the margins are dropping fast, with the industry losing about 15 percent of its ad revenue this year.

But the companies in the weakest condition are there largely because they borrowed a lot of money to buy papers, often at inflated prices, and the biggest of those deals were struck in 2006 and early 2007.

The full story is here.

Photo by Hushed Lavinia

Martin Langeveld reports on a conference focused on the notion of an “InfoValet.” It sounds like attendees at the conference spent a lot of time thinking of ways to describe what they’re onto, but I’d put it this way, from a consumer perspective:

A universal logon system whereby users “pay” for access to information with (secure) information about themselves, rather than with dollars.

Langeveld says, “While a system like this will not necessarily save newspaper publishers (because, for one thing, it will take some time to gain traction), it has the potential to help save journalism by enabling online news publishing at a different scale. While the New York Times could be an InfoValet network member, so can a blogger or micro-local news site, and each can benefit proportionately to their traffic and content value to advertisers and consumers.”

Interesting idea, though any attempt to build a new ecosystem from scratch is going to meet with a certain amount of stubborn resistance. Perhaps the recent announcements by Google and Facebook, opening their logon systems to other sites, might provide some readymade structure for the InfoValet idea.

Put that all together, and 2008 may be the year that the Death Eaters start coming for some of the biggest names in the business: Big chains or papers that are overextended financially and find themselves undermined by the gathering storm of problems. Wall Street and bankers aren’t going to put up with that, and executive heads—not to mention those of a lot of unfortunate rank and file employees—will roll. Watch for still more consolidation and, um, innovative financing that will further roil the industry.

Just look at the tumult that accompanied Sam Zell’s closing of his deal to buy Tribune Co. this week. The bankers were squeezing the deal right up to the last minute. Even Zell called it “the transaction from hell.” And Zell’s going to have to pedal—and peddle—as fast as he can to keep the company afloat financially. It’s not just the Chicago Cubs that are going to be sold by Tribune. Look for a fire sale of real estate and newspapers (Los Angeles Times, anyone? Anyone?) as Zell strips the company for cash. And at this holiday time, say a prayer for the poor Tribune employees, who could be left holding the bag—through their retirement plan, which now owns the company through Zell’s creative accounting—if things turn sour. Memo to Tribune employees: Get. The. Hell. Out.

(Emphasis mine.)

Photo by William Couch. 1/31/2008

Both the Wall Street Journal and New York Times are reporting tonight that the Tribune company has hired an investment bank and a law firm for a potential bankruptcy filing as early as this week. This is definitely a long way down the road from a year ago when the arrival of Sam Zell was seen as a bold move toward the reinvention of a once-great newspaper brand.

Now?

Here’s the New York Times take:

Tribune has hired bankruptcy advisers as the ailing newspaper company seeks to stave off a potential bankruptcy filing, people briefed on the matter said.

The newspaper, which was taken private last year by billionaire investor Samuel Zell, has hired the investment bank Lazard and the law firm Sidley Austin, these people said. Tribune has been hobbled by debt related to that sale last year, which has been compounded by the growing drought of advertising for newspapers.

The Wall Street Journal puts the Tribune distress in perspective:

The appointments underscore the deepening distress for Tribune and other publishers. Newspaper businesses are being battered by dwindling advertising sales and carrying debt loads that are unmanageable in current market conditions. People in the industry expect some papers will need to seek bankruptcy protection or fold in coming months.

Tribune has been on wobbly footing since last December, when real-estate mogul Sam Zell led a debt-backed deal to take the company private. Tribune so far has stayed ahead of its $12 billion in borrowings with the help of asset sales, but now dwindling profits are tightening the noose. The company’s cash flow may not be enough to cover nearly $1 billion in interest payments this year, and Tribune owes a $512 million debt payment in June.

Based on the state of declining revenues at the company and its lenders’ likely unwillingness to allow Tribune to simply sell off assets to make its payments (as it did with the sale of Newsday in 2008), bankruptcy looks increasingly inevitable. These actions seem to imply that the question may be called sooner than the mid-2009 period I had seen mentioned previously.

Yes, there will be financial downsides at first, but especially in the many markets with only one daily newspaper, this risk may be minimized by the fact that local and national advertisers still need to reach that market, and the audience that newspaper organizations gather remains uniquely strong when measured against other mass media television and radio.

Martin Langeveld, former newspaper publisher and VP and current hive-whacking mediablogger, recently took a look at the numbers behind such a leap. The short version: newspapers won’t get rich in the short term, but they just might survive.

This week, Langeveld digs deeper into what it would take for one market to make the leap, and introduces us to a publisher in Cedar Rapids (who will be familiar to readers of this blog) who just may be laying the groundwork for his own leap forward.

The strategy sounds simple: Transform the business from its manufacturing roots into a digital enterprise. I proposed a version of it in my second-ever post, back in September: “To have even a chance of survival, the mindset of the industry needs to become: We are in the business of publishing information content continuously on our web sites; every 24 hours (for now, and this may ultimately change to once or twice weekly) we gather some of that information into a printed product and distribute it, but our business is focused on and driven by our online operations.” And I’ve explained it again more recently when I explored the economics of a daily that morphs into a web-first weekly or twice-weekly, and previously as part of my Six Theses, and elsewhere. I’m not alone on this. “Digital is first” is at the top of Steve Outing’s list of suggestions for the industry as well; others have hammered away at it; it should simply be on everyone’s list…

Can any of this be even discussed in an organization demoralized by waves of layoffs and cutbacks? It won’t be easy, obviously, but it has to be done. A newspaper organization that chooses not to adopt, embrace and fully implement a strategy of becoming a digital enterprise will remain a manufacturing enterprise with a product that fewer people want or need, every day. Perhaps it will be remembered one day by a nice brass plaque on the historic printing plant.

Langeveld doesn’t yet get the attention of some of the usual suspects (Jarvis, Yelvington, Mutter, Potts, Rosen – all big thinkers worthy of your feed reader), but he should. He combines an insider’s experience with a sharp, analytical mind, and adds a willingness to consider the radical notion that there may yet be a future in the news business.

The list of potential expense reductions includes squeezing staffing, shuttering bureaus, carving out layers of middle management, telescoping multiple sections of the paper into one, tightening newshole, scrapping syndicated features and wire serevices, axing op-ed pages and book sections and eliminating classified ads on certain days of the week….

Another alternative will be to ask employees to accept voluntary pay cuts, to agree to work longer hours, and to ease manning requirements and other work rules. Bonuses may be reduced or eliminated for the fortunate few who still would have qualified for them.

He then walks through the increasingly extreme cuts papers could and, in many cases, will make, ending with this cheery thought:

This will last as long as the newspapers continue to generate operating profits. But it is highly unlikely in this environment that any creditor would provide additional cash to prop up a money-losing newspaper.

In other words, a newspaper that cannot sell enough advertising or cut enough expenses to sustain profitable operations is not likley to make it to the other side of 2009.

Is it time for a newspaper dead pool?

The performance in the third quarter was affected only partially by the worldwide financial panic that froze the credit markets in mid-September, throttling the already waning demand for hiring, auto sales and home purchases.

The outlook for the final period of the year is worse, when the three classified verticals are likely to experience the full impact of the economic meltdown.

So it looks like I’ll need to update this chart I created at the end of Q2, showing constant-dollar print revenue at newspapers dropping below 1982 levels. When I made that estimate in September, I said 2008 print revenue would hit $36 billion, a number that needs to come down by at least a half billion (applying 2007 Q4 decline percentages, clearly an optimistic projection), if not a whole lot more.

My first thought, especially after reading point #3 (“Newspapers are cool!”) was that this was a big fat furry sock-puppet created by the NAA. But instead, it appears to be a genuine effort from an Indiana mom. Who loves newspapers and thinks they’re cool. And hopes you’ll buy a copy to help save a journalist’s job.

I love journalism (as much as anyone can be said to “love” a craft or a skill or, even, a calling). Journalists are underpaid and undervalued by a society that often forgets that they help keep this Democracy thing moving.

But I’m not so sure I feel the same way about newspapers.

For several hundred years, newspapers were the most efficient way to transmit news and information. Cheap. Fast. Disposable. In many ways, the newspaper was the internet long before the httprotocol came along. It was a printed database, filtered for our needs by trusted agents (AKA editors) who did their best to assemble in the daily pages what we needed to know. Or at least what they thought we needed to know.

But do we need newspapers anymore – in paper form? I think the jury’s still out.

If you’re surer of the answer, you should check out their Facebook page and join the 10,000+ members of the group.

Two fat newspapers each week and a robust web platform will have more impact than five or six skinny papers and a site that’s not foremost in the newsroom’s mind.

Martin Langeveld, who blogs at News After Newspapers, makes the case that local newspapers are on the road to ruin if they continue to publish every day in print. His recommendation: Print two big papers weekly, on Thursday and Saturday. Profits do shrink under his new model, but at the end of five years, he says they’re much more robust than they would have been following the existing 7-day model to its slow death.

I do hope he posts his spreadsheets, though, so we can all poke and prod at the assumptions.

People like Langeveld are reinventing an industry, idea by idea.

Read the entire proposal here.

And let the smart people lead.

For instance, people like David Cohn, creator of Spot.us.

I am writing this post physically exhausted but emotionally charged. I feel like a lion. As if I could talk down the curmudgeonist of curmudgeons. Not because I know the answer(s) – but because if we can’t even talk those people down, then we might as well just crawl into a whole and give up. F- that! We are moving forward with or without them.

The answers are out there in every startup (journalism focused or otherwise), community, blog, micro-blogging, micro-financing and CMS on the web. The internet is ours for the taking if we only reach out and grab it with as many hands as possible.

Breathe deeply. This stuff is good for what ails you.

Mark Potts brings news of a rogue liveblog that made it through the virtual razor-ribbon today at the super-secret API newspaper crisis summit in Reston.

Big ups to Chuck Peters, CEO of The Gazette Company in Cedar Rapids, Iowa, for 1. knowing how to use Twitter and coveritlive.com to get the news out fast attempt to bring more participants into the room, even if only virtually and 2. having the guts to do it, at the risk of the rolled eyes and possibly hostile glares of his CEO co-summiteers.

Chuck Peters:  Just cutting costs is most likely “incorrect action”, without reengineering to meet key consumer needs.

Chuck Peters:  Do you agree with Steve Yelvington that we have “painted ourselves into a corner” by following our success, like GM?   Check out http://www.yelvington.com/node/501

Peters kept the news conversation flowing for several hours, eventually fielding questions and suggestions from participants on the liveblog and on Twitter. It ultimately became impossible for one person to both participate in the conference and field all the questions and suggestions flowing through his liveblog. Too bad the room wasn’t filled with others such as Yelvington, Potts, Jarvis and others to bring some perspective and other voices.

But for now, Chuck Peters, your colleagues and friends salute you. And congratulations for making it out alive!

UPDATE: What kind of coverage can you expect to get when 50 newspaper CEOs gather in one place to discuss the future of desperately struggling industry? Apparently, once you get past one brave soul with laptop and an EVDO card and some media-bloggers outside of the mainstream media, not much. Run a Google search for “American Press Institute” and, as of this writing at least, there’s nothing. Search the Romenesko blog – the industry gossip and tip sheet – and there’s nothing, not even a link to Chuck Peters’s liveblog.

What’s wrong with the U.S. newspaper industry? In this case, a stunning lack of curiosity, it would seem.

UPDATE 2: Made a few edits based on Chuck Peters’s comments below. I still think what he did today was great, but if he chooses to not call it strictly reporting, I’ll abide by that.

So the American Press Institute has declared a national emergency, grabbed the newspaper industry by the lapels and summoned its leaders to a hotel ballroom the API campus in Reston Virginia.

The API Summit on Saving an Industry in Crisis happens on November 13th. Here’s what they’re saying about it:

The summit conference will be a discussion on the theory, practice and application of techniques of corporate renewal. Facilitating the discussion will be James B. Shein, Ph.D., a former turnaround CEO for several companies and currently clinical professor of management and strategy at Northwestern University’s Kellogg School of Management. Prof. Shein will lay out for us:

• The predictable path to decline that our industry is taking
• How to determine where an organization is on that path
• Strategies for reversing the decline.

All discussion will be on a non-attribution basis. At the end of the day, participants will have a greater understanding of available tools for engineering the renewal of our industry, and a shared vision of the way forward.

Lauren Rich Fine of paidcontent.org, recently made the intriguing point that, until newspapers start forcing advertisers to take a hard look at interactive, the industry will remain locked in the same 10-20% range for interactive revenue as a slice of the whole pie. She suggests killing the print edition, as painful as it will be, to be the bitter but necessary medicine that will start the healing.

I wonder, though, if there isn’t a bridge to that future that allows for a hybrid print-online model that would be worth discussing at the API summit. So, with all the hubris I can muster, herewith is my straw man for the publishers in Reston later this week.

1. Combine all your staffs. If you have an interactive team, a community newspaper team, an online entertainment product team, a TV interactive team and a print newsroom, put ‘em all together. You’re going to need a multi-disciplined content team for the plan I’m proposing.

2. Pour out a 40 for your beloved daily broadsheet. Here’s your new product mix:

• Daily free tabloid, limited to 48-60 pages. (Editorial/Ad mix 50/50 or 45/6555) It’s not time to give up on print. The readers you have aren’t ready and lots of your advertisers aren’t ready. By printing a Monday-Friday news tab, you continue to serve their immediate needs, while keeping a significant piece of the print revenue pump flowing. Assuming you do a good job of it, and you actually pick up readers through a combination of smart editorial focus and zero-friction for pickup through the free price-tag, you could very well get into the kind of scarcity-pricing that is common in television and radio. When demand from advertisers increases, you don’t add pages; you raise the prices on the ad spaces you have.
• Weekly Magazine, paid, 100 pages or more. (Editorial/Ad mix 60/40) This is where you publish your best print work. Think of this as a Newsweek for your local market. It’s the publication that doesn’t get recycled at the end of the day; it sticks around for a week (or longer). For years have been telling daily newspaper publishers that they don’t have time to read a paper every day, that they felt guilty dumping so many unread papers. This solves that, providing the insight and perspective that only a major newsroom can, at a print frequency more attuned to the needs of modern readers. (Big question to be solved: how to carry inserts, a huge part of weekend revenue. Should this be a standard magazine size, poly-bagged, or would a stitched, tabloid-sized publication work? Need to balance the revenue needs with the shelf-life objectives for the publication.)
• Significantly enhanced digital presence. A 24/7 digital newsroom is a given. Everybody who is in your newsroom – with the possible exception of the page designers – works for digital first. This is where you will meet the promise to your local market of being the preeminent local news organization, reporting news and data in whatever digital form your market needs it, including enhanced phone delivery, consumer-searchable databases, open APIs into your reporting and datastream, and an aggressive program of outreach to the rest of the local web in your market. And, yes, web sites. Not just one uber-site (though that’s welcome), but also a family of niche-focused thin sites that meet the unique needs and desires of your markets. These thin sites, built around events databases and social media tools, can be run by a single reporter-blogger who’s passionate about a topic that ma

Even writing this, I can think of a dozen arguments for why this is not the perfect answer. Good. Because these aren’t times for perfection. These are times for experimentation. The readership trend and the revenue trend are both heading in the same direction. They’ll eventually hit zero if we do nothing. But with the right attitude and a little bit of risky behavior, I believe both of those trends can improve.

Photo by Adam Fagan

I’m hearing and reading a lot today from people, largely inside the newspaper business, who say today’s coast-to-coast sellout of newspapers proves that people really do respect the power of the newspaper and that the public maintains an emotional connection with the paper that lives just below the surface, ready to be reborn with the right stimulus.

I think that overreaches. I do, however, believe we were shown some key facts today that just might serve as guideposts for newspapers looking to pump some life back into the print edition. Here’s what I believe we saw:

If you have created something people want…

And if it better suits their purposes in paper form than in electronic form...

Then they will buy your paper.

Notice there’s nothing in there about emotional connections or even journalism. The people buying papers today had an emotional connection with Barack Obama, not the paper. They used the paper as a permanent, undeniable record of the moment. Look how many people you can find in flickr posing with the paper, in the mirror image of a hostage photo taken to prove the captive was still alive on a particular day. The paper better serves this purpose than a print-out of a web page. It’s more real, it’s cheap, and it is easily portable through time.

Of course, we all joked that this solves the newspaper industry’s business model crisis: simply have Barack Obama win the election every single day from now until the end of time. Funny. But we need to ask how we can fulfill the logical flowchart above in smaller ways on a daily basis.

We spend so much time thinking about how to make digital better than print, but if we’re going to keep print alive or even turn it around, we need to ask ourselves in what ways can print be a better delivery vehicle than digital? Are there ways in which the daily paper can better suit some readers’ need than digital can? And, if so, is that how we are focusing our newspaper efforts?

What do you think?

New Yorkers queue to buy newspapers, 11/05/2008. Photo by Jeremy Zilar.

Barack Obama may have ushered in the future, but one of his coattails has a distinct must of the past: heavy print newspaper sales.

Brian Stelter of the New York Times tweets: “I’m hearing that we’re printing another 50,000 papers this afternoon for the P.M. rush.”

A friend in the DC area tells me papers are sold out, but then cautions “Today may be one of the few days left this century where a lot of people cared about having a newspaper”

But, as Steve Outing says, on Twitter, “Lots of print newspaper copies sold today. Great short-term boost, but souvenir sales won’t save the industry. What’s next could be sad.”

Take the windfall when you can, of course, but don’t think this is anything but a souvenir grab.

Update: Steve Outing reports the San Francisco Chronicle is selling “commemorative” issues at a hefty markup. Also The Sun’s Gus Sentementes tweets that The Washington Post and Atlanta Journal-Constitution are also running afternoon reprints/editions.

Update 2: If you’d rather just print your own, there’s a good collection here, chosen from a design perspective. And, as always, The Newseum has a comprehensive collection of front pages as well, though their flash module on the home page can’t be linked, so knock yourself out.

Update 3: Lots of good stuff on flickr. Who knew newspapers were the new sexy?

One more: Khoi Vinh has (of course) a nice shot and story about the reaction inside the New York Times to word that people were lining up for copies of the print edition: “People working on that floor hadn’t noticed yet that the line was forming, and when they realized its purpose, a feeling of delight swept over the newsroom like the friendliest wildfire I’d ever seen. Reporters, editors, photographers, everyone started clapping, hooting and hollering that people still find the newspaper valuable enough to wait dozens of people deep in line for their chance to buy a copy.”