How Pioneer Press owner "Lean" Dean Singleton got rich in newspapers and then took on potentially crippling debt

Here's some analysis from the Poynter Institute's business desk that anyone with a remote interest in the welfare of the Pioneer Press and other MediaNews holdings will want to read:

Poynter Biz blog on newspaper debt

Poynter Media Business Analyst Rick Edmonds tracks the latest industry developments.


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WEDNESDAY, JUNE 18, 2008Posted at 9:54:37 AM

It's the Debt, Stupid

When Sam Zell and his lieutenants or Dean Singleton opine on the state of the newspaper industry and the drastic remedies required, as they have in recent weeks, it puts me in a mood to scream.

Yes, times are tough. But the latest draconian cuts they are imposing on employees and readers are going largely to service the ridiculous levels of debt they had the bad judgment to take on.

Let's look at the numbers. Zell's Tribune began life last December with more than $12 billion in debt. Goldman Sachs analyst Peter Appert wrote then that the company would face around $1 billion in debt payments this year, which cash flow from its operations would barely cover.

Things aren't working out even that well, with revenue declines much worse than expected. For the first quarter of 2008, Tribune reported cash flow of about $200 million from operations. Interest payments totaled $263 million. Forget profits, obscene or otherwise, the company operated at a loss.

Turning to Singleton's MediaNews, it reported interest payments of about $80 million in 2007, sucking up about 6 percent of the revenue its newspapers generated.

MediaNews stopped reporting its financials in April, but it is reasonable to assume debt service remains about the same in 2008 at the same time revenues, and earnings, keep falling (as they are throughout the industry).

By contrast, an extremely conservative borrower, the Washington Post Co., had interest payments of only $12 million in 2007. Its diverse businesses generated revenue of over $4 billion, more than triple those of MediaNews.

So when Tribune announces it will "right-size" by getting the split of advertising and news space to 50-50 in its papers, I wonder whether this abnormal level of shoehorning news is largely a ploy to finance debt.

When Singleton boasts to an international conference in Sweden of his progressive step of depriving various of his California papers of local-based publishers and copy desks, I think I know why no other major American publishing group has gone that far. Feeling prosecutorial about these exercises in making a difficult situation worse, I do need to add a few qualifiers.

The Tribune deal came with a huge tax benefit and an understanding that some assets would need to be sold. MediaNews operates on a model distinctly its own, including joint operating agreements for three of its biggest papers and a number of management contracts, particularly with well-heeled Hearst.

Being highly leveraged has always been part of the game plan, and Singleton has been shrewd lately about getting paid without committing his own capital. You could also argue that the industry has consistently underestimated how much revenue and earnings will fall.

If that is still the case, Tribune and MediaNews could be avatars of deeper cuts other companies may resort to in another six months to a year. Also we are past the point where cutting the newspaper expense base can reasonably be blamed on greedy, bad-guy managers.

If an industry loses 20 percent of revenues over two years, more in problem spots like Florida and California, you don't need an M.B.A. to figure out the necessity of bringing down costs. Still, I think operators like Zell and Singleton are squishy where others are forthright on the concurrent need to keep heft and quality in the print product and invest aggressively in new digital operations.

Frankly, I don't think they have the money to do it -- because the banker has to be paid first.

In December 2006, Craigslist CEO Jim Buckmaster spoke to an investors' conference in New York. Asked the inevitable question about whether he felt guilty about helping destroy the industry's classified base, he replied that he and Craig Newmark thought the bigger problem was excessive debt. (Craigslist, essentially, has none).

Both are problems, but I do think debt has become a very important gradient now when looking at companies. Zell, Singleton, McClatchy and private groups in Minneapolis and Philadelphia all labor under the burden of having bought papers assuming earnings as they were instead of earnings as they have become.

McClatchy announced deep cuts of its own this week and carries big debt from laying out $4 billion (after the sale of some papers) for Knight Ridder just as the business turned from stalled to plunging in mid-2005. But McClatchy also sold its largest paper, the Star Tribune of Minneapolis, ahead of the curve of sinking valuations and has actually been paying down debt as well as covering interest payments.

Conversely, some companies have had the good sense or good fortune not to buy any newspapers this decade. That hasn't earned them favor on Wall Street, but it does leave a lot more maneuvering room for transformation in the next several years.

That group would include, among others, A.H. Belo, E.W. Scripps, the Washington Post and New York Times companies, and Cox. I don't think it coincidental that you see some of the boldest digital experiments and strongest online growth rates at the newspapers of these companies.

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