Newspaper industry crisis deepens - can bailout demands be far behind?

By Thomas Lifson

Collapsing advertising revenues are forcing extreme cuts in staffing, and may push major papers out of existence in 2009. The Gannett Blog reports the grim reality at that major chain, where thousands of jobs have already vanished, with many more on t he horizon. The worst toll of layoffs (so far):

The Salinas Californian eliminated a whopping 31% of its 130 jobs.

But the final number of Gannett jobs lost is expected to be higher, because three of the biggest worksites haven't disclosed figures: USA Today; the Detroit Free Press and affiliates, plus The Cincinnati Enquirer. Combined employment at those three is around 4,400. Excluding USAT and Detroit, Corporate now says total job reductions will be about 2,000.

Denver, one of the few cities left with two competing newspapers, may lose the Rocky Mountain News, slightly less liberal than the Denver Post. The E.W. Scripps chain has put the paper up for sale, acknowledging that even under its joint operating agreement (allowing the two papers to operate as one when it comes to advertising, eliminating pesky price competition), the paper cannot make money.

Editor & Publisher reports that the Fitch financial ratring firm predicts debt defaults that could leave several cities without a daily newspaper by 2010. Fitch already rates the debt of McClatchey and Tribune Company as junk. Meanwhile inventoryies of ad space are high, further depressing advertising rates for those advbertisers who remain with the dailies.

Meanwhile, Huffington Post has received an injection of venture capital and plans to begin publishing local editions for various cities, aiming to replace the collapsing local newspapers. No doubt, other ventures are preparing to step-into the vacuum developing, as the future of print distribution of basic news looks limited.

We have been warning of this eventuality for years, naming it the newspaper industry death spiral. Newspapers are locked into a technology of the 19^th century, still valuable for many uses, but not suited to rapid and inexpensive delivery of news and commentary. Their high fixed costs (staff, capital goods like presses and trucks), and high variable costs (newsprint and ink and gasoline for delivery) make them unable to effectively compete aginst websites.

However, webiste advertising rates remain a fraction of those enjoyed by newspapers. Even with lower costs, websites face a difficult task in garnbering enough revenue to support extensive newsgathering operations.

It is now a fair probability that the Obama Administration and Democrat-controlled Congress will seriously consider a newspaper industry bailout next year. They will argue that newspapers are a precious institution, too vital to lose. There will certainly be press support for the idea. But of course, propping up an old technology information provider will only delay the transition to electronic distribution, while giving government leverage over those news sources surviving on its largess.

Market forces should be allowed to operate. But that's an argument that few liberals are predisposed to favor, especially when the threatened interests played such a big role in the recent election triumph they enjoyed.

Hat tip: David Paulin, Susan L.