Newspapers still make a profit

The title for this post may come as a surprise, but Ad Age made a good point today -- for all the bad news in the newspaper business (the Philadelphia newspapers joined the line at bankruptcy court), the business is still profitable. The problem is that their ownerships, many of whom bought up multiple papers in recent years, are so buried in debt from the buyouts that they can't pay the bills on the reduced profits they're getting today.

"Not a lot of papers are operating at a loss," said John Morton, the veteran industry analyst. "There are roughly 1,400 daily newspapers. We only hear about the top markets. That leaves at least 1,300 papers out there."

Publicly owned newspapers averaged an operating profit of 10.8% in the first three quarters of last year, Mr. Morton said. That's not the margin enjoyed by newspapers when they were monopolies, but it's not nothing either.

Ten percent plus is better than the oil companies were doing when gas was at four bucks (something to think about the next time a paper runs an editorial denouncing "excessive profits"). The problem is that it's only half what profits were when projections were made justifying, for example, the $13 billion debt from the buyout of the Tribune Company (now in bankruptcy).

Ad Age has some interesting stats. For example, Lee Enterprises, which just reported a loss of $889 million, actually had a 20.8% operating profit; the loss was from write-downs on the value of holdings. Even Tribune Co. made a modest 5.4%.

So, once again, gloomy as the picture is for newspapers, the business is not going to disappear. The fundamentals are sound, and after the weakest players are eliminated and the rest downsized, the survivors will likely prosper.