At a Standstill: Local newspapers could be crushed under the debt of mega-mergers.

Author:DeRienzo, Matt

Two things are more true than ever about the state of daily newspapers: the need for innovation and investment in new business models, and the stranglehold that ownership structure and financial pressures have on most papers' ability to do either.

To rethink the business, it's been said that newspapers need a startup mentality. That would be great if, just like a startup, they could lose money for the first two or three years of building something new.

But there are few examples of newspaper owners willing to sacrifice short-term profit for this kind of transformation.

And as the industry consolidates into the hands of a few over-leveraged companies answering to impatient investors, most daily newspapers are structurally incapable of it.

The merger of the country's two largest daily newspaper chains, Gannett and GateHouse Media, that was announced in August was financed with a $1.792 billion loan to be paid back with 11.5 percent interest. That's a rate you wouldn't want attached to a car loan. How will it work out in a newspaper industry seeing double-digit reductions in advertising revenue?

The new CEO of Barnes & Noble bookstores--another legacy business that has struggled in the wake of digital disruption and the pitfalls of chain ownership--thinks the answer is local entrepreneurship.

He wants to run the company like a network of independent bookstores.

'You should do what you want; there are no restrictions on what books you stock, how you display them, what you promote. Each bookshop is quite individual," James Daunt told the Wall Street Journal.

For daily newspapers, the equivalent might be building an "everything about something" news and information resource around the unique interests of a particular community or segment of the audience--the cannabis industry in northern California, veterans issues outside a major Army base, tourism, recreation, history, etc.

A membership model of reader revenue might work in one market, while in-person events or local merchandise are the answer somewhere else.

But an independent bookstore approach might be impossible at the 265 daily newspapers owned by the Gannett and GateHouse mashup.

Paying off that debt will require stringent adherence to profit goals. They'll have to cut, and keep cutting, to get there. No breathing room to experiment, no capacity to invest in new things, no resources to do...

To continue reading