Wisdom and Risk

This morning The Moderate Voice posted a litany of woes for the newspaper business. There’s a rumor that The McLatchy Company will put its flagship Miami Herald newspaper up for sale:

We all know what it means, I think, when a company says ‘we don’t comment on that.’ Especially a news organization that’s supposed to be forthcoming about NEWS. As Holden Caulfield would say, fer Chrissakes.

and The Chicago Tribune will enter Chapter 11 bankruptcy this week:

The Tribune Company, The Chi Trib’s owner, as well as owner of LAT (Los Angeles Times) and other newspapers says today it is deep in the hole to the tune an astronomical amount of shekels.

The Tribune Company, another conglomerate like Scripps (who owns The Rocky Mountain News in Denver… and put The Rocky up for ’somebody, anybody buy me puleeeze’ fire sale this week…not to mention that the Miami Herald is up for sale this week also)… owns Wrigley Field, for heaven’s sake, and The Chicago Cubs… The old guys from The Loop outward along Lake Michigan north, south and west, have an irreversible every-morning tradition: “How yous guys doin’ today? How ’bout dem Cubs, boy o boy?”.

The Tribune Company also owns another icon: WGN, Chicago… the flagship radio station that any and everyone in their right and wrong minds in the Midwest and beyond listens/ed to for at least one decade of their life. Sharp programming; local talk that was intelligent. Used to have radio dramas. News reporters, not just vapid news-readers. To lose WGN would be like losing the dome off the Capitol.

To lose the Chi Trib would be like losing the Capitol itself.

The newspaper business has had structural problems for decades. First there was network television news. Then came the 24 hour cable news networks. Various Internet methods of connecting buyers and sellers—eBay, Craig’s List, Google—put the final nails into the coffin of the industry’s business model.

I’ve always questioned the wisdom of purchasing newspapers in leveraged buyouts in which the property that’s purchased is saddled with the debt incurred in the purchase, indeed, the wisdom of the strategy in any sort of industry with a structural problem. It assumes too much, especially about the value of assets over time and the availability and cost of borrowing.

Is it a method of managing risk? If the intent is to detach valuable assets from the parent organization and sell them off without the proceeds accruing to that parent, leaving a nonviable shell that’s allowed to collapse, it’s merely a method of gleaning profits made over decades of investment from these companies and offloading your risks to the purchased properties’ creditors. If that’s the rationale, it strikes me as scurrilous. Making profits without creating anything and contributing to the destruction of something that’s otherwise viable may be shrewd business but I doubt it’s good policy.

I’m not familiar enough with the balance sheets of either the Tribune or the Herald but perhaps some of my readers are. If they weren’t strangled by debt, would these institutions be viable? Perhaps with some belt-tightening or selling of assets that weren’t part of the nominal mission statements? I wouldn’t be surprised if there were room for newspapers to survive in the new media age, both in big cities and niche markets. However, I would be very surprised if they can survive while burdened with debt that has little to do with the newspaper business.

The newspaper business isn’t the only one vulnerable to dissolution in the present turmoil. Much of the present financial crisis and emerging economic crisis is about managing risk. Managers have been rewarded with praise, esteem, power, and compensation beyond the dreams of avarice for making choices which, while they appeared wise at the time have emerged as being risky to foolhardiness, risky in the extreme. There really needs to be some recourse.