Media Watch

Publishing in red ink

GateHouse, owner of eight newspapers here, in mortal danger right now
Incredible debt load destroying profitable, local newspapers

By Walter Brooks

Perhaps the saddest news in the newspaper business today is that the media giants which took on insane debt loads in the decade before this recession to buy up hundreds of prospering, local weeklies will end up greatly injuring local news coverage as the giants go belly up.

Of all the media giants in America, none is in greater danger of doing that than GateHouse Media which owns eight good weeklies on Cape Cod and the Islands.

These weeklies are the only watch dogs over local town governments and committees.

The daily press doesn't cover them, nor does radio or capecodtoday.com. When GateHouse is forced by the banks to throw in the towel, what will happen to these great newspapers?

If they close too, who will make sure the municipal foxes don't start eating our chickens?

Big Money in Small Newspapers

A generation ago, before Fidelity Investments followed by Herald Media followed by GateHouse, smelled big money in small newspapers, the weeklies here were all owned by Cape Cod families who cared at least as much about covering their town as they did about getting rich. There were no shareholders to satisfy, only their own consciences and fellow citizens.

Except for Bill Hough in Falmouth and Hank Hyora in Chatham, all the newspapers here are today owned by either GateHouse or Rupert Murdoch's NewsCorp. The truly amazing thing is how well the journalists at these chain-owned papers have managed to cover the local news as their masters cut staff and demand higher profits.

The status of GateHouse today is catastrophic, and the third quarter of the business year starting July 1  is the worse one of all.

Here's what Steven Syre of The Boston Globe had to say about all this today:

The newspapers buried beneath the company's debts still make a cash profit on their own. They don't make a lot of money, and the cash they generate is shrinking fast. But they are still earners... GateHouse posted a loss of $32 million in its most recent quarter. But the business produced $5.7 million in cash earnings before interest, less than a third of the amount it reported in the same quarter last year.

There are two kinds of newspaper companies in business today, the ones that are struggling and the others that face mortal danger right now.

The factor that almost always separates one from the other is how a company viewed debt in recent years. Two of the newspaper industry's highest-profile financial disasters, Tribune Co. and the McClatchy Cos., both confront stupendous debt problems. The New York Times Co., which owns The Boston Globe, has its own debt problems.

But the smaller GateHouse Media Inc., measured pound for pound, rivals any of them when it comes to debt hangovers.

GateHouse was heavily dependent on credit from its earliest days as a small media company and grew much larger with the help of even more debt - obligations that threaten to overwhelm it today. The company is running up huge losses on paper, its stock has tanked, and no one is sure how it can pay back over $1 billion owed to investors.

"It does beg the question: What were they thinking?" says Tom Corbett, a Morningstar Investment Service analyst.

I'm not sure, either. GateHouse executives didn't call me back... Click The Globe to read the rest.