Newspapers shudder at threat of recession
Newspapers shudder at threat of recession <h6>Sections</h6> <h6>Axios Local</h6> <h6>Axios gets you smarter faster with news & information that matters </h6> <h6>About</h6> <h6>Subscribe</h6> <h1>Newspapers shudder at threat of recession</h1>Data: ; Chart: Axios VisualsExperts are sounding the alarm that a possible recession could threaten the embattled newspaper industry, whose two highest cost centers — labor and paper distribution — soared in the wake of the pandemic. Why it matters: A recession would create "almost a perfect storm for local news," says Tim Franklin, senior associate dean at Northwestern University's Medill School of Journalism."In recessions, advertising revenue always comes under pressure, and often in recessions, you see that affected first," Franklin adds. "But there definitely is a concern about whether consumers will cut back their [subscription] spending." Driving the news: The economic outlook for newspapers is giving pause to private equity investors typically eager to eat big chains. Alden Global Capital has abandoned its bid for Lee Enterprises, at least for now, in part due to rising interest rates and a tougher market to finance deals, sources told Axios. part of its stake in Lee in April, shortly after a Delaware judge upheld Lee's rejection of Alden's two board director nominees in February. The firm held a 6.3% stake when it initiated its takeover bid and reported a 4.7% stake in April. Alden's $24 bid, which was once challenged by Lee's management as too low, now looks attractive compared to Lee's current share price of $18. Alden declined to comment.Data: Yahoo Finance; Chart: Axios Visuals Between the lines: Alden's bid may be dead for now, but that doesn't mean it couldn't be revived later. The firm would likely need more support, however, from other investors in this economic environment."I don't know that Lee's going to command a $24 share price at this point, so it may make it more attractive for them to come in," says Franklin."But at the same time, Alden, by its nature, is very focused on short-term profits and short-term cash flow," he says. "And so, between rising inflation and potentially a downturn in the market, it could scare them off from an acquisition right now." State of play: While newspapers continue to see digital subscription increases, pandemic-driven losses and leftover debt from recent mergers continue to drive cost-cutting measures. USA Today owner Gannett last month introduced an array of cost-cutting measures, just two months after it laid off 400 people. Its CEO on its Nov. 3 earnings call that those measures helped the company improve its profit margins, but Gannett revenue growth to recover until 2024.Last year, — owner of the Chicago Tribune, New York Daily News and other local papers — and immediately offered buyouts as a cost-cutting measure. Attrition, along with not refilling those positions, has shrunk those papers.McClatchy's ad revenue and consumer revenue were both "weakened" last quarter, according to an internal note sent to staff by the company's CEO and obtained by Axios. Ad growth was impacted by macroeconomic factors while subscription growth was impacted by "ongoing attrition of print subscribers and slowed growth in digital subscriber revenue." Be smart: Today, a recession could be just as devastating as 2008's Great Recession, but for different reasons, says Matt DeRienzo, editor-in-chief of the Center for Public Integrity, a nonprofit news organization. Far more newspapers are now owned by large investment firms looking to maximize profits without investing much in the newspapers' long-term growth. "Any further downturn or pressure on that [profit] flips more local newspapers into a situation where the hedge fund has milked everything and it no longer becomes profitable for them, so they're shut down," DeRienzo says. What we're watching: Regional newspaper chains and family-owned newspaper groups are newspapers from major chains trying to reduce their footprints to save costs. Yes, but: Those transactions still haven't been enough to stop the newspaper industry from shrinking. between late 2019 and May 2022, as Axios has reported. The country is on track to lose more than one-third of its total papers by 2025. Bottom line: "I think the recession will be very damaging to smaller, under-capitalized papers and have similar consequences for groups carrying too much debt," says James McDonald of Access Global Advisors, a veteran newspaper transaction advisor. "Unlike the pandemic, there won't be rescue funds flowing to prop up their balance sheets. We could see either a high number of shutdowns or a large number of M&A transactions in an effort for owners to get what they can from their assets." <h5>Go deeper</h5>