And Goodwill Toward Newspaper Debt

This week’s readings explore the deeper economic context of the newspaper industry crisis, including operations, finances and debt. Soloski (2013), in particular, frames his study of the industry crisis around the non-liquid goodwill value of several large newspaper companies. Because they were acquired at high cost, their goodwill value was high. However, when the advertising revenue fell, the goodwill was written off to cover increasing debt, and consequently the book value of these companies fell.

Soloski argues that this contributed to the problem: when the book value dropped the companies came to be risky borrowers for the lending institutions keeping them afloat. Ultimately, this resulted in higher interest rates, which resulted in deeper financial problems, which resulted in even higher interest rates. And this resulted in bankruptcy filings. The Washington Post seemingly came up on top in this deal, which acquired the least goodwill and took on the least debt. That is, it was recently acquired by Jeff Brazos for $250mil, which is a relatively minor sum compared to some of the prices paid for the acquisitions Soloski cites.

Jack Shafer explores the goodwill liquidation in more detail in an article for Reuters. He points out that newspapers traditionally had a high goodwill-to-physical-assets ratio, suggesting that goodwill became a problem when it had to be written off because of losses that increased newspaper debt. What’s interesting is how emphatically he downplays the digital media” influence, tracing the brewing (now boiling) troubles to the early 20^th century, and emergent tech like radio. It seems like newspapers were always a fragile enterprise. In this context, he also nicely qualifies the Buffett purchases referenced in the Soloski piece. Buffett did not indiscriminately splurge on newspapers. He bought local ones that were not facing bankruptcy and were not likely to have many close substitutes.