The Wall Street Journal reports (subscription required) that "Advertising revenue fell just 3.6% last year for dailies with circulations under 100,000, compared to a nearly 17% decline for the industry overall, according to trade groups."That divergence has some investors looking to make investments in small newspapers. While large newspapers with a national news focus are threatened by the internet, local outlets that report on high school football games appear to be more immune.
The relatively stable ad revenues at small newspapers underscores the complexity of problems facing the industry. Yes, fundamentals are deteriorating for many publishers but an equally important part of the problems are self-inflicted. Companies like Gatehouse Media -- which is now rumored to be on the brink of bankruptcy -- simply took on too much debt to make too many acquisitions, leaving them little margin for error. Then they compounded the problem with aggressive share buybacks at inflated prices. The cyclical downturn has made the situation dire, but the company's capital structure is the real culprit.
What that means is that many local newspapers could have stable futures once they are cut loose from debt obligations. That their ad revenue is only down 3.6% in the worst economic meltdown in a long time suggests that the business fundamentals may not be so bad after all, and that's attracting some sophisticated investors who aren't effected by the "Print is dead!" headlines.
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