Chronicle Circulation Drops as Newspaper Industry Plunges Into Crisis

THE WOODLANDS, Texas -- The Associated Press reported on Monday that the Houston Chronicle has seen its weekday circulation plummet 11.7%. Only the Atlanta Journal-Constitution's 13.6% drop exceeded the Chronicle's decline for the top 25 newspapers in the nation.

Sunday circulation numbers were even worse, with the Chronicle plunging 15.7% representing the steepest drop of all the leading newspapers. On average, the leading papers dropped 4.6% for the April through September time period.

The A. H. Belo owned Dallas Morning News weekday circulation was down 9.3% with the Sunday paper dropping 7.5 percent. The A. H. Belo Corporation was formed when Houston CBS affiliate KHOU TV owned Belo Corporation recently spun off its newspaper operations from its television operations. Last week it suspended dividend payments, froze salaries, and renegotiated loans for higher interest payments.

The American newspaper industry, in a slow decline for years due to the Internet, is on the verge of collapse as the financial meltdown continues. Many of the nations' publicly traded newspapers have seen their stock values drop 80-95%, more than double of the overall market.

Lee Enterprises, the majority owner of the company that provides the website technology for Houston Community Newspapers, has seen its stock drop from nearly $50 a share to Monday's close of $2.62. Last week The New York Times Company debt was downgraded to junk status.

McClatchy Company has seen its stock drop from a high near $80 a share to yesterday's close of $2.22. Three publicly traded community newspapers have been recently delisted from stock exchanges. The Hearst Corporation, owner of the Houston Chronicle, is a private company so its financial condition is not publicly disclosed.

Analysts attribute a variety of problems to the precipitous decline of the industry. The most puzzling is the debt of many of these newspaper companies. Newspapers historically have controlled one of the few mass media distribution channels, generating strong revenues from their expensive printing presses. Much of their debt has been attributed to the greed and excess of the Wall Street mergers and acquisitions industry as they enabled the industry to consolidate papers throughout the country. Many papers are missing debt payments or financial targets related to their debt repayment. The banks have been reluctant to liquidate their assets as their present market values are a fraction of their debt.

Newspapers have raised rates to both readers and advertisers of their print products while circulation declines. In recent years advertisers have noticed the smaller reach of the publications, especially among the young and affluent Internet users, and have migrated their advertising dollars to television, the Web, and other media.

The Internet is a double edged sword for newspapers. Rather than embrace the Internet and compete against a virtually unlimited number of websites with low cost of entry to local markets, newspapers have chosen to not produce unique products and services on the Web. Most have just repackaged their print products and charge for services that are usually free on the Internet.

While Web revenues for major newspapers have increased, they do not come close to offsetting their print products rates of decline. Many analysts believe the financial crisis is actually a good thing for the newspaper industry, after an expected very rough time in the coming months. The continuing slow decline of their readership and reach related to the print operations will be greatly sped up due to their financial liabilities. The winners in the upcoming industry shakeout will emerge from the slump with their assets reflecting market values and they will be able to grow their Web operations without the shackles of their print operations. They will be different companies, but will become strong new media operations and return to profitability.