An Analysis of the Financial Crisis Facing California Local, Daily Newspapers

Telecom, Media & Technology (TMT) | Corporate Finance & Restructuring

May 4, 2020

Local journalism and newspapers specifically have never faced a challenge like today. COVID-19 continues its broad and deep impact to the United States economy and the unknown changes to customer and consumer behavior will likely not be understood until 2021.

The Great Recession in 2008 and 2009 was difficult for newspapers but did not have the associated impacts that the current pandemic has. And back then newspapers were coming off some of their best years and had some ability to adjust.

Today newspapers have battled declining top-line revenue year over year and have little ability to absorb any major shock, and certainly not the perfect storm of COVID-19 and the Dynamex decision combined with AB 5 [newspapers currently have an exception until the end of 2020] that will mandate that newspaper delivery be done by employees, not independent contractors.

Our analysis suggests the California newspaper industry faces an unprecedented financial impact from these factors.

Current Financial State of the Industry: Instable and Unsustainable

The current local newspaper business has migrated from an 80% advertising driven model to one where many newspapers are 50% advertising – print and digital – and 50% consumer revenue. This points out two important points. Advertising is still important, so significant declines are impactful.

Second, consumer revenue dominated by physical delivery of newspapers to subscribers is equally essential to survival. Digital subscribers while growing are a very small percentage of total consumer revenue.

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