Falling ad revenue and heavy debt sink local buyers' efforts

"This man," said one employee at the time, "is giving us hope."

But six months after Philadelphia Media Holdings, led by Tierney, purchased The Philadelphia Inquirer and Philadelphia Daily News in June 2006 for more than $500 million, the party was over. Layoffs - driven by declining advertising revenue - hit both newsrooms, especially the Inquirer's. And still the problems continued, forcing the newspapers into bankruptcy two months ago.

"Tierney wanted the paper very badly, and he paid a high price for it," said Henry Holcomb, former president of the Newspaper Guild of Greater Philadelphia. "And that, plus the fact that he got hit with this economic downturn, put him into bankruptcy."

Private owners, particularly those like Tierney with local roots, were once welcomed as saviors in many newsrooms. Independent ownership, the theory went, would not be bound by Wall Street's appetite for profits and, therefore, could save newspapers from devastating cuts. It's a theory that some Bostonians have resurrected today, given The New York Times Co. threat to shutter The Boston Globe if unions don't agree to $20 million in concessions. Some believe the cuts may be a prelude to a sale and are hoping a local buyer steps up.

But recent buyers of newspapers have struggled to stay in business, much less stay in the black. The Tribune Co., publisher of the Chicago Tribune and Los Angeles Times, among other papers, filed for bankruptcy last December, less than two years after real estate mogul Sam Zell acquired it in an $8.2 billion deal. Star Tribune Holdings Corp., which bought the Minneapolis Star Tribune for $530 million in 2007, declared bankruptcy a month after the Tribune Co. did. Then came Tierney's bankruptcy filing in February.

In written testimony filed for yesterday's congressional hearing to discuss the state of US media outlets, Tierney said newspapers need "limited antitrust relief" in order to "discuss and experiment with new and more sustainable business models and strategies." The problem is not only a rapid decline in ad revenue - The New York Times, for example, yesterday reported a 27 percent drop in the first quarter of this year alone - but the crushing debts that many owners incurred to purchase the newspapers in the first place.

Without those debts, some struggling newspapers would be profitable, said Tom Fiedler, dean of Boston University's College of Communication. One upside of the cratering newspaper economy, he said, is that new buyers may be able to avoid the highly leveraged deals that got other recent owners in trouble, given the low prices that newspapers are commanding these days. The San Diego Union-Tribune, which was acquired last month by a private equity firm in Beverly Hills, Calif., reportedly sold for less than $50 million.

But given the Globe's losses - the paper is projected to lose an estimated $85 million this year - and the general state of the industry, Fiedler said even local owners, coming in with plenty of money and the best intentions, would probably find themselves in trouble after buying the paper.

"If they do it with any kind of debt, which is almost certain, they're going to find themselves operating at a loss," Fiedler said. "The conundrum is the only way to service the debt is to make further cuts. And if you make further cuts, the quality of the product is less attractive to consumers. And then you're in a negative spiral."

Tierney, Zell, and Avista Capital Partners, the private firm that leads the Star Tribune ownership group, declined to comment for this story. But current and former employees at all three papers did grant interviews, describing how new ownership has made significant cuts.

In Philadelphia, those cuts came "almost immediately," Holcomb said, as ownership shed hundreds of jobs while negotiating other changes, such as a reduction in sick time and limits on seniority rules - two issues which are also on the table in discussions between Globe unions and the Times Co.

At the Baltimore Sun, one of the papers in Zell's empire, the news staff is down about a third since Zell's acquisition in 2007, according to union officials. And in Minneapolis, ownership has made significant newsroom cuts as well, said Graydon Royce, cochair of the Star Tribune's unit of the local newspaper guild, down from roughly 375 to 275.

"New owners? I don't consider that a panacea at all," Royce said. "I think any new owner will continue to watch the bottom line and try to preserve what they have, rather than expand."

But not everyone is so pessimistic about the future of newspapers in general and private owners in particular. Inquirer editor Bill Marimow says that the layoff of roughly 70 newsroom employees in January 2007 marked "the worst single day in the history of The Philadelphia Inquirer." But citing the two Pulitzer Prize finalists the paper produced this week, Marimow said he believes the Inquirer is still serving its readers well.

"When you look at The Philadelphia Inquirer today, I think what you see is a formidable, full-fledged newspaper, accompanied by a formidable, up-to-date website," he said. "It's a paper - unlike other pretty substantial metropolitan dailies - that has not been emasculated. And for me, the credit for that goes to Brian Tierney and the local owners."

Amid all the obvious troubles, there are still a few investors out there, longing to own a daily newspaper. In Baltimore, magazine publisher Ted Venetoulis said he believes a local owner is best for the Sun and he would like to be that owner, if Zell were ever willing to part with the Baltimore daily.

"At some point," Venetoulis predicted, "the economy will get better. Newspapers still have a viable position in society and advertisers will slowly come back to the vehicle they have all enjoyed using for many, many years."

But 69-year-old Venetoulis realizes that not everyone believes in newspapers like he does.

"I know," he said. "I'm way out of date."

Keith O'Brien can be reached at kobrien@globe.com.