Rocky Mountain News staffer April Washington posed a rhetorical question to Westword’s Michael Roberts that has implications that go far beyond the decision by E.W. Scripps Co. to sell the Rocky. She asked, “Why does Scripps always blink first.”

It’s a good question because both The Denver Post, owned by a private company called the Media News Group, and the Rocky, owned by a public company, are both losing about the same amount of money. That’s because their joint operating agreement stipulates that the two companies split the combined profit from the operations of the two newspapers. And it’s very likely that the two newspapers spend about the same amount on their newsrooms. Both papers subtract the amount they spend on their newsrooms from their JOA profits. Assuming their expenses are about the same, both Scripps and Media News are losing about the same amount.

Yet the Rocky is selling and The Post is not. And it was also the Rocky that blinked first and lost the newspaper war with The Post, prior to the establishment of their joint operating agreement.

As a public company, under pressure from shareholders, Scripps isn’t going to wait around long for any company that it owns to become profitible, especially of the future is uncertain or worse. It can do this, and should do this, but it probably won’t. This was explained very well by Ken Doctor, a Knight Ridder official who’s now a news analyist and blogger:

“If you look at the basic math, you can see the problem, and why such shutdowns may become more numerous. Scripps reported that it lost $15 million on the Rocky in 2008. The Rocky would then be one of those 19 top 50 market papers that Dean Singleton told us were unprofitable by mid-year. That number has undoubtedly grown as we reach the end of this seemingly endless year of pain. I have little doubt that now more than half of the top 50 are unprofitable, even with the jaw-dropping cutbacks we are seeing; ad revenue continues to plummet, and the first half of 2009 looks ominous.

It’s one thing for these companies to run operations that are close to, or just above the profit line. It’s another — their shareholders and re-financing lenders remind them — to run one that is requiring subsidy. We can call it investment, but to call it that, you’d have to peg a return to healthy profitability at some point certain — and no one can do that. So it’s a subsidy.  And that’s not what public, profit-seeking companies are designed to do. The Denver JOA — JOA, a concept overtaken by marketplace and technological change — was meant to share profits, not subsidies.”

So in this situation, with millions of dollars bleeding from the Rocky, Scripps is sitting there watching its stock fall big time and its shareholders howling. The pressure is great, with so much dreaded uncertainty in the future (and Wall Street hates uncertainty), and so Scripps moves to sell, even if it is in a better position to afford it than a private company.

The private owner of the Denver Post, Dean Singleton’s Media News, is under less pressure, assuming you can fathom how it feels to be losing more the $1 million per month. But Singleton can believe in his gut feeling that the newspaper industry is in a “major cyclical decline” and “revenue will come back” in “two to three years”. He knows, and he’s probably accurate in the short term, that he’ll lose less money if he can outlast the Rocky, and he can decide, based on this, to stick with the Denver Post, for as long as he can afford it. And he can wait with the confidence that Scripps will sell first–that Scripps, facing Wall Street pressure, will blink first, as April Washington put it.

That’s what happened. And it didn’t hurt that Singleton likes owning a newspaper in his home town so he can beat up on politicians, like Gov. Bill Ritter.

This Wall-Street-driven catastrophe is at play at newspapers across America. The public companies have less room to maneuver, even if their executives understand the public interest function of a newspaper. That’s irrelevant in the end.

So the question is what to do about the information gap that’s left behind, as newspapers and other news outlets cut staff or fold? There’s no single answer, but creative ways to increase public funding for journalism (one idea was articulated by KBDI’s Wick Rowland ironically enough in today’s Rocky) is part of the solution–as are nonprofit newsrooms and philanthropic and other for-profit ventures.

One thing’s for sure. We cant count on the public companies that own newspapers and other serious news outlets. The Rocky is the proof of that.

This entry was posted on Friday, December 5th, 2008 at 12:00 pm and is filed under Denver Post, Rocky Mountain News. You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.