Philly Papers Face Milestone In Bankruptcy Fight

The owners of The Philadelphia Inquirer and the Philadelphia Daily News are fighting to keep local control of their newspapers despite declaring bankruptcy early last year. They may find out if they've succeeded on April 27, when the papers are scheduled to go up for auction.

There were dozens of U.S. newspapers in bankruptcy in 2009. But only one of them won the Pulitzer Prize for investigative reporting.

Michael Days, the editor of the Philadelphia Daily News, says there was "pandemonium in the newsroom" when two of his reporters won print journalism's top prize for a yearlong series of stories about a corrupt police narcotics unit.

"And it was much deserved," Days says. "They earned that Pulitzer Prize."

Days is quick to credit the paper's owners for keeping enough journalists on the payroll to do investigative reporting. But that ownership group may not be around for long: The parent company of the Daily News and its sister paper, the Philadelphia Inquirer, declared bankruptcy in February 2009, and since then the owners -- led by a local PR man turned publisher named Brian Tierney -- have been working hard to keep the paper out of the hands of its creditors and under the control of local owners. That battle could end as early as April 27, when the papers' assets go up for auction.

"I wouldn't be fighting like this if I lived in Philadelphia and it was a paper in another part of the country," Tierney says. "But I am not going to hurt people in my own community. I'm not going to hurt this great institution. So I'm going to fight as hard as I can to do the right thing."

Tierney says creditors wouldn't run the newspapers the way a journalist would. He thinks a hedge fund or private equity firm wouldn't think twice before cutting staff and quality to save money.

On the other hand, argues Poynter Institute media analyst (and former Inquirer reporter) Rick Edmonds, no one benefits if a newspaper fails -- not even a hedge fund.

"They're definitely in it for the money, not for the public service -- that much is true," Edmonds says. "I don't think it's a given, though, how they'll manage papers. Newspapers are in danger if they cut their editorial product much more."

When the dust settles, hedge funds and other creditors will likely control a number of big metropolitan dailies that are emerging from bankruptcy -- including the Minneapolis Star Tribune and the Tribune Company, which owns The Baltimore Sun and the Los Angeles Times.

"It's not ... that all of these newspapers are losing money," says veteran industry analyst John Morton. "They're not. They're just not making as much money as they used to."

Morton says most newspaper bankruptcies have one thing in common: lots of debt. When times were better, he explains, even healthy companies loaded up on debt to expand, "in anticipation that cash from existing and acquired newspapers would flow in as it always had in the past."

Instead, those newspapers found themselves in the worst ad market since the 1930s, even as they continued to lose readers and ad revenue to the Internet.

Bankrupt newspaper owners are counting on the economic recovery -- and lightened debt loads -- to make their reorganization plans work. But University of Illinois law professor Robert Lawless says some of them may not make it.

"Bankruptcy is a legal process," he cautions. "It doesn't make your business more viable than it was before. Bankruptcy proceedings might delay the demise. But in the end, the economic forces are going to win out."

For all the perils facing the industry, Tierney seems determined to stay put at the Philadelphia newspapers. His own $10 million stake in the company has been wiped out. But he's putting together a new group of local investors to bid for the business at the April 27 auction.

"If you're willing to take a long-term view and see that this is a tough time and get it at the right price, I think it can be a decent business."

However the auction ends, it's a safe bet that that price will be a lot less than the $500 million the papers were worth just four years ago. Copyright 2010 National Public Radio. To see more, visit http://www.npr.org/.

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