What happened when the money dried up

I've been passing around an odd little YouTube clip of a 2005 Christmas gift from Sam Zell. It shows an animated statue that features a recording of Sam extolling the virtures of an economy that's throwing off cheap cash left and right, And then, there's a song:



"We're awash with cash to spend!"

It would just be that - an oddity - until you read a piece in the New York Times which notes that the newspaper industry over the past few years followed the same bubble of cheap money that drove the housing bubble.

And, like all bubbles, eventually it pops:

The bankruptcy filing of the Tribune Company on Monday is just the latest, largest evidence that the American newspaper industry is suffering the hangover from an immense buying spree in 2006 and 2007 at what turned out to be the worst possible time for the buyers, just as the business was about to enter a drastic decline.

Newspapers would be in trouble either way. The steady leak of advertising and readers from print to the Web has become a widening torrent in this recession year. Most newspapers remain profitable, but the margins are dropping fast, with the industry losing about 15 percent of its ad revenue this year.

But the companies in the weakest condition are there largely because they borrowed a lot of money to buy papers, often at inflated prices, and the biggest of those deals were struck in 2006 and early 2007.

The full story is here.

Winner, Most Prescient Post of 2008: Mark Potts

It was just shy of one year ago today when Mark Potts swam against the Zellebratory news of the sale of Tribune, in a post entitled "Here Come The Death Eaters," in which he typed these words:

Put that all together, and 2008 may be the year that the Death Eaters start coming for some of the biggest names in the business: Big chains or papers that are overextended financially and find themselves undermined by the gathering storm of problems. Wall Street and bankers aren't going to put up with that, and executive heads—not to mention those of a lot of unfortunate rank and file employees—will roll. Watch for still more consolidation and, um, innovative financing that will further roil the industry.

Just look at the tumult that accompanied Sam Zell's closing of his deal to buy Tribune Co. this week. The bankers were squeezing the deal right up to the last minute. Even Zell called it "the transaction from hell." And Zell's going to have to pedal—and peddle—as fast as he can to keep the company afloat financially. It's not just the Chicago Cubs that are going to be sold by Tribune. Look for a fire sale of real estate and newspapers (Los Angeles Times, anyone? Anyone?) as Zell strips the company for cash. And at this holiday time, say a prayer for the poor Tribune employees, who could be left holding the bag—through their retirement plan, which now owns the company through Zell's creative accounting—if things turn sour. Memo to Tribune employees: Get. The. Hell. Out.

(Emphasis mine.)