Setting newspapers up for failure: retail real estate lessons for the newspaper industry

Given the importance of newspapers to civic life ("Dead Newspapers and Citizens’ Civic Engagement", Political Communications Journal), the fact that Tribune Broadcasting and Digital First Media are screwing their newspapers, setting up them for failure, because they are separating the ownership of individual newspapers from their real estate holdings (offices and printing plants) is a concern that trenscends their business circumstances, it's a matter of civic vitality.  

A newspaper having fewer economic resources at its disposal when revenues are precipitously declining increases significantly the risk of failure.

Tribune is spinning off the newspapers, which were the original basis of the company, and provided the revenues that bought the broadcasting properties that are now the lifeblood of the company, but first they kept the ownership of the buildings in which the newspapers are located, are selling some of the properties ("Tribune Publishing puts Chicago Freedom Center space on market," Crain's Chicago Business), and second they dropped a big dividend payment (debt) on the newspapers before letting them go ("Wall Street asset-strips Tribune's newspapers," Columbia Journalism Review).

Actually, the Graham Family did the same thing to the Washington Post when they sold it to Jeff Bezos.  Fortunately, for him it's not a big deal financially.

Digital First Media, which owns some decent newspapers across the country, including the Salt Lake Tribune and the Denver Post, has been selling real estate assets of some of the newspapers and has just put the buildings housing 51 of their newspapers on the market ("Denver Post parent Digital First Media puts 51 buildings up for sale," Denver Business Journal).

The problem is when you don't own your property, as a "retail" business you don't control a significant proportion of your destiny.   A more recent example is how successful restaurants in New York City are being priced out--faced with 500% increases in their rent--once their long term leases have run out ("Union Square Cafe joins other victims of New York City's rising rents," New York Times).  But there are scads and scads of examples, both of businesses being priced out of real estate, or closing down, because the real estate they own is worth more than the business.

One of the elements that destroyed the Mervyns department store chain in California is after Dayton Hudson sold it to a private equity firm, the firm separated the stores from the real estate, making the company extremely vulnerable financially to any substantive change in economic conditions.  The company eventually shut down.  See "How Private Equity Strangled Mervyns" from Bloomberg Businessweek.

Sears and KMart, being run mostly as a real estate play, are still in steep decline ("Sears Cashes Out of Prime Stores," Wall Street Journal; "Sears is trying to spin off or sell anything that has value," Crain's Chicago Business).