As exciting as any horse race you’d ever see at Churchill Downs or Saratoga, the Minneapolis Star Tribune and Tribune Co. are neck and neck in the much-hyped D.I.D. (Daily Insolvency Derby). The old-time Norris Division/’Black & Blue’ NFC Central rivals Chicago and Minneapolis have rounded the 4th turn and are heading down the stretch with only 23 days left to see which metro market will lose its daily newspaper first. Just last Friday, rumors circulated around the Twin Cities that Credit Suisse was preparing yank ownership of the Star Tribune away from Avista Capital Partners in what would amount to a controlled bankruptcy. While some thought that race might be over, reports have come out today that Tribune has hired Lazrd to oversee a bankruptcy proceeding that might begin as soon as this week. It’s anyone’s race at this point and we’re undoubtedly in for a photo finish.

It was another dismal week for the daily newspaper industry. Here in Minneapolis, the Star Tribune could only muster 6 pages of employment classifieds on Sunday for thye 2nd week in a row (actually it was about 4 with 2 pages of filler). At that level, the paper has got to be inching ever closer to bankruptcy (they stopped making debt service payments on their unsecured debt in June and their secured debt in October). At this point, the only thing keeping them out of bankruptcy has to be the fact that Credit Suisse wants to own a daily newspaper even less than Avista Capital Partners.

Other headlines from the past week or so include:

• The American Press Institute, during a closed-door “summit” conference, concluded that the daily newspaper industry is reaching “full-blown crisis” stage and will most likely be unable to turn things around without outside help.

• A Morningstar analyst reported that McClatchy’s stock “could be worthless.”

• Not surprising to anyone, Sam Zell’s purchase of the Tribune is proving to be among the worst investments in the history of media (maybe 2nd behind Time Warner’s ridiculous purchase of AOL). Revenue in Q3 was down 10% and nothing the company has tried has had even the slightest impact on plummeting readership. Even the Cubs & Wrigley Field, maybe the only two decent assets in the company, are proving hard to unload in the current enviornment. If Zell cannot sell the franchise as expected, he’ll have a tough time with a $500 million debt payment next Summer.

• Businessweek makes the case that a share of the bailout funds should be earmarked for the daily newspaper industry.

• In Rupert Murdoch’s mind, the cause for the decline/death/demise of the dailies can be pinned entirely upon a culture of “complacency and condescension” (thanks Nick for the article). Murdoch states that:

“The complacency stems from having enjoyed a monopoly–and now finding they have to compete for an audience they once took for granted. The condescension that many show their readers is an even bigger problem. It takes no special genius to point out that if you are contemptuous of your customers, you are going to have a hard time getting them to buy your product. Newspapers are no exception.”

• E.W. Scripps slashed its workforce by 400 people, and the Boston Globe did the same by 42 people.

• Phil Mushnik, in a piece in The New York Post, argues that if the dailies fold, they’ll take local TV news with them. I actually think that there’s a lot more to lose than that, perhaps even a healthy, fully-functioning democracy, but the editorial provides an alarming look at how far one has to stretch the definition of journalism to include local TV news these days.

….Just another busy week in the ongoing saga that is the daily newspaper industry.

The pace of news about the decimation of the daily newspaper industry is accelerating, and the picture is getting uglier and uglier every week. Among the recent stories, McClatchy is freezing wages, Gannett is reducing headcount by 1,000, and JCPenney and Kohl’s both announced plans to drastically cut back their newspaper circular advertising. Cox Enterprises announced that it plans to sell the Austin American-Statesman and all of its stand-alone community newspapers in North Carolina, Colorado and Texas as well as its direct mail business ad business Valpak. This news comes on top of announcements that dailies in San Diego and Newark are up for sale. (No news yet either, by the way, on Landmark Communication’s efforts to unload all of its dailies and weeklies). For newspapers, the capital market mantra appears to be: buy high, sell low – but sell now because it’s going lower in a hurry.

Many have been pointing to rapid growth in newspaper web site ad revenue and readership as the only bright spot in the newspaper business, but that, too, has shown recent signs of weakness. Not only is the rate of ad revenue growth slowing to a crawl, but newspaper web traffic stats are being mocked around the industry. Newspapers who looked desperately to a lopsidedly unfavorable deal with Yahoo for traffic growth are just now beginning to realize that their hopes and aspirations were, at best, misplaced.

The poster child for daily newspaper industry carnage, Tribune Company, marched a step closer to bankruptcy and Sam Zell openly called his acquaition of the media behemoth “the deal from hell.” There is no conceivable way he can possibly turn that abomination around, even if the Cubs do win the series, but I’d still keep my money on Minneapolis to lose its daily first.

Steven Smith, Editor of Spokane’s Spokesman Review, has written perhaps, at least to this point in time, the definitive eulogy (or is it an elegy?) on the death of the newspaperman. Without a doubt, we’ll be seeing more of these in the months ahead.

The quarterly numbers for daily newspaper publishers are starting to come out, and they’re pretty ugly. The New York Times reported yesterday that earnings fell by 82% with an 11% decline in revenue. Given how bad the environment is right now for daily newspapers in general but especially given the economic environment, there shouldn’t be many surprises in how bad the numbers are going to be. McClatchy is sinking under huge debt loads, Lee’s stock recently hit a 28 year low, and as recently reported in Time Magazine, it’s time to hit the panic button for the entire industry.

In the ‘no $#@!$#’ department, a recent study by the Pew Research Center found that after layoffs, newspapers shrink in size. What a shock. I wish I could get paid to arrive at those kind of conclusions. But while the findings of the study are obvious, it is still shocking to see the tangible impact of the staff cuts that are taking place everywhere around the country. With Sam Zell’s Tribune Company, for example, where the cuts have been draconian, the result is as follows (as reported by followthemedia.com):

The cutbacks have been savage. At the Los Angeles Times, for instance, there currently is no publisher, there is a brand new editor, there is no advertising director, no foreign editor, no editor overlooking the editorial pages, the UN bureau chief is gone, as are another 150 editors,  reporters, designers, photographers and the like. Bock review and opinion sections are disappearing. At the flagship Chicago Tribune, the publisher and editor both went, and 14% of the newsroom will be cut for a newly designed, smaller newspaper. The Morning Call in Pennsylvania announced it was cutting 25% of the newsroom, the Courant in Hartford is cutting around 25% of its newsroom and the list goes on for all the other newspaper properties.

Maybe I should add L.A. into the race between Minneapolis and Chicago to see which major metro loses its daily newspaper first.

Avista Capital Partners, owners of the Star Tribune, announced this morning that they did not make their quarterly interest payment on the $96 million in junior debt that accompanied the roughly $330 million in senior debt used to finance the $530 million purchase of the daily newspaper. While CEO Chris Harte reported that the company has sufficient cash to make the interest payment, he stated that they chose not to make the payments as the company works through renegotiations on the terms and structure of the debt and the entire balance sheet. While Harte’s comments may or may not be accurate, the daily is most certainly now in default on a meangful portion of its debt and is one step closer to insolvency.

In the race with Chicago to see which metro market loses its daily first, Minneapolis has clearly taken a sizeable lead. Interestingly, just as Tribune’s fate might depend on the success of the Cubs and the value that that franchise might fetch in the market with cash proceeds being used to pay down debt, the Star Tribune’s fate is similarly tied to the Minnesota Vikings who are eyeing the paper’s land holdings in downtown Minneapolis on which they are exploring building a new stadium. Who would have thought that the demise of two prominent dailies could be such a ’sporting’ event.

With the well-documented problems plaguing both Midwestern dailies, it’s a toss-up as to which metro market will lose its daily newspaper first, Minneapolis or Chicago. The Newsosaur Alan Mutter has another great post today on the vastly different approaches that Rupert Murdoch and Sam Zell have taken since both acquired their newspapers roughly 6 months ago, and the New York Times has also chimed in on the preposterous path that Sam Zell is taking in trying to save his business by slashing everything in sight. As Mutter rightly points out, what is even more shocking than Zell’s apparent lack of any cohesive plan he is following is the fact that his creditors loaned him more than $12 billion without asking about what he intended to do to fix a dteriorating business model. Everyone in this deal except the poor Tribune employees (who also happen to be owners) deserve exactly what they’re going to get in this deal – nothing but an obliterated business left in complete shambles after everything of value has been sold off piecemeal.