US Papers File for Bankruptcy As Recession Hits Advertising

The American newspaper industry has become the subject of more bad news, with the announcement that two local groups, including one that owns the country's third-oldest daily newspaper, have filed for bankruptcy protection.

The Philadelphia Inquirer has been placed into a Chapter 11 filing to allow its owners to restructure debts. The paper will be joined in bankruptcy protection by the Philadelphia Daily News and the website philly.com.

The strife faced by such a hallowed title - the paper was founded as the Pennsylvania Inquirer in 1829 and rose to prominence during the civil war -comes after the Journal Register company sought bankruptcy protection at the weekend. It owns 20 daily newspapers in Pennsylvania, Michigan, Ohio, Connecticut and New York.

Relatively short-term problems relating to the build-up of unsustainable debt burdens have caused the difficulties. In the case of the Philadelphia papers, they were bought in 2006 by a group of local investors who thought, wrongly, they could see a way ahead for big city titles.

Their confidence was based on dramatic growth in online advertising revenue of about 30% a year, which led them to predict that such income would at some point replace the dwindling display revenue of print newspapers. But the new owners, led by a PR executive, Brian Tierney, were caught out by the recession, which has depressed print advertising at a much faster rate than expected.

The same short-term burden of debt lay behind December's bankruptcy protection filing by the Tribune Company, owners of the Los Angeles Times and Chicago Tribune.

By moving into Chapter 11, the proprietors have a chance to restructure their debt payments, shrug off the grip of some creditors and cut costs.

The list of struggling titles is growing fast. Last week, the New York Times suspended the payment of any dividends this quarter amid the slump of its share value to six cents. The paper's earnings declined by 48% in the last quarter of 2008 and even its revenue from online ads fell for the first time. The Sulzberger family, which publishes the paper, was recently forced to accept an injection of $250m (£172m) from Carlos Slim Helu, Mexico's richest man.

"People thought that the internet would prove to be a bigger and better advertising delivery system than newspapers, but it didn't turn out that way and they now have to find another economic model," said Tom Rosenstiel, the director of the Project for Excellence in Journalism.