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Only one publicly-traded newspaper company is in a safe financial situation, according to a statistic designed to measure a company’s chance of failure.

Last week at the American Press Institute’s closed-door summit of 50 of the top newspaper executives from around the country, James Shein, a turnaround specialist and professor at the Kellogg School of Management at Northwestern University, asked executives to calculate their company’s Altman Z-scores, which can help identify how close a company is to bankruptcy.

A score above three is the accepted safe range. Shein said only one company was above that measure. EW Scripps Co. has a Z-score of 3.78, according to Bloomberg.

Lee Enterprises Inc., which publishes The Times of Northwest Indiana and the St. Louis Post Dispatch, has a Z-score of .56 and the Sun-Times Media Group Inc., which publishes the Chicago Sun-Times and a large number of community newspapers in the Chicago area, has a Z-score of minus 1.02.

McClatchy Co., which publishes The Miami Herald and 29 other daily papers, has a Z-score of .32. The company’s stock “could be worthless,” according to a report by Chicago-based Morningstar Inc.

“McClatchy has struggled under the multiple weights of declining revenues, high debt, outsized exposure to troubled housing markets, and the continuing shift of readers and advertisers from print to online,” said equity analyst Tom Corbett in a report issued on Friday. “Given the persistence and severity of these conditions, we think equity shareholders are at risk of losing the entire value of their investment.”

Newspaper company revenues are eroding in both circulation and advertising. According to figures released by the Audit Bureau of Circulations, an industry group based in Schaumburg, Ill., newspaper circulation fell 2.6 percent in the six months ended in September. The general economic climate, including the problems in the housing market and auto industry, has hampered revenues.

The Sun-Times Media Group reported it lost $168.8 million, or $2.04 per diluted share, in the third quarter of 2008. Advertising revenues fell 18 percent and circulation revenues fell 2 percent from the third quarter of 2007.
Tribune Co., which owns the Chicago Tribune and the Los Angeles Times, said revenues decreased $122 million, or 10 percent, to $1.04 billion in the third quarter of 2008. Print advertising revenues fell 19 percent, classified ad revenues 30 percent. Circulation revenues were down 2 percent.

Newspaper companies have cut staff in response to the drop in revenues. More than 6,300 employees at the 100 largest newspapers in the U.S. have lost their jobs, according to Mark Potts, a newspaper consultant and entrepreneur and writer of the Recovering Journalist blog. More than half the cutbacks have come since the beginning of June.

Potts said that those cuts are not the last. “There will definitely be more. I suspect we’ll see them right after the New Year.”

Some papers are taking dramatic steps to ease the transition. The Christian Science Monitor announced earlier this month that it would transition from a daily newspaper to an online publication with a weekly magazine. The change will occur in April 2009. The paper plans to improve the content on its Web site, CSMonitor.com, and create a daily e-mail subscription service.

“The Christian Science Monitor is a unique situation, in that it is subsidized (by the Christian Science church) and a national paper, but that’s really the first big-name paper to make that transition and I think we’re going to see others,” Potts said. “I think we’re going to see papers realize that it is really hard to operate those presses and run the trucks and try to go at it a different way.”

The Christian Science Monitor said it forecasts a loss of $18.9 million in its year ending April 30. After the change to online publication, the paper wants to reduce its net operating loss to $10.5 million by 2013.

The focus online is designed to take advantage of a growing Internet readership. According to Nielsen Media Research, part of Nielsen Co., 28 of the top 30 online current events and global news destinations gained readership from October 2007 to October 2008.

In Chicago Tribune Co. is focusing on more than its online product. A redesign of the print edition of the Chicago Tribune was introduced at the end of September. The Tribune Media Group is expanding the readership of its other print publications including RedEye, Hoy and The Mash, a weekly high school newspaper.

While circulation of The Chicago Tribune fell 2.9 percent in the 26 weeks ended Sept. 28, the combined total weekday circulation of all the Tribune Media Group’s Chicago properties is up 17 percent, according to a company press release.

"It is clear that our strategies to build our local audience are paying off," stated Tony Hunter, president, publisher and CEO of Chicago Tribune Media Group, in the release. "We will continue to leverage our portfolio of media offerings as we compete for both readers and advertising dollars. And we're very encouraged by the early success of the redesign of the Chicago Tribune."

The New York Times is the industry leader with over 20 million readers in October, a 16 percent gain over a year ago. That has not stopped the New York Times Co., the paper’s parent company, from losing money and getting an Altman Z-score of 1.86.

The company posted a loss of more than $2 million in the third quarter of 2008 partly due to a 14.4 decrease in advertising revenues versus the same quarter a year ago.

The New York Times had already begun scaling back its news operation. It introduced plans to cut 100 jobs earlier in 2008.

“I think the issues at work, which are escalating costs associated with print publication, accompanied by declining revenues, means something’s got to give,” said Bill Mitchell, the director of Poynter Online, the Internet component of the Poynter Institute, a school for journalists. “The problem is that it is not as easy to replace that lost revenue from print with online revenue. The advertising online is not going to catch up.”

Even The New York Times’s Web site, nytimes.com, is outpaced by more Internet-savvy news companies. The top four most visited news online news outlets in October, according to Editor & Publisher, a trade publication, were MSNBC Digital News Network, CNN Digital Network, Yahoo! News and AOL News.

NYTimes.com and The Tribune newspaper Web sites were the fifth and sixth most visited online news outlets in October. The Tribune Co.’s Web sites attracted 17.7 million unique visitors during the month.

The problem for newspaper companies has been converting online visitors into a consistent source of revenues. Only The Wall Street Journal, which is owned by Dow Jones & Co., charges a subscription fee for online content. Online advertising is less profitable than print advertising, and subscriptions are difficult to charge with so many different news sources available online.

“There aren’t many encouraging signs on the subscription side, apart from sex and money,” Mitchell said. “People are disinclined to pay for any content online, the exceptions being pornography or financial based services.”

The Wall Street Journal is proving that papers can sell premium content online. According to Ashley Huston, senior manager of corporate communications for Dow Jones, The Wall Street Journal Digital Network, which includes MarketWatch.com, Barrons.com, WSJ.com and AllThingsD.com, had 37.2 million visitors in September.

The print edition of The Wall Street Journal also experienced gains. Total individual paid circulation for the six months ending Sept. 28 grew 2.4 percent versus a year ago, according to the Audit Bureau of Circulations.

Mitchell said that another source of revenue some newspapers have relied upon is paid archives. But that is changing as companies realize that selling advertisements on the pages has the potential for greater revenues. New York Times articles written after 1987 are available for free online.

Newspaper companies could create a new source of revenue by using the Internet to move away from troubled traditional advertisers such as banks and automotive dealers, to smaller local advertisers, Potts said.

“Newspapers have not even begun to tap into what people could do with their advertising,” Potts said. “It is one of the great scandals that most of the online spending is going to Google and Yahoo! and not to newspapers.”

While Shein said at the conference that cost-cutting is not the proper response to the industry’s problems, experts expect further staff cuts at metropolitan dailies. “Unless there’s some new source of revenue that emerges, I think staffs, like a lot of things related to news organizations, are going to get smaller,” Mitchell said. “I think there is going to be continued shrinkage. The interesting question is: At what point does it become counter-productive?”

That moment has not come yet, but observers know one thing for sure: the print business will irreversibly change. “It’s a big wrenching time,” Potts said. “We are seeing a business as we know it come to an end.”