Tribune about to go underwater?

The New York Times, itself in precarious financial position, reports that media giant Tribune Company may soon default on its obligations.  Falling circulation and overextension on sports assets has Tribune hiring bankruptcy advisers:

The Tribune Company, the newspaper chain that owns The Chicago Tribune and The Los Angeles Times, is trying to negotiate new terms with its creditors and has hired advisers for a possible bankruptcy filing, according to people briefed on the matter.

Tribune is in danger of falling below the cash flow required under its agreement with its bondholders, but it is not clear how seriously Tribune is thinking about seeking bankruptcy protection. Analysts and bankruptcy experts say that the hiring of advisers, including Lazard and Sidley Austin, one of the company’s longtime law firms, could be a just-in-case move, or a bargaining tactic. The company would not comment on Sunday.

Tribune went private last December, paying more than $8 billion in a deal that put Samuel Zell, a real estate billionaire, in control of the company. It has struggled since then under the resulting debt, forcing deep cuts at its newspapers. It also sold Newsday to raise cash.

The Tribune Company owns 23 TV stations and 12 newspapers, including two of the eight largest in the country by circulation. As of Sept. 30, The Los Angeles Times had weekday circulation of 739,000 and the Chicago Tribune had 542,000.

The big question here is whether Congress or the Treasury will bail out Tribune.  After all, it has plenty in common with the Big Three automakers.  It employs lots of people, has outsized clout for the product it delivers, and has made a string of dumb business decisions to put itself into danger of financial oblivion.

And normally I’d consider that question a sardonic attempt at humor about the current political situation, but these days it may not be as silly as it sounds.

It’s hard to fix a cause for this collapse.  Zell’s decision to leverage the company to take it private came at the worst possible time, as it turns out, just as the country began its slide into recession.  That’s not just bad luck, though; the newspaper industry has been declining for the last several years, which makes Zell’s decision even more inexplicable.  Zell still hasn’t sold off the Cubs and Wrigley Field, two questionable purchases by previous management, and likely won’t get many offers now when the credit markets have tightened.  One cannot discount the bad editorial practices at the LA Times, as documented for years by Patterico, as an amplifier to an industry downturn, either.  All of these have contributed to the imminent collapse of Tribune.

As Michelle notes, the potential destruction of Tribune gives others an opportunity to enter the media market.  As these outlets get sold off to pay creditors, will conservatives start buying them and entering the media market in force?  Or has the economic model of newspapers proven so poor that no one who cares about a return on investment can afford to buy one?