Unless newspapers can figure out how to reduce their high fixed costs of printing and circulation, their already low credit ratings could fall even farther, Moody's Investors Service warns. Moody's calls it a "structural disconnect" with just 14% of cash operating costs, on average, devoted to content creation, while about 70% of costs are devoted to printing, distribution and corporate functions. The remaining 16% of costs are related to advertising sales -- another example of devoting too few resources to the principal revenue driver. "This disconnect is a legacy of the industry's vertical integration beyond content creation and into the production and distribution of newspapers," Puchalla said. The high fixed costs -- combined with high debt among many newspaper companies -- is squeezing cash flow as revenue declines.
