German Newspaper Crisis Deepens

For years, Germany's two most prestigious newspapers sought to diversify their businesses and expand their hallmark brands into mini publishing empires modeled after Bertelsmann or Time-Warner -- with with tentacles reaching into book publishing, television and radio. But these days, the "Süddeutsche Zeitung" and the "Frankfurter Allgemeine Zeitung" are shedding investments as fast as you can bat an eyelash.

Germans have long prided themselves on the fact that the two papers have remained fiercely independent -- a characteristic that media analysts say has created an environment for some of the country's best journalism. Having burned through a good chunk of the cash reserves the papers built up during fatter years, both newspapers are now struggling to maintain their independence. With a stagnate economy and high unemployment, the advertising market in Germany has slowed to a trickle -- and both papers have spiraled into crisis.

Last year, the Munich-based "Süddeutsche Zeitung," which boasts circulation of 443,118, lost 43.9 million ($43.1 million) euros on revenues of 808 million euros. Due to the collapse of the ad market, the paper expects revenues of only 720 million this year. The company announced plans earlier this year to eliminate 10 percent of its 5,000 employees.

Searching for a savior

Numerous reports this week -- from the "Frankfurter Allgemeine Zeitung" to the "Financial Times Deutschland" -- have confirmed that the "Süddeutsche Zeitung" is in talks with a handful of the Germany's largest publishing groups in order to sell a 10- to 20-percent share that would infuse it the 100 million euro the paper's managers say it needs to remain liquid.

In a report earlier this week, the "Westdeutsche Allgemeine Zeitung," confirmed that its parent company, the WAZ Group, was considering an investment in the Süddeutsche after the company approached the Essen-based regional newspaper giant. WAZ publishes 28 daily newspapers, including the "Westdeutsche Allgemeine Zeitung," with a total circulation of over 4.3 million.

In its report, WAZ said the Süddeutsche was "shaken by its losses" and that the paper is seeking to raise the 100 million figure -- an amount "WAZ" reported would entail a "respectable minority share" in the company. The Süddeutsche is also reportedly considering the sale of its own regional newspapers.

Other bidders

The Stuttgart-based Holtzbrinck Publishing is also considering the purchase of a minority stake in Süddeutsche. Holtzbrinck is the publisher of upscale German newspapers including the business-oriented "Handelsblatt," the weekly opinion journal "Die Welt," and the Berlin daily "Tagesspiegel" as well as 49 percent owner of the "Wall Street Journal Europe."

"We've presented an offer to the Süddeutsche's partners," a spokesman for Holtzbrinck told its subsidiary paper, "Handelsblatt," without providing any additional details.

The business director of the Hanover-based Madsack Publishing also expressed interest in a Süddeutsche investment on Wednesday.

Whichever company comes out on top in the end still faces a serious hurdle. The Süddeutsche is owned by a group of five family investors who started the newspaper after obtaining the first license from the American forces for a German-run newspaper during the occupation following World War II. The families often split on business decisions, but under the paper's operating agreement, a unanimous decision is required before any shares in the "Süddeutsche Zeitung" can be sold.

FAZ could face same fate

The situation at the "Frankfurter Allgemeine Zeitung," which has been bleeding red ink in the millions, is also dire.

Earlier this year, the newspaper folded the English edition it published in partnership with the "International Herald Tribune," and since then it has announced plans to shut down radio stations in Berlin, Frankfurt and Munich as well as consolidate its Internet offerings in order to pare staff. The latest development came this week, when a member of the company's advisory board said the paper was considering shedding its book publishing units as well in order to focus on its core business: Germany's only daily newspaper with serious international recognition.

In an interview with the paper on whose board he sits, Wolfgang Bernhardt said he would consider every option available in order to keep the newspaper independent.

But for the "Süddeutsche Zeitung," it may already be too late to preserve its complete independence.

Noting that the paper's 30 million euro credit line with the Bayerischen Landesbank would come to an end soon, the "Financial Times Deutschland" earlier this week quoted Süddeutsche CEO Dirk Refäuter as saying: "It wouldn't be better for us to wait. The value of the company is disappearing."