The recession's toll on consumers has forced the publisher of supermarket tabloids the National Enquirer and Star to seek bankruptcy protection.
American Media, whose publications account for more than a fifth of the newsstand circulation in the U.S. and Canada, filed for Chapter 11 bankruptcy protection on Wednesday under a plan that will see debtholders take control of the company.
The filing in the U.S. Bankruptcy Court for the Southern District of New York marks a turning point for the tabloid, whose roots go back to the founding of the New York Evening Enquirer in 1926.
The company said in its filings that the recession had hurt single-copy sales at checkout counters, which, combined with subscriptions, account for over half its revenue. It gets the bulk of the rest of its revenue from advertising.
Higher gas prices, a fall in housing values and people spending more paying down credit cards and home loans led to fewer purchases of its magazines while waiting in line, it said in the filing.
"The resulting decline in consumer spending on publications sold at retailers' checkout counters, which target demographics that happen to be predominantly affected by challenging economic conditions, has adversely affected the debtors' businesses, operating results and profitability," the company said.
Planned Bankruptcy: 60 Days
Wednesday's filing said American Media, which is based in Boca Raton, Fla., had debt of about $879 million.
The filing follows its announcement two weeks ago that about 80 percent of its lenders had approved a plan to convert their debt into equity in a restructured company. It said it hopes to exit bankruptcy in 60 days. It also said it had lined up about $565 million in new borrowing to fund its operations.
The company has said the reorganization will not affect its operations, and CEO David Pecker said two weeks ago the filing comes from "a position of financial strength and confidence."
Like other publishers of newspapers and magazines, American Media has been struggling to cope with the recession and the migration of readers and advertisers to the Internet. Fuel, paper and postage costs also weighed on operations, it said.
The company did not respond to a message seeking comment late Wednesday.
American Media's annual earnings before interest, taxes, depreciation and amortization came to $114 million in the year to March 2010, down from $122 million a year earlier.
When it filed, had 638 full-time and 1,246 part-time employees.
Bondholder Group Becomes New Media Mogul
Generoso Pope Jr. bought the New York Evening Enquirer in 1952 and renamed it the National Enquirer in 1957. The publication reached a circulation of more than 1 million just three years later.
The company says in the filing that in fiscal 2010 the tabloid sold about 560,000 single copies per week and had total average weekly circulation of about 784,000.
After Pope's death in 1988, the paper was purchased by a private group called GP Group Acquisition Ltd. Partnership. That company bought rival supermarket gossip sheet Star and through a series of mergers and acquisitions the resulting company came to publish magazines such as Muscle and Fitness, Shape, Flex, Men's Fitness, Fit Pregnancy, Country Weekly, Globe and National Examiner.
Average circulation per issue of all the regularly published magazines was about 6 million in the six months to September.
The bondholder group includes hedge fund Avenue Capital and distressed debt specialist Angelo, Gordon & Co., which already has gained stakes in major newspapers such as the Star Tribune in Minneapolis and The Orange County Register in southern California through bankruptcy proceedings.