Print Media

Greedy Health-Insurance Vultures vs. Lowly Newspaper Heroes

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A tale of two industrial profit margins that you might not expect. First, care of Barron's, our beleaguered champions of the First Amendment:

Brother can you spare a violin?

Many newspapers still have almost double the profitability of other media sectors, such as movies, music and books -- which have long struggled to achieve margins of even 10%.

Even good businesses can have bad capital structures. Many newspaper companies took on debt that could have been easily supported if profitability had been maintained. The problem is that current earnings, even if superior relative to those of other media businesses, are far below what anyone had anticipated.

For instance, McClatchy put much of its $2 billion of debt in place in early 2006, when margins still approached 30%. In 2008, it had 20% margins on almost $2 billion of revenue, but debt service consumed its profit. As a result, while its recent share price at $3. 65 is well above its July all-time-low of 40 cents, McClatchy's stock-market value is still barely $300 million -- down from a high of more than $3 billion as recently as 2005.

Second, those greedy health insurance tycoonsters, according to the Associated Press:

It's good ta be da actuarialist!

Quick quiz: What do these enterprises have in common? Farm and construction machinery, Tupperware, the railroads, Hershey sweets, Yum food brands and Yahoo? Answer: They're all more profitable than the health insurance industry. In the health care debate, Democrats and their allies have gone after insurance companies as rapacious profiteers making "immoral" and "obscene" returns while "the bodies pile up."

Ledgers tell a different reality. Health insurance profit margins typically run about 6 percent, give or take a point or two. That's anemic compared with other forms of insurance and a broad array of industries, even some beleaguered ones.

Profits barely exceeded 2 percent of revenues in the latest annual measure.