I hadn't planned a Day Three update on the Strib revenue bombshell, but a really smart, connected guy named Alan Mutter has a noteworthy column for Strib-watchers to ponder. Mutter writes "Diary of a Newsosaur," which is state-of-the-art on business media matters.

In a piece quite sympathetic to Strib publisher, chairman and part-owner Chris Harte, Mutter says the paper made $41 million in 2007. If you combine that with the $303 million revenue figure I derived yesterday, the Strib's 2007 profit margin was 13.5 percent — not halcyon, but not terrible.

That is, not until you consider the debt payments carried by Strib owner Avista Capital Partners and Harte (who is not an Avista principal). Mutter estimates that the group is paying $33 million annually to finance its purchase — leaving $8 million for investments (or profit-taking). If revenues are falling $40 million a year — as Harte claims they have in 2006 and 2007 — it's pretty easy to see bad things ahead for Strib workers and readers. (This is a good place to note that we're taking Harte's numbers as fact, but since the Strib is private, we don't have a government filing or independent verification of current revenues or profits.)

Mutter throws out the possibility that Avista and Harte could default on the loan if revenues skid below debt service — "and the bankers would step in to restructure the business as rapidly and pitilessly as possible." He laments that the ownership "put hundreds of millions of their own dollars at risk to try to save [the Strib] at the most perilous time in the history of the industry" yet could lose not only the paper, but the estimated $125 million they put into the deal.

I'm not a CEO like Mutter — and I'll take insights from people who know more about this than I (see email link at right) — but I wonder which is worse: owners who paid and borrowed too much deeply slice-and-dice to pay the mortgage, or a bank sale to new owners with a smaller nut to cover? I admit, there's a lot of uncertainty here, and all the outcomes seem terrible. But on some level, I won't shed tears over private equity guys taking a haircut unless it definitely produces the worst result.

One other Mutter nugget: citing "knowledgeable sources," he notes that the Strib profits as recently as 2002 were "more than triple" last year's $41 million. That means 2002 profits were at least $120 million on revenues of $359 million — a 33 percent profit margin, minimum. And this was in the still-depressed year after 9/11! Even in 2005, the paper made $82 million on revenues of $379 million — a 22 percent margin. It explains why McClatchy paid over a billion dollars for the paper in 1998, and even with revenue sliding, why Avista paid a half-a-billion eight years later.