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Gannett (GCI) may take as much as $3 billion in non-cash write-downs for some of its assets. It is that bad in the newspaper industry. The charge would cover as much as 20% of the value of Gannett’s properties.

Gannett can survive the accounting action, at least for now. Its debt is a modest $4 billion when it is taken against revenue and operating income.

Some of GCI’s smaller peers are not so lucky. Journal Register was recently kicked off the NYSE for trading below $1 longer for longer than the exchange rules allow. Newspaper companies including McClatchy (MNI) and Gatehouse (GHS) have lost over 60% of their market value in just a year. The borrowing they took on to buy other papers is so great that their debt service may swamp operating income.

All of this is likely to cause a tremendous auction of newspapers as the public companies that own them can no longer afford to stay in business. That actually may be good news.

The Journal Register bought a large newspaper group in Michigan just a few years ago. It paid $425 million. Based on JRC SEC filings, those properties may be worth less than $100 million now. But, for a buyer, justifying $100 million is easier than swallowing four times that.

Newspapers, and their reporters, may be able to survive the industry downturn if the value of the properties falls far enough so that the leverage for owning them is modest.

The destruction of the value of the newspaper industry may be what saves it.

Douglas A. McIntyre