Austin newspaper loses potential buyer-source
* ZelnickMedia no longer interested in American-Statesman
* Owner Cox Enterprises sells two other Texas papers
By Anupreeta Das and Robert MacMillan
NEW YORK, May 28 (Reuters) - Private equity firm ZelnickMedia Corp has dropped its pursuit of the Austin American-Statesman, a person familiar with the matter said on Thursday, underscoring how hard it is to sell newspapers in the desultory publishing market.
Cox Enterprises put the Austin paper up for sale last August, along with 28 other newspapers to raise cash to pay down debt.
At the time, the privately-held media conglomerate sought about $200 million for the Austin paper, two sources told Reuters, although the paper is now believed to be worth considerably less because of the anemic advertising market.
ZelnickMedia's initial attraction to the Austin market soured in the face of the wider problems afflicting the newspaper industry, the source said.
Cox and other U.S. publishers are struggling with plunging revenue as advertisers devote less money to buying space in newspapers.
The problem arose when more people began using the Internet to get news and place classified ads, and has been intensified by the recession, forcing some publishers to fold operations or file for bankruptcy.
The sale of newspapers for much-needed cash has become harder because few people want to buy into what is considered an often profitable but dying business.
Nevertheless, some small sales in recent months to private equity firms and local buyers indicate that the pace might be picking up again.
For example, Cox said on Thursday it would sell two other Texas papers, The Lufkin Daily News and The Daily Sentinel in Nacogdoches, to privately-held publisher Southern Newspapers. It did not disclose the price.
It is unknown what Cox is asking for the American-Statesman now. A Cox spokesman declined to comment on who is interested in the paper, but said it is still up for sale.
ZelnickMedia, a New York-based investment firm run by Strauss Zelnick, chief executive of video game publisher Take Two Interactive Software Inc (TTWO.O), never formally bid for the Statesman, the source said.
At least four parties had expressed interest in the Statesman and its valuable real estate, the source said.
The potential buyers include Platinum Equity, a private equity firm that recently bought the San Diego Union-Tribune and Texas weekly newspaper publisher Granite Publications.
They also include a local buyer group led by former American-Statesman Editor Rich Oppel and former Austin mayor Roy Butler, the person familiar with the matter added.
It is unclear how many would-be buyers now remain for the Statesman.
The American-Statesman is larger than most of Cox's other papers, though its circulation has fallen in the past year. Its average weekday circulation fell about 10 percent to 152,691 copies this March from a year earlier, according to figures provided by the U.S. Audit Bureau of Circulations.
Although circulation is falling, Austin remains an attractive business market because of its reputation as an independent music and arts hub and its popularity among college students and upper-middle-class residents. (Reporting by Anupreeta Das and Robert MacMillan; editing by Derek Caney)
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