A large chunk of the problem was the same faced by most large urban dailies in the U.S. - a big drop-off in advertising revenues as one industry after another found better alternatives online. It didn't help that this was followed by the recession - which hit all advertising revenues hard.
But when the industry started to recover after 2010, the loss of advertising continued to fall by double digits for the two Philly papers. The fact that the papers changed ownership 4 times in 12, and the lack of consistent business strategies, didn't help either.
A look at the numbers suggests some other factors at work.
- Like most media facing revenue declines, the papers owners tried first to just cut costs. But in Philly, it seems, the focus was on cutting staff (labor costs went from $243 million in 2000, to $135 million in 2012). That's more than just trimming dead wood - it's the kind of cuts that will necessarily have an impact on quality.
- Those deep cuts can also be seen circulation losses. Circulation fell from a high of 374,000 (2002) to 166,000 in the last audit - a loss of more than half their readership. Such losses necessarily impact the value of advertising in the papers, accelerating ad revenue declines.
- Circulation revenues also declined, but much more slowly than circulation losses. This suggests that the papers tried cutting subscription discounts and/or hiking prices. Increasing costs to readers while reducing the value of the product also feeds into the negative feedback loop for circulation.
There's one other interesting aspect to tease out. Note that there's a large, but shrinking, difference between print ad revenues and total ad revenues. That would include digital advertising, which hasn't grown much. It also includes preprint advertising (i.e. inserts) - and for a while it seemed that the papers were doing well with that revenue category. However, large circulation losses make inserts less valuable, and by 2012 it seems that the Philly papers had lost that advertising sector to competitors as well.
Sources - "The Long Fall of the Philly Newspapers," PhillyMag.com
It turns out the 2000s were not a good decade for The Philadelphia Inquirer and Daily News, Nieman Journalism Lab