The writing's on the wall for the old-style American newspaper

'Will old media survive the 'perfect storm'?" wondered the Chicago Tribune, the day after its parent company filed for bankruptcy. "Tribune's collapse rings alarm bells for newspapers," rang out the headline in London's Evening Standard.

For the Wall Street Journal – which denies it has become more "tabloid-y" under Rupert Murdoch's ownership – it was a moment to wallow in the "Media industry's trials and Tribune-ations."

The headlines were black. These are dark times for newspapers everywhere in the developed world, after all, as the slow ebb of circulation figures has been suddenly and shockingly compounded by a collapse in advertising revenue brought on by the recession. The spectacular bankruptcy of the Tribune group – owner of the Los Angeles Times and the Chicago Tribune, two of the top 10 best-selling papers in the US – and the humbling of Sam Zell, the billionaire property tycoon whose ego is as famously large as he is famously short – provided an irresistible hook for another traipse around these grim subjects.

And the inescapable conclusion is that more US newspaper owners will be following Zell along his arc from hubris to nemesis. The storied American families who carved up the industry between them over many generations – the McClatchys, for example, with their empire of regional titles, and the Ochs-Sulzbergers, who have controlled The New York Times since 1896 – will face unprecedented challenges in keeping hold of their debt-laden possessions.

Journalists, too, are expecting convulsions, including the demise of many local titles and savage cost-cutting at those that remain. Across the country's 1,400 titles, 15,000 jobs have been lost this year, according to Paper Cuts, a website monitoring lay-offs – more than one out of every eight. Regional newspapers' Washington and overseas bureaux are being shuttered, as the US industry's resources – still rich by international standards – become stretched.

In the US, as in perhaps no other country, this is more than the pain of a harsh new competitive reality. For an industry whose foundation myth is written in the First Amendment to the Constitution and whose patron saints are Bob Woodward and Carl Bernstein, whose Watergate investigations for the Washington Post brought a president to book, the difficulties facing the newspaper industry represent a collective psychological trauma. "A free press is the only business stipulated by the Constitution," thundered a cadre of past and present LA Times journalists, as they launched a lawsuit against Zell over his leadership of their parent company. "News organisations are both businesses and public trusts. No other entity – no website, no blogger – is on the horizon to replace the boots on the ground around the world providing Americans with the information we need to function in a global economy."

The lawsuit is the culmination of a year of gathering fury over Zell's stewardship of Tribune group, and over the manner of his acquisition last winter. No matter whether the case has legal legs, it looks set to be an entertaining running story and an instructive battle of ideas over the future of US newspapers.

Zell had his own ideas, and they involved turning over editorial control of some magazine supplements to the advertising department, pushing softer stories up the news agenda, and ousting LA Times editor James O'Shea when he balked at cutting hundreds of newsroom jobs. Zell put it succinctly last month at a media conference, barking: "I haven't figured out how to cash in a Pulitzer Prize."

Fresh off the biggest and most roundly-applauded property deal of all time (when Zell sold his company Equity Office Properties to the private equity giant Blackstone for $39bn at the top of the market last year), Zell did what he always did: he searched around for a piece of conventional wisdom and then did the opposite.

The son of refugees who fled Poland on the eve of Hitler's invasion, he had delighted in being a maverick, cultivating a profane vocabulary as assiduously as business school graduates polish their corporate banalities.

His bid for Tribune, based in his native Chicago, was textbook Sam Zell: structured in excruciating complexity to win a tax break, and putting the company nominally in the hands of its employees so that Zell had to put in just $315m of his own money. The rest of the acquisition was funded by loading the company up with debt, some $13bn – impossibly high, it turned out. The deal would have been hugely profitable, he says, if advertising income had continued to decline at 3 per cent a year, and it could have withstood a 6 per cent decline. But Tribune's advertising income crashed by 19 per cent, a few points more than the market average. Circulation at the LA Times and other Tribune titles was also spiralling lower, worse than the industry-average decline, which has itself accelerated to almost 5 per cent recently.

"Sam Zell is a demonstration of the proposition that a group of people that knows nothing about the newspaper business going in, is unlikely to be successful," says Rick Edmonds, media business analyst at the Poynter Institute, a Florida school for journalists.

The acquisition of $13bn of debt on a company with declining revenues and with a recession on the horizon, it looked ill-advised to almost everyone except Zell, but he was still cocky, contrasting his deal with the $5bn takeover of the Wall Street Journal by Murdoch last year. "Rupert is paying a huge price," he told the New Yorker magazine at the time. "For his deal to work for him, it has to meet perfection, or close to it. We don't need perfection for our deal to work. This deal is not a bet that newspaper readership is about to spike up."

A year on, the contrast with Murdoch could not be sharper. The Journal is one of just two major newspapers to have held its circulation flat in the past six months, and News Corp, the Murdoch family company, has nurtured the paper with new investment – a comparison made by supporters of the rebellious LA Times staffers. Crucially, the paper was not saddled with debt, meaning the newspaper industry veteran can navigate the recession without having to worry about bankers coming up the path with pitchforks.

Next year is looking like a potentially vicious one for some of the industry titans. Fitch, the credit rating agency, has issued a stark warning that "more newspapers and newspaper groups will default on their debt, be shut down and be liquidated in 2009 and several cities could go without a daily print newspaper by 2010".

Most alarming is the pressure building on The New York Times Company, controlled by the Ochs Sulzbergers for 112 years and owner of perhaps the most illustrious title in newspapers. Unlike the faction-riven playboys and horsey types of the Bancroft family, which ceded control of the Journal to Murdoch, the Ochs Sulzbergers are united and fully-engaged. They control the company via special shares which mean that, although they own just a minority, they have a stranglehold on board positions – much to the fury of outside investors on Wall Street. Arthur Ochs Sulzberger Jr, chairman and publisher, inherited the chairmanship from his father "Punch" Sulzberger in 1997, and began to cut costs. For Wall Street, he never went far enough, but investors were unable to dislodge the family. What pressure from shareholders failed to do, the dismal maths of the bond market might do instead, some analysts now suggest.

With a $400m debt payment due in the spring, the company is trying to raise some $225m by mortgaging its newly-minted Renzo Piano-designed skyscraper headquarters in Manhattan. Its debt has been downgraded to junk, and has had to cut the dividends it pays to the family and to other shareholders. And with advertising revenues down 16 per cent on a year ago, some fear the company could run out of money to pay its interest bills next year if it does not sell assets. A bankruptcy – which is not on the cards, the company insists – would no doubt propel the New York Times and its market-leading website into new ownership. The question is whose; Michael Bloomberg, the city's mayor, has long coveted the paper, as has Murdoch.

Also in trouble is McClatchy, the second-largest group of newspapers in the US. It is saddled with $2bn in debt, the legacy of its takeover, two years ago, of Knight Ridder, another family-owned media company. Last week, McClatchy reportedly put The Miami Herald on the auction block.

Across the US, more than 30 papers are up for sale, but there are no buyers. The Rocky Mountain News in Denver will shut next month if it doesn't find any takers. With the credit crisis having blocked off corporate access to debt financing, and burnt many rich businessmen who might take on a newspaper, supporters of newspapers are looking at other ownership structures. There are rumours that the Ochs Sulzbergers are considering taking the Old Grey Lady out of harm's way either by taking the New York Times Company private or putting the paper into a not-for-profit trust.

The biggest newspaper in the US which uses such a trust structure, the St Petersburg Times, serves Tampa Bay. It is often used as a model for the future of many medium-sized newspapers, and there had been another burst of discussion in recent days about turning major metropolitan papers into versions of public broadcasters, which can solicit tax-exempt donations from supporters.

Trusts "give you more money to invest in editorial excellence, in digital projects and in new experimental ventures, because it is not money that has to go to the bottom line for shareholders," says Rick Edmonds. "But trust-owned papers still have to keep money on hand for the bad times."

The travails of Sam Zell may augur of a seismic change in the ownership structure of US newspapers over the coming years. Away from the boardroom, though, there remains the question of the economic viability of the titles that remain. Already web-only journalism projects are springing up – from ProPublica, the non-profit newsroom set up to carry out public interest investigations, to local outfits staffed by youngsters, such as Voice of San Diego – in the expectation that newspapers' decline will open up opportunities for new media outlets.

John Morton, whose Morton Research Inc in Maryland has analysed the newspaper industry for decades, points out that the industry remains broadly above water in the US, even if profit margins of 20 per cent might halve in the future. Half the advertising that has been lost during this recession will never return to print, and that will only accelerate a transformation in what we mean by the term "newspapers".

"Only newspapers are economically organised to collect massive amounts of information. No one else is organised to do it. There is still a demand for that information. The question is how 'newspapers' are going to deliver it. Gradually newspapers will become websites," Morton says. "The worry is that by cutting back on staff, on space and on their services to readers, this is affecting the standing of papers and damaging their brand. They could be eroding the things that must stay strong if they are to succeed in competition with internet news sources when the effects of the economic tsunami have passed."