Deeper staff cuts likely at newspapers
Even though 48.7% of the 102,120 jobs eliminated in the newspaper industry since 1990 were lost in the last three years, publishers since 2006 have failed to reduce headcount as aggressively as they did during prior downturns, according to an analysis of the industry’s historic performance.
To trim headcount enough to sustain traditional profit margins, publishers would have to eliminate far more jobs in the near future than they did in the last two years. How many more? That’s hard to say, because it is impossible to predict how much lower industry sales will fall.
But the analysis described below suggests that the industry should have eliminated nearly twice as many jobs as the combined 26,564 positions axed in 2006 and 2007. Thus, precedent suggests that the industry in the last two years should have abolished 23,580 more jobs than it actually did.
If sales continue falling as steeply in the back half of 2008 as they did in the first six months, then the number of positions in peril would likely be even greater than the number of jobs that theoretically should have been scrapped in the prior two years.
Frequent, far-reaching and traumatic staff cuts brought newspaper employment to a 17-year low of 353,580 individuals at the end of 2007, according to the U.S. Bureau of Labor Statistics. The sum is 22.4% below the 445,700 employees working at newspapers in 1990, the modern-day peak.
But the drastic cuts did not kept pace with the fast-deteriorating economics of the industry. The belated realization among publishers that they have been too slow to reduce force evidently lies behind the aggressive plans unveiled by some companies to idle as much as a quarter of their staffs.
The Hartford Courant said last week that it would trim its news staff by 24.5% to 206 journalists, the Palm Beach Post said it would slice its headcount by 24% to 950 employees and the Boston Herald said it would thin its ranks by between 24.5% and 28.6%, depending on the final number of jobs it eliminates when it outsources its printing operations. The planned cuts at the Herald would zap between 130 to 160 positions to bring the final headcount to approximately 400 souls.
These publishers – and others who soon may follow their lead – are attempting to reconcile their operating costs to the rapidly deteriorating sales of an industry that, as of yearend 2007, lost nearly $6.5 billion, or 13.3%, of its revenues since hitting an all-time high of $48.7 billion in 2000.
As you can see in the graph below, newspapers historically have trimmed headcount in response to falling sales in an effort meet their profit targets. Payroll is more elastic than such other variable costs as newsprint and fuel, and it is far more elastic than the hard-to-trim fixed costs associated with operating a large fleet and manufacturing plant.
If you look at what happened in 1990-91 and 2001-02, you will see that publishers trimmed payroll in both years of each downturn and then allowed staffing to rise as sales recovered. In both cases, payroll was pared by a percentage roughly equal to the degree that sales fell during the two-year downturns.
The familiar pattern did not repeat itself in 2006-07, when ad sales fell 11% over two years and payroll declined by a more conservative 7%. Had publishers dropped employment enough to match the decline in sales, they would have had to eliminate some 50,144 jobs, instead of the 26,564 positions actually cut in the period. That’s why it could be argued that the industry should have eliminated 23,580 more jobs than it did.
With industry sales on track to slide even further in 2008 than the record plunge recorded last year, a publisher aiming to balance headcount with revenue not only would have to eliminate sufficient positions to match this year’s sales decline but also pare additional jobs to catch up with the shortfall in the prior years.
Why were publishers relatively slow to cut headcount in the last two years? One answer may be that they already had reduced headcount by 5.7% in 2005 – the steepest cut in modern history – in a year when industry revenues actually grew 1.5%.
The cuts, which defied historic precedent, were undertaken not to manage expenses, as such initiatives had done in the past, but in reaction to growing pressure from investors who were insisting that newspaper profits be boosted in the direction of the higher returns enjoyed by such interactive competitors as Google. These actions (and others) didn’t save companies like Knight Ridder and Tribune from eventually being sold to mollify investors who wanted to cash out of a business that they feared – correctly, as it turned out – was heading in the wrong direction.
Rather than shrinking payroll and other expenses to squeak the industry through a tight time, the cuts in 2005 established an expectation of high profitability among investors and bondholders that soon proved to be difficult to maintain.
After beginning to erode in 2006, advertising sales have decelerated at a mounting pace ever since. Basing their decisions on the modern precedents available to them, publishers evidently presumed that the downturn starting in 2006 would pass in the same way that the setbacks in 1990-91 and 2001-02 eventually were resolved.
If history had been a reliable guide, the publishers would have been right. As you can see from the graph below, sales bounced back in both 1992 and 2003. But that’s not happening now, because it’s no longer business as usual for newspapers.
The industry is well into a period where its economics are governed by new and unprecedented social, demographic and technological developments that will alter forever the behavior of both advertisers and consumers. Economists call this a “secular” decline, as opposed to the “cyclical” declines that result from the ordinary ups and downs of the business cycle.
In other words, the recovery of the newspaper industry this time will require a far more proactive strategy than simply whacking headcount, hunkering down and waiting for the economy to rebound.