Tuesday, July 01, 2008

Deeper staff cuts likely at newspapers

Tens of thousands of additional jobs may have to be eliminated at newspapers because the staff reductions that have taken place to date have not kept pace with the accelerating erosion of advertising.

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.

10 Comments:

Anonymous Anonymous said...

The Orlando Sentinel told its employees yesterday it is cutting 20 percent of its staff this month.

3:50 AM  
Anonymous Anonymous said...

What proactive strategy? I don't see any on the horizon anywhere. No corporate vision for the future, no new ideas, and no solution to staunch the bleeding. So what is the breaking point where the proverbial goose is finally eviscerated? I think we are reaching that terminal point where the product is so diminished and devalued, customers will refuse to buy it. Following the TRB path and relying on exciting new graphics is just putting lipstick on a dying pig. It is garish, gimmickry, and the novelty wears off in a couple of days. It doesn't fool anyone. And what is criminal is that it doesn't address the 21st Century issues of the industry moving to Web-based publication. Look at newspaper Web sites that are supposed to represent the future, and you see no change. They are locked in the way they looked five years ago. Now newspapers are hiring snake-oil consultants and larding up executive ranks with fast-talking airheads. But their solutions only involve rearranging the furniture. People buy newspapers for news, and to gather news you need reporters not what the American Press Institute calls "content providers." My only hope is that owners wake up and realize this next round of cuts has to come in executive ranks and corporate boardrooms. In these days as we think of the contributions the late Clay Felker made to journalism, is it too much to ask for the industry to find someone with fresh and novel ideas. Yes, and a vision.

6:06 AM  
Blogger tom said...

The first half of that chart defines what doomed newspapers: Staffing remained flat while the money was pouring in. If any of that money would've been poured into hiring people who could adjust to changing market and technological realities, we might be where we are today.

Instead, they partied on like it would last forever. Now they're getting the rewards of such folly.

6:31 AM  
Anonymous Anonymous said...

Ad revenue declining is not the only problem. The bigger problem is the massive decline in classified revenue that is never going to come back.

Newspaper journalism had been "subsidized" for years by the dollars from classifieds. Now that money is gone and it looks like journalism can't sustain itself as a business product.

The journalism product is so expensive to make that the ad revenues will never surpass the level of expense.

10:06 AM  
Anonymous yelvington said...

"anonymous" says 'People buy newspapers for news, and to gather news you need reporters not what the American Press Institute calls "content providers."'

I really have to call bullshit on that. Says who?

People buy newspapers for a complex set of very personal reasons, including a need to feel part of a community, an array of personal-utility issues such as finding a job or an apartment, and a desire for personal entertainment. In each of those categories, other media (including but not limited to the Internet) eclipse the capabilities of print. You can throw in "news" on top of that if you like, and the argument against print gets even stronger.

And -- very importantly -- the new and better products don't resemble newpapers in any way, and the familiar lineup of news, utility, community and advertising just doesn't need to be bundled any more. The newspaper as a product form is obsolescent and migrating it to the Internet is no solution.

The claim that there's "no corporate vision for the future" is just baloney. Gannett's infocenter concept is one such vision, and its product strategy of aggregating audiences across a portfolio of targeted products is well known in the industry. Many others are taking similar approaches. While these strategies cannot change the economic weather, compensate for massive consolidation in the retail sector or make the Internet disappear, they at least begin to address the radical fragmentation of the audience that has broken the local mass-media business model.

But we all run into knee-jerk reactions from traditionalists who think the only real answer is to hire more reporters to write more newspaper stories to deliver to people who aren't reading them.

Many newsroom cultures are still centered on glorification of the 85-column-inch Sunday front-page thumbsucker. Nobody wants to do the hyperlocal thing in a suburban office, shoot photos for Spotted, or run a moms website, or write a "how-to" guide for people moving into the neighborhood who need power/water/trash service, or blog about pets, or do any other task that might not lead to a bigger job at a larger metro that quite possibly won't be there after this tsunami.

10:08 AM  
Anonymous Anonymous said...

In 2004, our publisher came to the newsroom for a Q&A with employees. He was a good guy, a smart guy, and I'm not dissing him.

But my question to him in 2004 was, "Are there any plans to shift resources from the newsroom to the website?"

He hemmed and hawed and ducked the question, and in fact, we never did make that kind of shift.

If that newspaper had taken 60-80 people from its 400-person newsroom in 2004 and shifted them to the website, they might be looking better than they do now.

I'm not saying it would have saved the day -- who can know that? But it illustrates that newspaper management was not willing to be bold when being bold might have done some good.

10:35 AM  
Blogger DigiDave said...

It is a pretty dire situation.

I think another alternative to massive layoffs would be finding a new revenue stream.

It's obviously not something that the journalism industry can pull out of its hat - but that's what I'm trying to work on at Spot.us - a new business model to support investigative journalism. perhaps they won't be "staff" but at least newspapers will be putting journalists to work. And community funded reporting, which Spot.Us is based on, is only one new revenue stream to look into.

I'm sure there are others.

10:51 AM  
Anonymous Anonymous said...

No, the party is still raging for many select stockholders. Take a gander at the premium these newspaper companies are paying to keep their stocks from really going through the floor, while weighing further cutbacks and layoffs.
Dividends of newspaper stocks are at extraordinary levels.
Look at MNI, now sinking into the $5 levels, and offering an extremely generous 11 percent dividend. SSP is swooning into the $2 zone, but offers a very handsome 18.6 percent dividend. (That may be a mistake due to the split up.) NYT is offering a dividend of almost 6 percent; Gannett 7.7 percent; Lee is 21.6 percent; Media General 7.3 percent; Belo a huge 18.8 percent; and Gatehouse holds the record at 33 percent. Lowest is the Washington Post's, offering a 1.8 percent dividend.
Gee, I wonder if this has anything to do with execs battling to keep their expiring stock options above the required strike levels. I just cannot believe newspaper companies would give away all this money to stockholders, while slashing the payrolls and expenses so dramatically. But I could be very wrong.
I guess we will find out when the second quarter reports are made this month, and dividends set. If these companies cut their dividends, it is certain to result in a setback for stocks, which in turn means it will be less likely corporate execs will get to cash in their stock options.

12:44 PM  
Anonymous Anonymous said...

for yelverton:
Gannett's infocenter is nothing but a dressed up version of the old American Online discussion groups at the dawn of computer use 30 years ago. Okay, it's dressed up today as Cozi or some mommy discussion group, but other than the ability to post photos, it is hardly new. In the old AOL, we used to trade jpegs.
What Gannett is trying to do is capture drive by users, in hopes it can sell its thousands of online clicks to advertisers. With GCI sinking below 20, it doesn't look like it is impressing one key audience dear to the heart of Gannett executives.
I take it you are a consultant, so I can understand why you sneer at traditional reporting and want to see more employees capable of running mommy sites, or blog about pets, etc. But that has nothing to do with the traditional core values of journalism, and it is boring. I think you are playing with fire, and when readers get bored posting pictures of their dogs and engaging in other citizen journalism activities, they will turn off their newspaper. I'm sure you will blame traditional newspapering when that happens, and the 85-inch SUnday thumbsuckers. But my definition of a local newspaper is one that covers crime, courts and local government, and tells readers about local property, sewer and water taxes, and how their schools are performing.
I looked at Gannett's Des Moines infocenter product, since Gannett promotes it as a breakthrough product, and note that they are in the midst of a little flooding in that region. So what do they feature: "Food Network's Sandra Lee Coming Soon" and "Summer's Biggest Weekend Approaches" Well, yes, July 4 is coming Friday, but did I really need a newspaper to tell me that? And do I really need to patronize a site that has that information?

6:58 PM  
Anonymous Janet DeGeorge said...

Hey, why not closed down editorial completely, and just print advertising. That will save loads of dollars. Then it can be the Chicago Tribune Shopper or the Mercury News Shopper...even better, the USA Today Shopper and Coupon Clipper.

Newspapers have a sales force and a printing press and a forceful website. Making loads of money is simple if newspapers start selling what advertisers are buying.

And perhaps, and I know this is an outrageous suggestion, what if newspapers promoted themselves? Maybe then advertisers and readers of news will start noticing them again. Or else, all is not lost, you can always try the Shopper route!

JD

2:19 PM  

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