It's not the stupid economy, newspapers

“The biggest thing we need right now is an improved economy, because at least 60% of the revenue problem we’re facing today is a good, old-fashioned economic recession,” says William Dean Singleton.

We should be so lucky. But we’re not.

The chief executive of the MediaNews Group was on the money when he told PaidContent.Org that an economic revival would be mighty welcome. But even the most robust recovery wouldn’t solve a fundamental industry problem – shrinking classified ad sales – that has been festering for years.

If Dean were right and a weak economy were the primary reason for anemic newspaper revenues, then ad sales would be sagging more or less equally across all media, wouldn’t they? But that is hardly the case.

While the revenues of the 100 largest media companies grew by an average of 5.5% in 2007, sales fell an average of 5.2% at the 25 companies on the list that generated some or all of their sales from newspapers, according to data just published by Advertising Age. (For details, click to enlarge the table below.)

In other words, the performance of newspaper-related companies last year was almost 180 degrees at variance with the whole of the media industry.

Newspaper ad sales didn’t just go the wrong way in 2007. They have been declining steadily since 2001, when the economy suffered the twin shocks of 9/11 and the tech collapse. Even after the economy rebounded in 2003, newspaper sales consistently trailed the growth of the gross domestic product, as detailed here. Newspaper sales actually began falling in the second quarter of 2006 – even though the expansion continued for more than a year – and the rate of decline has accelerated ever since (chart here).

The chief problem is in the classified advertising business that historically generated 40% of newspaper sales and more than 40% of their profits. Between 2000 and 2007, classified sales fell $5.4 billion, or 27.7% from where they stood at yearend 2000. Recruitment revenues in the period fell $4.9 billion, or 56.3%, to the lowest level in 13 years. Automotive classifieds slid $1.8 billion, or 35%, to the lowest level in 22 years.

Real estate sales were the only major category showing consistent gains after 2000, but they plunged sharply in 2007, dropping $1.2 billion, or 22.6%, in a single year. Reasonable men and women may differ as to whether, when and how the realty market will recover now that the federal government has decided to help (or not).

Though today’s economy is perhaps the toughest in a generation, the industry’s problem began in the early days of the decade, when classified advertisers began forsaking high-priced print in favor of cheaper, highly targeted interactive media ranging from Craig’s List to Dice to AutoTrader and Zillow.

Car dealers, for example, put only 26.7% of their ad dollars into newspaper advertising in 2007, as compared with 52.0% in 1997, according to an annual survey conducted by the National Association of Automobile Dealers. At the same time, the trade association reports, Internet advertising rose from a sum too negligible to report in 1997 to 16.6% of the average dealer ad budget in 2007.

While the jury may be out on the future of real estate advertising, there is no doubt that newspapers have lost their grip on at least two of the three key classified categories they used to own.

It will take more than a trillion-dollar economic elixir from Uncle Sam to turn this around.

Drudge shows how to do news

As I scrambled from website to website this morning for the latest news while my retirement melted away, the place that consistently had the most complete, convenient and up-to-date information was the Drudge Report.

For all the millions of dollars and thousands of people employed at the mainstream newspapers, broadcast networks and cable channels, Drudge had assembled the perfect mix of salient links and real-time information, including:

:: A chart tracing the queasy plunge in the Dow Jones industrial average.

:: The live CSPAN feed of the House vote on the $700 billion rescue plan, which unfortunately was overwhelmed and periodically unavailable – the feed, that is, not the House.

:: The first actual vote results.

:: Key financial news like the Wachovia take-over, the Fed effort to pump additional billions into the credit system and a global market wrap-up.

:: The quickest political reaction – replete with a jab at Speaker Nancy Pelosi, because Drudge on even his best day [sigh] is still Drudge.

As usual, Drudge provided all this information – plus news of an earthquake in New Zealand, the latest campaign developments and a weird sculpture show in China – in a simple, uncluttered, format characterized by an economy of words and a few visual cues.

It is true that Drudge depends enormously on the mainstream media to populate his site. If the MSM suddenly dried up and blew away, Drudge wouldn’t have nearly as much to Report.

But with all due respect to the penetrating stories, elegant writing and dazzling multimedia presentations the mainstream media create, they can’t get the hang of delivering breaking news when their readers/viewers – and potential reader/viewers – most crave instant enlightenment.

By effectively conceding this opportunity to sites like Drudge, the mainstream media forfeit in significant measure their value and credibility, which, in turn, will constrain future audience growth and revenue prospects.

When are they going to learn how to compete?

‘Make or break’ time for newspapers

Newspapers have 18 months to prove themselves as valuable cross-media partners for retailers or the flow of advertising dollars away from them may accelerate, publishers were warned this week by their customers.

“The next year to 18 months may be ‘make or break’ for the newspapers,” says David T. Clark of Deutsche Bank in a report summing up the NAA Retail Advertising Forum that just wrapped up in Dallas.

Noting that all signs point to weak retail sales and lean advertising budgets for the balance of this year and much of next, Dave says it is “unclear” whether newspapers “are moving fast enough to secure local market share for when the economy climbs out of its hole.”

In the longest sales setback ever, advertising revenues at newspapers declined for 9 of the 10 consecutive quarters in the period ended on June 30, 2008. This surpasses the downturns in 1990-91 and 2001-02, when sales in each case slid for six of eight consecutive quarters before they revived.

If sagging newspaper sales don’t turn around in the second half of this year – which few expect they can do – then the decline will be on track to be twice as long as any in history.

Based on the industry’s performance in the first half of the year, it appears that publishers will be lucky to break $40 billion in combined print and online sales in 2008. That would be 19% lower than the turnover in 2005, the most recent year of positive sales performance, and the lowest annual volume since 1996.

Things could get worse in 2009, because the retail sector – which generates almost half of all newspaper revenues – is suffering from depressed consumer demand and the inability of merchants to borrow the money they need to stock their shelves. Barring an unanticipated consumer shopping frenzy in the fourth quarter, the retail sector may be headed for an unprecedented wave of bankruptcies.

“Already, more than a dozen retail chains have filed for bankruptcy this year — including Boscov’s, Mervyn’s, Steve & Barry’s, Linens ’n Things and the Sharper Image,” reports the New York Times. “That is double the volume of bankruptcies last year, according to the International Council of Shopping Centers, an industry group. And a new crop is expected in February and March.”

With fewer retailers on the scene and constrained profitability crimping the ad budgets of many of the survivors, newspapers will have their work cut out for them.

While most of the retailers appearing at the NAA conference continued to profess their appreciation for newspaper advertising, Dave Clark says nearly all of them are moving ever-greater percentages of their advertising budgets to the interactive media – especially when young people are the targets.

This presents both a challenge and an opportunity.

Marketers “are ‘flummoxed’ by the multitude of media choices they have right now, so there is an opportunity for newspapers to step in and offer a multi-platform ‘big idea’ to major retail advertisers,” says Dave. “However, it is unclear whether many newspapers are up to the challenge, though there appear to be some that are.”

A successful cross-media program would combine print, online and mobile media to deliver targeted and customized solutions for retailers.

With their superior brand strength, unrivaled content-creating capabilities, unmatched print and interactive media and unsurpassed local reach, newspapers are naturals to be the preeminent cross-media sherpas in the markets they serve.

In other words, as advertising executive Dave Walker of NSA Media told the publishers in Dallas, “Newspapers should own this.”

The yin and yang of newspaper unions

Unions indeed are part of the problem for some of the newspapers struggling to survive the historic distress that has rocked their world. But unions, imperfect as they may be, help to level the playing field for workers. They are valuable and we need to protect them.

The question of the proper role for unions at newspapers evoked vigorous comment at the prior post, which mentioned that a Chapter 11 bankruptcy filing in many cases would permit a company to walk away from its labor agreements. I said then, as I say now, that archaic union contracts unnecessarily compromise the efficient operation of some newspapers at a time they are fighting for their lives.

But that was not, and is not, to say that I think unions are anything close to the major reason newspapers are in trouble.

In the more than 3½ years I have been writing this blog, I have cited demographic trends, technological developments, adverse economic circumstances, financial recklessness, managerial myopia and prodigious arrogance in virtually every quarter of the industry for the troubles that threaten to put some newspapers into bankruptcy and others out of business.

Now that the industry is in an epic mess, everyone who wants to keep her job and preserve a vigorous press needs to stop trying to preserve a retrospective and romanticized vision of the newspaper business and to get real about such problems as collapsing readership and plunging revenues.

To be sure, many newspapers with little or no union representation got into trouble all by themselves.

At other newspapers, however, unions are impeding progress by attempting to sustain:

:: Arbitrary staffing requirements in pressrooms, mailrooms and the fleet, which block efficiencies in production and distribution.

:: Jurisdictional prerogatives that prevent the efficient and strategic integration of print and interactive media. Several papers literally have to segregate their online staffs on a separate floor or in a different building to appease their unions. Also needing to be scrapped are the old rules that prevent reporters from carrying a camera and videographers from writing a story.

:: Salary-based compensation for salespeople, instead of commission-weighted systems that would enable newspapers to pay competitive compensation to productive reps while weeding out worn-out order takers. Requirements that sales reps get paid overtime for taking a client to dinner have got to go, too.

Last but not least, there is the issue of seniority, where the yin and yang of unions is most acute.

It is not constructive when labor contracts force a newspaper to lay off younger workers with crucial multimedia skills while retaining older staffers who can’t, or won’t, adapt to the modern digital environment. This is not to say older workers can’t be as handy with new media as the youngest pup in the newsroom, but only that management needs maximum flexibility in selecting the staffers it can afford to keep.

On the other hand, it has been appalling to see so many friends and former colleagues prematurely ejected from productive careers in the interests of clearing the way for younger, cheaper talent.

What’s the right answer? Unions should abandon strict seniority in return for enriched separation packages for workers of a certain age or with a certain number of years on the job.

This exemplifies the ideal role for unions: Protecting individuals without arbitrarily interfering with the rightful prerogatives of management.

None of these comments should be interpreted as antipathy for unions. I understand and respect the contributions that unions have made over the years to the professionalism of the newspaper industry. They obtained decent pay and benefits for pressmen, truck drivers, ad takers, secretaries, journalists and almost everyone else in the building.

With the industry in extremis, unions are needed now more than ever to ensure decent compensation for all members and to protect the legitimate rights of individual workers who otherwise would be unable to defend themsevles.

But unions should put their energy into fighting the proper fights and stop wasting time on the wrong ones.

Bankruptcy may be next at some papers

Bankruptcy court may be the next stop for some of the most precariously financed newspaper publishers.

As awful as the prospect sounds, it actually could be a good thing for the newspapers, because a Chapter 11 bankruptcy filing enables a struggling company to restructure its debt, streamline its business and potentially put itself on a sounder footing for the future.

Not all Chapter 11 filings are successful. In some cases they lead to the eventual liquidation of the business through Chapter 7 or some other means.

And any bankruptcy action almost certainly would wipe out the equity of such investors as the owners of Philadelphia Media Holdings, the Minneapolis Star Tribune and Sam Zell and his fellow employees at Tribune Co. Fears of imminent bankruptcy already have driven public companies like GateHouse to 33 cents a share and Journal Register Co. to 1 cent, so neither has much further to go.

Bad as the loss of their $182 million investment might be for the equity shareholders of Philly Media, Chapter 11 could give management a lot of leverage in rescuing the business from outright collapse. The Philly example discused here generally applies to any financially stressed publisher owing more money than its sales- and profit-challenged business can afford to repay.

Under the auspices of a bankruptcy court, Chapter 11 gives a company the right to walk away from unnecessary leases on real estate, equipment and vehicles. It also lets a company renegotiate bills owed to creditors, enabling debts to be settled for cents on the dollar. Wages, benefits and other obligations to employees usually are unaffected by a bankruptcy filing.

Bankruptcy protection would give Philly Media’s creditors an incentive to renegotiate the $380 million loan the company’s weak profits no longer can service. Because the company was unable to make its scheduled debt payment over the summer, penalties nearly doubled the interest rate on its loan to 9.5%, according to Standard and Poor’s, the bond-rating service.

A renegotiated deal with Philly’s lender, the Royal Bank of Scotland, might trim the interest rate, lengthen the maturity or get the bank to write off a certain portion of the borrowing. Bond traders already have discounted the debt of companies like Philly Media, Tribune, Star Tribune and others to 50 cents on the dollar – or less. So, a reduction in principle may not be as far-fetched as it sounds.

Last but not least, Chapter 11 typically gives a company like Philly Media the ability to terminate the restrictive and anachronistic labor contracts that stand in the way of the efficient operation of a company that is literally fighting for its life.

Before anyone thinks I am anti-union, remember that my father was a union man, my mother was a union woman and I was a proud member for many years of the Chicago Newspaper Guild. But these are perilous times, and unions, instead of protecting antiquated prerogatives, need to act constructively to preserve as many jobs for their members as possible.

While Chapter 11 provides a respite for a troubled company, it is only a respite. At some point, a business either has to emerge from bankruptcy as a going concern or go down the tubes. In the latter event, everyone loses.

How the shrewder CEO cashed out at MNI

The year 2007 was a tough one at the McClatchy Co., as it struggled to integrate the complex and costly acquisition of Knight Ridder at the same time a steady deterioration in advertising sales began picking up steam.

But the company seemed to be in luck. It had not one, but two, experienced chief executives on its board of directors – the incumbent Gary Pruitt and former Knight Ridder boss Tony Ridder.

Unfortunately for MNI shareholders, the shrewder one evidently got away. Tony left the board in May.

Before he departed, however, Tony demonstrated his superior wisdom by dumping at least 87% of his MNI stock, according to filings at the Securities and Exchange Commission. In transactions completed as of Nov. 30, 2007, he netted $3.6 million at an average price of $39.61 per share, or roughly 10.7 times more than the stock would be worth today at its close of $3.69 a share.

Gary Pruitt, the guy who stuck around, did hedge his bets to some degree, selling about half his shares as of Feb. 4, 2008. Gary collected $3.1 million at an average price of $32.59 per share, or roughly 8.8 times more than the stock would be worth today.

After being paid some $20.6 million for engineering the sale of KRI to McClatchy in the summer of 2006, Tony probably wasn’t hard up for cash. So, his decision to liquidate nearly all of his McClatchy holdings suggests that he suspected things were not going swimmingly in Sacramento.

Could Tony have been alarmed by the burden of the more than $2 billion in debt that MNI shouldered to help fund the $4 billion-plus KRI acquisition?

Was Tony worried about the company’s inability to develop cutting-edge products and strategies to create new sources of revenue in response to the quickening decline in the traditional newspaper advertising business?

Did he doubt the discipline of management to aggressively cut expenses enough to fund the transition of the business away from its print legacy and into the digital future?

Or, was Tony simply concerned that McClatchy’s senior managers were too inbred and too self-absorbed to objectively face up to the company’s growing problems?

These issues evidently were clear enough to motivate Tony to get out while the getting was good.

So, you have to wonder: Did Gary miss them? Or just not know what to do?

Disclosure: I own MNI shares.

What’s going on at McClatchy?

Seeking the meaning of Gary Pruitt’s sudden resignation from the family trusts that control McClatchy, the Wall Street Journal speculated that the move foreshadows an initiative to issue millions of new shares to pay off the company’s billions in debt.

The Journal might be right. But I doubt it. Here’s why:

MNI has $2.1 billion in debt. Its shares nowadays are trading at about $3.30 apiece (only 18 cents above today's new 52-week low). To sell enough stock to pay all that debt, the company would have to issue 636.4 million new shares, or 7.7 times more stock than the 82.4 million shares outstanding today.

This would result in massive dilution not only for common shareholders like me, but seemingly also for the members of the McClatchy family, who own the super-voting stock that controls the company. Although a common shareholder might have no choice in the matter, this hardly seems like an appealing outcome for the family controlling the company, either.

But wait. It gets worse.

If MNI announced a plan to issue more shares, investors would pummel the stock from its already low price to even lower lows. If the price of the common stock fell by, say, half, then the company would have to issue nearly 1.3 billion new shares, or 15.4 times more than today’s float. This would double the dilution, making the deal even more unappealing to both classes of shareholders.

And then there’s the minor matter of who would buy these new shares. Given the awesomely bearish view of the newspaper business among investors, where would MNI find someone to buy $2.1 billion worth of new stock?

UPDATE: 9.10.08: In a press release issued at mid-day today, Gary said his departure from the trusts "should not be taken as a precursor to any move by the company or McClatchy family, including taking the company private or altering its capital structure."

Now, it’s entirely possible this is going to come down exactly the way the Journal says it will – or that nothing will happen at all.

But I still think, as originally reported here, that Gary’s exit from the trust signals either (a) the company is headed down a path to be taken private or (b) Gary is in the process of being ejected as the chief executive, a position he has held since 1996 (sitting simultaneously as one of the four directors of the family trusts for the last five years).

The above scenarios, BTW, are not mutually exclusive.

McClatchy preparing to go private?

The McClatchy family appears to be getting ready to take its company private again.

The signal that something may be afoot is contained in a brief document filed at 5:01 p.m. yesterday at the Securities and Exchange Commission. The Friday night filing states chief executive Gary Pruitt resigned Wednesday as one of the four directors of the family trusts that collectively control 41% of MNI’s stock. Long-time company director Leroy Barnes, Jr., a retired utility executive, is replacing Gary.

Gary would have to step down as a trustee if the family were preparing to buy back the battered public shares of the company. That’s because a chief executive would not be viewed as properly representing the interests of all shareholders if he also sat on the board of a group of insiders trying to acquire full control the company for a fraction of what it was worth two years ago.

The SEC filing leaves open every possibility, saying the trusts may “from time to time, increase, reduce or dispose of their respective investments in the McClatchy Co., depending on general economic conditions, economic conditions in the markets in which the McClatchy Co. operates, the market price of the class A common stock, the availability of funds, borrowing costs, other opportunities available…and other considerations.”

(UPDATE 9.6.08: Although McClatchy officials did not respond to emails seeking comment on this post, the Sacramento Bee this evening published an article quoting a company officer as saying the changes at the trust are aimed at "improved governance" and not a "precursor to anything.")

McClatchy’s shares have been trading on the New York Stock Exchange since 1988 but the family has maintained ultimate control of the company through the super-voting Class B shares owned by the four trusts. The company was founded in 1857 during the California Gold Rush.

Although the environment for the newspaper industry is the worst in at least a dozen years, MNI’s stock has been pounded so low that a transaction to take the company private has become financially appealing, so long as you think newspapering is a good business to be in.

While MNI’s public shares were valued at $2.5 billion on the eve what proved to be the disastrous acquisition of Knight Ridder in 2006, its stock has fallen 88% since then to the point that it today is worth a comparatively meager $301.7 million. (MNI has written off three-quarters of the value of the KRI deal.)

This makes the outstanding shares of MNI so cheap that the family, Gary Pruitt himself or anyone else could buy it without putting much more debt on the company than it already is servicing. Depending on the price an acquirer actually paid, the company could come out slightly less leveraged after a going-private transaction than it is today. Here’s the math:

If an acquirer paid common shareholders a 20% premium over the current value of MNI’s shares, the company would have to add only $362 million to its $2.1 billion in debt to swing the deal. If the $59.4 million now spent on annual dividends for common shareholders were used to pay down the new debt, the company would emerge as a private entity owing 4.46 times its operating cash flow in the last 12 months vs. the 4.86x that it owes today. Lenders like the ratio of debt to cash flow to be as low as possible, so they would cheer the reduction.

A post published here in July identified MNI, Gannett (GCI), Lee Enterprises (LEE) and the New York Times Co. (NYT) as candidates for potential going-private transactions. The reason in each case was the deterioration of their respective share prices. Since then, the shares of LEE and NYT have gotten even cheaper. GCI is trading at roughly the same level today as it was then.

A public company taking itself private almost surely would face suits from shareholders angry about the monumental trading losses suffered in the last few years. Shareholders could argue that the companies were being sold too cheaply because management had been misfeasant – or worse.

But the ability to escape the pummeling of the public market – and focus wholeheartedly on rescuing their troubled businesses – are strong arguments for taking a newspaper private, so long as you believe there is a future in publishing.

Not all of the other publishing families would agree. Advance, Blethen, Copley, Cox and Landmark all have put various properties up for sale in one of the worst markets to unload a newspaper in modern history.

While a family bid to take McClatchy private is the most likely reason for Gary’s departure as a trustee, two alternate scenarios come to mind.

One is that Gary himself is leading a group of private-equity investors to buy the company on his own. If that were the case, however, he probably also would have stepped down as CEO, so as to pursue the transaction at arm’s length.

Another possibility is that the family members have become so concerned about the stewardship of the company that they may want Gary out of the room when they have a full and frank discussion about the future of the business, their commitment to it – and whether Gary is the guy to lead it in the future.

Disclosure: I own shares in MNI.

Palin daughter pregnancy was valid news

Although the pregnancy of Sarah Palin’s daughter by rights should not have been news, the media had no choice but to report on it after the matter was injected into the maelstrom of the presidential campaign

My friend and former colleague Don Wycliff makes the case for why the press should have respected the privacy of the 17-year-old girl and ignored the fact the unwed high school student is expecting a baby.

I agree the girl is not a public figure and the matter properly should have been off-limits to the media. But there was nothing proper about the way the case came to light. Once it did, the press had no choice but to pursue the story, especially after the McCain campaign made a public announcement about it.

This admittedly unsavory episode got started when bloggers last weekend began circulating the speculation that Gov. Palin’s new baby actually was born to her daughter, Bristol. The rumor suggested the governor was saying she was the mother to spare her daughter the embarrassment of being an unwed mother.

When the chatter became too loud to ignore, the McCain campaign knocked down the rumor on Monday by acknowledging that Bristol is pregnant and then naming the father of her child.

The press was right to investigate the original rumor, which would have been a legitimate story if it had it had been true. If the rumor proved to be unfounded, as it was, the press would have been right to remain silent.
Once the McCain campaign started talking about it, however, it was news and the media had no choice but to pursue it.

Newspaper sales headed below $40B

Newspaper advertising sales this year are on track to fall some $5.5 billion to less than $40 billion, which would make for the lowest volume since 1996.

Based on the record $3 billion drop in sales in the first six months of this year, it appears that the industry’s combined print and online revenues will come in at $39.9 billion.

The last time annual sales were below $40 billion was in 1996, when the industry took in $38 billion in revenues.

Adjusted for inflation, the 1996 sales are equal to $49.8 billion in 2007 dollars. Thus, it could be argued that the industry’s projected revenues for this year will be nearly 20% lower than they were a dozen years ago.

The sales forecast for 2008 is based on the assumption that the uindustry will produce 47% of its revenues in the first six months of the year, as it has done on average in the last five years.

Unforeseen events – good or bad – could affect the actual outcome.

Newspaper sales fall record $3B in 6 mos.

Total newspaper advertising revenues fell by $3 billion in the first six months of this year to $18.8 billion, the lowest level in a dozen years, according to data published today by the Newspaper Association of America.

The record 14% sales plunge featured the first-ever drop in online sales. Interactive revenues slipped by 2.3% in the second quarter of this year to $776.6 million. For the entire first half, online sales rose a modest $35 million, or 2.3%, to a bit less than $1.6 billion.

The $3 billion decline in just six months is equal to 6.6% of the industry's total sales of $45.4 billion in 2007. Based on the results in the first half of the year, it appears that total newspaper revenues will be less than $40 billion in 2008, the lowest in a dozen years.

As you can see in the chart below, print revenues have declined at an almost continuously accelerating rate for nine straight quarters since the second quarter of 2006.

The 16% decline in print sales in the second quarter of this year surpassed the prior record plunge of 14.4% in the first quarter of 2008. The drop in the first quarter of this year was larger than the slide in the last quarter of 2007. And so forth.

The sales debacle in the first half of this year was led by a collapse in print classified advertising, which fell nearly $1.8 billion, or 26%, to $5 billion.

Help-wanted and real estate advertising each dived by more than a third from the prior year. Recruitment sales fell $710.6 million, or 36%, to less than $1.3 billion in the first half of the year, while real estate tumbled $682.2 million, or 35.5%, to $1.2 billion in the same period. Automotive classifieds dropped $331 million, or 21.9%, to less than $1.2 billion.

National print sales slid $416 million, or 13.4%, to $3.1 billion, while print retail revenues dropped $913.7 million, or 10%, to $9.1 billion.

Free papers are fizzling, too

The global market for free newspapers is in a slump, too, according one authoritative industry analyst.

After expanding explosively for a dozen years, the total circulation of free dailies around the world grew at an “all-time low” of 5% in the first eight months of this year, says Piet Bakker, a professor at Hogeschool Utrecht in the Netherlands.

Piet, who blogs at Newspaper Innovation, says the worldwide circulation of free newspapers rose by more than 200% as recently as 2000 and even grew at a brisk 23% in 2007, ending the year at a record 47 million copies per day.

But growth fizzled this year and the outlook isn’t bullish. “Considering the [known] plans for the next months, a fast recovery is not expected,” he says.

Evidence is mounting that the market for free papers is becoming saturated.

Piet says more than 200 free dailies are being published in some 50 countries, making for an average of four papers per country. “In 2003, there were three titles per country,” he reports. “In 1999, it was two.”

Meanwhile, there’s a report that one prominent freebie may succumb to the sagging U.S. advertising market.

Metro International, by far the largest publisher of free papers in the world, may be getting close to shutting its New York edition after failing for the better part of a year to either sell the paper or find an equity partner, according to the Sunday Times of London.

Metro, which loses money despite (or because of) distributing 23 million free papers daily in 23 countries, began publishing free dailies in Philadelphia in 2000, Boston in 2001 and New York in 2004. The New York Times Co. is a 49% partner in the Boston edition, but Metro is on its own in the other two markets.

The high price of skinflint journalism

The idea of splitting news coverage among the three principal newspapers in south Florida is journalistically and commercially dangerous.

As discussed previously here, it is clear why the Miami Herald, Sun-Sentinel and Palm Beach Post want to collaborate on “basic” local coverage, whatever that is. They want to save money by generating more content with fewer people.

While this may seem like a rational strategy at a time of slumping sales and profits, it can’t help but degrade the coverage at each publication and make each newspaper less relevant to its readers (and the non-readers they covet).

That’s not just bad journalism. It’s bad business, too.

Story sharing is journalistically ill conceived, because many of the best features, investigations and other distinguished projects come directly from the beat reporting that produces “basic” coverage.

For the most part, the beat reporters who produce “basic” stories are in the best position to develop the relationships that lead to juicy information from helpful insiders and fruitful tips from disgruntled outsiders. If a newspaper relies on “basic” reporting from another newspaper, it isn’t likely to have access to very many scoops.

The only way editors can make a story-sharing plan work efficiently is by huddling several times a day to tell each other what they are working on.

If the papers have no secrets from each other, then the lack of competition stands a good chance of turning the reporting from “basic” to “routine” to “boring.”

And that would be supremely antithetical to producing original and ground-breaking coverage.

Now, more than ever, originality matters to the business of the newspaper business, because the electronic media have usurped and commoditized the coverage of most “basic” news.

The only way for newspapers to retain the patronage of their dwindling number of readers and advertisers is by publishing must-read information that people can’t get anywhere else.

Notwithstanding recent budget cuts, most newspapers still have the staff, time and space to dig deeply, reflect thoughtfully and report movingly on the issues that matter most to the communities they serve.

If they give up on that “basic” mission, there won’t be much left.

The true cost of the buyouts

A mind-numbing number of dedicated newspaper people have seen their careers brought to abrupt and premature halts as the result of the industry’s relentless budget cutting.

But the true loss of these fine people to a newspaper – and their communities – typically isn’t conveyed in the rote announcements that most papers dutifully print when many of their most senior staffers are ushered out the door.

The impact of this loss at one newspaper is conveyed quite poignantly in a video marking the departures of more than 70 staffers of the Atlanta Journal-Constitution during its recent buyout. Together, the exiting staffers represent more than 1,000 years of service to the newspaper.

The video, which is called “A Farewell to Friends,” was distributed internally last week. You can view here. But readers won’t find it at AJC.Com.

UPDATE 9.6.08: And now the video is no longer available at the link above, either.