Monday, December 01, 2008

Where extreme cuts may come at papers

Operating in an atmosphere of unprecedented uncertainty and growing dread, publishers are systematically reviewing every aspect of their businesses with an eye to saving a buck any way they can.

They are preparing cascading contingency plans that can be implemented according to the degree that sales might decline. The industry’s revenue crisis is detailed here in the first installment of this series.

Not every contingency prepared by publishers will be implemented. The options eventually selected will be based on the state of the general economy, the health of a particular market and the specific economics of a given newspaper. Here’s a glimpse of what may lie ahead:

The list of potential expense reductions includes squeezing staffing, shuttering bureaus, carving out layers of middle management, telescoping multiple sections of the paper into one, tightening newshole, scrapping syndicated features and wire serevices, axing op-ed pages and book sections and eliminating classified ads on certain days of the week.

In an example of what could become commonplace, the Newark Star-Ledger reduced headcount by almost half in the fall by threatening to close the paper by the end of the year if its cost-cutting targets were not met. The reduction was enabled through enriched severance benefits and concessions from labor unions throughout the plant.

Another alternative will be to ask employees to accept voluntary pay cuts, to agree to work longer hours, and to ease manning requirements and other work rules. Bonuses may be reduced or eliminated for the fortunate few who still would have qualified for them.

Publishers will outsource anything that makes sense, including ad sales, ad composition, copyediting, page layout, printing, customer service, fleet maintenance and delivery.

Many newspapers will look to selling their historic downtown edifices to raise operating capital and repay debt. If they can’t outsource printing, they will move their presses to the warehouse district of town and relocate the administrative, ad and editorial staffs to rental space in class-B locations.

Continuing a trend that began this year, publishers will be seeking to partner with neighboring papers to save costs on ad sales, content generation, printing and delivery.

If the economy deteriorates too far too fast, partnerships of convenience may give way to outright mergers in markets shared by multiple newspapers.

This would be especially likely in cities where one or both of the properties is financially distressed, enabling the publishers to argue that the traditional antitrust objections to such transactions should be waived in the interests of preserving the editorial voice of at least one surviving publication. To make a merger more palatable to regulatrs, the publishers might agree for a while to have the surviving paper continue printing some features carried over from the one that does out of business.

Likely merger candidates would include the papers in Minneapolis-St. Paul, where the Star Tribune and MediaNews Group face heavy debt obligations, and northern California, where MediaNews is struggling and the San Francisco Chronicle could lose up to $100 million despite a series of stringent budget cuts. The combinations in both markets may be driven by Hearst Corp., which is not only a major investor in Media News but also owns the Chronicle.

Other places where potential mergers might occur are south Florida, where the Palm Beach Post, Miami Herald and Sun Sentinel are suffering in one of the most toxic real estate markets in the land, and Southern California, where the San Diego Union is up for sale, and plunging revenues and profitability are causing havoc at the Los Angeles Times, Orange County Register, Riverside Press Enterprise and the far-flung portfolio of MediaNews properties.

While the Chicago Tribune and the Sun-Times Media Group each would be healthier if it were the sole surviving publisher in Chicago, it is not clear how either company could afford to buy the other. With the situation the same between the Globe and the Herald in Boston, the publishers in both cities seem to be locked into indefinite wars of attrition.

If things get bad enough, joint-operating agreements might be terminated in places like Denver, Detroit and Seattle. When government-sanctioned JOAs were terminated in the past, the surviving newspaper agreed to pay the departing publisher an annuity for an extended period of time. As the successor interest to Knight Ridder, cash-strapped McClatchy, for example, is on the hook to pay Cox until 2021 for its willingness to the close of the Miami News in 1998. Future JOA buyouts may not be so generous.

Things could get particularly dicey for individual, free-standing publishing companies like the Star Tribune, Boston Herald and Philadelphia Media Holdings, the latter of which may find it increasingly difficult to sustain the publication of both the Inquirer and Daily News.

Even though this is the worst time in history to be selling or financing a newspaper company, several operators, including Copley, Cox and Journal Register, have put publications on the block. Journal Register, which was among the first of the many precariously financed publishers to default on its debt, has stated that it will close papers it cannot sell.

Companies like GateHouse Media, Lee Enterprises, McClatchy, MediaNews, Morris, New York Times Co., Philadelphia Media, Star Tribune and Tribune are obligated to improve their profitability in the coming years to repay the principal and interest on money they have borrowed to make acquisitions.

In the event the publishers are unable to meet those obligations, their creditors will move in to slash expenses; attempt to sell off assets to generate cash, and take every other step necessary to sustain the properties as going concerns.

This will last as long as the newspapers continue to generate operating profits. But it is highly unlikely in this environment that any creditor would provide additional cash to prop up a money-losing newspaper.

In other words, a newspaper that cannot sell enough advertising or cut enough expenses to sustain profitable operations is not likley to make it to the other side of 2009.

19 Comments:

Anonymous Anonymous said...

Alan,

I notice that you don't mention slashing publishers' or other C-level executives' salaries as a likely outcome. I doubt that many other observers are counting on that course, either. If there's one thing we've learned in the newspaper business, it's that the clowns who steered us straight into this mess rarely suffer the full pain of pulling us out.

4:55 AM  
Anonymous Anonymous said...

What you're stating is nothing new. Doe this same train of thought apply to almost every industry in today's recession?
Why not propose solutions? Anyone can predict gloom and doom after it's happened. The gifted person finds solutions.

6:02 AM  
Anonymous MrEdd said...

RE:Anonymous:6:02

I expect that the same solutions ultimately will be found...which saved the lantern oil industry, The blacksiths, and the local livery stables.

When your industry is obsolete you become a tiny niche market.

9:43 AM  
Anonymous craig currie said...

I have a solution. All publishers buy their subscribers computers and stop hard copy print. These computers will have a program sceen saver of all the advertiser that will run 24/7 in everyones home. This could be easily done with a few codes. The customers will need to pay for the own internet service though. You could purchase in bulk about 500,000 computers for $150 a piece. The Newspaper home page can be locked with code as well so it can not be changed. If a customer goes by the computer and see an ad on the screensaver that looks good, they can click on it to go to the ad. This too can be done with code. This would lock the newspapers in the homes once again and control what they are looking at and help their advertiser once again get a return with the high advertising costs. Just a thought. Craig Currie

10:16 AM  
Anonymous Anonymous said...

A couple of decades ago, I worked for a publisher and his secretary had to interpret the spreadsheets for him.

10:16 AM  
Blogger boradis said...

The industry is anything but obsolete! What is obsolete is thinking of being in written in local written journalism as being in newspapers.

Here's a parallel scenario to the ones already proposed: What if a TV station were to hire most or all of the writers or editors of its town's floundering newspapers. If you look at Web traffic, you'll see that TV station sites lag horribly behind those of newspapers. Main reason for that -- more actual NEWS on the newspaper sites. A TV station is lucky if it can put up 5-7 3-minute videos a day. A typical newspaper site posts dozens of longer, written articles.

So, again, written news as a profession and industry isn't in any danger. Delivering it by paper just makes no economic sense any more.

10:17 AM  
Anonymous Anonymous said...

I worked in the Newspaper Industry for 20 years and there was some waste and bloat that I observed that is being removed. I would guess that only half the people in the Tribune Tower are productive. How many GM execs are really productive? My own work probably resulted in the loss of 100's of jobs through automation.

The problem with any news becomes who do you trust to not spin it? Certainly not sources like Murdoch's News Corporation or Fox News.

Sources like the Washington Post, New York Times, and Chicago Tribune will always exist in some form because they gather the news that other papers and blogs use from wire service. They also provide and are subject to checks and balances between themselves and government. Even if not on newsprint, these giants will still be sourcing news and speaking harshly to bad government.

The newspapers that survive will be those that have something authoritative to say.

10:18 AM  
Anonymous Anonymous said...

One clear reason for the demise of a lot of the big city papers is the editor's total and unreserved tie in to the liberal wing of the democratic party. The papers have turned off a lot of their readers with their unrelenting liberal wing support. It is much easier to get a real idea of the country and the world through many and varied internet news outlets, blogs, etc than having to pay to receive the same drivel day after day without change.
Good riddance to the dinosaurs.

10:37 AM  
Anonymous Anonymous said...

I don't think it is Alan's job to come up with solutions. The service he performs here is to allow rank and file a view of what is common conversation on the corporate level. The problem is not so much doom and gloom but that staff get blindsided when the home office suddenly announces a new round of bloodletting.

10:43 AM  
Anonymous Anonymous said...

Salaries of $2 million and $4 million, paid to the top execs of some of these newspaper chains, also would seem to me to be in jeopardy. Indeed, rather than further layoffs, I can see the next step in making it through this recession will be a radical revamping of extravagant salaries paid to the top executives of newspapers and newspaper companies. The days of $250,000 editors or executive editors are gone. If these companies are going to remain public companies (and I don't see any big moves to go private) salary cuts make sense.

10:47 AM  
Anonymous red swift said...

people drop papers because they dont find enough in them to justify the money and time. so, if papers would add columns, and add comics, and add word games, and expand op ed and letters to the ed, and cover sports more and better, readers would come back to newspapers. and advertisers would have to. ivan swift, long time ago newspaperman

11:55 AM  
Anonymous Anonymous said...

Re: One clear reason for the demise of a lot of the big city papers is the editor's total and unreserved tie in to the liberal wing of the democratic party.

I have seen this argument repeated, over and over, on various blogs and websites and felt the need to respond finally.

Your claim, if true, would imply that there is a vast untapped market need for conservative newspapers.

Fair enough, let's look at a couple of them to see how they're doing.

The Washington Times has lost money in every year of its publication. It has been supported by the Unification Church to the tune of $2B since 1982.


The New York Sun went bust in September.

The New York Post has to be supported by Murdoch's media conglomerate.

And the greatest conservative newspaper of them all (and a high quality paper at that) the Wall Street Journal is losing circulation and fearing for future profitability.

It's hardly a scientific sample, but given that these are some of the biggest and most powerful, ostensibly conservative newspapers out there...it would seem that ideology (or perceived ideology) has no bearing on the financial health of a newspaper.

Back up your assertions if you make them.

To the topic at hand, newspapers are burdened with high fixed costs.

A solution? Pool online news sites for the New York Times, Wall Street Journal, Washington Post, LA times, and Christian Science Monitor.

Allow them to maintain separate editorial staffs , but consolidate foreign and national bureaus and don't allow separation of the news content at all. Have references to which news organization the article came from.

Force advertisers to deal with the collective organization, enabling several of the country's most reputable newspapers to collectively bargain for advertising while presenting a unified front for people who would appreciate news from reputable sources.

12:37 PM  
Anonymous CharlesR said...

this is death by a thousand cuts, but employees are just taking it. aren't employees at gannett bracing for another round of permanent layoffs this week? wouldn't it something if professional journalists acted collectively -- and took control of their newsrooms?

3:38 PM  
Anonymous missdeb said...

People are increasingly getting their news from their PCs and mobile devices. That said, there is still a significant portion of the population that does not have the internet and will continue to rely on printed news.

What the papers should be dealing with realistically is clarifying where they fit in this new reality. Regardless of what any of us think of the quality of the reporting, the internet is a much bigger factor, and the sooner the papers adjust to a better balance of digital and print, the more likely they will be to survive.

5:19 PM  
Anonymous Anonymous said...

I agree that the liberal slant is not what caused the paper's demise because the Conservative papers are suffering just as much if not more. The Christian Science Monitor is at its demise now with only an online version as I understand it.
The problem is that newspapers are top heavy in management and the top is well paid while the writers are very poorly paid. Shareholders only care about profits, but neglect to see that the product is what sells it. They cheat the product everytime. It's gotten so bad that I read today that a Florida paper is using J-School kids to contribute to the news. Come on people writers are gifted people and should be paid accordingly. Don't make them take a vow of poverty and then give a pot of gold to the people who got us in this mess in the first place. The people who own the papers should be news people not business people. That's when the news worked. At this point, though we should cut out the print copy every day and rely on the Internet for daily. Produce a weekly print publication for recap and more indepth stories.

7:15 PM  
Anonymous Anonymous said...

As the editor of our town's weekly newspaper, it saddens me to see how easily the daily newspaper 'experts' abandon the field and run with tails between their legs. This is the flip side of the great success stories of these American newspapers enjoyed. But they have forgotten their roots. The daily newspaper is a relatively modern invention which has only been around since the latter half of the 1800s. Before that, most communities relied on us weekly newspapers for local information - with stories largely copied directly from big city newspapers filling in the columns.
Now, the internet has replaced the big city newspaper copy which leaves the local news - the piddly stuff your local daily has no time for anymore.
The template for the newspaper of the internet age is right under your collective noses: It is a weekly printed newspaper, and active, free links to local websites.
The future audience? She might look something like a Garmin-toting shoe shopper looking for a good sushi place, a mom seeking pizza to order on their G3 to order and have ready when they arrive; or the baby-boomer who wants to see his grandson's photo printed in the newspaper, check his investments on the internet or read about activities at the nearby senior center, church or town hall. Newspapers have to fit the world as it is, not the world they want it to be.

8:17 PM  
Anonymous Anonymous said...

The big problem is debt. Newspapers were hot properties a few years back and sold for more than they were worth. Current owners can't make the payments. Only answer is for these companies, run by non-newspaper people, is to file for bankruptcy.
Future owners will buy the papers at fire-sale prices and just might be able to keep publishing.

7:34 AM  
Anonymous Anonymous said...

It's true. Half of the newsroom at The Star-Ledger is leaving by the end of the year. Many have left already.

I was in the newsroom last night when a police officer was shot nearby in Newark, New Jersey. For the first time since I've been at The Star-Ledger, we didn't have a reporter to send out to investigate. I guess more of that will happen in the future.

8:06 AM  
Anonymous Anonymous said...

Online online online. That's where more people go for their info nowadays. Make the experience interactive. Make it relevant. Check what Bild is doing... http://www.iht.com/articles/2008/12/03/business/bild.php

10:04 PM  

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