Tossing the Budget Aside
Newspapers performed nobly in spite of the downturn.
By John Morton
After the September 11 terrorist attacks in New York and Washington, American newspapers threw off their devotion to cost-cutting and worries about soft revenues and behaved the way newspapers are supposed to--hang the bottom-line consequences.
John Morton (email@example.com), a former newspaper reporter, is president of a consulting firm that analyzes newspapers and other media properties.
Those consequences are likely to be severe, but it was reassuring for those of us worried about the recent course of newspaper business strategies to see that, when it mattered, newspapers saw their duty and performed it nobly.
On the day of the attacks, Knight Ridder newspapers in 26 of the company's 28 markets published extra editions totaling more than 700,000 copies and over the first six days of coverage printed about 3.5 million more copies than usual. For example, St. Paul's Pioneer Press added 41 full pages of news during the week.
Cox's Atlanta Journal-Constitution printed 521,000 extra copies in the first six days and added 20 to 24 full pages of news each day. The New York Times on the day after the attack printed its entire A section without advertising, except for a back page sympathy advertisement, and continued to publish essentially advertising-free daily special sections. McClatchy said its 11 dailies published more than 400,000 "extras" on September 11.
The list could go on, and while it is likely that some smaller newspapers responded less ambitiously because of fewer resources, it was clear that the nation's newspapers as a whole responded appropriately to the most profound assault on the nation since Pearl Harbor.
The economic consequences for newspapers are two-fold: much higher costs in newsprint and labor, with news, production and distribution staffs pushed into overtime; and lost advertising revenue, as advertisers pulled back for reasons of sensitivity and fears that consumers would be in no mood to shop. The Atlanta Journal-Constitution, for example, said $800,000 worth of advertising was canceled in the first week, partly offset by $150,000 in unbudgeted sympathy advertisements.
Newsprint costs will be especially burdensome because of larger-than-usual newsholes and sharply higher circulations. While a circulation boost is a positive for newspapers, the experience during the Persian Gulf War shows that spurts during times of crisis tend to tail off as events and coverage wind down. And the sharp growth then did not in the long run stem the industry's gradual circulation decline. However, the Bush administration's declaration of war on terrorism might bring further events that bump up circulation.
The circulation spike this time will, of course, bring increased circulation revenue to offset some of the additional costs. But all profit in newspaper operations comes from advertising, which accounts for about 75 percent of total revenue. Because newspapers are not able on short notice to raise advertising rates to reflect higher circulation, advertising revenue would not have increased at a rate commensurate with circulation jumps--not to mention that that advertising volume actually declined. The result: lower profit margins.
Some of the publicly owned newspaper companies warned that the costs and lost advertising stemming from the terrorist attacks and their aftermath would significantly affect third-quarter earnings. Knight Ridder said it expected the quarter's earnings per share to be off 25 percent but noted that in the second week after the attack its newspapers were beginning to see a return to normal advertising schedules. Gannett said it expected third-quarter earnings to be down 15 percent to 20 percent below the same quarter last year.
The stock market, when it reopened the week following the attacks, sent newspaper stocks down an average of 9.6 percent in the first week's trading, somewhat less than the 11.6 percent decline of the S&P 500. Newspaper stocks might have suffered more except for the fact that, although advertising was down, a considerable amount already scheduled was carried.
By contrast, broadcasting--networks, cable channels, local television stations and syndicates--went completely without advertising for some or all of the four days commencing with the attacks as it, too, responded to the crisis. Estimated losses for the four days were $378 million.
I received numerous calls from news people around the country during the first two weeks after the attacks, and while there was universal pride in how newspapers had responded, there also were many callers who worried that the cost run-up will bring even more pressure than before the attacks to lay off workers and otherwise cut expenses in the future.
Perhaps so. But as many have said, everything has changed. Maybe this will, as well.###