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From AJR,   December 2000  issue

Slimming Down   

Layoffs, buyouts and other cutbacks are taking place in newsrooms across the country as publishers deal with weakening ad revenues, rising newsprint prices and an ever-present demand for profits.


By Kathryn S. Wenner
Kathryn S. Wenner, a former AJR associate editor, is a copy editor at the Washington Post.     


AFTER FOUR WELL-FED YEARS, a number of big-city newspapers around the country are deciding it's time to slim down. They're spending more for newsprint and, in some markets, seeing a slowdown in advertising. In some cases, their parent companies' stock prices are flat or falling.
There's definitely some belt-tightening going on, and it's more than the typical end-of-year slowdown, analysts and newspaper executives say. And it's not just hitting one newspaper company or one region.
At least six major dailies--from Baltimore to Phoenix--are trimming their workforces, either through layoffs or buyouts. At papers in Dallas and Minneapolis, unfilled positions are remaining that way and expenses are being cut back. At least two major newspaper chains, Knight Ridder and Tribune Co., are reducing the size of their papers in an effort to cut back on newsprint costs.
Tim McGuire, editor and senior vice president of Minneapolis' Star Tribune, says he thought his newsroom was getting hammered by budget tightening until he started talking to editors at other papers. "Every editor I talk to is feeling pressure of some sort," says McGuire, who moves from vice president to president of the American Society of Newspaper Editors in April.
That pressure includes pushing up profit margins, McGuire says. While he vehemently defends Star Tribune owner McClatchy Co.'s commitment to a strong news product, he will unabashedly say that publicly owned companies, including newspapers, are changing the dynamics of how they work. But he says everyone is to blame, not just owners. "We are in a society that values growth upon growth." We're all responsible for it, including those who work in newsrooms, he says.
Whether the current round of cuts indicates the start of a long-term trend is not yet clear. Here's what's happening at more than a half-dozen papers:
The Baltimore Sun is offering buyouts to 60 workers throughout the company. When the cuts were announced in November, Editor William K. Marimow told staff that the company needs to go from a 36-inch waist to a 34.
The Arizona Republic cut 60 positions from its 2,600-member workforce in November. None were in the newsroom.
Philadelphia Newspapers Inc. offered buyouts to employees at the Inquirer and Daily News in October in an effort to eliminate 100 positions company wide.
The Hartford Courant is eliminating 22 positions in circulation, advertising and other non-editorial departments.
The Dallas Morning News is holding about half its available positions open, tightening up newshole and approving fewer travel expenditures.
The Los Angeles Times eliminated 170 editorial and advertising positions in September when it closed 14 neighborhood sections and restructured its advertising department.
The Wall Street Journal eliminated 34 jobs in November, shutting down its six weekly regional editions.
Publishers in Philadelphia, Baltimore and Phoenix blame staff reductions on a slowing economy and newsprint prices that have gone up $100 a ton since last fall and will likely rise again by the middle of next year.
At the Arizona Republic, a memo from management cites a "five-month downward trend" in ad revenues contributing to a "sizeable deterioration in year over year revenue growth since May. Those revenue realities are expected to continue on into next year. At the same time, newsprint prices are increasing very significantly." Some jobs, the memo says, are being eliminated because their functions are now handled by Gannett Co., which acquired the paper last summer. It linked the staff cuts to belt-tightening across the newspaper industry and specifically mentioned layoffs at the L.A. Times. Pam Johnson, executive editor and senior vice president for news, declined to give details about which positions were cut, but said most were on the business side, with some in the online operation.
Ad revenues also fell below expectations for the third quarter at the Star Tribune. Editor McGuire says he has to "keep the coconuts moving" in the newsroom, filling some positions and keeping others open in a kind of shell game.
At the Baltimore Sun, Publisher Michael E. Waller's memo to staff cited a need to cut costs because of a slowdown in retail and classified advertising and the cost of newsprint, which Sun spokeswoman Carol Dreyfuss says went from $39.3 million in 1999 to $40 million this year.
In Philadelphia, six major retailers have gone out of business this year, and hiring has slowed. Add in newsprint prices, and something's got to give.
"We have improved the profitability of the Philadelphia papers substantially over the last six years," says Philadelphia Publisher Robert Hall. "You add stuff, you take some stuff away. The key is to get the right mix and right formulas. The editors at both papers understand this," he says, and are committed to aggressive journalism.
The Dallas Morning News isn't having problems with its ad revenues, which were up about 11 percent in the third quarter. Executive Editor Gilbert Bailon says newsprint prices are the big reason he's having to cut costs--leaving about half of his 20 or so openings unfilled, forgoing some travel, keeping a tight rein on newshole.
To build circulation and advertising, the paper absorbed three of its independent biweekly suburban papers and turned them into zoned sections of the Morning News.
At least one observer questions how fair it is to place too much blame on newsprint price increases. "If you look at the long-term average and factor in inflation, you'll find that newsprint prices are fairly flat over a long period of time," says Bob Giles, curator of the Nieman Foundation for Journalism at Harvard University. Recent increases, while somewhat steep, he says, have not boosted prices to "excessive levels." Prices in mid-October were $600 per metric ton; in 1995, they peaked at $750 per ton.
But drops in advertising growth and rising newsprint prices aren't all that publishers have to worry about. All face an unrelenting demand for profits.
Four of the six papers with staff cuts have been acquired by new owners in the past six months. Gannett, a company known for maintaining high profit margins, took over the Arizona Republic as part of its purchase of Central Newspapers in August. The Sun, the L.A. Times and the Hartford Courant in June became part of Tribune Co., which has made no secret of its desire to increase profit margins at the former Times Mirror papers.
Profit margins at the Sun, according to a recent New York Times article, are currently more than 20 percent.
Sun reporter Joan Jacobson says "some people are amused" that the company is using the slowing economy as a reason for the buyouts. "Everyone knows, when Tribune bought Times Mirror, the word everywhere was that Tribune demanded higher profits."
Waller denies that the purchase by Tribune led to the cuts. The new owner's mid-year request that the Sun "do a little better...doesn't have much to do with this. We'd be having staff reductions no matter who owns us.... We're not able to meet our original budget."
Details of the buyout package came in a "trick or treat" memo on Halloween from guild unit chair Bill Salganik. Some employees are delighted at the chance to get a big check and retire or change careers, Salganik says. Others have niggling doubts about what could lie ahead at a paper that has built a reputation for ambitious journalism and good writing.
"Here we are nicely profitable and deciding we'll have fewer reporters, copy editors, customer service people, ad reps," he says. "I'm not sure that our coverage would be dramatically worse with seven fewer reporters, but you wonder about the trend, if they're going to be asking for increasingly higher profit margins down the road."
That's certainly the case at Knight Ridder, where Chairman and CEO P. Anthony Ridder has said he wants improved margins in 2001. Reports that Ridder wants profit margins to rise from this year's 19 percent to 21 percent next year at the Philadelphia papers are "in the ballpark," says Publisher Hall.
But don't just accuse the owners of being greedy, says the Star Tribune's McGuire.
"When our 401Ks or our portfolios aren't up 14 percent, we're all ticked," McGuire says. To those who then complain about the corporate parent's insistence on higher profit margins, he asks, "well, what are you demanding out of your 401K?"
Newspaper analysts say the current expectations among investors and Wall Street analysts for swelling profit margins in the industry developed over the last few years, when newsprint prices stabilized or fell and advertising revenues in a booming economy just kept growing. Today's Wall Street values businesses whose profits go up year after year. It looks askance at companies whose margins stay high but stable. This is bad for newspaper stocks, because the newspaper business runs in cycles. Whatever it earns in ad revenues can be undercut by newsprint prices, which make up 20 percent of most newspapers' operating costs.
In June 1999, newspaper analyst and AJR columnist John Morton was writing about the "happy combination" of low paper prices and high ad revenues that was allowing newspaper companies to rake in the earnings. Now those two factors have changed direction, "squeezing margins right now," Morton says.
This confluence of forces--higher newsprint prices, weakening ad revenues and upward pressure on profit margins--means tougher times for newspapers. But how tough? "There's not any evidence so far that it's going to cut major blood vessels rather than capillaries," says Poynter Institute President James M. Naughton. But he cautions that "we're talking about cutting in good times, generally speaking. I would worry about what that would mean in bad times."
Naughton, a former executive editor at the Philadelphia Inquirer, and others say it's too soon to start fearing crippling cutbacks.
"It's not as if I'm hearing a flood of news from publishers about staff reductions in editorial," says Peter P. Appert, media analyst with Deutsche Banc Alex. Brown. Although he adds, "It wouldn't be surprising to see some belt tightening over the next several quarters."
Appert says expectations of high profit margins are not to blame. "Here's the reality: Business is tough. The operating environment is getting more challenging, irrespective of margin expectations." He admits, however, that while executives of publicly traded companies like Knight Ridder have said they want higher margins next year, they may not be able to achieve them.
"Tony Ridder has said he's very focused on margins. The reality is--and this applies not necessarily to Tony--there's only so much you can do," Appert says. If the ad environment were to deteriorate significantly further, he says, margins would not be able to increase.
"Of course if the economy tanks, it would be difficult to increase margins," says Polk Laffoon IV, Knight Ridder's vice president for corporate relations. "But if the long-term goal is to improve a business, you have to assume that over time the economy will be stable. In that context, any new cost discipline will almost certainly help us show better results. If, on the other hand, the economy does slip, then the improved cost discipline will--at the least--help us maintain the levels already achieved."
A similar but more serious situation occurred in 1995, when a 30 to 40 percent surge in newsprint costs coincided with falling circulation and advertisers moving to other media. That year, papers all over the country cut staff, dropped sections and started looking at shrinking their papers. The move to 50-inch web presses is now well underway, with companies like Tribune in the midst of a conversion and Knight Ridder planning to switch about 20 of its papers in the coming year.
While reporters in the newsrooms have their concerns about the moves, they say there is no sense of panic. Employees at the Sun went through buyouts in 1995 and 1998. So when an October 26 memo from Waller about this year's buyouts showed up in e-mail boxes, people in the newsroom weren't especially shaken. Advance word had leaked, and the number targeted from editorial was expected to be fewer than 20.
"There's no hysteria, it's pretty low-key," says reporter Jacobson, who has spent 26 years with the company and is eligible for a buyout. The scope of the buyout "is pretty limited compared to ones in the past."
In Dallas, it's not the cost-cutting that concerns some staff, says Assistant Metro Editor Jennifer Juarez-Robles. "I think what you hear most in the newsroom is that Belo [which owns the Morning News] could potentially be a takeover target," she says. "If there's any worry that's most prominent, it's that one."
Those who decry the power of profit margins over newsroom resources know the business has to do better than survive for good journalism to flourish. The question of how to balance that tension has always been present; it just becomes more apparent in times like these.
It's all part of the cycle, says Jack Fuller, president of Tribune Publishing. "It wasn't long ago, in a period of increasing newsprint prices, it may have been when revenues were softening, people began talking about a permanent change. îIt'll never be the same, newspapers' glory days are over,' " Fuller says. "That was followed by the longest, most lucrative run-up in paper profits anyone had ever seen, ever."
Fuller, a former reporter who says his goal is to leave the company's newspapers "better at the end of my shift than they were at the beginning of my shift," says newspapers continue to be "very, very good businesses over the whole cycle. At the top of the cycle, they're going to drop down. Wall Street right now is looking on newspapers with some disfavor. It's not the first time or the last. It's nothing to be slitting our wrists over."
Philadelphia Publisher Hall says the concept that you can't have a profitable paper that does great journalism is nonsense.
"All you've got to do is look at good papers," Hall says, citing the New York Times, Boston Globe, Chicago Tribune and Washington Post, though earnings at the Post have been down because of heavy investments in the company's Internet operations.
In Los Angeles, the editorial staff cuts "were more a strategy thing," eliminating unprofitable attempts to increase circulation and duplicate positions from the merger with Tribune, says Susan Denley, director of editorial hiring. The paper has launched two new weekly sections and plans to beef up its metro section. "We are still hiring," Denley says. "We just launched a new technology section, and we added eight or nine positions to do that."
The Wall Street Journal called its decision to eliminate regional editions a "tactical move," saying they were marginally profitable.
If the economy worsens, investing in news reporting might be the smartest thing a newspaper could do, "the sort of thing that the Miami Herald did in World War II," says Naughton. "Faced with rationed newsprint, they decided to give it to news rather than advertising. That probably was instrumental in the Miami Herald being the dominant paper in Miami after the war."
The Nieman Foundation's Giles, former editor and publisher of the Detroit News, wonders why newspaper companies, knowing that low newsprint prices will rise eventually, don't bank some of the savings in the good times so they don't have to cut back later. "I've lived through this for many years, and it's a regrettable cycle. In the fat years, newspapers seem to share their profits with the shareholders instead of squirreling some away."
But one of the inescapable facts of corporate newspaper life is the importance of stock prices and the perception of shareholder value, Giles says.
Reporters like the Sun's Joan Jacobson, who's not sure yet whether to accept a buyout, understand that. "This is just the way you conduct business when your newspaper's owned by a huge publicly traded corporation," she says. "It's just the way it is."