Don’t Slash and Burn   

Newspapers need to practice good journalism, even in tough financial times.

The stock market has sunk, consumer confidence has weakened, two major retailing chains have shut down and two others are closing dozens of stores, advertising revenue is softening, and newsprint manufacturers announced a sizable price increase. Everything seems to portend a tough year financially for newspapers, and maybe even an outright recession.

Yet of all the negatives cited in the paragraph above, only the state of consumer confidence is truly worrisome. Here's why:

*The stock market is famous for predicting five of the last three recessions.

*Softening newspaper advertising is no surprise because of tough comparisons with strong performance in the early months of last year. Comparisons will get easier in the last half of this year.

*It's unlikely that the newsprint price increase of $50 per ton imposed by producers on March 1 will stick at the full amount, if at all, because of sharply declining consumption tied to slowing advertising volume and widespread reductions of newsprint web widths.

That leaves consumer confidence and, unfortunately, this could turn out to be the monster that makes everything else irrelevant. Consumers contribute about two-thirds of the national economy, and they, more than anything else, drove the booming economy of the 1990s simply because they spent more than they earned.

Pulling back from that habit could have a profound effect on retail spending--there were signs of this in the lackluster Christmas season--and consequently on newspaper retail advertising. Newspaper managers, and everybody else, can only hope that consumers will not be unduly influenced by the stock market slump, which after all was mainly a deflation of some of the irrational exuberance that Federal Reserve Chairman Alan Greenspan famously complained of.

Many newspaper companies have responded to the economic softening with layoffs, chiefly at Internet operations. Therein, paradoxically, lies good news for newspapers. Newspapers can safely trim Internet spending because they won the early battle with Internet entrepreneurs that had targeted newspaper revenue streams.

That happened because success on the Internet, as with all other forms of media, is driven by content. And newspapers excel in gathering, manipulating and delivering content--what Peter Kann, chief executive of Dow Jones, recently described as the sweet spot of the value chain.

The battle on the Internet is not over, of course, but the level of concern over its threat is at a far lower level than just over a year ago. As dotcom companies of all varieties have crashed or drastically scaled back, newspaper Internet initiatives with their well-established brand names have carried on and, in a few places, have even started to show profit.

What happens if consumers do lose confidence and sink the economy, if not into a recession, at least into a hard landing? My fond hope is that newspapers will not repeat the mistakes of past tight times by trimming news staffs, news space and editorial initiatives and by jacking up circulation prices to offset softening advertising revenue. Further erosion of circulation performance would be the sure result.

The newspaper industry just had a solid year, with revenues and operating earnings of publicly reported companies up more than 10 percent. The average operating profit margin was 23 percent, or 23 cents before taxes on every dollar taken in. This was even better than 1999's 22.9 percent, and came despite a steadily softening economy in the last half of the year.

So the industry, even in a difficult year, can well afford to preserve the qualities that serve it so well in good times. But clearly the ongoing wave of consolidations in the newspaper business suggests that for a large part of the industry there is a new corporate culture.

It is a culture in which the bottom line has become more important for most companies than ever before. There are all those acquisitions to pay for and, for some companies, Wall Street to please. It is a culture in which financial advantage will drive corporate strategy more than any other factor.

In short, the newspaper industry, or at least large parts of it, has become much more like the rest of corporate America and less like the unruly, individualistic, sometimes cantankerous business it has been through most of American history.

If hard times do come this year and next, maybe newspaper management this time will recognize that good journalism is good for business, as necessary for the future as it was in the past.