Are job cuts signaling the end for America’s newspapers?

Mar.17, 2008 in Market Outlook

Are job cuts death knell for America’s newspapers?

Some try to move faster online, others just cut as industry nears an abyss

By Russ Britt, MarketWatch

Last Update: 12:03 AM ET Mar 17, 2008

LOS ANGELES (MarketWatch) — The digital wave washing over newspapers has turned
into a tsunami in the past several weeks, as hundreds of newsroom layoffs
coast-to-coast are raising fears that the push for profits and a dismal economy
are teaming up to accomplish the unthinkable — putting the print industry in its
grave.

Daily publications ranging from the San Jose Mercury News in the San Francisco
Bay Area to the venerable New York Times have axed reporters and editors — more
than 750 — in little more than a month, as competition from the online world has
joined forces with financial pressures to put on the squeeze.

Sales, profits and circulation all are down sharply, as newspapers say they long
ago abandoned the prospect of trying to stop the bleeding. Some now say they cuts
are so deep, they have to “amputate” portions of their business to stay alive.
Meanwhile, they’re trying to embrace new media, but can’t do so effectively
because of constrained resources.

“I guess the worst thing that could happen is the business could fall off a cliff
the way the music business did,” said Dean Takahashi, a former technology
reporter for the Mercury News, who left last month to become a blogger just
before a round of layoffs. “I worry that is possible.”

Is the death knell beginning to toll for what has been a key source of
information for more than two centuries? Do newspapers face the same fate as
other traditional media hit by the digital wave, or worse?

Bottom falling out?

A study released Monday by the Project for Excellence in Journalism raises
concerns the bottom is about to drop out for the industry. The media research
specialist says in its annual State of the News Media report that already ill
newspapers got sicker in 2007 with no hope for a cure in 2008.

Advertising revenue fell 7% last year after a flat 2006. The big dropoff was in
classified notices, as all categories in that business — real estate, help
wanted and automotive — lost a bigger chunk of share to online alternatives than
they have in recent years.

Circulation is off 2.5% for dailies and 3.5% for Sunday editions. Subscription
losses have been the bane of the industry since it hit a peak in the 1950s, but
the dropoff is gaining momentum.

Further, the study goes on to say smaller staffs prevented newsrooms from
fulfilling their traditional roles and tending to even the most fundamental
beats, including basic governmental functions. It quotes Phil Bronstein,
executive editor for the San Francisco Chronicle, as he lamented the loss of 100
jobs at his paper last year.

“We can’t afford to cover the Richmond City Council anymore,” Bronstein said,
referring to a nearby community in the San Francisco Bay Area.

And for all the cost-cutting measures underway, newspapers still say earnings at
public companies dropped 10% for the year.

“Newspapers are still far from dead, but the language of the obituary is creeping
in,” the study says.

Fear of death

That confrontation with mortality seems to have manifested itself in a series of
layoffs. The Project’s study says the industry as a whole lost 7% of its newsroom
staff by the end of last year since hitting a 2000 peak.

Many individual papers are much worse off, with some losing up to 40% of their
journalists, the study says. The industry finds itself cutting seasoned veterans
who are well-connected to the communities they cover, perhaps for financial
reasons or because the employer thinks the journalist can’t or won’t adapt to new
digital realities. Regardless of the reason, it’s depriving these newspapers of
their wealth of experience.

More than a dozen metropolitan dailies throughout the U.S. have announced
newsroom cuts since the beginning of February. Among them was New York’s Newsday,
part of Sam Zell’s Tribune Co., which cut 120 total jobs on Feb. 29. Its sister
publications, the Los Angeles Times and Chicago Tribune, each cut 100 jobs or
more in the middle of last month.

Papers in Boston, Philadelphia, Baltimore and Minneapolis all have made similar
announcements recently. Not even the New York Times (NYT) could avoid the carnage
as the paper known as the “Gray Lady” cut 100 jobs last month.

For many, the most recent cuts are just the latest bad news, as they already have
made several rounds of reductions.

At the Mercury News, the paper announced a round of 50 impending newsroom cuts
for March 7. Its third reduction since December 2006, employees were told to stay
home that morning and wait for a phone call informing them they would be laid
off. If they got no call by 10 a.m., they could report to work.

Part of William Dean Singleton’s privately held MediaNews Group, the Mercury News
was supposed to be the flagship of Singleton’s formidable chain in both northern
and southern California. But the Denver-based chain’s presence there is
shrinking. The San Jose newsroom staff now stands at roughly 175, less than half
the size it was at its peak of 400 in 2000.

“I would say that we have a lot of very strong journalists still at the Mercury
News,” Editor David Butler said. “[Having] 175 people is still a potent force.”

MediaNews also cut 10% of its newsroom staff at two other Bay Area newspapers and
another 18% at the cornerstone of its Southern California fiefdom, the Los
Angeles Daily News. Since the L.A. Daily News cuts on Feb. 29, additional layoffs
were made at Singleton’s other Southern California papers.

Payments totaling $41.2 million on more than $1 billion in debt that Singleton
incurred to build that empire — an empire originally conceived to band a number
of smaller dailies together to rival the Chronicle and L.A. Times — are partly
to blame for this latest round of reductions, says Poynter media analyst Rick
Edmonds, a co-author of the study.

Singleton did not return phone calls seeking comment.

Many factors

Why so many cuts at so many papers, and why now? A number of factors are at play.

The circulation loss that has been going on for decades is starting to speed up
with many of the nation’s major dailies experiencing double-digit losses in the
past four years alone. The Chronicle and L.A. Times are particularly vulnerable,
losing more than 20% of their circulation during that time.

There is perhaps no greater crisis facing newspapers right now than the dropoff
in classified advertising. The attractiveness of online alternatives in recent
years has left newspapers scrambling to find ways to make up for the income drop.
In some cases, this high-margin, low-cost revenue source for newspapers can
comprise nearly half a paper’s sales and publications are losing up to a third of
that income.

Classified sales have always felt the pinch when the economy goes sour. But of
late the pain has grown more acute with online competitors such as Craigslist and
Monster.com deeply cutting into that business.

Right now, those troubles are exacerbated even more by the sharp downturn in the
real estate market, wrought by subprime mortgage troubles and economic
uncertainty. Edmonds says that’s particularly true in California and Florida.

“They’re getting the worst of it,” he said.

Stock performance

What’s more, all those job cuts haven’t helped newspaper companies’ stocks.

There is increasing pressure being put on public newspaper companies to lift
their margins, despite the fact many were already well into double-digit
territory.

Analyst Morton says newspapers in general have not shown any earnings-per-share
growth since 2003 as revenue sources are drying up, and that’s making Wall Street
nervous.

Shares of the New York Times Co., for example, have lost more than one-fourth
their value since reaching a 52-week high in June. Gannett Co. Inc. (GCI),
publisher of USA Today, is down by more than half over the past year. And
McClatchy Newspapers (MNI) lost nearly three-fourths of its value from a year ago
and now trades around $9 a share.

Still, Morton says some newspapers have enjoyed margins of more than 20% in the
past. Now those profits are down into the 17% range and Wall Street is watching.

“Seventeen percent profits are not the kind of profits a dying industry gets,” he
said. “It’s far from being a dead industry, but it’s certainly not a growth
industry.”

Cyclical?

McClatchy Chairman and Chief Executive Gary Pruitt said at a conference in
December that the current troubles the industry faces are “cyclical” and that the
company’s papers were still “highly profitable.”

Yet Pruitt offered as an example, an 8.5% loss in ad revenue during October. In
California and Florida, ad sales were down 15.7% during that same month. Pruitt
was unavailable for further comment.

Lauren Rich Fine, an industry analyst, says companies like McClatchy are probably
worse off than it appears. McClatchy’s 2007 interest expense was nearly $200
million, more than double its 2006 total. Meanwhile, classified ad sales are
trending sharply down.

Fourth-quarter reports for the company, however, show the company’s classified ad
sales for its print products were down 18% for the year, but 23% during the
fourth quarter. December was particularly brutal for real-estate and help-wanted
ads, down 37% and 35%, respectively. For the full year, those numbers were down
23% and 19%, respectively.

Further, Fine says the industry may be getting the wrong signal when Wall Street
calls for more profits. The industry didn’t necessarily need to add by
subtracting; rather, it needed to look ahead to challenges from the Internet and
perhaps find ways to grow the business.

Slowly, newspapers are beginning to understand and are trying to find new ways to
deal with the Internet challenge, Fine said. While some have had a
“deer-in-headlight” mentality, they’re beginning to come around, she says.

“They were slow-footed, period,” Fine said. “Their cultural history got in the
way and still gets in the way.”

Steeped in tradition

Analysts say part of the trouble for newspapers stems from being too steeped in
tradition. Journalists are being asked to undergo a drastic culture shock by
reworking the way they’ve reported and written news for decades. Instead of
filing finished stories at the end of the day for the next edition, they’re
called upon to submit breaking news as it happens — perhaps multiple versions –
and some are resisting.

Newspaper advertising departments are even more vexed, analysts say. They have
difficulty adapting logistics and sales strategies, plus they’ve already lost
ground faster to Web alternatives than have news departments.

Philip Meyer, a University of North Carolina journalism professor and author of
“The Vanishing Newspaper: Saving Journalism In The Information Age,” says dozens
of newspapers dipped their toes into online businesses once the Internet’s
influence started to spread in the mid-1990s, including at the now-defunct
Knight-Ridder chain where he worked.

“I thought in a way we were pretty smart,” Meyer said. “But we weren’t smart
enough to stick with it.”

For one, many newspapers were scared away from online ventures when the dot-com
boom turned to a bust in 2000. In order to fully nip online competition in the
bud, however, newspapers would have needed to invest heavily in burgeoning Web
ventures before those entities got too expensive. For many newspapers, that kind
of investment was not within their means.

Industry officials say that while many newspapers are struggling with the digital
age, they’re making the move.

“I think it’s somewhat of a fallacy that newspapers have come to the digital
world late,” said Randy Bennett, vice president of audience and new business
development at the trade group Newspaper Association of America. “They’re
competing with very nimble competitors. They’re trying to find that equilibrium
for what is right.”

Transformers

There are examples of newspapers that have drastically transformed themselves.

At the Washington Post Co. (WPO), online Executive Editor Jim Brady says the
Post’s Web site is now considered an equal partner to the venerable newspaper. It
wasn’t always that way, though.

The Post created its Web site in the mid-1990s, but Brady left in 1999 to join
America Online, now part of Time Warner Inc. (TWX), partly because of newsroom
resistance to the online invasion. Many reporters didn’t want to abandon the
daily deadline ritual for more rigorous deadlines imposed in the online world.

Brady came back five years later and found attitudes had changed.

“In 1999 there were pockets of cooperation. When I came back in 2004, there were
pockets of resistance,” he said. Brady reports that the Post’s Web site has been
profitable since 2004 and there have been no layoffs.

At the Orange County Register near Los Angeles, managers made an even more
drastic change last year. Instead of a newsroom, the paper’s editorial operations
are now called the “content center.”

Management decided to completely transform the newsroom to make it Web-centric
instead of newspaper-centric, says Editor Ken Brusic. The paper, second-largest
to the Times in the greater Los Angeles area, wanted to find a way to bring
together its flagship Register, 23 community newspapers and its Spanish-language
publication Excelsior.

Now, first priority for any story goes to the Register Web site, which comprises
roughly 60% of the staff. After that, a hard-copy newspaper is crafted from what
has appeared online. And the Register is sharing its plans for daily coverage
with an independent local television station so that the two can team up on
various stories.

“It’s a bit of a gamble, but I think it’s called for given the way things are
going,” Brusic said. He says the newspaper is likely to stick around for a long
time, but he sees it becoming a “niche” product at some point.

The drastic change has taken a toll of sorts. Company officials say that since
January 2007, 31 journalists were laid off while 32 full-time “associates” were
hired back into the Register’s content center during that time. Thirteen interns
also were added, some of them paid. Officials say those who were laid off were
reluctant to adapt to newsroom changes.

“We’ve tried to hire people who thought of their jobs in a different way,” Brusic
said. “People need information in a whole variety of different ways.”

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