Content Bridges

Frankly, Candidly, Truthfully: Newspapers CEOs Talk About 2Q

It's time for second-quarter newspaper earnings reports, with Gannett leading off Wednesday, with the long tale of woe to follow. Given the many newspaper staff cutbacks, which I thought might include the investor relations people, I've put together a few boilerplate remarks that I hope are helpful.

Good morning. Let me say I’m glad that the few remaining financial analysts covering the industry want to hear about our second quarter results. Our CFO will be giving you the details on those in a few moments. But let me make a few introductory remarks first.

Frankly, visibility has gotten worse. We told you in the last quarter that it was limited. Well, now – did you see that George Clooney movie “The Perfect Storm” -- we’re smack in the middle of the biggest fogbank you’ve ever seen. Some of you have asked why print revenues have fallen off the table. Frankly, I don’t even see the table anymore. What I see though, I don’t like. Some of you have asked to see what I see, and I’ve got to tell you, it’s better not to.

Excuse, me, I think I’m being Twitterized, isn’t that what you call it? Rupert keeps buzzing, like I’m media so I can be in Sun Valley and you newspaper rats are stuck in your hot, brick buildings. But back to the subject at hand.

First, let’s address costs.

We’re having our people talk to Dean Singleton’s people – I’m not talking to Dean directly; I think that’s how Ganzi got in trouble – about centralized printing. Frankly, Dean’s better than us at thinking outside the box, and we’re talking about one large printing plant, somewhere in the low-wage rural West, and then distributing the papers almost instantaneously, through some kind of system of high-tech pneumatic tubes. Apparently, it’s part of that Google Print deal, involving Google Flux technology. Sounds almost like back-to-the-future, but my people tell me it’s got potential.

You all know that Goldman Sachs is now predicting 30% year over year increases in newsprint pricing for the second half of the year. For some reason, all those Indians and Chinese are buying up newspapers like there is no tomorrow, driving up paper usage and pricing; I’d like to know their secret sauce.

As you know, our biggest cost is people.

On staffing, some of you have asked why we don’t cut more, and some of you have asked why we cut so much. Which proves I think that we’re taking the right, down-the-middle approach.  To tell you the truth, it’s a whole new world out there. Journalism schools seem to be stealing away our most experienced talent. Then there’s ProPublica, which considers itself some kind of high-minded, non-profit, picking off our highly prized investigative reporters. Then there’s the allure of these pajama blogger start-ups; did you see that Rafat Ali guy just got a big payday selling his site to the Brits? I always wondered if his work permit was in order.

We do realize that we need reporters, but frankly, they are a pain in the ass to deal with in good times. And, now, always in a bad mood. I’m told all the so-called “content” they create will prove very valuable online, even if we have to shrink the paper to the size of a menu. I just keep asking how soon?

Now let’s talk about revenues.

On ad sales, we’re thinking of adopting more self-service techniques. Hey, if you haven’t seen that YouTube video on how publishers can make more money using Google’s system, you should.

Our big initiative, of course, has been our work with Yahoo through the consortium. We’ve bet most of our 2009 growth on using its AMP system – or whatever they call, seems they have some legal problem on that, but they’ve got enough lawyers to work it out. Frankly, we love it. They do all the technology hocus-pocus, and our sales people just sell more stuff. You know, when they are over there golfing in Scotland with the car dealers and all, they just ladle on some more online products, and we can make some new revenue.

Some of you have asked what if Yahoo gets sold or split up like an estate. To tell you the truth, we haven’t a clue. Frankly, we don’t think it’s fair. We finally get our, excuse me, stuff together with the consortium, and then Steve Ballmer and Carl Icahn have to spoil the whole thing. We can’t seem to catch a break. We try not to think about how we’ve placed the continued viability of the American newspaper industry on the fortunes of Yahoo. I, for one, sleep better, not thinking too much about it, after 9 p.m. Anyways we have the firm assurances of Hilary Schneider that one way or another, it will work out okay, and my people say her track record certainly bears that out.

On content, you’ve asked what we’re doing in video. Lots, I’m told, though it’s not easy getting those union photographers to deal with things that move, my people tell me. Anyhow, AP’s on top of it, I hear; and yes, we plan to stay part of the AP. We’re now paying on a month-to-month basis, though I think we discontinued the use of the IndyMac card on that one.

Now, let me talk about the company overall.

We’ve previously announced that we’ve engaged strategic consultants, which – I won’t be fancy about it – is a way to say we’re offering for sale anything anyone would like to buy. Sam’s running a seminar on selling the real estate out from under each of us; my people are going, and I told them to watch their wallets. Craig still seem to have some cash – I want you to know that while I’m sure he earned every penny of that $7.9 million last year – we’re a tad more prudent than Gannett, and my compensation shows it. 

Call It Frightsizing

The news is out: Newspaper companies can no longer afford reporters and editors. Today's L.A. Times announcement is the latest to catch a news cycle of public attention. As well it should. A 17% cut -- 150 newsroom jobs -- is an unnatural disaster. It's the kind of news that shocks, if briefly. Because it is the L.A. Times, it's more shocking nationally than last week's cut at the Hartford Courant (25% or 58 newsroom jobs) and at the Baltimore Sun (about 20% or 55-60 jobs). All are Tribune-owned papers.

These cuts, and more at other Tribune papers, are a part of strategy, the new Tribune management tells us. It's "rightsizing" its papers to meet the economic realities of the day.

"Rightsizing" is one of those words management slings about when it wants to make it seem like it's making intelligent decisions in tough times. Sounds better than "panicking."

To describe the current round of staff cuts, though, there's a better word: Frightsizing.

Frightsizing means reckless cutting, hacking into one or both of the key elements of what news publishers will need to make it in the digital age. #1 is the newsroom -- or shall we say, content production -- staff. Content is what will make publishers money online, and as experienced, authoritative staff is lost, so will be lost some of the potential of what the new news company can be. #2 is the local sales staff, people who can grasp the out-sized sales/distribution opportunity of measurable, digital commerce and multiply publisher revenues. Frightsizing not only cuts deeply into near-term potential, it instills in the survivors fear and loathing, hardly qualities that win in hyper-competitive markets.

LAT Publisher David Hiller can talk about getting staff down to a "sustainable" size, but the truth is no one's got any idea what sustainability looks like. With increasing forecasts that the US economy will stay in the doldrums into '09, publishers are really just bailing water as fast as they can. The leaks (in print circulation, in print ad revenues, in newsprint costs and in slowing online revenues) are all widening. So all publishers are now cutting rapidly, with newsprint finding its predicted fate as an adjunct to the Internet, rather than to the opposite fiction too long held onto by news execs.

Really, given their company structures, they have little choice. You can see the must-pay checklists in front of publishers:

• Operating costs, with staff as the biggest and newsprint and ink coming in second;
• Capital costs, as they struggle to modernize production systems to meet new multiple-platform realities -- and still buy trucks to deliver the legacy product that still produces 90% of their revenues;
• Payments on debt;
• Dividend payouts to shareholders, payouts that most companies have increased (in the vain hope of satisfying investors) as their fortunes have declines;
• Funds to buy back a few shares here and there, again in vain hope of bolstering share price.

It's a daunting list, and one that nobody can meet with today's revenues. It wasn't always this way. Recall that three years ago, the profit margin in the industry still stood at about 21%, a number lusted at by many other companies in many other industries. Most companies had some semblance of an opportunity to make a bold moves, halving that margin and creating a real strategic plan to make a transition into the digital age with their companies largely intact.

They could have made better decisions to play the transition. Instead the transition is now playing them.

Certainly, the New York Times, the Washington Post, McClatchy, Scripps, Gannett and Belo come to mind as companies that are trying hard not to panic, not to frightsize. The cuts at all those companies are real, but you have the sense that there's an appreciation of retaining key assets.

Tribune, with its unconscionable $12 billion-plus debt, is the poster boy of frightsizing. Calling the new Tribune an employee-owned company is high parody, when those "owners" are being shown the door in massive numbers. You can place bets on whether the frightsized Tribune paper employees will outlast the real estate being shopped out beneath their feet. But for now, it's a horror show without a Hollywood ending in sight.

Related Content Bridges:

"LAT Madness is Brand Suicide"

"What's Wrong with Tribune's Math"

More Tribune, here

Summer, 2008: The Smell of "Burning Furniture"

Summertime and the livin' is far from easy. Now that we're past Memorial Day, let's speculate on the summer that will be. It's a long time til Labor Day for the news industry. We've seen Rupert Murdoch, ironically drawing stark attention to his own advanced age -- and the question of what will become of his emerging digital empire -- in recently noting that print will out-live him. ("Print will be there for at least 20 years, and outlive me.") The London bookies might be having a field day with that one.

But for most publishers, the times just turn edgier and edgier. I asked a keen observer about the major strategies news publishers are considering as they face the changed business landscape. "Strategies?," he laughed. "They're too busy burning the furniture."

Burning the furniture? In June? Well, the industry has had a hard time separating out cyclical change from structural change, but those still working might hope some wood's left for winter.

Here are nine of my questions about the summer ahead. What's yours?

---1. At the New York Times, it's going to be a tense summer. Buyouts and layoffs have now taken out about 100 jobs, as the Times increases its dividend to try to retain shareholders. The new Harbinger/Firebrand board members are now inside the tent, poking at its corners. How soon will the Times management heed their calls to bite the bullet, sell ailing newspaper properties (Globe, regional group), buy a little time, save a little staff and invest more in the great digital future, which is the Times' salvation?

---2. Love the photo with David Hiller (left) and Randy Michaels (center), in Crain Chicago Business story.
Hiller, tried-and-true Tribuneite, is the ultimate survivor, but the expression says even his tenure as L.A. Times publisher is limited. The Times' publisher and editor change dramas have been quite public, but consider they've been churning through ad VPs about yearly for most of this century. Think what that does to the numbers (and you see why Tribune's own numbers are disproportionately down). Will David Hiller last out the summer or the year?

---3. We hear the grrrrrrrrrrrrrrrrrrrr grinding of teeth from large-player Gannett to small-player Gatehouse, down to a new low of $3.90 a share on Monday. As the Goldman Sachs report put it circumspectly: ""Our thesis that a focus on smaller, 'hyper-local' markets would serve as a counter weight to the cyclical and secular pressures negatively impacting newspaper industry revenue performance has proven only partially correct, as evidenced by the declining trend in same-story revenues over the last several quarters." In other words, is there no refuge out there?

---4. Why did US news publishers fail to follow other big US corporations in diversifying to international markets?  Look at the now-double digit decreases in US ad revenues -- 10% in ads overall in April; 20% in classifieds -- and you see that the US is the epicenter of the newspaper meltdown. UK, Europe and Japan are muddling along -- down a tad -- but much of the developing world from Eastern Europe to Latin America to South Africa to China and India is going gangbusters. Chains like the Irish-centered Independent News and Media and the Norwegian-based Schibsted saw this change coming and have invested way beyond their initial  comfort zones. Now they are diversified, and growing, while US chains see the double whammy of fewer ads and higher newsprint (expected to price up 20% year over year for the second half of 2008) costs.

---5. Will salvation be found in motherhood? "Soccer moms" might have been so last election, but momomania is sweeping news websites. Boston.com's ""Bomoms"," and the Orange Country Register's "OCMoms" are part of the profound move to niche. If general news still pulls in puny CPMs, sites are looking at profiliferating niche sites around them -- in this case, the fast-expanding, now dozen-strong Mama web chain (San Diego Mama, Houston Mama, DC Mama. The hard part - producing enough compelling content, engaging real community and getting the ad people sufficiently connected.

---6. How fast can we replace expensive staff-written stuff with user-gen? The economics are clear. Better to pay nothing for something that will get you 1000 page views than part of a professional salary. User-gen's not just about community engagement -- it's about cold, hard cash. As user-gen initiatives rage, look for more of them to get connected to newspapers' main publishing systems -- witness the recent Saxotech/Pluck announcement -- joining the two worlds of newsroom and user gen. One publishing system, monetized singly.

---7. How big a bandage will we need to blot the paper cuts? Much has been made of the news industry covering its own demise (that's what we do). But you have to admire the Google mapping/color-coding of the rampaging layoffs and buyouts by Erica Smith, here.

---8. How much workouts will the whiteboards get? Structural change is an order of the day. Sometimes highly strategic, perhaps, and sometimes Titanic deck-chair-like. Belo and Scripps have split themselves in halves, the Washington Post is re-doing print/online orgs and the San Diego Tribune is trying a grand experiment of putting it all together.

---9.  How loud will the Yahoo! be by summer's end? With AMP being touted by Yahoo as a salvation to newspaper consortium members' audience/ad targeting woes, its arrival by end of summer at MediaNews properties, among others, may be a cause for whooping it up. Of course, it is bound to be a  summer of High Anxiety (shout out to Harvey Korman)
at Yahoo and for those partnered with it at the hip and wallet. With Google gaining search ad market share, Yahoo and Microsoft, abetted by matchmakers like Carl Icahn, are being forced to do something. Yes, Microsoft's making a bunch of moves, but expect it to circle back around to Sunnyvale., especially given today's revelations that Jerry Yang may have rejected an earlier $40 a share Microsoft bid. Nothing's stopping Yahoo from moving on AMP and its implementation for now, but a Yahoo uncertain of its own future just adds to the newspaper summer worry pile.

NYT Earnings: The Emerging Double Whammy

I'm little surprised by the results, though I wish I were. The Times is barely profitable. (See comments at end of post from NYT spokesperson Catherine Mathis to this point.)

With ad spending overall down just under double digits at 9% for the first quarter, the New York Times' results -- most likely foreshadowing those of Gannett (April 21) and McClatchy (April 23) -- are the result of the double whammy afflicting newspaper companies. The two-headed assault on revenues -- a recession-like pullback in spending compounding the already-in-progress movement of dollars from print to interactive marketing.

We know advertisers are pulling back. Gross estimates are trending downward, with the latest projecting 3.7% ad dollar growth in the US, that from Zenith Optimedia on March 31. That projection knocked .4 off an estimate made just a few months earlier. Expect, in this gyrating economic landscape, for it to go lower still. That 3.7% -- in an otherwise stable time -- might about match inflation, but it's not a stable time for newspaper companies.

The biggest factor of course is where those $21 billion dollars in US interactive revenues (2007) is coming from, and we know many of them are coming out of print hides. Will it get worse? I'm inclined to agree with Eric Schmidt, with his admittedly self-serving statements that recession-caused ad dollar movement will aid Google. Newspaper advertising is still disproportionately expensive. Companies are more prudent with their spending in perceived downtimes, just as consumers are.

The Times reported an 11% increase in Internet revenues. Barely double-digit, below the growth of web advertising overall -- and of course insufficient in volume to make up print declines.

Beyond the immediate impact of the year, newspaper publishers have to ask themselves whether dollars that are going to the new medium, and being spent in other experimental ways, will come back to print, as the economy turns more positive. Or is this a one-way street: out?

The bigger point of this morning's announcement pops out of two continuing dramas at the Times Company:

----It is in public anguish about its newsroom cutbacks. The 7.5% cutback (100 of 1300) is the biggest deal out of all the newsroom cutbacks we've seen. It's the New York Times cutting back. Now, we've seen enough reports to know that too few will accept buyouts, and layoffs are appearing inevitable. The Times is not a stable ship.
----Second, of course, is the coincident boardroom drama. Two outside directors are joining the Times' board. The impact has got to be a more urgent review of asset sales -- the Globe and the regional newspaper group. With significant layoffs in the Times' newsroom and this further turndown in earnings, the urgency (noted here in February) for action is even clearer than it was when Harbinger/Firebrand began its push on the Times.

From Catherine Mathis, NYT spokesperson:

Comment:
While The New York Times Company had a challenging quarter, I don't think that saying we are barely profitable really tells the story. There were a number of items that made this quarter unusual -- a writedown of assets, a shift in the timing of equity grants, a negative foreign currency translation and expenses for the consolidation of two printing plants. In 2007 the Times Company earned more than $200 million and Wall Street analysts estimate that 2008 will be another profitable year. Is this a tough time in the media business? Absolutely. But I think it's important to also remember that these are businesses that are making money.

Content Bridges' NYT posts, here

Four Things About QuadrantONE

QuadrantONE moseyed out of the gate last week, after a few false starts. It got good ink because it offered good numbers: a potential of 50 million unique visitors waiting to be served in 27 of the top 30 markets. The new network will leverage sites owned by its four co-owners, Gannett, Tribune, Hearst and the New York Times, though neither the NYTimes.com nor USAToday -- national, not local -- sites are included.

QuadrantONE of course is not unexpected. News about it had leaked out a couple of times as Gannett and Tribune -- the two prominent holdouts from the Yahoo newspaper consortium -- have tried to put it together. They romanced a number of consortium members, including Cox and MediaNews. And where's McClatchy, Tribune and Gannett's sometimes partner? It is telling, though, that in the end only Hearst and the Times ponied up and joined in as equity partners.

How well will its staff of 17, anchored in TribuneLand (Chicago), fare?

My sense is that QuadrantONE faces an uphill challenge. Why? Consider these four things about QuadrantONE:

---Scale: QuadrantONE's numbers sound big, but analyst Greg Sterling's Comscore chart of top-ranked networks show that it will place about 34th among those already established, already knocking on the doors of hyperactive, interactive buyers. Centro, at 23rd, clearly is supplying lots of revenue to local news properties already. Real Cities is still hanging around, as is the Newspaper National Network, which Greg notes in his post, Onion-like headlined "Newspapers Create Another Ad Network", is owned by the same companies starting up QuadrantONE. The new network may get bigger (where for instance are the LocalTV sites, now under common Tribune management under Randy Michaels) as other news chains join as affiliates, but it could still be sub-scale. Importantly, there is no clamor from the ad buyers -- to whom power in the marketplace is plainly moving from ad sellers -- for a new, local network. QuadrantONE: Y(et)A(nother)H(ierarchcal)O(nline)O(uting)?

---Technology: The ad business is increasingly all about technology. We're leaving the selling space (newspapers) and time (broadcast) in the rear view mirror. Analytics is everything. Curiously, QuadrantONE says an unnamed technology partner is involved. My sources tell me that those companies pitched to join as equity partners weren't even told who the partner would be, a stumbling point that helped dissuade them. Coincidentally this week, Reuters Americas -- which is now coming on strong in the US market -- announced a deal with Guardian America to represent it for ad sales. I talked to Stephen Smyth, general manager of Americas Reuters Media, about the deal. He understands how technology isn't an add-on, but the very basis of a modern ad network. Who is Reuters affiliate ad network partnered with? Unlike QuadrantONE, he can name his partners in a flash: "Doubleclick for ad serving, Revenue Science for behavioral targeting, Operative for inventory management, Salesforce for CRM and Rapt for forecasting and pricing. The water level [in digital ad sales] is rising," he says. "Everyone needs to have numbers and the analytics to even be in on the RFP."

---The Guarantee: Part of QuadrantONE's value prop is that it can guarantee space to advertisers, commanding 10% of member sites' inventory across vertical channels. That's a two-edged sword. It may be a value to advertisers -- although access to such site inventory hasn't been a loud hue and cry. But it's a deterrent to getting more sites to sign up as affiliates. There are lots of news site gm's with QuadrantONE affiliate agreements on their desk as we speak. These are sites/companies that decided they didn't want to put up the $500,000 or so each to fund the start-up. Now, they are wondering if they want to guarantee inventory (though maybe less than 10%) to a network that will determine pricing. Can QuadrantONE really deliver more than these sites can get themselves or from Centro and other networks? What if turns out to be more of a high-end remnant network than a high-CPM one?

---Tribune: Yes, it's the new Sam Zell Tribune, but Tribune's still the elephant in this room. Going back now more than a decade, Tribune's been an elite presence. Count in New Century Network, CareerBuilder, Classified Ventures and more. As several would-be affiliates are mulling: Different people, but same feeling. Chicago-based. Tribune-led. The need for centralized (meaning Chicago-based Tribune) decision-making. That's one of the reasons Yahoo's HotJobs and consortium has mojo as CareerBuilder's struggling.

What cheers some in the industry is that it's one attempt for the newspaper industry to reclaim its future, to act independently. That thinking: QuadrantONE is a beachhead, a new place for newspaper leaders to come together, strategize together and streamline revenue opportunities and cost savings. That's a good hope, but one that mystifies me.

What, in fact, then is the Yahoo newspaper consortium? Take away the word Yahoo, and you have 22 companies with more than 500 titles agreeing to act (fairly) jointly. The consensus has been rare and the organizers of it deserve kudos for getting it done and achieving a kind of scale that hadn't been achieved before. Now, can they act together -- with Yahoo, yes, but with numerous others -- to seize the many opportunities to build new revenue streams and cut costs smartly (how about a single platform?)? Call it what you want -- consortium, QuadrantONE -- but that's clearly what these times demand.

MSFT + YHOO = BALL(MER) & CHAIN? -- Special Newspaper Consortium Edition

Well now. Yahoo's been piling up its own set of endorsements from newspapers over the last year. It has convinced newspaper chains of two things: 1) they needed a big brother with a big network of readers and the latest in search/ad technology; 2) that big brother is Yahoo. With the newly ascendant Dean Singleton leading the charge, a core group of eight entered the Sunnyvale castle. Since then Yahoo has talked, literally, to every one of the rest and now 22 American newspaper chains (with more than 500 of the 1500+ American dailies) are within the gates.

So when Microsoft stormed those gates, formally and officially, Friday, among those parsing the hot breath of Redmond is the news industry.

Microsoft is a familiar, though often distant character, in the newspaper/Web saga. Publishers have made many a pilgrimage north, and Microsoft has offered uneven diplomacy of its own. Overall, the takeaway -- from those Sidewalk/Netscape origins -- has been one of suspicion. It's been hard to walk away from Microsoft meetings without the sense your pocket has just been picked, or its hand is still in it as you depart town. Microsoft earned its early reputation as a "partner" who would pick your strategy clean, taking your experience into its IP, and then decide to go another way. It may have lived down some of that reputation more recently, but the sense persists.

So the news of the Microsoft $44 billion bid for Yahoo sent some shock waves through news industry corporate suites. Here they are, in the first year of marriage, and someone may have switched the groom. The signs that the groom may have been distressed were clear, my "Be Careful Who You Consort With" post of late January was among those that pointed that out. But still when the possible switch is announced, everyone finally takes the new seriously.

Much more's to come, beginning this week, in this takeover (See "MSFT + YHOO = BALL(MER) & CHAIN?"), but here's my beginning list of nine questions. What's yours?

Do you hear the echoes of the Sidewalk era? Sidewalk was Microsoft's push to get into local media in the mid-'90s. Its vision was right-on: becoming the dominant local online events site. Microsoft sent an early scare through the news industry, picking off some top talent, but it was too early in the game. Microsoft folded too soon, selling the remnants of the business to City Search. And don't think Steve Ballmer hasn't kept the foray in mind. Quoted in the New York Times last January:

“But Sidewalk was really aimed at what we now call local search,” Mr. Ballmer says. “Sidewalk is one we should not have gotten out of.”

In its heart, Microsoft still harbors dreams of being a media heavyweight.

Does the deal set back the clock? The newspaper industry hears the ticking of the clock louder each year, with each new year less friendly than the old. The increasing volume has been one prime reason the companies ceded some autonomy to get at Yahoo eyeballs and technology. But given that this deal would take 6-12 months to get finalized and integrated -- and that's really optimistic -- the payoff to publishers in traffic and revenue would only be further set back. Alan Mutter agrees on that point and discusses the consortium angle here.

How will newspapers exercise any change-of-control clause they have in the consortium contracts? At least some of the players have them, giving them a bit of leverage to renegotiate with Microsoft/Yahoo and/or Google.

Would the newspapers like to buy or buy into the HotJobs business to get equity as well as shared functionality and network scale? If Microsoft would be serious in redefining its technology provider/media owner equation, such a deal for equity could further cement relationships with these publishers around a still-essential vertical going forward.

Doesn't the deal open up a new opportunity for the 22 newspaper consortium members to re-think, re-negotiate and reckon its deal with Yahoo? The consortium members have gotten somewhat more comfortable over the last year working with each other. Can they now step back and decide how better to share costs of marketing, sales and technology, working with one of the behemoths or contracting centrally -- oh, Lord, is it finally time -- to create the universal forward-reaching publishing platform all can use and grow on.

Won't this deal help push further rationalization in the recruitment marketplace? Yahoo HotJobs has had the mojo over the last year. Monster's been struggling along with the Gannett-Tribune-McClatchy-owned CareerBuilder. Yes, that CareerBuilder -- in which Microsoft took a 4% stake last June. So the would-be tangled ownership stakes cry out for rationalization.

As recruitment becomes less and less a listings business and more and more a tech-driven matching business, it might make sense for tech/ad company -- Google certainly comes to mind -- to roll up Hot Jobs competition. Monster's got to be available, and each of  now-struggling Gannett, the New Tribune and a seeking-to-reduce-debt McClatchy all have reasons to sell. If they could sell a majority of the company, perhaps, retain some equity and preference in the product, we could see a new duopoly recruitment duopoly born.

Speed the Scythe: Newspaper Staff Cutbacks Accelerate

Two recent newspaper cutbacks show those cuts are coming deeper and faster. New owners are no longer taking months to make cuts, now moving at light speed to reduce costs.

On Thursday, we saw the news the Herald Argus ("Where local news comes first!"), a daily of about 13,000 circulation, in LaPorte, Indiana, was cutting up to half of its 80-person staff.

Paxton Media Group, publisher of 32 daily newspapers with a total circulation of 370,000, bought the paper from Small Newspapers, closing the sale Oct. 1. Recently, some 30-plus staffers have been told they're terminated, some by the certified mail.

If you think readers don't notice who owns their local paper and or what it means to editorial quality, check out the 38 comments on the Herald Argus' own sale story. Readers get it.

Community coverage can't help but be significantly curtailed with such cuts, furthering papers' downward spiral. They become become less essential. Then readers' drift  becomes a stampede. Finally, advertisers find less of a mass market and further reduce spending. We can now see farther down the end of that funnel than we ever have before.

Farther east, in Connecticut, a Hearst/Media News partnership has closed on its purchase of the (Stamford) Advocate and Greenwich Time from Tribune. Gannett had bought papers earlier, but then backed out of the deal when an arbitrator said it couldn't break the existing union contract.

So Tribune made a new deal with Hearst (which is having Media News, a publisher of 10 Connecticut papers post-sale, manage the properties). As soon as that sale closed at the month's beginning, 13 veteran newsroom staffers found out their jobs were history. Among those on the list were top-ranking editors, including Editorial Page Editor Joy Haenlein,Sports Editor Bob Kennedy, Features and Food Editor Valerie Foster, Design Director Nelson Martinez, Weekend Editor Jonathan Rougeot and even Greenwich Time Managing Editor Bruce Hunter.    

We're reading editor's note after editor's note, it seems, but here's one that connects the passing of these staffers into the papers' 180-year history. Worth reprinting, from the article of by the (Stamford) Advocate's City Editor John Breunig:

Joseph F. Pisani, editor of The Advocate and Greenwich Time, saluted the departing editors for their dedication.

"There's a trend in the newspaper industry that suggests newspapers are 'better than they have to be,' that readers don't really want or need quality. But I can't imagine any of these editors settling for anything less than excellence. They were part of a 180-year tradition at these papers that will continue," he said. "They were the people who made The Advocate and Greenwich Time the best small papers in the country - all of them were committed to community journalism."

These cuts are coming at an unprecedented rate, not surprising given both the plummeting circulation and ad numbers. Who knows what 2008 has in store?

Nine Questions on How The Latest Circ Decline Will Drive Market Moves

Today's FAS-FAX report is numbing in its lack of revelation. The newspaper industry's circulation swoon continues, and at a pace that hasn't changed much over the last three years.

Daily: Down 2.5%
Sunday: Down 3.5%

So nine questions on how today's numbers will drive the next set of market moves:

1) Last year, newspaper publishers said they were ending junk (freebies+) circulation that advertisers really didn't want and that those terminations were largely responsible for the 2%+ decline in circulation. They said 2007 would be better. Now who believes them that 2008 is the year that those cuts will have cycled through?

2) The New York Times wowed Wall Street with 3Q earnings, in part based on a 4.1% increase in circulation revenues, due in part to its aggressive price increases. Now, does the Times have a significant new churn problem, as evidenced by its woeful numbers, down 4.5% daily, and huge 7.59% on Sunday?

3) The Times' newest competition, the Wall Street Journal, had a smaller turndown of 1.5% daily. So don't the Times deepening woes just whet the appetite of the Journal's soon-to-be-owner Rupert Murdoch?

4) Today, soon-to-be-former New York Daily News TV columnist (and Fresh Air contributor) David Bianculli announced his own place on the web, www.tvworthwatching.com. Isn't it a good irony that he did it on the day his paper reported its circulation decline of 6.8% on Sunday and 1.7% daily. It's another sign of the times that the top talent is jumping (and being pushed) off boats as they take on more water. 

5) With the Star Tribune down (6.5% daily and 4.3% Sunday ) and the Pioneer Press eking out .1% increases, daily and Sunday, don't you think the MinnPost people -- set to launch their site Thursday are smiling, seeing, at this point, only upside?

6) With the Tribune's top three papers all down on Sunday (Chicago Tribune, 2.1%; L.A. Times, 5.1% and Newsday, 4.3%), how much deeper a hole will the Tribune have to dig out of, if the Zell deal falls apart, on FCC moves or other factors?

FCC Rule Changes Pave Way for Roll-Ups and Mergers

Against the background of FCC Chairman Kevin Martin’s blitzkrieg effort to change long-standing rules on multiple media property ownership in American cities, we see what seems to be a confusing crazy-quilt of response from the big daily chains.

Tribune’s telling the FCC that unless it gets clearance (permanent or temporary waiver) to grandfather its newspaper/TV properties (in New York, Chicago, Los Angeles, Hartford and South Florida) its sale to Sam Zell won’t go through. Meanwhile, Scripps is busy splitting dividing its diversified company assets in two, creating a new “Local” company, comprising newspaper and broadcast TV assets, while separating out national/global cable and Internet. At the same time, Belo is tearing itself in two, separating out broadcast and newspaper assets, a notion Gannett is mulling as well.

So what’s happening here? What exactly is the commercial value of having multiple properties in a single metro area?

The answers are simple and complex. Long story short, though, I think, if the FCC changes are passed and stick, we’ll see a greater push of roll-up and merger, as print and broadcast assets inevitably come together, and in the hands of fewer, big players.

The answer is simple in that it’s better for those owning media properties to have maximum flexibility in keeping – or selling – properties. With government placing fewer fetters on who can own, merge and trade properties, perceived value increases. Would Sam Zell sell the L.A. Times and KTLA-TV? If so, buyers may well value them higher together than apart. And the same can be said for various other sets of assets and combos. If the FCC decision goes through, and makes it through the courts, expect an unprecedented level of sales and swaps.

But the complexity is more interesting – and raises the big questions about overarching news Internet strategy going forward.

The Tribune’s recent plaint is part of that complexity, and there’s an irony in it as well. You may remember that when Tribune bought Times Mirror in 2000, it distinguished its play with a big-city, newspaper/TV station, bundled-ad-buy-we’ll-get-more-market share strategy. That stood against the national network strategies of the day, including Knight Ridder’s Real Cities Network.

The Tribune said, no, the money’s in the market, and leveraging TV and newspaper (daily and niche), and in some cases radio, to get it would bring in lots of new revenue. The strategy didn’t work, many of those involved with it will tell you. Why? Even five-plus years ago, different ad buyers bought broadcast and print separately, and Tribune managed little pick-up of market share, eventually all-but-publicly acknowledging it had overpaid for the Times Mirror.

Flash forward to the brink of 2008, and we see an even greater change in ad buying. Almost $20 billion a year has moved to the web, but most significantly, web-based advertising is leading the revolution affecting all parts of the estimated $275 billion U.S. industry. Ad buyers have multiplying tools at their fingertips to measure effectiveness, and as those tools ravage all traditional ad selling models, the power’s moving from ad sellers to ad buyers.

So does owning both TV and newspaper properties in a single market provide ad advantage? Probably, not much, though owning two TV stations – a duopoly (which Martin’s rule relaxation might allow as well) may be marginally more valuable, same ad buyers at least.

What then might be the other advantages of owning a TV station and a newspaper in Chicago, Dallas or L.A.?

Certainly, we’d think there would be a certain promotional benefit. You know, “for more on this story” TV voice-overs pointing to print, for instance. But newspapers and broadcasters – usually by agreement, not common ownership -- have engaged in cross-promo deals for more than a decade now, and you can find few enthusiastic supporters of the results. Whether it’s been a matter of too little energy put into the relationship – as partners inevitably wrangle about leveling the relationship – or just the fact that the promo doesn’t really introduce customers to products they don’t already know about, the value’s been minor.

So, if ad bundling and cross-promo are minor, what about editorial sharing?

Here’s where it may get interesting. Sure, early on, newspaper sites tried to do video-sharing deals with local news stations (usually as part of cross-promo deals), but those deals faltered. They often fell apart, again in partner suspicion of inequality or just for lack of care and feeding. In addition, broadcasters have had a hard time exporting their news video in a timely, segmented way – the way online news readers want it.

So looking back, you’d say, there’s not much here, not much to recommend owning print and broadcast assets in the same market. But think again. Clearly as we approach the next decade, the local media model is pixel-clear. Local media companies based on singular, multi-media producing newsrooms – use the medium (video, audio, text) best for the storytelling, produce once, distribute many. That’s the model newspaper companies from Gannett (Seven Desks) to Lee (Lee University) to Scripps (check out the new multimedia SIDS report) are slowly adopting, and it’s one that fledging companies from Pegasus News to MinnPost to The Politico must embrace as their funding allows.

If this world existed fully today, it would only take fast-charging operators (think Rupert Murdoch and Dean Singleton) to quickly dis-assemble the old pieces and re-assemble the new ones, with far fewer layers of management and overhead. It’s the newspaper clustering approach (put together lots of print properties in a single region) applied more broadly.

 

Tribune/Media News Deal Shows 14% Loss in Newspaper Worth This Year

Addendum to this post: Friday's Chicago Tribune story attributes the lowered selling price not to market value, but to the role of CareerBuilder (CB) in the transaction. Since Tribune and Gannett (the original buyer) both own stakes in CB, the thinking apparently goes that the deal had to capture the value of Career Builder as the paper would have moved from one company to the other. That value -- given sale -- would probably be in the two Connecticut papers' share of the Tribune's equity stake in CB, not in the annual revenues gained from the affiliation. So the thinking would go that Media News -- not a CB owner -- wouldn't be getting that value.

That argument has a certain logic, though I haven't done the arithmetic yet on the value of Tribune's current overall CB stake value. If it is correct, it would be surprising to see these assets going at close to what they went for earlier in the year. The stock market has taken down the value of most public news companies by more 10% during the same period. So that might well tell us that Tribune's original selling price was too low, or that Media News paid more than it had to, the latter being the more unlikely scenario. Of course, now Media News has a great concentration of properties in Connecticut and its cost savings -- through bundling and cutting "redundancy" -- makes the two properties more valuable to it.

As properties (post-Zell Tribune+) hit the market, we'll get the chance further to see value assessed.

Thursday Post:

How do you put a number on the toll of unstoppable newspaper print revenue declines this year?

One way is to consider today's announced sale of the Stamford Advocate and the Greenwich Time by Tribune to Media News. The sales price: $62.4 million.

Just last March, Tribune tried to shed the papers, selling them both to Gannett, which nullified the deal when it couldn't break existing labor contracts.  The sales price then: $73 million.

That's a 14% drop in roughly seven months.

Sure, New England may be hit harder than other areas by some revenue declines, but the number has great meaning nationwide. Double-digit revenue declines in classified advertising have already taken a substantial toll, diminishing newspaper value -- and power -- going into 2008.