Newspapers 'Rightsizing'? More Like Frightsizing

by: Ken Doctor posted on: July 03, 2008 | about stocks: BLC / GCI / MNI / NYT / SSP / TRB / TXA / WPO    
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The news is out: Newspaper companies can no longer afford reporters and editors. Yesterday'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. Munch_the_scream_2

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.

This article has 7 comments! Add yours below...

Ken Doctor

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This article has 7 comments:

  •  
    TJIrish
    Jul 03 04:35 PM
    Ken I appreciate your articles on the newsprint industry. As you mentioned in an earlier piece about McClatchy's coverage of Guantamano. Good journalists from quality brands are needed online and in print. Of course the bloggers will disagree. But who is of more quality. A news reporter who checks his facts etc... Or someone of Dredge's ilk? It's not a good thing what's happening to the industry. Not blaming the internet. That is lost advertising and the newspaper companies slow reaction to it's affect. As far back as 1991 Warren Buffett warned newspapers about the challenges ahead. Their was a collective yawn.

    One thing I will mention that you touched on regarding Tribune. Tribune is getting the headlines with it's massive cutting fueling the naysayers about industry. However in hindsight Zell's massive leveraged debt deal to buy Tribune should have been nixed. Tribune has a $4 Billion dollar debt/bond payment due at end of 09. This debt pressure is leading to the cuts at what were once quality papers. It's not good for Tribune, for employees, the industry or the public. Corruption in government is watched by the media.

    While the industry as a whole is facing tremendous challenges. No other media companies of Tribune's size are facing the kind of debt issues Tribune is facing. Maybe McClatchy but McClatchy got itself in trouble buying KnightRidder. Reality is no more buying up newspapers but instead buying online/web companies.
  •  
    forwoodenboa
    ts
    Jul 04 12:29 AM
    The reason McClatchy, the NYT, LAT, and WaPo are inevitably going bancrupt is very simple.
    They abandoned the truth and embraced the far left and all its lies.
    We are able to fact check now, and where we weren't when Walter Cronkite told us the Tet Offensive was a huge defeat for the United States, we were able to find that Harry Reid was lying when he told us we lost the war in Iraq.
    The drive by media bet against the citizens of the United States being able to sniff out it's bias and they lost.
    Take a look at McClatchy's chart - as the papers they own here in Washington state have have moved further to the left, lionizing our enemies while demonizing defenders, failing to report our state government's overspending while supporting socialist goals, attacking anything or anyone conservative along with our rights, so has gone their stock, from mid 70s to just over 5 buck in 3 short years.
    I think it was just about 3 years ago that McClatchy added its hyperpartisan news.McClatchyHeadline... column to the Tacoma News Tribune.
    Coincidence? No, I predicted it when they out left'd the left coast and I've been enjoying watching this part of the Dinosaur Death Watch ever since. This is one company that truly deserves to sink back into the primordial goo that it built it's glass house on.
  •  
    Zeitung
    Arbeiter II
    Jul 04 01:57 PM
    Which papers did Walter Cronkite and Harry Reid work for again? Maybe papers did abandon the truth when they became cheerleaders for the Iraq war (Knight-Ridder being the exception) but the truth today is more people are reading news than ever before. They're just not paying for it by subscribing or buying classified ads (at $20 a line, who could blame them). Some newspapers are a product of their success ... a la Life Magazine. The more subscribers, the more paper is consumed and the more fuel it takes to deliver ... a vicious circle. I think most papers are happy to lose readers to the web ... they just haven't figured out how to get advertisers to pony up the money. The industry is searching for its equilibrium. It's not easy when Wall Street is breathing down your neck. Get used to it ... 20 percent profits are a thing of the past.
  •  
    forwoodenboa
    ts
    Jul 05 04:51 PM
    "I think most papers are happy to lose readers to the web ... "
    LOL, spoken like a true "blue" economist!
    I'm sure their investors would have appreciated some advance notice before they drove the company headfirst into the ground!
    Facts are, if someone wants hyperpartisan editorials, they have a plethora of opportunities out there without having all that hate screaming out at them as they try to have a cup & a read to start the morning.
    No one needs to have their news politicized for them, and McClatchy never learned that.
    I'll never forget the fellow I worked with who sent out all his faxes with an image of Bill Clinton on a 3 dollar bill on top. I'm sure some of his clients found it humorous, but I suggested to him that he was certain to piss off at least 50% of every person he sent one to, and an unknown percentage who thought it was tasteless or misplaced.
    McClatchy - and it's investors - would surely be in a different spot right now if it simply reported the news as it happened, rather than present a skewed, ultra left wing rant posing as the news.
    But you go ahead and make excuses for McClatchy, and while you're at it, step on up and buy some stock!
    (They're having a "going out of business sale". You can get all you want dirt cheap).

  •  
    jay
    fredrickson
    Jul 06 10:29 AM
    My Website
    The revenue most unlikely to be replaced on the web is the preprint revenue that is lost from people reading online. The 28 page Home Depot insert, and revenue from that goes away as people cancel and go to online. There are no positions on any website that can capture as much money as the preprint revenue from the Sunday papers.
  •  
    Mike Maisel
    Jul 06 09:05 PM
    My Website
    What newspapers forgot is that those who ignore history are doomed to repeat it. What is happening now is the result of the papers burying their heads in the sand, as internet usage, functionality an content grew. This is the same thing they did when OCC started doing online employment ads, which later was purchased by the then Monsterboard and we know how that played out.

    What's scary about this (frightsizing is a well-chosen phrase), is now they are messing with their core business -- journalism. It is what defines a newspaper and once that line becomes blurred (as more papers will become more like each other) they will put their core readership at risk.

    I've often heard CEOs are working 1-3 fiscal years ahead of their company. Apparently newspaper CEOs didn't hear that, too.
  •  
    muley101
    Jul 07 08:10 AM
    What's a newspaper? Is it that thing I can't get Charter cable to stop throwing in my driveway becuse it comes with my cable subscription that gets rained on and run over until it becomes a big flat white turd that I have to shovel up?
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