Media Watch

America's newspapers prepare to make savage cuts

Cuts will vary depending on the speed with which the companies' revenues disappear

The dean of newspaper analysts, Alan Mutter, says that demolished newspaper companies are finally preparing to make extreme cost cuts to save themselves. The level of these cuts will vary depending on the speed with which the companies' revenues disappear, but at least the industry appears to finally be moving beyond denial:

Publishers are systematically reviewing every aspect of their businesses with an eye to saving a buck any way they can.

They are preparing cascading contingency plans that can be implemented according to the degree that sales might decline. The industry’s revenue crisis is detailed here in the first installment of this series... Here’s a glimpse of what may lie ahead:

The list of potential expense reductions includes squeezing staffing, shuttering bureaus, carving out layers of middle management, telescoping multiple sections of the paper into one, tightening newshole, scrapping syndicated features and wire serevices, axing op-ed pages and book sections and eliminating classified ads on certain days of the week.

In an example of what could become commonplace, the Newark Star-Ledger reduced headcount by almost half in the fall by threatening to close the paper by the end of the year if its cost-cutting targets were not met. The reduction was enabled through enriched severance benefits and concessions from labor unions throughout the plant. The Journal Register Co. says it will close two dailies (Bristol and New Britain) and nine weeklies in Connecticut if it doesn't find a buyer by January 1, 2009.

Another alternative will be to ask employees to accept voluntary pay cuts, to agree to work longer hours, and to ease manning requirements and other work rules. Bonuses may be reduced or eliminated for the fortunate few who still would have qualified for them. (NY Times Maureen Dowd reports on publishers even outsourcing local stories and events calendars to India.)

Publishers will outsource anything that makes sense, including ad sales, ad composition, copyediting, page layout, printing, customer service, fleet maintenance and delivery.

Many newspapers will look to selling their historic downtown edifices to raise operating capital and repay debt. If they can’t outsource printing, they will move their presses to the warehouse district of town and relocate the administrative, ad and editorial staffs to rental space in class-B locations.

Continuing a trend that began this year, publishers will be seeking to partner with neighboring papers to save costs on ad sales, content generation, printing and delivery.

If the economy deteriorates too far too fast, partnerships of convenience may give way to outright mergers in markets shared by multiple newspapers.

This would be especially likely in cities where one or both of the properties is financially distressed, enabling the publishers to argue that the traditional antitrust objections to such transactions should be waived in the interests of preserving the editorial voice of at least one surviving publication. To make a merger more palatable to regulatrs, the publishers might agree for a while to have the surviving paper continue printing some features carried over from the one that does out of business...

Things could get particularly dicey for individual, free-standing publishing companies like the Star Tribune, Boston Herald and Philadelphia Media Holdings, the latter of which may find it increasingly difficult to sustain the publication of both the Inquirer and Daily News.

Even though this is the worst time in history to be selling or financing a newspaper company, several operators, including Copley, Cox and Journal Register, have put publications on the block. Journal Register, which was among the first of the many precariously financed publishers to default on its debt, has stated that it will close papers it cannot sell.

Companies like GateHouse Media (which owns 8 weeklies on Cape and Islands), Lee Enterprises, McClatchy, MediaNews, Morris, New York Times Co. (which owns the Boston Globe and Worcester Telegram), Philadelphia Media, Star Tribune and Tribune are obligated to improve their profitability in the coming years to repay the principal and interest on money they have borrowed to make acquisitions.

In the event the publishers are unable to meet those obligations, their creditors will move in to slash expenses; attempt to sell off assets to generate cash, and take every other step necessary to sustain the properties as going concerns.

This will last as long as the newspapers continue to generate operating profits. But it is highly unlikely in this environment that any creditor would provide additional cash to prop up a money-losing newspaper. Silicon Alley Insider.