By: Bob Giles

E&P Special Report: Journalism At the Margins

Jay T. Harris’ resignation is a powerful moment. A moment in
which editors must find their own voice to explain, very
publicly, the true nature of newspapers as a business – and
to explain, very publicly, why the newspaper business is
different from other businesses.

After Harris announced likely cutbacks at the San Jose
(Calif.) Mercury News last March but before he resigned,
Mike Cassidy, a columnist for the newspaper, wrote a letter to
Tony Ridder, the chairman and CEO of Knight Ridder, asking him
“to stand up to irrational markets and redefine financial
success.” Cassidy spoke for many journalists and, probably, for
many readers as well.

But the plea to redefine financial success runs against two hard

o We’re still a business.
o Markets rule.

Markets are a triumph of democratic capitalism. But they extract
a price, particularly when things are not going well. In the case
of newspapers, they extract a price even when things are going
well. The newspaper business is a more complex business than a
decade ago, but the fundamentals remain: Those who continue to
have strong profit margins and growth will fare well in the
markets; those who don’t will have to look at such options as
consolidation and merger.

The reality that markets can be irrational has been demonstrated
in the experience of newspaper companies whose stock prices did
not benefit in any significant way from the markets’ upward ride
of 1999 and early 2000 – a time when their earnings
performance was impressive. Conversely, newspaper stock prices
have held up reasonably well during the recent market slump.

So, it is fair to ask: What does The Street expect? Is the
expectation rational?

The problem newspaper companies face today is one of
expectations. Wall Street expectations for profit growth have
been heavily influenced by the extraordinary success of profit
growth in newspapers for more than two decades. Year after year,
newspaper companies have demonstrated that this is a highly
profitable industry, regularly achieving profit margins in excess
of 20%.

One can argue that the margins are unnecessarily high, that a
lower profit margin, say 10% or 15%, would be sufficient. Such a
standard for success would enable news organizations to put more
resources into news gathering – and still give shareholders
a handsome return.

If this seems a sensible course of action, it is not persuasive
on Wall Street, where the prevailing expectation is for profit
margins above 20%, based on the long-term trend of newspaper

The historical pattern of financial compensation for key news-
industry executives is tied to profit performance, the very thing
that most influences the stock price – rather than
journalistic performance, which is the heart of the local
newspaper franchise. Thus, when newspaper executives go to Wall
Street, their presentations to the analysts are heavily focused
on numbers and business trends that evoke images of growth in
revenue, advertising, circulation, market share, and technology.

But news is why advertisers find newspapers so attractive. News
is what sells newspapers to most buyers. News drives market
share. Newspaper executives, however, have little to say about
the value of news when they are making their pitch to the market

In the transcript of the December presentations to the Credit
Suisse First Boston Media Conference by Gannett Co. Inc.
executives, the word “journalism” does not appear. Newspapers are
spoken of as products, and stories as content. There is no
mention of investments to improve coverage, no mention of the
value advertisers derive from enterprising coverage. Nor of how
newsrooms are serving readers, helping communities make critical
decisions. Nor of the company’s efforts to raise ethical
standards newsroom by newsroom. No examples are cited of the
outstanding journalism that distinguishes newspapers from any
other source of news and information.

Wall Street needs to understand why enterprise and investigative
reporting are expensive, why reporters need time and space for
their work, why coverage of the growing and increasingly complex
aspects our society demands more newsroom resources.

Marginal ability

At least one newspaper publisher did speak to the analysts about
the values of journalism to the business of newspapers. Donald
Graham, chairman and CEO of the Washington Post Co., said, “Our
journalism, which I know is not the focus of your interest, but
is the focus of mine, is better than ever.” Graham believes that
building the value of our business is going to pay in the long

The St. Petersburg (Fla.) Times, one of the
relatively few remaining privately held major newspapers, has the
ability to manage a downturn without making drastic cuts.
“Producing a good-quality newspaper happens over time,” Chairman
and CEO Andrew Barnes told E&P recently, “and taking
radical action makes it much harder to run a good newspaper.”

Against the background of tight cost management and a Wall Street
mindset that only understands earnings, the newsroom story is
better than it has been for some time. Among other things, reader
trust in newspapers is improving.

Organizations such as the American Society of Newspaper Editors,
the Associated Press Managing Editors, the Committee of Concerned
Journalists, and the Freedom Forum have been examining such core
values as credibility, fairness, and journalistic performance
with the purpose of building greater trust among readers. This
reform movement is registering with readers and making a
difference in the way the public perceives the local news media.

Two weeks ago, the Akron (Ohio) Beacon Journal
published a new measurement of reader satisfaction showing that
73% of its readers believe the newspaper accurately reports the
facts of local stories – a gain of 10 percentage points
since the survey was last taken in 1998. These are numbers and
trends that Wall Street needs to hear, in addition to the
projections for profits and growth.

In previous down cycles, newspaper executives who chose to cut
staff and resources, rather than accept lower margins, were
reflecting the uncertain thinking of the times:

o That the best years of newspapers had passed.
o That the fundamentals of the business had changed, perhaps
o That there was an urgency to diversify, to invest in other

There is no such crisis of confidence today. Nor should there be.
Newspapers are stabilizing their market shares; rebuilding reader
trust; making the Internet an ally and a resource; and
strengthening their dominance in most local news markets.

It is an enviable position, and one that invites owners to
rethink their value systems to strike a better balance between
the demand for consistent growth in profits and the obligations
inherent in managing a public trust.

Editors must find their own voice to talk and write, about the
core values of newspaper journalism and why newspapers are a
public trust.

Editors must use their own voice as leaders in their own
newsrooms to ensure that the work reflected in the paper every
day is credible and fair. Editors must use their own voice to
seek public engagement in this issue, to initiate a dialog to
educate the public about the realities of newspapers as a
business – and the role of newspaper journalism in our
democratic society.

Jay Harris, a good man, should not leave newspapers in vain.

Bob Giles, who served as publisher and editor of The Detroit News and as senior vice president of the Freedom Forum, is curator of the Nieman Foundation at Harvard University.

Copyright 2001, Editor & Publisher.

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