By: Lucia Moses

E&P Special Report: Journalism At the Margins

In the past three months, The Times Herald-Record, an
82,935-circulation daily in Middletown, N.Y., has reduced its
number of pages, cut back on travel and entertainment, and left
job vacancies unfilled. Part of Dow Jones & Co. Inc.’s Ottaway
Newspapers, it took the actions to meet its 2001 profit-margin
goal of 32%, which exceeds the industrywide average.

Executive Editor Michael Levine knows the thinner paper hasn’t
gone unnoticed by readers, and he worries that the cost cuts will
harm the quality of the paper in the long run. “I’m so tired of
hearing about profit margins,” he laments. “If the economy’s down
some, why aren’t profit margins down some?”

The pressure is on public companies to raise profit margins, and
newspaper companies are no different. Monthly margin mandates
have replaced quarterly goals at some newspaper chains. The heat
is especially intense now, with the economic slump being called
the worst since the 1991 recession.

And the pressure to raise profit margins is building. Fail to
improve over time – and investors will put their money
elsewhere, the stock price will fall, and the company could fall
prey to a takeover.

How, then, can publicly held newspaper companies satisfy their
shareholders in tough times – and still plan for the long
term? Industry veterans say careful planning and expense control
are the keys to sidestepping measures that could harm the quality
of the newspaper.

Former Los Angeles Times Publisher Otis Chandler says
publishers should anticipate downturns and look for cuts that
readers wouldn’t notice, such as proposed new sections and
nonessential news coverage. “It’s a balancing act,” says
Chandler, who is credited with turning the L.A. Times into
a first-rate newspaper. “Sometimes you’re lean and you don’t have
much to cut.”

Chandler recalls how financial pressure on the L.A. Times
parent Times Mirror Co. intensified after it went public in the
1960s. As publisher of the company’s flagship, he tried to
explain the nature of the business to financial analysts who had
never talked to a newspaper executive.

“Analysts don’t like these long-term goals, because they don’t
see the results,” Chandler says. “I always told them, ‘You cannot
have a successful newspaper if it doesn’t have a very successful
editorial product.'”

A few newspaper companies, such as the Washington Post Co. and
the McClatchy Co., have been able to sell investors on their
strategy of building long-term journalistic values while de-
emphasizing short-term profits.

McClatchy President and CEO Gary Pruitt says the company has
avoided staff expansion in good times and layoffs in hard times
because he feels that doing so may create an unevenness in
quality, as well as hurt morale and cost the company in severance
payouts. “We don’t think it makes sense to jerk readers or
advertisers [around], but try to maintain an even keel,” he says.
“We think [layoffs] are very costly, long term.”

McClatchy hasn’t escaped the effects of the economic slowdown;
2001 ad revenue was essentially flat through February. But Pruitt
says the company can turn the downturn into an opportunity by
working to build market share – while other media scale

Pruitt concedes that this talk about quality journalism is
probably lost on the financial community. But he talks about it,
anyway. “I think the more sophisticated Wall Street analysts and
investors recognize that, longer term, there is a nexus between
market share and performance,” he says. The company has paid a
price for its strategy: Operating income margins have been at or
below the industry average in recent years.

“I don’t think McClatchy is ever going to be on the cover of
Business Week or Forbes as a go-go company,” Pruitt
acknowledges. But that’s OK with him. “We’re comfortable with the
kind of company we are,” he says. “It’s our version of the best.”

Knight Ridder CEO Tony Ridder, whose company plans to reduce its
work force by 2% this year through attrition, buyouts, and
layoffs, says its higher profit-margin goal is not at odds with
quality. Knight Ridder took the unusual step of setting higher
margin targets even as the economy headed for a slump; meanwhile,
layoffs announced at some of its papers have sparked loud

Knight Ridder’s goal is to raise its margins to the mid-20% area,
on par with the Tribune Co. Ridder says the company determined
that it can reach that target without jeopardizing the quality of
its newspapers, even though the company is cutting its work force
to get there. Ridder says that his cost-cutting initiatives
aren’t out of line with what other newspaper publishers are doing
in the face of the advertising slowdown. Many journalists don’t
understand that newspaper companies are judged against their
peers, he said, and Knight Ridder’s operating margins, at about
19% in 1999, lagged behind the industry average of about 21%.
It’s not enough to simply be profitable, he says.

“I think a lot of our shareholders would like to see us at the
same level as Gannett,” he adds. Gannett Co. Inc. is one of the
industry’s best-performing chains, with an operating margin of
about 29%.

Wall Street isn’t going to stop demanding increased profits, but
James O’Shea, managing editor for the Chicago Tribune,
says journalists can influence decision-making by getting into
upper management: “If you’re not at the table, then you risk not
having a voice at the table.”

Levine, of Middletown’s Times Herald-Record, would agree.
Asked recently to address Dow Jones shareholders, he told the
group that it takes time and people to do the work that wins
prizes such as the Investigative Reporters and Editors journalism
award his paper received last year.

“I’m not sure we’ve made our case to shareholders,” he says. “I
think, as editors, we need to speak up.”

Lucia Moses ( is an associate editor covering business for E&P.

Copyright 2001, Editor & Publisher.

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