By: Lucia Moses
Now that many officials in Washington are claiming the recession has come to an end, you might expect Corporate America to breathe a sigh of relief. Publishers, too, can start looking forward to better days. While an advertising recovery still may be months away, it’s almost certain that — barring another economic or political shock — ad dollars will start to flow back into newspaper coffers in the not-too-distant future.
That’s good news for the bottom line, but not necessarily for publishers who want to fill the many positions they’ve frozen during the past year.
“Permanent fixed-cost reductions” — that’s the catchphrase at newspapers these days. Pressured to improve their profit margins, a number of chains that slimmed down last year will continue to operate with fewer people — even when the economy improves.
* Knight Ridder Chairman and CEO Tony Ridder said most of the jobs cut companywide last year, a 10% slice, won’t be restored.
* Pulitzer Inc., which pruned full-time equivalents by 2.8% last year, said a “good number” of those reductions will be permanent. Pulitzer had been looking for ways to operate with less even before the recession hit, but “the economic downturn hastened and sharpened our pencil,” says Alan G. Silverglat, senior vice president for finance.
* Dow Jones & Co. Inc. said that, for the most part, it won’t replace the roughly 500 full-time equivalents, or 6% of its work force, that it cut last year.
* Media General Inc. said some of the 5% cuts made last year were permanent, and the company plans to continue its hiring freeze as long as conditions remain difficult. “We have jobs unfilled that we would like to fill, and that’s painful,” says Karl Rhodes, company spokesman. “We were pretty mean and lean to start with.”
While some newspapers may add back a few staffers in areas that enhance or grow revenue for the product — such as editorial and sales — jobs cut in the back office and production are gone for good, says Peter Appert, publishing analyst for Deutsche Banc Alex. Brown.
“The reality is, these are permanent fixed-cost reductions,” Appert says. “The newspaper business is relatively mature and facing a threat to its classified-advertising business, and newspaper companies have been more aggressive in addressing costs.”
With leaner staffs, companies stand to jump-start profit growth and margin improvement when the economy turns around. They have a lot of ground to recover from last year, however, when they experienced their worst ad-revenue decline in at least 50 years.
That’s where the job freezes come in. Knight Ridder expects to get its operating income margin around 25%, up from 18.6% last year. Dow Jones is targeting compound annual earnings growth above 40% over the next three years, assuming the economy cooperates.
“After 2001, the market understands the business can be quite cyclical,” says Kevin Gruneich, publishing analyst for Bear, Stearns & Co., “and the investment community understands that if [newspapers] hire back big-time, they’re at all the more risk for profit disappointments down the line.”
For papers that spent lavishly during the boom years, lean times can foster sharper strategic thinking. The danger, however, is that restricting resources will dampen creativity and coverage, and hurt their ability to compete. “One of the unfortunate aspects of this is, in order to hang on to readers, it’s important for newspapers to try these sorts of initiatives,” warns newspaper consultant John Morton, president of Morton Research Inc. in Silver Spring, Md.
To read E&P‘s full report, visit http://www.editorandpublisher.com/editorandpublisher/features_columns/article_display.jsp?vnu_content_id=1368794.