Weak Comeback Frustrates Newspaper Execs

By: Lucia Moses

Analysis

When newspaper executives get together, it’s usually a gentlemanly affair. But at the 2003 Mid-Year Media Review in New York last week, a financial update for the investment community, those in attendance saw some sniping.

First there was Belo, noting that its Riverside, Calif., Press-Enterprise‘s competitor has been “turning the screws down on expenses for a while.” Then the New York Times Co. claimed that it is taking share from The Wall Street Journal, whose parent Dow Jones & Co. came back with a knock about recent circulation declines at The New York Times.

Maybe it was the city’s strict new smoking ban in bars and restaurants that made everyone a little testy last week. It could just as easily have been the state of business these days, though. While newspaper companies remain solidly profitable, signs that ad spending is coming back to life have yet to show themselves. Lingering effects of the Iraq war, along with long-term pressures facing retailers, have slackened spending in that category.

Stores these days are demanding more of papers before committing ad dollars. “I think it’s up to us to show some level of creativity,” said Steve Rossi, president of Knight Ridder’s newspaper division.

Then there’s the help-wanted question. When the economy does recover, economists say it’s going to be a jobless one, so major improvement in that key classified ad category could be way off. “We believe that unlike the last three recessions, employment is not going to lead us out of this one,” said Robert W. Decherd, chairman, president, and CEO of Belo, during a question-and-answer session.

National is doing well, but as small a category as it is, it can’t make up for weaknesses in other areas. CEOs, pressed by analysts for a sense of where they are in the ad cycle, laughed uncomfortably and answered reluctantly.

“Nobody’s calling the turn,” said Rich Zannino, chief operating officer for Dow Jones. “What we’re feeling like is — that we’re bouncing around on the bottom.” However, he added, Dow Jones is seeing blips of activity in certain ad categories, which represents a positive change from a year ago.

Publishers continued last week to warn of higher expenses, too. Rising health insurance costs have companies asking employees to share a bigger part of the burden, causing more than a bit of squawking (reflected in the rising conflict over new labor contracts).

And while underfunded pensions are a problem throughout corporate America, industries such as newspapers that established generous pension plans a long time ago — and now have a lot of aging workers — are taking an especially big hit, pointed out Henry Berghoef, a fund manager at Harris Associates in Chicago, which owns shares of Lee Enterprises Inc., Knight Ridder, and Gannett Co. Inc.

When it came to the cost of their raw material, however, publishers for the most part argued staunchly against newsprint prices rising later this year. Was it posturing, wishful thinking, or the objective view that demand really will remain too weak to justify an increase, as these publishers contended?

Only Media General, which would benefit from rising prices through its part ownership in the SP Newsprint mill, argued strongly that part of an announced August price hike would take hold. “We’ve had two price increases in the past year that held even in slack demand,” Vice Chairman and CFO Marshall N. Morton said. A weak Canadian dollar and pulp shortage, he said, are “forcing the Canadians to look very hard at what they do with pricing. It’s also caused them to look at production.”

Publishers’ unspoken big fear, said Ken Berents, analyst with Goldman Sachs Asset Management, is “The potential for these guys [producers] to go bankrupt.” His projection? If the price hike “doesn’t go through this year, it’ll go through next year.”

Prices and the economy may be out of publishers’ control, but online and ancillary print products are growing nicely. “I like newspapers,” Berghoef said. “They’ve still got a strong franchise.” And to hear them talk, they still have ways to reduce total expenses.

But while publishers may disparage each other, both in public and private, for excessive cost cutting, no one will put a figure on how much is too much — or admit that their own expense-reduction initiatives are anything but judicious. One can only hope that when the recovery does come, companies are staffed well enough to take advantage of it.

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