2001: From Bad To Worse

By: Mark Fitzgerald The new year wasn't even two weeks old when Doug Ray realized that 2001 was going to be even worse than anyone had expected at the Daily Herald in Arlington Heights, a Chicago suburb.

"We had a good idea how bad things were going to be by the second Sunday of the year, when we ran our first 'Super Sunday,' the biggest day of the year for recruitment classifieds. Our 'Super Sunday' wasn't super -- it was poor," says Ray, who on Jan. 1 adds the title CEO to those of president and chief operating officer at the Daily Herald's parent Paddock Publications Inc.

A couple of weeks later, the Daily Herald cut employee hours and wages roughly 5%. "Looking back on it now, that 'Super Sunday' signal allowed us to make the early contingencies that helped us avoid more dramatic and hurtful cuts later on," Ray adds.

Newspapers across the nation came into this year expecting a slump, but still hopeful it would be a "soft landing," the kind of manageable slowdown that can be quickly -- and predictably -- turned around. They were soon disabused of that notion. E&P's "Outlook 2001" cover story on Jan. 22 proved prescient. It featured a painting of Charles Foster Kane, the Hearstian publisher of "Citizen Kane," selling pencils on the street, under the cover line, "How Bad Will It Get?" The headline inside predicted it would be "The Year of Living Dangerously."

"When the first-quarter numbers came in, we said, 'Uh-oh,'" recalls John F. Sturm, CEO and president of the Newspaper Association of America. "We knew there was some softness coming, but, as the numbers came in, we were very surprised that things could fall so quickly and so far. The numbers fell in retail. They fell in classified. But they particularly fell in recruitment classified."

The wheel turns

Over the past couple of decades, the newspaper industry has become an ever-more cyclical business as it increased its dependence on classified ads. In 1980, classified accounted for 28.5% of total newspaper advertising revenue. By 2000, that percentage had swelled to more than 40%. In raw numbers, according to Merrill Lynch, classified earned newspapers $19.6 billion in 2000, versus $4.2 billion in 1980.

Newspapers became particularly addicted to revenue from help-wanted ads: Help-wanted, which accounted for just 4% of newspaper ad revenue in 1975, represented 18% last year -- fully 44% of total classified income.

No surprise, then, that newspapers suffered serious withdrawal pains when the dot-com collapse, slumping retail-store sales, and layoffs in the manufacturing and service sectors conspired to shrink recruitment linage dramatically. By midyear, help-wanted advertising revenue at Gannett Co. Inc.'s larger papers, excluding USA Today, was down 20% from the year before. At Knight Ridder's 32 dailies, help-wanted was down 26% -- and recruitment revenue at the San Jose (Calif.) Mercury News, in the heart of the Silicon Valley technology collapse, was down 50% early in the year. By May, The Washington Post's help-wanted ad revenue was off 31.5% from last year.

It seemed bad enough back then, and no one could have suspected how much worse it would become starting Sept. 11. With their news budgets and newsrooms already decimated -- about 10% seemed most companies' favorite cut -- newspapers would be required to deploy reporters as far away as Afghanistan, dedicate a huge news hole, craft sensible and sensitive journalism for a shocked nation, respond to anthrax fears, and do it all while advertising went into an even steeper decline.

That newspapers almost entirely succeeded only affirmed their deserved reputation as the "Daily Miracle."

Help yourself

For many newspapers in the months before Sept. 11, the first reaction to the drop in recruitment classified was to create legions of new help-wanted readers -- their former employees. In June, Tribune Co. announced plans to trim its work force by 10%, or more than 2,000 people, through a combination of early-retirement packages, reorganizations, and layoffs. The same month, the New York Times Co. said it would reduce its ranks by 1,200 jobs, 9% of employees. The Wall Street Journal targeted 2% of its work force.

Knight Ridder said in June it was shedding 10% of its personnel, about 2,100 jobs. And they won't be coming back when the economy turns around, Chairman and CEO Tony Ridder pledged to analysts at the Mid-Year Media Review conference in New York. "We don't plan to do that this time," Ridder said. "We're going to operate with a lower number of people."

Like many newspaper companies this year, Knight Ridder also determined to cut newsroom budgets. But no other company quite took the flak for it like Knight Ridder. On March 16, Jay T. Harris stunned the industry when he resigned as publisher of the chain's flagship Mercury News -- and explicitly charged that the bottom-line fixation of Knight Ridder, and, by extension, other big chains, was destroying the ability to produce quality papers. "The drive for ever-increasing profits is pulling newspapers down," Harris declared in a speech to the American Society of Newspaper Editors that won nationwide attention.

But for all their woes, many publishers at midyear were not inclined to be so gloomy. When MediaNews Group Inc. CEO William Dean Singleton talked to the few production executives who convinced their bosses to send them to last summer's Nexpo equipment show, he reminded them that the newspaper industry's first-quarter ad-revenue drop of 4.8% was less than radio (down 8%) and TV (also down 8%), and certainly better than the dot-com companies that never really produced ad revenue.

"Quite frankly, we suck less -- so cheer up!" Singleton exulted.

Certainly, Singleton's chain had a good start this year. With the approval in January of the joint operating agreement between MediaNews' The Denver Post and the E.W. Scripps Co.'s Rocky Mountain News, the newspaper war that resulted in penny-a-day home delivery and rock-bottom advertising prices was replaced by a daily monopoly able to charge industry-standard circulation fees and Rocky Mountain-high ad rates.

Family-owned newspapers were cheered in May when Congress passed a gradual reduction and one-year repeal of the estate tax, which many in the industry blame for accelerating corporate ownership of papers. In a sad coda, some stock held by the estate of Washington Post Publisher Katharine Graham was sold during the summer to satisfy the estate tax. Kay Graham -- who transformed herself from a timorous housewife into a determined executive capable of staring down presidents to support her newsroom -- died July 17 of head injuries after falling at a Sun Valley, Idaho, conference for media elites. Her Pulitzer Prize-winning autobiography, "Personal History," published in 1997, soon climbed best-seller lists again.

One of the major promotions of the year had Howell Raines, longtime and hard-hitting editorial page editor of The New York Times, becoming executive editor of the paper after the retirement of Joseph Lelyveld.

The September of our year

Paul E. Steiger, managing editor of The Wall Street Journal, was at his desk the morning of Sept. 11 at the paper's World Financial Center headquarters when the first plane hijacked by terrorists hit the north tower of the World Trade Center across the street. In the chaotic hours that followed, the Journal moved its news operation to South Brunswick, N.J., and managed the astonishing feat of getting copies out to 1.6 million readers by the next morning.

Newspapers across the country reacted with Herculean feats of journalism in the hours after the terrorist attacks in New York, outside Washington, and on a hijacked flight that crashed in Pennsylvania. By the Poynter Institute's count, 179 newspapers rushed extra editions onto the streets Sept. 11.

Readers eagerly grabbed copies of papers for days after. The Atlanta Constitution said it sold 130,000 copies more than its normal circulation of 310,312, for instance.

Newspapers continue to pay a high price for that performance, however. Advertising dropped precipitously. USA Today alone estimated it lost $3 million to $4 million of advertising just in September. Knight Ridder CEO Tony Ridder said recently that the final 19 days in September cost his chain about $9 million in lost advertising as well as another $2 million in unexpected newsroom costs.

The ad environment, Washington Post Co. Chairman and CEO Donald E. Graham bluntly told media analysts this month, is "simply dreadful."

Many papers began a second round of layoffs. The San Francisco Chronicle, while dominating its competition (the Fang family's reeling daily, The Examiner), announced plans to shed 220 employees; the Houston Chronicle, 127; The Orange County Register in Santa Ana, Calif., 105; and The Dallas Morning News, 73.

The plunging financials forced sacrifice in the executive suites as well. Last month, Tribune Chairman and CEO John W. Madigan announced he and the Chicago-based company's top six executives would not receive bonuses this year -- Madigan earned a $3-million bonus last year -- while his salary and that of about 140 other senior executives would be cut by 5% next year. Knight Ridder announced this month that it would cut bonuses for about two dozen senior executives and freeze the salaries of all executives making more than $200,000. Media General Inc., parent of The Tampa (Fla.) Tribune and 27 other dailies, didn't wait till the holidays to deliver its bad news: Back in August, it announced that for the first time in 30 years it would not distribute year-end bonuses.

The year is ending with uncertainty, to say the least. While some profess to see signs of a slow turnaround, it is also true that areas largely spared this newspaper recession are coming under its grip. Out in Cheyenne, D. Reed Eckhardt, the top news executive at the Wyoming Tribune-Eagle, had his first "uh-oh" moment only a few weeks ago.

"We do our budgeting fairly late here," Eckhardt says, "and our business manager started one of the meetings by saying, 'Well, you know, my gosh, the numbers are well off.'" For the first time since 1996, Eckhardt says, the Tribune-Eagle's profit-sharing pool will shrink, and he has been told to keep his payroll budget virtually flat, although the paper will be able to maintain its no-layoff policy. Says Eckhardt: "We're expecting a rough year."