Are Industry 'Rules of Thumb' Still Applicable?

By: Mark Fitzgerald The business model of daily newspapers is broken, the constant refrain goes. Every day brings news of dailies furiously chopping jobs and newshole to survive a hostile environment where, it is repeated, "everything has changed."

So how is it that the "rules of thumb" that have guided the newspaper business for decades remain a pretty good indicator of how dailies operate today? If anything, in fact, the Great Recession's incredibly shrinking dailies are actually "over-staffed," according to the longtime rules of thumb, and are publishing papers with "too much" newshole.

Each year, the Inland Press Association compares the findings of its confidential Inland Daily Cost & Revenue Study with the rules of thumb or, as Inland now calls them, "Industry Traditional Wisdom." What's most remarkable about the crisis year of 2008 is how much dailies stayed in line with those rules (see chart).

Consider newshole, which traditional wisdom dictates should be at 50%. That's true at papers with more than 100,000 circulation, which averaged 50.1%, but dailies under 10,000 circ devoted 57% of space to news, dailies from that size up to 25,000 allotted 57.3% and the 50,000 category set aside 58%.

In the newsroom, the rule of thumb is to staff 1.1 to 1.2 FTEs (full-time equivalents) for each 1,000 circulation. Every circ category was "over-staffed" somewhat.

Inland Executive Director Ray Carlsen says the same dailies that have been laying off journalists by the dozen likely show up as "over-staffed" because of shrinkage elsewhere: "It's not that they've added staff ? it's just that circulation has dropped so precipitously."

Circulation is also one place where the slump is changing the rules of thumb. Traditionally, dailies have shot for a circ profit margin of 46%. With 2008 margins running from 27% to 29.1% no daily category got even close to that ? despite all the emphasis on raising circulation revenue.

"I think they may have been getting more revenue out of circulation, but this is profit, so I'm guessing they're having to pay more to get it," says Carlsen, who notes 2007 results showed margins comfortably above 30%.

Similarly, the balance is clearly shifting away from classified ad revenue ? every category fell short of the traditional target of getting 35% of total ad revenue from classified ? and toward ROP and inserts. The rule of thumb says that local advertising should be 52% of ad revenue, but it was significantly higher in all categories.

Technology has done its work on another standard, the traditional 90 minutes to two hours spent composing a standard page. Only papers above 100,000 circulation are close, spending 1.3 hours, while papers under 10,000 accomplish the task in under an hour.

But for all the Herculean efforts to cut expenses, in 2008, at least, nearly every size daily newspaper was within the industry rules of thumb on appropriate expenses for production, advertising sales and the newsroom. That's likely to change next year, however, with big chains reporting in this year's second quarter that they had succeeded in wringing out 20% or more in expenses compared with 2008 levels.