PAPERS SUFFER AS U.S. ECONOMY FALTERS

By: Lucia Moses Danger Signs: Belt Tightening, Shrinking Editions, And Layoffs


The outlook for the newspaper business has gone from bad to worse.

Three months ago, forecasters were hopeful that the advertising slowdown would
be short-lived and that conditions would improve in time to put a bow on the
holidays.

Since then, the economic climate has darkened, as has the national mood. On Feb.
27, the Conference Board reported that U.S. consumer confidence had fallen for
the fifth straight month, to a 41/2-year low.

Newspaper ad revenue, meanwhile, declined 1.4% in January. Analysts called it
the worst month in eight years as they reached for their erasers to revise
downward their predictions for 2001.

"Now, nobody believes that second-half recovery will materialize," said Michael
Beebe, a newspaper analyst for Goldman Sachs.

Newspapers that got the bulk of the dot-com, financial, and technology sector
spending windfall last year are suffering the toughest comparisons.

Dow Jones & Co. Inc. and the New York Times Co., two beneficiaries of that
revenue, issued first-quarter earnings warnings last week.

Dow Jones said ad linage at The Wall Street Journal was expected to
decline by 25% to 30% in the quarter, versus a 38.2% increase in the first
quarter last year. The company said it expected 16 cents to 20 cents in earnings
per share in the quarter; a First Call Corp. consensus estimate called for 56
cents EPS.

"In the year-ago periods, the technology and finance sectors were particularly
buoyant," Chairman and CEO Peter Kann said in a conference call. "This year, the
technology and financial sectors, especially tombstones, are particularly weak."

Dow Jones said it would reduce costs by as much as $60 million this year, in
part by an undetermined number of layoffs.

The Times Co. said it expected first-quarter EPS of 35 cents to 38 cents,
compared with 47 cents in the same period last year. A First Call consensus
estimate was looking for 45 cents EPS this quarter.

Other economic-related news leaked out last week. Word came from the San
Jose (Calif.) Mercury News that it expected to have layoffs because
of the softening Silicon Valley economy.

"In addition to a significant increase in the cost of newsprint and a
significant and unexpected spike in the cost of utilities, we are hit especially
hard by the sharp drop in recruitment advertising, as fewer Valley companies
hire while more announce hiring freezes or layoffs," Chairman and Publisher Jay
T. Harris said in a statement.

Another Knight Ridder paper, The Kansas City (Mo.) Star, said it
would reduce the number of pages of its issues on Monday, when readership is low
anyway. The news followed similar announcements by other newspapers in the
Knight Ridder group. (The company said last month that its first-quarter
earnings would be down "modestly" because of soft ad revenue growth, higher
newsprint prices, and costs associated with The Seattle Times strike.)

The moves haven't come without protest. Luther Jackson, executive officer for
the San Jose Newspaper Guild, which represents about 800 Mercury employees,
questioned the wisdom of layoffs when the paper remains highly profitable and is
trying to build a presence in the competitive San Francisco market. "We're
comparing ourselves, especially in recruitment advertising, to an incredibly
good year last year," he said.

Compounding the ad spending slowdown, newsprint prices could go up this year.
Publishers have downplayed the likelihood of a price increase, pointing to
decreasing ad demand. But paper producers are counteracting by reducing
capacity.

Newspapers have high fixed costs, which makes it difficult to manage in a
downturn, and companies today have fewer levers to use when the economy sours,
Goldman Sachs' Beebe said. Twenty years ago, he contended, newspapers could
raise ad rates more easily and were less cost-disciplined as a result. Since
then, newspapers have had trouble with the retail category and have responded by
paring staff. "These are not poorly run companies with a lot of fat," he said.

Nevertheless, newspapers are making the usual moves to watch expenses closely,
cutting staff and deferring major purchases. Raising circulation prices -
as the Los Angeles Times, The New York Times, and The Wall
Street Journal are doing - is one way to make up for lost ad revenue
while cutting newsprint usage and purging less-loyal readers in a downturn.

While advertising-sensitive companies like newspapers tend to feel the first
effects of a slowdown, they also tend to recover earlier, and analysts believe
things will start to pick up by 2002. By then, newsprint prices also could be
more favorable, and companies should have reduced or eliminated their Internet
losses.



Lucia Moses (lmoses@editorandpublisher.com) is an associate editor covering business for E&P.



Copyright 2001, Editor & Publisher.