Publishers Postpone Equipment Purchases

By: Mark Fitzgerald and Jim Rosenberg Only two years ago, Thad and Sandy Poulson had big plans for their little daily in Sitka, Alaska. They bought land adjacent to The Daily Sitka Sentinel, brought in an architect, looked at adding more color capacity, and talked with vendors about expanding the 2,932-circulation evening paper.

Now, those plans are gathering dust on the shelf, and the co-publishers say they have no hope of reviving them any time soon. Instead of buying equipment, the Poulsons are concentrating on retiring debt and economizing wherever they can. "We're just trying to rock along," Poulson says. "The Bush recession should give everybody pause. These are wait-and-see times."

Far away from Alaska, Little Rock's local economy isn't doing much better than Sitka's, but the Arkansas Democrat-Gazette is nevertheless going ahead with two major projects. The 185,709-circulation paper is installing a new inserting machine -- its first in more than a decade -- at its recently expanded distribution facility. Wehco Media Inc., its owner, is also tying the daily, its sibling community papers, and a cable-TV property into one new phone system.

"We're not letting the economy determine our production decisions," says Lynn Hamilton, the Democrat-Gazette's vice president and operations manager. "We didn't last year, and we aren't this year."

Somewhere between the evening daily hunkering down in Alaska and the morning daily forging ahead in Arkansas lies the muddled majority of the newspaper business. To gauge the equipment-buying mood of the industry -- a kind of consumer-confidence survey of newspapers -- E&P conducted interviews with a wide range of publishers, production executives, and other key newspaper-operations figures.

What emerges from them is a portrait of newspapers that are still making plans for long-term expansion -- but mostly holding off major equipment purchases this year. They fret about an economy they describe as the bleakest and most puzzling they have ever encountered -- and hope their aging machines last until better times arrive.

"From my perspective, there's more uncertainty than I can ever remember," says Mark Grunlund, vice president and general manager of Advance Publications' Median Supply Co. Inc. "I have this conversation at least once a day with somebody about when it's going to level off or kick back up."

Technology: A capital idea

The interviews centered on planned (or deferred) purchases of newspaper "iron" -- the production, packaging, and distribution equipment that have been primary drivers in the industry's quest for greater productivity, efficiency, and automation.

Assessing publishers' willingness or reluctance to buy more iron isn't just for vendors anymore. Goldman Sachs analyst Peter P. Appert, just after last December's media-company presentations to Wall Street, credited these productivity gains for the significant improvements in newspaper-industry operating margins during the past 30 years -- and into the future. "The key contributors to this secular uptrend in operating margins have been technological advances on the production and distribution side of the business, which have reduced the labor intensity of the industry," Appert wrote. In 1970, he noted, about half of all newspaper employees were production workers. Now only one in three is -- and Appert says the principal reason is the industry's capital investment in iron.

For the short term, however, equipment investment this year looks to be running below the historical level of about three-quarters of a billion to a billion dollars annually. Simply put, newspapers have not yet shaken off the cautious approach to capital spending they've adopted over the past two years. Further clouding newspaper hopes in the short run are a disappointing start to the year as well as the decline in confidence of consumers faced with the prospect of war and domestic terrorism.

"The economy here is still shaky," says Orage Quarles III, president and publisher of The News & Observer in Raleigh, N.C. One thing that rattles the local economy, he adds, is even a threat of terrorism: "As soon as [the federal government] put out that orange alert, things just went down."

There are a few pockets of production purchasing around the nation, however, and papers that are willing to buy now will find vendors willing to deal. "It's a customer's market," says Michael M. Pusich, who, as vice president and newspaper-planning-group director of the Austin Co., sees what papers are planning, long term. Newspapers can dictate value-added features with their equipment purchases and expect to find responsive manufacturers, Pusich says.

But Pusich and many others contacted for this story say newspapers are mostly green-lighting today only those purchases that cannot be put off till tomorrow. Certainly that's the case at the dozen midsize dailies in Pulitzer Inc.'s Pulitzer Community Newspapers. Senior Vice President Mark G. Contreras says no major press or packaging projects are in the pipeline: "We're being cautious. There are some minor things we're doing, such as replacing [inserter] heads and making some small press enhancements in a couple of markets. ... We have a capital budget, but when each project comes up, it's also evaluated independently so there's another chance to consider the timing. I can see us in the next one to five years having to do things, but the basic press equipment we have in most places is good for the foreseeable future."

Again and again, publishers and operations executives emphasized that they were spending to save or to survive, to cut their costs, or to avoid catastrophic failure on their high-mileage equipment. The glamorous projects that many of these same publishers shepherded during the wave of newspaper infrastructure development of the 1980s and 1990s are now being replaced by purchases of the industry's least-sexy equipment: web-break detectors and disc brakes that bring the press speed down more evenly to reduce web breaks; air compressors with variable-frequency drives to save energy by supplying only the necessary amount of air when it's needed; board-based integrated relays and switches that are easier to maintain and troubleshoot than older individually wired components.

Complicating the picture is the fact that many newspapers are just coming off big projects. For instance, the Tulsa (Okla.) World has completed installation of its Wifag shaftless press. Steve Barlow, production director/operations, says the only possible project on the horizon is another inserter. "We're not concerned [the current inserter] will fail, but Murphy's Law being what it is, it would fail at the worst possible time," he says.

Fingers crossed

Some of the big projects being green-lighted this year represent the last wave of broadsheets converting to the now-standard U.S. web width of 50 inches. After spending "very little money" last year, the 29,866-circulation Owensboro (Ky.) Messenger-Inquirer is spending about $350,000 this year, cutting its press down to 50 inches and adding digital press packs, says Publisher T. Edward Riney. And the 29,341-circulation Traverse City (Mich.) Record-Eagle just spent $600,000 to trim its TKS doublewide press to the 50-inch width. The paper's only other planned investments, says Publisher Zeke M. Fleet, are in two new, leased delivery vehicles and, possibly, a new $40,000 strapping machine to join three that are "all getting pretty old."

At the Midland (Texas) Reporter-Telegram, the aging machine is its Harris 48P inserter. Production Director John Maddox says the paper has asked its owner, the Hearst Corp., for money to replace that with a remanufactured K&M Newspaper Services Inc. inserter: "We're hoping it's going to happen this year."

Many papers find themselves in the same situation as The Herald-Sun in Durham, N.C., which last year spent several hundred thousand dollars to reduce its web width and this year hopes it will not have to spend the $75,000 it would take to replace its aging stacker. "We have our fingers crossed," says James G. Alexander, vice president, treasurer, and business manager of the 50,015-circulation paper. If the purchase becomes absolutely necessary, Alexander adds, there's no money for it in the capital budget: "That will come out of contingency."

Where spending is likely, it is often to keep a mailroom functioning. Donald D. Darkis, production manager at the Bangor (Maine) Daily News, covers most of the items other papers are considering when he cites a "good possibility of a stacker, strapper, jogging table, [and] conveyor."

In this economy, many papers say, absolute necessity is the only justification for purchases. Listen to why Hawaii Tribune-Herald Publisher Jim D. Wilson says the Stephens Media Group daily in Hilo plans to spend substantially less than in recent years: "There is nothing we absolutely need." Necessity is driving the only capital purchases at The Pantagraph in Bloomington, Ill., where both the full-color, full-page proofer and the plate-developing machine the paper is buying will replace existing units, says Production Director Dan O'Brien.

But even maintenance can add up. The Spokesman-Review in Spokane, Wash., plans what Production Manager Paul Schafer calls "heavy-duty maintenance projects." The daily is replacing cylinders and vertical shafts, and reworking other parts of its Goss Metro press units. "They're 22 years old, and the general goal is to keep them running for another 22 years," says Schafer. "It's not very glorious work, but it's a lot of capital expenditure all the same."

Pent-up optimism

Whether the maintenance is heavy-duty or light, the future can't be held off forever. Production equipment doesn't last as long as it used to -- not because it isn't as well-made but because today's newspapers are running more impressions on presses and dumping more inserts into hoppers than they did two decades ago. It's the mileage on the machines, not age, that will necessitate their replacement, says Austin's Pusich.

That's pretty much what accounts for projects The Press Democrat in Santa Rosa, Calif., has on tap. It will be installing new controls and digital press packs on its Goss Headliners as well as an automated-guided-vehicle newsprint-roll delivery system. "It's not so much that we're rich and able to do all these things. It's more that we've put off things for so long," says Production Manager Sam Caddle. The New York Times Co. paper has had to wait in line for tight capital dollars, Caddle says, but "now it seems like it's our turn, hopefully."

That simple fact propels much of the optimism of the consultants, designers, and facility builders who get the first peek at what's in the production pipeline. Chuck Blevins says flatly that, after years of depressed spending on production equipment, the cycle has finally hit bottom. "There is a tremendous pent-up demand for equipment, some of that as replacement," says Blevins, president of Naples, Fla.-based Chuck Blevins & Associates. That demand won't take much of push, says Blevins, who adds that if President Bush decides not to invade Iraq, "that may be just enough stimulus to get us off dead center."

The recent, and robust, return of insert advertisers to newspapers also should propel increased packaging-equipment buying, argue Blevins and Tom Croteau, senior vice president of technology for the Newspaper Association of America (NAA). "I think the statistics ... show the insert side has rebounded nicely, and that continues to put a strain on packaging centers," Croteau says.

At the Chicago-based design and construction firm McClier, the pressure to build packaging facilities is clear, says Executive Vice President Ken Harding, who adds, "We're seeing a lot more intensity in packaging planning right now." Construction on some of the projects could begin as early as mid-2004, he says.

Some packaging projects can't wait. The Bakersfield Californian has just "settled the deal" with Ferag for a completely new mailroom -- everything from the pick-up stations to the truck loaders, says Alan
Ferguson, operations production manager: "We will start the project, assembling parts, in the last quarter of this year." It should be up and running by the first quarter of next year. The Repository's packaging project in Canton, Ohio, is much more modest, but equally urgent. The 65,129-circulation evening paper is adding on to its warehouse this year because it just doesn't have the space to store enough newsprint for the daily and its commercial work, says Production Director Bruce Brunner.

Billions and billions

For all their short-term austerity, newspapers are demonstrating a remarkable long-term optimism by commissioning planning for a wide range of projects, say designers, builders, and consultants.

Indeed, Dario D. DiMare says his design firm alone is handling so many projects that if all of them get built as planned, the combined value of their equipment, facilities, and services would add up to more than a billion dollars. DiMare, president of Framingham, Mass.-based Dario Designs Inc., says he estimates other firms are handling about as much in potential work as well. Combine that with equipment upgrades and replacements, as-yet-unsold projects, and work not requiring an architect, and the value may jump another $2 billion, he says.

If DiMare is right, that's roughly $4 billion over four years -- on the high end of the historical industry average.

Increasing acceptance of computer-to-plate (CTP) technology also may trigger a widespread and lasting increase in spending among papers, industry figures say. Direct-to-plate output may get a boost when all Cox Newspapers Inc. operations managers meet next month in Florida, where, among numerous production issues, they will discuss groupwide adoption of CTP (for which no timetable yet exists), according to Bud Winslow, operations manager at The Daily Sentinel in Grand Junction, Colo.

Both NAA and the Inland Press Association have noticed their technical seminars -- especially those on CTP -- have attracted increased registration. Says Inland Executive Director Ray Carlsen: "I think there's some return to confidence, although I couldn't say it's a return to 2000," when equipment spending hit its peak.

NAA's Croteau sees the same growing confidence: "Based on the feedback I got at the last technology meeting we had, in January, there seemed to be a general interest in going forward with projects that had been previously put on hold or held back."

Certainly, NAA's current chairman, MediaNews Group Inc. Vice Chairman and CEO William Dean Singleton, is doing his bit to spur equipment spending. His chain is "exploring" adding presses for the joint production of The Denver Post and the E.W. Scripps Co.'s Rocky Mountain News. A team also is looking at relocating the two papers in one building. In another joint operating agency, this one in Salt Lake City, Singleton just authorized what he's calling a "new state-of-the-art plant."

"So we're kind of bullish," Singleton says, "although, after the kind of January and February we've had, I'm not so sure we should be."