War Could Squeeze Newspaper Profits

By: Lucia Moses When CEOs of publicly traded newspaper companies stepped forward last month to give their forecasts for the year ahead, uncertainty was the prevailing theme. Most, however, predicted moderate growth for this year and assumed slow, but continuing, economic improvement. No one wanted to talk much about what impact a war with Iraq could have on the economy and their industry.

Now that military action looks increasingly likely, the topic is worming its way into the consciousness of those in corporate suites everywhere. "I would guarantee there isn't one CEO who's not thinking about what impact a war could have on the bottom line," says Ken Berents, who follows the newspaper industry for Goldman Sachs Asset Management.

What that impact would be on the newspaper business is, of course, impossible to tell, but the timing of the war and its duration will be crucial. In a best-case scenario, combat would be put off at least until later in the year when a recovery is well under way and the fighting ends quickly. The worst case: War starts before a recovery has had a chance to take root and combat drags on, throwing the domestic economy back into another recession.

"No one really knows how things will turn out. The basic presumption is, the longer the conflict goes, the more negative the impact it has," says James Conaghan, vice president of business analysis and research for the Newspaper Association of America. In December, he had forecast 3.2% to 6.1% newspaper advertising-revenue growth for this year, depending on the strength of the economic recovery -- neither prediction accounted for a
military campaign. If war breaks out, "I think people will be taking out their pencils and perhaps making some adjustments," he deadpans.

In the case of a short war, many publishers could break even. Most would rely on wire services to cover the conflict, so their biggest cost increase would be for newsprint, which is still relatively inexpensive. While the conflict lasts, they can count on selling more copies, at least partly offsetting their higher newsprint expense.

But for the newspapers that would send their own correspondents to cover a war, the undertaking adds more economic stress at a time when little new ad revenue is coming in the door. Covering the 1991 Persian Gulf War cost newspapers millions of dollars, and that was a relatively brief conflict. Few expect another war with Iraq to end so quickly -- and then there's the prospect of a long occupation to consider.

"Just what do we do knowing this year is going to be a very difficult year?" Stephen P. Hills, president and general manager of The Washington Post, and other Post executives are asking themselves. "If you look at [Operation] Desert Storm, which was a brief, clearly defined, winnable war, that cost us money -- millions -- and considerable ad revenue," he says.

Hills worries about what a war could do to consumer confidence. "Our recovery, such as it is, is not very robust right now," he says. "With a war, it puts more pressure on the ad-revenue side. There are so many aspects of the economy that are sensitive, and we don't have very strong consumer confidence right now."

In the midst of "the tightest squeeze on newspapers in a long time," says Conrad Fink, a newspaper-management professor at the University of Georgia, "every major metropolitan editor will be agonizing over this one. Everyone wants to have their own people over there. An editor has to sit down and make some cold and cruel decisions."

Papers have to not only cover their bases abroad but stay on top of major domestic-news developments, from growing state-budget deficits to homeland security. "News correspondents will be reassigned to cover the Mideast, for example. If we have to cut back slightly in other areas, we may have to do that," acknowledges Robert W. Mong Jr., president and editor of The Dallas Morning News. The company has set specific goals for the coming year, which he says will help cope with changing financial realities.

Editors are acknowledging these realities even as they say they'll spend what's needed to do justice to the story. "Clearly, coming out of the recession, people are watching the bucks," says Howard Tyner, vice president for editorial of Tribune Publishing. But the No. 1 priority is to cover the story and "figure out how to pay for it later."

Still, papers are likely to rely more on wire services and their corporate siblings. The Tribune Co. is encouraging its major metros, such as its flagship Chicago Tribune, the Los Angeles Times, and Newsday in Melville, N.Y., to share stories. "What I've tried to foster is a sense that we can cover so much more if each of the papers knows what others are planning to do," Tyner says. A paper running short on resources might "pull back for a week or so and use material from other papers while [it] takes a breath."