The sudden reversal of fortunes that befell the newspaper industry with the economic slowdown of 2001 appeared largely without warning, turning boom into gloom for many companies within the span of a single quarter. It has since asserted itself with unfamiliar ferocity: Thousands of jobs have been lost and hundreds of pages have disappeared from American newspapers. These layoffs and newshole reductions are now commonplace announcements and the frequent focus of Web pages created with the exclusive mission of chronicling this newspaper retrenchment.
Almost alone among our publicly traded peers, McClatchy has eschewed both of those management options for handling the downturn. We’ve opted to steer a course intended to avoid across-the-board layoffs and to maintain newshole space at 2000 levels. We have chosen our strategy not because we are naturally contrary—though there is some reason to believe we are—but because we’re convinced that by doing what is best for readers and the communities we serve will prove, once again, to be best for McClatchy shareholders.
While our reluctance to go the route of cutbacks remains a distinctly minority point of view in the industry, there’s ample evidence and solid theory to support it. Indeed, our behavior now is simply a continuation of the strategy we pursued when advertising dollars were flowing freely. At our strategy’s core is a belief that in an unavoidably cyclical business, the best course is to manage consistently and operate efficiently in good times and bad. The payoffs of avoiding the boom-or-bust roller coaster ride show up in employee morale, the newspapers’ momentum, and corporate profits.
We’re fortunate to operate in a country in which economic expansions far outdistance contractions, but experience shows there are bound to be some of each. To safeguard and accomplish newspapers’ essential First Amendment mission requires independence, so it is imperative that we operate stable, profitable businesses. To do this requires continuous balancing of support for quality journalism and awareness of financial demands.
Commitment to quality journalism comes easily at McClatchy; it’s been a prominent part of our corporate DNA for 144 years. Financial success can sometimes seem a more elusive objective, but our experience suggests that the two reinforce one another over time. Fortunately, many investors seem to recognize this, too.
But while such results can be congruent, they aren’t automatically so. Balancing these sometimes opposing demands has led us to design an operational structure we refer to as “athletic.” This means we strive to keep our operations trim and fit overall, but strengthen our muscles at the points they’re needed most—in reporting and sales. When done right, we put sales people on the streets and phones to keep the revenue engine churning while supporting the journalistic needs of reporters, photographers and copyeditors necessary to ensure high-quality newspapers.
Financial discipline means that to some events we won’t send as many reporters as we might have during more prosperous times. And we won’t add pages as rapidly as we might have. But we haven’t pulled back from the public service journalism that defines McClatchy. This is evidenced in our newspapers devoting time and space to unraveling a complex subsidy arrangement for a private developer in Minneapolis and the publishing of dozens of stories to cover the world games of the Special Olympics in Anchorage. Meeting reader needs for consistent, quality information isn’t optional.
How have we gone about doing that in the current economic climate? The answer is in a five-part strategy we believe will see us through the downturn intact and position us to take quick advantage of the recovery when it arrives. In fact, we think there are opportunities that can leave McClatchy in stronger shape after the downturn than we were heading into it.
First, we need to keep the muscle needed for sales and service, focusing particularly on those revenue categories over which we have greatest control and influence, even in down times. In current conditions, that means retail and classified display advertising.
Second, we seek to extend our market share during this period. Yes, the total advertising pie is shrinking, but by accomplishing goal number one, we can ensure that our share of the smaller pie grows. Our newspapers are the primary advertising buys in their local markets, and they should suffer less than should the secondary providers competing with them.
We also believe we can extend our Internet publishing leadership in our local markets. We operate the leading local Internet sites in all our regions, which puts us in an especially strong position as online competitors either fold or retrench in tough times.
The emergence of the Internet as an alternative publishing medium undeniably complicates economic life for newspapers; its presence represents the biggest single difference between this economic contraction and some of the tough times we’ve weathered in the past. But interactive media also present opportunities. Unlike earlier recessions, this time newspaper companies must manage more than one business and need to balance competing demands. Failure to do so forfeits important advantages that we will need later on.
Our fourth imperative is a familiar one: to cut costs aggressively wherever possible, consistent with our continuing strategy. Like other media companies, our profits are way down this year. There is no responsible alternative to determined, line-by-line cost reductions to help make up the difference. All our businesses are avoiding non-essential hires, allowing vacancies to remain open, cutting capital spending, limiting travel, and so forth. What we don’t intend to do is allow short-term savings to affect the quality of what we offer customers or our ability to generate revenue.
For example, we think resorting to buyouts and layoffs in response to cyclical economic conditions is often a mistake. The Harvard Business Review recently highlighted a study by Bain & Co. of how 377 Fortune 500 companies navigated through economic downturns during the past two decades. The authors questioned the financial sense of using layoffs to trim costs. They wrote: “Consider that voluntary employee turnover averages 15% to 20% per year in the United States, that sales volume was depressed by less than 10% in 85% of all industry downturns from 1977 to 1999, and that the average recession during that period lasted only 11 months. Given those facts, you have to wonder why there was such a scramble to fire—and then rehire and retrain—so many employees.”
The roller coaster response usually proves costly in terms of money spent on severance, and it also damages morale within the company. And that can retard momentum needed to respond when economic conditions improve.
Similar logic applies to the tactic of trimming the newshole to save money in the short run. What is the long-term rationale for cutting the quality of the product at a time when readers need good journalism more than ever, forcing them to turn elsewhere for information? As veteran newspaper executive David Laventhol argued recently, “Cutting back [sends] the wrong message—not to journalists but to readers, who don’t need more reasons not to buy a newspaper.” As lineage falls, we’ll use less newsprint, and if the downturn is prolonged, newsprint prices will generally fall—just as they are doing today.
As the Bain study concluded, “Costs do have to be managed carefully, but the key is consistency. A company should not act one way in good times and another way in bad times.”
Finally, we’re determined to find ways to do more than preserve our products; we want to continue to improve them wherever possible and to grow circulation. Economic conditions foreclose some costly investments in quality, but others remain available. For example, when we made the move to the narrower pages—now becoming an industry standard—we coupled the change with redesigned newspapers that improved readers’ navigation through them and with added features. Reader reaction was positive in all our communities.
We haven’t abandoned the quest for continued circulation growth, either. The Readership Institute at Northwestern University has turned insights from our industry’s best research into a blueprint for increasing newspaper readership. The recommended focus includes specific improvements in content, promotion, service, presentation, brand and workplace culture. It offers us ideas about how to build circulation despite economic constraints—especially if we preserve vital, high quality operations that continue to meet readers’ needs. We’re working hard to extend McClatchy’s industry-leading record string of 16 consecutive years of daily circulation growth. We consider this growth a central barometer of community service and franchise health and, not incidentally, a key to maintaining flexibility of advertising rates.
While our response to this economic downturn is somewhat contrary, we believe it is based on sound business strategy and provides the foundation for McClatchy to be a stronger entity once the economic recovery begins.
Gary Pruitt is chairman, president and CEO of The McClatchy Company.