The current fear about the impact on newspaper journalism of this year’s wave of newsroom reductions and other cost-cutting—in response to lowered profits—is rooted partly in differing perceptions of ownership responsibilities.
Conventional wisdom, especially in newsrooms, is that after making a profit the primary function of a newspaper is to be a guardian of democracy, with protection under the First Amendment to provide the citizenry with the information it needs to make responsible decisions. This traditional view of a newspaper’s role is perhaps best exemplified by the policies of The Union Leader and New Hampshire Sunday News in Manchester.
The Union Leader persists in delivering its daily editions throughout New Hampshire at great cost to its potential profitability, since readers distant from Manchester do not attract much advertising. The Union Leader also prints every letter to the editor it receives—literally pages of them—so long as the writer does not libel another or criticize another’s religious views. This too is costly, in newsprint and editing time. These policies are followed because the paper’s publisher, Joseph W. McQuaid (and his predecessors), believes it is the newspaper’s duty to provide its journalism to as many citizens as possible and to allow every citizen the chance to speak out. It is worth pointing out that the Union Leader is not owned by a large media corporation; its ownership is vested in a family trust designed to keep the newspaper forever independent.
Most daily newspapers today, though, are owned by a large corporation; fewer than 300 of the nation’s 1,480 dailies are locally owned. For these corporately owned papers, the notion of a newspaper’s duty is vastly different from conventional wisdom. While these corporate newspapers still give a nod to the duty of informing the citizenry, they now also emphasize the need to satisfy shareholders. And if satisfying shareholders in difficult times means shorting the traditional notion of what newspapers should be, so be it.
This brings us to 2001, a year which corporate owners are decrying as the worst for the newspaper business in a decade. Advertising revenues are down, newsprint costs are up, profits are plunging, and the prospects for recovery are uncertain. These are the reasons given for buyouts, early retirements, outright layoffs, cutting back on news space, and other reductions. Especially aggressive in these actions are most of the publicly owned newspaper companies, which account for 50 percent of total national daily circulation.
How bad a year is this for the newspaper business? It is true that lower advertising and higher costs are producing lowered earnings. In the first six months of this year, the publicly reporting companies suffered a 21 percent decline in operating earnings at their newspaper operations. And, indeed, operating profit margins (the percent operating earnings are of revenues) have dropped as well—by five percentage points on average, down to 19 percent. One wonders if Ford Motor Company or General Motors or any number of other nonmedia companies would be happy with that. They would. In a good year, which this one is not, U.S. companies on average achieve an operating profit margin of about eight percent.
Thus the financial fortunes of the newspaper industry have not collapsed this year. They just are not so strong as Wall Street would like. Of course, the year is not over, but even if advertising revenue does not improve notably the rest of the year, comparisons with last year’s revenue and earnings performance will be significantly easier during the rest of the year. The reason: Last year brought booming performance, but most of it was concentrated in the first half of the year.
The easier comparisons and the fact that newsprint prices have started to decline should ensure that the newspaper industry in this year of downturn will perform much better than in 1991, the core year of the worst recession for newspapers since World War II. In that year, the average operating profit for the publicly owned newspapers was 12 percent. That too was a year in which there were widespread hiring freezes and layoffs, increases in circulation prices, and deliberate cutbacks in distant circulation to save newsprint. All these actions set up the newspaper industry for a decade of declining circulation, but they also brought a decade of steadily improving profit margins.
There was a time, before the 1990’s, when it was almost unheard-of for newspapers to impose layoffs or reduce news space for economic reasons. There might have been some slowness in filling vacancies and other modest steps to reduce costs, but generally newspapers just carried on and waited for an improvement in local economies. That there is such a marked change in how the large newspaper corporations react to economic slowdowns speaks to great changes in the nature of newspaper ownership and an increased sensitivity to the short-term orientation of Wall Street investors. Newspapers now are more focused on the bottom line than ever before—at the publicly owned companies because of the need to please Wall Street, and at almost all companies because of the need to pay for the high number of acquisitions of recent years.
Newspaper ownership has been consolidating into larger and fewer companies, a process cheered by some executives as long overdue in an industry with a long tradition of fragmented ownership. Managements of the large newspaper companies, for example, recognize the economic and marketing efficiencies in clustering of ownerships in specific geographic regions and do not hesitate to buy and swap properties toward that end as if they were so many pork bellies. And there are undeniable benefits from economies of scale as companies get larger. Gannett can buy everything that a newspaper needs, from paper clips to presses to newsprint, at prices far lower than paid by smaller companies. Bigness by itself has significant economic rewards.
Many newspaper companies, of whatever size, still produce good journalism despite the current cost cutting. But in this era of falling circulation, with newspaper readers dying off faster than they are being added to, investing less rather than more in journalistic quality is not a smart strategy for the long run. But it is a strategy that most of the industry is stuck with.
One can hope that once the economy improves newspaper companies will shift their emphasis more toward the traditional notion of serving the public weal and less toward pleasing shareholders. Indeed, even some of the publicly owned companies have not taken their eyes off this central reason for the existence of newspapers. McClatchy Newspapers, while tightening in some areas, has eschewed taking steps this year that would undermine journalistic quality in the conviction that in the long run good journalism is good for business.
The Washington Post Co. likewise has refrained from reacting strongly to the ups and downs of the economy. Katharine Graham, in the early years of her company’s public ownership, alarmed Wall Street investors by telling them she would rather the company reached a higher value of its assets in zigs and zags than reaching a lower level in a steady progression. This so upset some institutions, devoted as they were to steadily rising profits, that they immediately unloaded their holdings. This turned out to be a big mistake: When she spoke, the company’s stock sold for $19; recently it was $576.
When it comes to ownership, perhaps Ben Bradlee, retired editor of The Washington Post, said it best when he eulogized Graham at her funeral last July: “Maybe not all of you understand what it takes to make a great newspaper. It takes a great owner. Period.”
John Morton is a former newspaper reporter and president of Morton Research Company, Inc., a consulting firm that analyzes newspapers and other media properties.
