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Topic: Memos Sent to Romenesko
Date/Time: 1/22/2008 6:36:40 PM
Title: Star Tribune publisher's memo
Posted By: Jim Romenesko
 
Taking Charge of Our Future
By Chris Harte, [Minneapolis Star Tribune] Publisher and Chairman

Last fall I told you I would write about our overall situation toward the end of the year. I waited before writing because November ad revenue was slightly better than recent months, and I hoped it was the start of a modestly better trend. But December was right back to the pattern of steep revenue declines that we'd seen since early in the year.

We have budgeted for another large revenue reduction in 2008, and we hope we won't be under budget again. What I'm hearing from other newspapers are similar expectations about further revenue declines.

I don't mean to be gloomy, because I'm basically an optimist. I believe strongly in newspapers and their Internet sites. I believe in the importance of what we do. I believe that we will not just survive but prosper. I believe in the power of the Star Tribune's people to make the business and cultural changes that will be necessary to right our ship and give our company a vigorous and successful future.

The current business realities are incredibly difficult, however, and I don't want to pretend they aren't. 2007 was far and away the worst year this industry has seen in anyone's memory, and it was also the worst for the Star Tribune. We were not the hardest hit large metropolitan paper in the country, but our overall revenue performance was well below the median for the industry.

A few numbers tell the story well, I think. Total revenue (print and
internet advertising and circulation) is down almost $75 million in the last two years. Classified revenue has been the hardest hit part of our business, and our 2007 classified revenue was down over 50 percent from what it was at the start of the decade.

While our Internet revenue has risen substantially almost every year over the past decade, and is three times what it was at the start of the decade, it's not growing nearly fast enough to offset the declines in print
advertising.

We reduced our costs substantially last year, some of it in easy ways but
much of it with painful cuts. And we're already reducing 2008 costs several million dollars below our original 2008 budget.

Despite all the cost-cutting, our payroll and benefits in 2007 were actually $10 million higher than they were in 2000, while total revenue had declined over $90 million in the same period. Payroll and benefits are well over half of all our cash operating expenses; the remaining cash costs are newsprint and everything else. Newsprint is the only one of the three major categories where we've had a meaningful drop in expenses, and that's mostly because of a substantial drop in the price we pay per ton. Unfortunately, that price is going way up in 2008. All other cash expenses combined (utilities, office supplies, all the other things it takes to keep us operating) are at almost exactly the same level today as they were in 2000.

As a result of rapidly declining revenue - and expenses that haven't been cut anywhere nearly as fast - our operating cash flow has declined dramatically since 2000. Operating cash flow, which is the cash we have left after paying cash expenses, and which we then use to invest in everything from new equipment and computers to new products, and to pay our debt, has declined 50 percent in just the past two years and more than that since 2000.

Obviously, we cannot continue on this course. We need to deal with these challenges quickly and collaboratively, working together all across the company to find the best solutions.

As a first step toward finding these solutions, we have retained Restructuring Associates (RAI), a consulting firm headquartered in Washington, DC to help us work collaboratively throughout the Star Tribune to get our business on the right track to meet the significant challenges we face. RAI specializes in helping unions and management work together to improve performance.

Starting this week, representatives of RAI will begin interviewing Star Tribune managers and soon will interview others involved with the business to get a better understanding of what we are up against and how to frame our approach to finding solutions./CONTINUED

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