Philly publisher Bob Hall to staff: ‘We will probably experience another substantial loss this year’

In a memo to staff of the Philadelphia Inquirer, Daily News and Philly.com, returning Philadelphia Media Network publisher Bob Hall says a report of $4 million profit didn’t take into account “items such as interest, taxes, depreciation, etc.” He also said, the company’s got to row together to “stop, or at least slow, the decline in circulation.” And all but one of the company’s labor contracts need to be renegotiated this year.

To All Employees:

This is my first monthly report informing you about your company, our newspapers, and philly.com. I believe it is essential that we all understand what we are doing, the challenges facing us, and the opportunities ahead of us. It is important for you to know how our company is progressing in these difficult times.

The newspaper industry has gone through many changes and very challenging times over the last several years. The majority of these conditions were the result of poor economic times, a basic change in our business and the impact of an unprecedented expansion of the digital media sector. We have endured a bankruptcy proceeding, three changes of ownership, declining advertising revenue, decreasing circulation, and substantial cost reductions. While the industry has suffered, that is no consolation for us and what our publications have experienced, resulting in large part to where we are today. However, I am confident that if we all work together, we can have a successful company with strong newspapers and digital products. The challenges that we will encounter are monumental and will require a number of significant changes, including our recognition of the current financial position of our company.

Let me start by clearing up many questions and rumors about our financial situation. Although reported in both newspapers last year that our company had a profit of $4,000,000, we actually lost a substantial amount. This reported number was before items such as interest, taxes, depreciation, etc. We will probably experience another substantial loss this year. The main contributor is declining advertising revenue, which continues to run below last year, in excess of 10%. The top U.S. newspapers have reported drops in advertising for the first quarter of this year averaging 10%. We have no alternative but to immediately reverse this trend and become profitable to survive. I am confident that through hard work, collaboration and tough decisions, we can do it.

The first sign of some success is that we finished May with advertising revenue down from prior year by less than 10% and a substantial improvement from this year’s first four months. We are on target to duplicate this progress in June. The entire advertising department is focused on that target. Growing revenue and continuing to become more efficient are the driving factors for our future success.

Let me highlight some key changes and plans over the next 90 days that should improve our operating performance and products.

· We have new ownership who really care about this company and all of our products. They want to succeed and, unlike the prior ownership, are willing to invest funds for growth. However, they are not willing to continue to watch operating losses multiply and continue to rise. Our collective role is to turn our financial situation around, and with a sense of urgency.

· We still have great newspapers with substantial (although declining) readership. Now, more than ever, we need to make them even better to stop, or at least slow, the decline in circulation.

· We have just launched an extensive research project to determine what our readers (and non readers) want, what our current and potential digital viewers want, what our advertisers require from us, and where we presently stand in this market. As the fourth largest media market in the U.S., Philadelphia is still a strong region to do business, which is another reason for my cautious optimism. The forthcoming data from our research project will provide an important roadmap in identifying trends and ideas for changes and improvements needed to enhance our products and position in the market place.

· We have launched many new digital products, and will continue to do so. This is our future and we need to stay ahead of the competition through innovation. Will the industry transition to digital in 5, 10 or 20 years is anybody’s guess, however we need to continue our efforts to anticipate and respond to consumer and advertiser demands.

· We are moving our offices from the old Inquirer building to 801 Market Street. This will be a fantastic, significant improvement in our facilities and work environment for all those involved in the relocation. It is also a substantial economic benefit as our current building is about 1/4 occupied and very expensive to operate and maintain on a daily basis.

· All of our labor contracts, except one, expire on 10/8/2012. As required under some contracts, we have given the proper notice to start negotiations. I wouldn’t be honest if I didn’t tell you that negotiations will be challenging. If we are to survive, our company needs to be more efficient in many ways. Currently, our efficiencies are below average and fall substantially short of some successful newspapers and best practices in the industry. It is absolutely essential to become more efficient if we are to experience any chance for growth and reinvestment into our future.

You will receive a monthly report updating you on our progress. If you have any questions or suggestions, send them to me atbhall@phillynews.com.

Thank you for your support and future contributions to making our company successful.

Bob

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