Cost cuts loom large for newspaper companies in 2017

"You can't cut your way to prosperity," holds a favorite truism about the news business. But when Tronc inc. recently reported improved financial results for the fourth quarter of 2016, cost controls were the big driver.

The company went from operating at break-even in the fourth quarter of 2015 to posting a $19.4 million profit in the last three months of 2016. Expenses were down 14.2 percent for the quarter, about double the decline in revenues.

It's not quite cause-and-effect, but Tronc is now in good enough shape to be considering a big acquisition.

Talk at industry meetings like the recent Mega-Conference at which I spoke, or the upcoming MediaXChange of the News Media Alliance, appropriately focuses on innovation and new revenues.

But back home in the C-suite, pressure to operate more efficiently and on a smaller scale is unrelenting — especially amid indications 2017 will be as difficult a year for ad revenue as was 2016.

The Tronc savings reflected company-wide staff reductions beginning at the end of 2015, while the company was still Tribune Publishing. That sort of move sometimes precedes a sale, and the company was taken over in the first quarter of 2016 by entrepreneur Michael Ferro, who subsequently renamed it.

But there were other factors at play, Chief Financial Officer Terry Jimenez told analysts in a conference call — reductions in real estate to house its operations, outsourcing most of its IT organization and other services.

Also, like other newspaper organizations reporting final 2016 results, Tronc sharply reduced newsprint and ink expenses (17.8 percent for the year in Tronc's case). That is a product of soft prices, smaller print editions and falling distribution, which compound.

Jimenez was candid when asked about expected print ad revenue declines for the coming year:

'It is roughly in line (so far) with the trends that we have seen in the back half of last year...(That) is what we’ve extrapolated out for the (publishing) business (for 2017)."

The company, Jimenez continued, wants cuts to be "focused on the non-people side of things" so as to keep content and its sales efforts strong. Better sales training and retention could also mitigate the expected ad revenue losses.

I would be exaggerating to say an expense cut is as good as more revenue from a financial viewpoint. The two do have roughly the same impact on profit. But investors have backed away from newspaper organization stocks over the last decade more because of a bleak revenue story than a lack of profitability.

Except in rare cases, new digital and other revenues do not yet cover the print losses.

The continuing need for deep cuts runs the danger of making the news report less valuable to potential readers, driving down circulation and, with it, appeal to advertisers.

Also, without a benevolent owner, committed to investments in future growth, finding the resources for big initiatives without a quick payoff becomes difficult.

Some of that dynamic may be playing out at Tronc. A year after new management's first report to investors, its plan to launch a new global entertainment site based at the Los Angeles Times with seven bureaus abroad appears to be on the shelf.

The promised LA.com site currently displays a "coming soon" tag and a few generic photos — same as it did in March 2016.

That could change, however. Analyst Ken Doctor (along with the New York Times and New York Post) reported this week that Ferro is in talks to buy US Weekly from Wenner Media. The acquisition would quickly up Tronc's stake in celebrity news chairman Ferro seems to relish.

Comments

Related News

Email IconGroup 3Facebook IconLinkedIn IconsearchGroupTwitter IconGroup 2YouTube Icon