August 17, 2009
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You have probably read that a number of newspaper companies returned to profitability in the second quarter of this year, and the economy at large may have hit bottom and started back up. Since July 1, newspaper shares have more than doubled from lows on Wall Street. So why does the pace of layoffs and buyouts continue unabated?

 
My tally of newspapers announcing or carrying out cuts so far in August includes The Kansas City Star, Milwaukee Journal Sentinel, The News & Observer of Raleigh, The Journal News of New York’s Westchester suburbs, The San Diego Union-Tribune and The Miami Herald.
 
That’s disheartening. A number of once-proud, top-ranked regionals, three of them owned by McClatchy, are on the list. Gannett’s JournalNews a few years ago had the distinction of being the best-staffed paper over 50,000 circulation in the country (as measured by staff to circulation ratio) as it pursued a multiple daily zone strategy. This Tuesday and Wednesday all interested news staffers are being asked to re-interview for jobs at a Journal News of more modest ambitions.
 
The apparent disconnect here is not so hard to explain.

Newspapers were still losing ad revenue at a 25 to 30 percent pace year-to-year in the second quarter. They managed small profits with very tight expense control. Third quarter ad revenues will be down 20 to 25 percent compared to the 2008 period, which itself was off 18.1 percent compared to third quarter 2007.

 
So staying profitable will require continued vigilance on expenses. A little of that takes care of itself — reduced paper use since so much less advertising and news is being printed. But companies targeting above average profit levels — like Gannett — or forced to keep profits up to handle a high level of debt — like McClatchy — will continue to work the outsourcing and down-sizing option.
 
As for the stock market, remember that share prices reflect investor consensus on future earnings over a year or 18 months and that the low base indicated investor fear that the companies would fail, now eased considerably.
 
A friend suggests that the end of the recession reports may be hyping what is at best a slow start to a long recovery. Even if you side with the optimists who believe GDP will grow more than 2 percent this quarter, that only begins to dig out of the hole of sharp declines in the last half of 2008 and the first quarter of 2009.
 
If you are a gambler, the analogy is sitting at the blackjack table down $1,000. If you have a good run and win $200, you are still well under water.
 
(The market seemed to be experiencing doubt about a robust recovery Monday in a broad selloff).
 
The continued cuts are bad for the skilled journalists put out on the street, bad for the stretched staff that remains and bad for the level of civic information American communities are receiving.
 
And if the layoff/buyouts are a business imperative, they are also a risky business strategy. I’ll yield the floor on this one to Pulitzer-winner Glenn Frankel, who took the Washington Post buyout and was interviewed recently by former Rocky editor John Temple on his TempleTalk blog.
 
“There’s no rule that says newspapers will become smarter or better managed as they become smaller,” Frankel said. “Each contraction of the staff damages morale and reduces journalistic ambition. Newsrooms are, among other things, creative enterprises that rely upon committed, restless, energetic people who are willing to take risks and work extra hard. They dry up quickly when the creativity and ambition are drained from their veins …

“I fear that the downsizing is becoming so drastic and the search for younger readers so frantic that many news organizations may lose sight of their true value and importance. I also fear that the journalism is being lost or sacrificed in the emphasis on new technologies, social networks and shiny packaging. If we don’t have anything important to say and no unique journalistic contribution to make, we won’t need new platforms. We won’t need to exist at all — and we won’t.”
 

That may be a bleak worst case. As Frankel acknowledges in the interview, the several hundred news professionals left at the Post or most metros should be able to put out a sparkling paper every day. Some of what has hit the cutting-room floor in recent year should stay there. A tighter report with sharp focus on top-tier, added-value material is more in tune with the attention span of the times.

Still, I fret that many newspapers are flirting with the tipping point of seeming expendable to discerning readers who can see the gaps and flaws caused by cutting too much too fast.

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Rick Edmonds is media business analyst for the Poynter Institute where he has done research and writing for the last fifteen years. His commentary on…
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