Business/Finance

Gannett to whack 1,000 jobs: Wall Street wins; public loses

If you’re a CEO whose company has shorted its customers on quality and safety, you’re breathing a little easier today.

If you’re a politician who has traded favors with the über-rich in exchange for campaign cash, you’re relieved.

If you’re a government official who has allowed ideology or bribes rather than dedication to public service to shape your decision-making, you’re home free.

That’s because there will be fewer journalists nosing around on your turf.

Gannett Co. is eliminating 1,000 jobs across its newspaper operations, including 600 layoffs. That includes 84 dailies such as The Arizona Republic and the Detroit Free Press as well as nearly 900 non-daily publications but not USA Today, reports the Chicago Tribune. That means fewer journalists available to defend the public’s interest.

What’s particularly cold about this news is Wall Street’s reaction. Gannett’s stock price had fallen about 60 percent from a year ago. When the news hit the Street, Gannett’s stock shot up. According to a MarketWatch story by Jon Friedman, a longtime industry observer:

Gannett’s stock-market jump is a commentary on how Wall Street thinks. It’s an exacting boss. There is a saying that the stock market has no memory. Professional investors care about the future — they are the ultimate frontrunners and their motto may well be: what have you done for me lately?

Gannett has historically been regarded as a prudent, well-run company. But Wall Street on Thursday isn’t rewarding the company for once having the optimism and long-range strategy of launching USA Today in 1982. Nor is the Street hailing Gannett for its years of expertise and strong management.

Instead, Wall Street is thanking Gannett for cutting costs, big time. [emphasis added]

The personnel cuts (which go beyond the newsroom) remain incomprehensible. As argued repeatedly at S&R, an industry that devalues its product by tossing overboard the people that principally create that product is foolishly reducing its ability to compete effectively with other media distributing information — including news that people want and need to lead informed, productive, satisfying lives.

The true owners of newspaper companies such as Gannett are large institutional investors concerned about obtaining the highest rate of return on an investment in the shortest time. Investors seek to maintain a newspaper industry profit margin now hovering in the mid- to high teens. But revenues are declining, mostly because of decreased print ad revenues (and a sour economy). Do the math: 16 percent X declining revenue = declining return. Astute financial analysts could probably speak to this more effectively than I. But Wall Street’s needs continue to dominate newspaper industry decision-making.

The industry sold its soul to Wall Street decades ago as a means to finance consolidation of formerly family-owned papers (with profit margins of 20 and 30 percent or higher) into conglomerates. Efficiencies of scale led to higher profits. Wall Street reaped high rewards from bankrolling a huge cash cow.

But the newspaper industry’s timid, inept leadership failed to timely recognize the competitive force of the Internet. Now the industry claims the Internet is its revenue generator of the future, pointing to ad sales figures showing double-digit growth in online advertising. But the gross of online revenue remains a pittance compared with the much larger (though declining) print ad revenue. Thus, to keep Wall Street happy, the news biz falls back on its favorite trick: Slash expenses to maintain the all-important and increasingly illusory profit margin.

The Street is thus appeased. The public is the loser. Journalists hold government (and corporations can be considered a government these days) accountable for its actions. With fewer journalists on watch, more actions of government and corporations go without public inspection.

The newspaper industry needs a new business model if the public is to be better served by journalists — as it once was, long ago.

• • • • •

More readings on the newspaper business:

• NYT’s 1Q profit bombs: Now what?
• Say what? A new business model for news should begin with … profit?
• Booting the boys off the bus: Coverage costly, newspapers whine.
• ‘Penny’ press redux: a new business model for journalism?
• Journalism then; journalism now: comprehending the difference.

21 replies »

  1. Pingback: www.buzzflash.net
  2. a blog calling out a newspaper for cutting staff? that’s rich. maybe newspapers could still keep those staffers if all their content wasn’t ripped and posted on hundreds of blogs giving me no reason to buy a paper or visit the paper’s site. papers cost money to run and they need to generate a profit, welcome to capitalism.

    i agree this sucks for journalism as a whole, but if you really care about it stop patronizing blogs that don’t break any news or generate any real original content. and no, cut/pasting a few sentences from an article and adding your $.02 is not “genuine original content.”

  3. Dr. Denny,

    I also lament the demise of the newspaper industry. What ideas do you have to improve the industry, while ensuring a good return for investors?

    FYI,
    Our local alternative paper has 1/4 the total circulation of our local NY Times owned paper….and it’s just a weekly. My friends at the alternative paper say that business has never been better. Although I have profound differences with the politics and editorial content of the paper, they’re my friends, and friendship trumps politics everytime.

    Jeff

    Jeff

  4. Ah, the quarterly profits of doom strike again.

    Has America really become so self absorbed that we will continue to say “…ah, fuck it, tomorrow doesn’t matter anyway…only right now is important.”

    While living in the moment completely is the stuff of Zen enlightenment, that’s not really what we’re doing. Ignoring the past and borrowing from the future for just a little more pleasant living right now is going to flush the whole thing down the toilet if we’re not careful.

    Huh?, you’ve got a good point. I used to make it a habit to buy the local i grew up with (Detroit Free Press) even if i could get the news with more ease on the internet. But there isn’t any actual news in the local i grew up with anymore. When half of the front section is advertising and they put the obits, the weather page, and traffic in there i have a hard time coughing up the money. And when most of the actual news pieces are wire service lifts i see no point at all.

  5. ‘That includes 84 dailies such as The Arizona Republic and the Detroit Free Press’
    I don’t know about the Detroit Free Press, but the Arizona Republic is a typical right-slanted rag that always buries the lede and can be counted on to prop up certain highly corrupt officials, such as Sheriff Joe Arpaio, a man who staged his own assassination and set up a troubled teen as the would-be killer. (http://tinyurl.com/5am88y). Az taxpayers will likely have to foot the eventual $10 million lawsuit bill. Gannet mocked the story.
    But how could you really expect Gannet to accurately report the local Az news all the way from Seattle?
    After all, they’re in business of maximizing shareholder value, and Arpaio makes a lot more headlines than those wet-blankets who point out that his deputies use stress positions that have killed a man to make their quarry submit.
    Plus, Gannet wouldn’t want to run the risks that real local reporters run when they cross the reacionary Sheriff.. like being arrested for writing a truthful story: http://tinyurl.com/6jkt46
    It’s just not as much fun as skimping on relevant content and skimming the profits from 84 businesses that were all once profitable on their own.
    Reporters *cost* money, what Gannet is looking for are more advertisers.. and don’t worry, those reporters will all get jobs as PR people, writing stories from the corporate point of view, at which point Gannet will happily print them again.

  6. Another angle that I haven’t seen mentioned much is the trust factor. A lot of Americans, myself included, are hesitant to trust American sources for news. Ever since September 11th, I think a good portion of the nation has grown to distrust U.S. media, figuring they’re not hearing the whole story. I’d really like to see what kind of numbers BBC America is pulling these days.

    Between all of the dropped balls lately, and the understanding that embedded journalism = rah! rah! journalism, can Americans really be blamed for tuning out?

    It’s a shame when the investigative reporting at the Beijing Olympics represents the best America has done in the last decade. Even then, one can’t help but wonder how much of that has come from our propaganda machines.

  7. Fikshun has an excellent point about trust… but yes, I can blame Americans for dropping out. 😉 It’s far too easy to access international news sources, most of which are available in English, and thanks to the Internet tubes much of it is free, though there’s generally content reserved for subscribers. Here are some Anglophone options:

    http://mondediplo.com/
    http://www.economist.com/
    http://www.iht.com/
    and a local plug…
    http://www.laprensasa.com/

    And of course, every publication has its own editorial voice; I tend to trust more the ones who make their biases (or traditions) explicit and transparent. I expect to have to compare sources and judge for myself, but that’s fine with me.

  8. The print industry is causing it’s own demise. Everyone here is talking about big papers (becuase, well, they’re big). But the small papers are equally pathetic. In some respects I blame the wire services. It is so easy to fill up space with wire reports that local papers aren’t local anymore. The only exceptions being a few fluff stories and the weather.

    In my quest to pay better attention to my local reps I am having a hard time finding any reporting on the actions of my local politicians. It would be great if some of these displaced workers could get together and put out some meaningful reporting to compete with the big boys. I don’t know if it’s possible, but it would be step in the right direction.

  9. Jeff: Any ideas I have would depend entirely on the definition of “good” as an adjective modifying “return.” If the definition remains “maximum,” then no idea I have would be worth discussing.

  10. Dr. Denny;

    I think the definition of good would be a return at least 300 basis points over the yield of a Treasury Bond. Investors would be lining up in droves for a return like that. (Note: I’m not talking earnings per share , but actual pay out)..

    Hell, investors would be lining up if the stock paid a consistent dividend of 4-5%. Develop a business model that meets those parameters, and you could own half the media in the country.

    Frankly, I’m of the old school that believes that it is necessary to spend money in order to make money, and cutting the news staff because of declining profits(to meet profit projections) isn’t the answer.

    I’ve seen various companies go down the tubes because they wanted to maintain the sales/labor spread. When the sales go down, they cut labor. Less labor translates into less sales, which ends up with more labor cuts. It becomes a viscious cycle until nothing is left. This phenomena has happened to large retail companies such as K-Mart, Sears, and Albertsons. This method of mismanagement has never had a happy ending. Letting the bean counters run a business is a mistake.

    Jeff

  11. Jeff,

    During my earliest days in the news biz, the paper I worked for had a profit margin in single digits. It was owned by two families and had been for decades. When owners died and heirs did not want to continue in newspapering, the paper became part of small chain. The profit margin demanded by the chain virtually quadrupled in a year.

    That story can be retold for newspaper after newspaper beginning back in the ’60s. For reasons I mentioned in the post (and other posts I’ve done), newspaper chains became media conglomerates that drew a new class of ownership that did not have public service as its principal motive for owning newspapers. And in comment 10, you explain very well the consequences.

    When I asked for the definition of “good,” you provided a definitive answer, which I appreciate. Now consider the definition of “good” in front of another word — “owner.”

    I’d suggest that the number of basis points above the T bill yield a corporate owner would take as acceptable profit varies to the degree to which that owner believes newspapering is a public — as well as profitable — service.

    I have seen in the past 20 years no large media corporations willing to accept fewer basis points of profit in return for increasing their newspapers’ ability to perform public service.

    I also have not seen a large media corporation that believes in increasing the ability of its labor force to produce a viable, trusted product that the public is willing to buy. If corporations did believe that, they wouldn’t be whacking the jobs, as you articulated well.

    Remember the deal the Founders struck in the First Amendment. It gave newspapers freedom of the press in exchange for acting as a check and balance on the three branches of government. Newspapers must make a profit to survive. But some of the Founders are probably rolling in their graves as they witness what today’s newspapers have become.

    Their corporate owners aren’t living up their end of the deal.

    Thanks for your omments. I appreciate your help — and that of the other commenters — in sorting my often-mangled thinking on the subject.

  12. As a former reporter, I could care less if Gannett, New York Times Co., McClatchy, etc. go out of business. I worked for two newspapers and neither were ever interested in protecting the public. They were interested in protecting and promoting elitist politicians. One newspaper which I worked for actually published the golf scores that owner shot when he played golf with the congressman.

    I’m sorry, but the best information is on the web. Go to sites like antiwar.com, counterpunch, Asiatimes for real news.

  13. Dr. Denny,

    Since newspapers derive the bulk of their revenues from advertising, perhaps it would be in their best interest to fully beef up their advertising departments, hire the best producers, the hungriest producers, and offer them incentives. Have the sales staff hit everything and pitch everyone, leaving no stone unturned. Nothing talks like money, or the realistic potential to make big money.

    Jeff

  14. Jeff: So your theory is that people will buy a crap product so long as the company hires enough good salespeople?

    Part of me laughs. Part of me thinks hey, it’s worked for Ford all these years….

  15. Dr. Slammy,
    Perhaps if the papers can get fix their cash flow, they can improve the product by reinvesting in more and better reporting.

    Yeah….people will buy anything if they are told to. Look at McDonalds…they’ve never done better; Sales are up, the stock is at an all time high, despite the fact that McDonalds is the poster child of “crap product.”.

    Our local paper here is part of the NYT, and it’s not worth anything except for lining a bird cage. They cut back on the local news, yet they increased the sports section,WTF?? Their editorial page doesn’t reflect the values of the community, and the workers all have a union mentality. The paper is shrinking, and they’re not doing anything to try to change. However, I still get it every day and read it from cover to cover.

    Jeff

  16. That theory would work better if we didn’t already know, pretty much for a fact, that this is NOT how they’ll behave. The corps bought into these papers when they had dramatic margins and plenty of cash. Their strategy ever since has been to increase profit by cutting cost. Cutting cost is a good thing in most cases, but it’s not going to be a winning strategy if that’s ALL you have. It’s like the Pointy-Haired Boss observing that if he got rid of all the employees his profit would theoretically be infinite.

    They’re proven they can cut costs. They have not proven that they can simultaneously provide a product that their customers have to have.

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