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Riding out the storm.

"I'm worried about the newspaper business," says Eric Newton. The managing editor of the Oakland, California Tribune is hardly your typical American newspaperman, because the 117-year-old Tribune is in far worse trouble than most American newspapers. Struggling for years to survive, it is one of the few American papers that have had to impose a pay cut on employees.

Still, Newton's worries mirror the misgivings of many, though not all, observers: That the economic downturn in the news business may not end when the recession ends.

"There is a pretty pervasive fear among newspaper people that what goes down might not come back up, at least to the profitability level that used to be there," says journalism professor Carl Stepp.

In television and radio news, the outlook is less bleak, although some foresee continuing trouble.

"I think broadcasting is going to rebound pretty quickly," says Mark Fratrik, vice-president/economist of the National Association of Broadcasters.

On the other hand, says Fratrik, "I think there is a demographic dynamic going on that suggests that retail sales are not going to bounce back. The potential for retail advertising, which is the lifeblood of newspapers, certainly, and very important to radio and important to television, too, is troublesome."

These views surface amid a backdrop of declining advertising revenues, dwindling newspaper readership, pay freezes, mergers, shutdowns, lower profit margins and slowed growth.

Not everybody interprets them the same way.

"Is this the death knell of the newspaper industry? Certainly not. Far from it," says Linda Foley, head of collective bargaining for The Newspaper Guild. "A company like General Motors would kill for the kind so-called depressed profit margins that the newspaper industry is experiencing now."

John Morton, a Washington analyst who publishes the Morton Research and Newspaper Letter, says, "Through the first nine months, the publicly owned companies, in just their newspaper operations, were averaging 14 to 15 percent in operating profits. There are a lot of industries that don't do that in the midst of a boom.

"I think newspapers aren't probably ever going to be as profitable as they were back in the '70s and early '80s, simply because there is a lot more competition now than there used to be," Morton says. "The average profitability of the publicly-owned companies has been slipping every year for the past five years. But it is still going to be a profitable business."

According to the American Newspaper Publishers Association, U.S. daily newspaper average operating margins declined from 20.2 percent in 1985 to 16.5 percent in 1990.

Total newspaper circulation enjoyed modest growth between 1975 and 1990, climbing from a little over 60 million to somewhat over 62 million. It was far outstripped by Sunday circulation, which zommed from about 51 million to more than 60 million. The New York investment banking firm of Veronis, Suhler & Associates Inc., however, has predicted that Sunday circulation growth will slow in the next five years as soft advertising forces publishers to raise circulation prices. "Sunday newspapers are doing well," says Oakland's Newton. "Daily newspapers are not. People seem to have less and less time to sit down and read a newspaper."

Especially young people. In a 1965 Gallup poll, 67 percent of adults under 35 said they had read a newspaper the day before. In a 1990 survey by the Times Mirror Center for the People and the Press, the figure was down to 29 percent. Only 41 percent said they had watched a television newscast the previous day, compared with 52 percent in 1965. Patrick Butler, Washington vice-president of Times Mirror, said recently that the interest of young people in public affairs has been measured at 20 percent that of their elders ever since 1975. That was the year after Richard Nixon resigned amid the shambles of Watergate and the aftermath of Vietnam. The young are still interested in some things, Times Mirror says. They follow stories about abortion and recent stories about the Gulf War -- issues that strongly affect them -- about as closely as older people.

With final figures not yet in, the ANPA projected a 1990 revenue increase of only 2.7 percent from newspaper advertising. "Not anything to cheer about," says Joseph J. Lorfano, the organization's director of public affairs. Retail advertising, which had been up 4.4 percent over the previous year, was expected to gain between 2 and 5 percent, but classified was projected to stay steady or decline by as much as 3 percent.

Advertising brings in 75 to 80 percent of newspaper revenue, industry sources say.

John Reidy, an analyst with the securities firm of Smith Barney, Harris, Upham & Co., says, "We are in one of the more severe advertising recessions in the post World War II period. It is a reflection of well-known problems in the department store industry, which is a big part of retail, which is half of volume. The second big piece is classified, about 40 percent of ad volume. You only run help wanted when you are hiring, and we are clearly not in a hiring mode in very many regions of the country." As for real estate ads, he says, "The only thing that can stabilize that is if interest rates go down and it (real estate) gets less expensive."

"It's going to alleviate, but there is no timetable for a recovery or any conviction on the magnitude of recovery," Reidy says. "The retail business has changed, and the traditional heavy newspaper users are a less important factor."

A 1988 survey by the Newspaper Advertising Bureau found that 38 cents of every dollar spent for classified advertising, or $3.5 billion a year, was going to new newspaper-like publications such as real estate tabs.

Newsholes suffered. Editor & Publisher reported in its year-end review that The Wall Street Journal, Los Angeles Times, Detroit News and Detroit Free Press, among others, were trimming the space devoted to news.

In 1989, for the first time since 1983, newspapers participating in ANPA's annual survey of capital expenditures reported a slight decline, spending roughly $1.5 billion, compared with $1.6 billion the year before. They spent less on new buildings, but more on plant additions.

When city newspapers have run into hard times before, suburban papers have often picked up the slack, but Reidy says that is not the case this time. "It is not that they are losing share to television, because television has been slipping subsequently, or surburbans or shoppers. It's a major downdraft in the main streams of newspaper advertising."

At the Oakland Tribune, publisher Robert Maynard warned late last year that the 125,000-circulation paper might not be able to meet its payroll if wage cuts were not made. Unions agreed to accept 11 percent reductions. The Tribune has eliminated more than 200 jobs since May through buyouts and attrition.

John Small, assistant editor of the Guild Reporter, says the Northeast, where the recession began and has been most severe, was hardest hit by staff reductions. "Surprisingly, there have been quite a few additions to staff at some papers," particularly in the Midwest, Small says. But there were about twice as many reductions as additions.

A preliminary tabulation by the ANPA showed that nine new dailies started during the year, compared with 20 in 1960. Five dailies closed outright, eight were merged and five went weekly, resulting in little net change compared to 30 years ago.

Newspapers remained among the top 10 employers in the country, probably among the top five, says Lorfano.

Still, says Stepp, who teaches at the University of Maryland, "What we see, and this year is the first time we are seeing it, is that it is taking longer for graduates to line up jobs. There seem to be somewhat fewer summer internships available. Our graduates find they are competing for jobs with people who have more professional experience who have lost a job or been bumped."

Both the giants and the fledglings have problems. The Gannett Co. says its profits for the fourth quarter of 1990 were down 8 percent, the first time in 22 years that it had not registered a gain. CBS posted a fourth quarter loss and analysts said it had probably lost money for the year, although NBC and ABC were making a profit. Dow Jones & Co. publisher of The Wall Street Journal, closed its Philadelphia bureau. And The National, the year-old sports paper produced in New York, reduced its circulation guarantee to advertisers by 27 percent, to 200,000 copies, in December.

CBS reported a loss fo $156 million, or $6.06 a share, in the three months that ended Dec. 31. In the corresponding period a year earlier, the network made a profit of $59.5 million, or $2.31 a share. The broadcasting giant's 1990 earnings were down 63 percent and it slashed its regular quarterly dividend 77 percent, to 25 cents a share from $1.10. It says weak advertising demand, along with the short four-game World Series, made its contract for televising major league baseball unprofitable. Chairman Laurence A. Tisch predicted that the recession and the cost of covering the Persian Gulf War would depress earnings and probably produce an advertising loss in 1991. To make matters worse, advertisers showed stiff reluctance to buy time on war news shows.

The Persian Gulf crisis also sent costs soaring at NBC News, which ended 1990 a reported $20 million in the red. "Today" lost its standing as the No. 1-ranked morning show to ABC's "Good Morning America," resulting in a loss of $10 million in advertising. Nielsen Media Research says the show's share of viewing audience plunged about 20 percent between November, 1989, and the same month in 1990. The loss was blamed on a controversial shakeup in which Jane Pauley was replaced by Deborah Norville. The division has cut about 335 jobs since 1986, but more recently added 100 news positions. It launched two news shows in prime time, "Real Life with Jane Pauley" and "Expose," and started a 24-hour news service for its affiliates. The service, based in Charlotte, North Carolina, was named the NBC News Channel.

A source at ABC News, speaking on the condition of anonymity, said, "Even before the war, in the second half of the year when the economy was hurting the way it was, the certainly were taking a hit economically and weren't going to reach our projections." The division ordered its correspondent in Dallas to work out of his home instead of an office and shifted its Chicago and Boston bureaus from rented office space to the network's owned-and-operated affiliates. "I think our feeling is that it is significant but temporary," the source says. "The war will end and the economy will come back."

In an economy move designed to help all networks, pooling was stepped up. NBC News President Michael G. Gartner told the Los Angeles Times that his division saved about $5 million by pooling coverage with ABC, CBS and CNN on election night.

As the '80s began, most viewers had only five or six cable choices and the Cable News Network was hardly taken seriously. By 1990, cable had increased it advertising revenues from less than $50 million a year in the '80s to $2 billion in 1990, according to the Newspaper Advertising Bureau. CNN's reports from the Persian Gulf made it even more a phenomenon of the era. CNN President Ted Turner went so far as to tell the American Association of Sunday and Feature Editors at its Montreal meeting that newspapers will be gone in 10 years and all news will be delivered electronically.

Meanwhile, the annual survey by the Radio-Television News Directors Association showed independent television stations' news personnel budgets growing faster than the network affiliates'. A typical salary for a top anchor at an independent station was $52,600, a 38.6 percent increase over 1989. At the affiliates, the average top anchor salary rose from $46,900 to $49,900, an increase of just 6.4 percent.

"I am hearing occasionally from broadcasters in some markets that they are seeing growth even now," says Fratrik. "Not great growth, but it's better than they feared. I don't think every station is going to survive. We saw a gigantic increase in the number of television stations, and also radio, in the 80s, and there might be some that just don't weather the storm."

Already there has been an increase in bankruptcies, the broadcasting association executive says.

Coming in the midst of recession, the cost of covering the Gulf War brought new austerities.

Each of the major television networks was spending from $1.5 million to $2 million a week on war coverage. They were paying hundreds of thousands a month to Saudi Arabia and other countries in satellite costs alone, officials said. NBC told The Washington Post that war coverage and the wariness of advertisers had cost the network $35 million, and Peter Lund, executive vice-president of CBS/Broadcast Group, told the newspaper that the network's advertising revenue was cut to 20 percent of normal when it replaced an hour of prime-time programming with a war special.

There were bright spots in the picture. The Valley Daily News of Kent, Wash., recorded a 36.7 percent ad linage increase in September and the Journal American, in another Seattle suburb of Bellevue, gained 17.9 percent. The Seattle Times, meanwhile, expanded zoned editions. On a larger scale, News Corp. Ltd., the multinational media company headed by Rupert Murdoch, says its earnings climbed 77 percent in the three months ending December 31, although it warned that growth might slow down in subsequent quarters.

Newspapers came up with several ways to find new revenue or boosts circulation. Gannett's USA Today announced plans to market paper goods and apparel with its logo. A Gannet official called it "another way for us to communicate with our readers." In Denver, the Rocky Mountain News launched its "A La Carte Edition," an electronic newspaper with color graphics. The Greenville, S.D., NewsPiedmont, began publishing membership directories for local chambers of commerce.

Stepp, like others, finds the situation troublesome. "Young people are reading less," the journalism professor says. "Everybody is reading newspapers a little bit less. There is so much more for people to do these days that they don't just automatically bounce back to newspapers. And the advertisers know that."

"People seem less and less interested in general topics or in learning about things they don't already know," says Newton. "They seem to be more and more interested in specialty knowledge, things of which they already have some knowledge. That's why I'm worried about it."

Analyst Morton summed up his view in the October issue of his newsletter:

"The real financial problem that the newspaper industry is having is its difficulty in meeting the level of profit expectations established in past years. Institutional investors, family shareholders, banks and others with a direct stake in newspaper operations do not like it when profits slip, even if from lofty levels to nearly lofty levels. The only real danger in this problem is that some newspapers might therefore try to do too much to shore up profitability, by trimming staff, news hole and journalistic effort. Some moves in these directions may be advisable, but going even a few steps too far damages product quality, a consequence liable to far outlast the difficulties of the current recession."

W. Dale Nelson is a Washington-based writer for the Associated Press.
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Title Annotation:Special Report: Journalism vs. the Economy; newspapers in debt
Author:Nelson, W. Dale
Publication:The Quill
Article Type:Cover Story
Date:Apr 1, 1991
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