Tuesday, December 2, 2008

Year-end crunch time at newspaper firms

During the next month or two, the crisis at America's newspapers will come to a head. There will be boardroom decisions that go well beyond the incessant paring of staff we have seen all year. Here are the reasons why it's crunch time now:
  • Those of us still subscribing to "ink-on-dead-trees" versions of newspapers noticed that after a 4-day weekend with apparently ad-laden papers, what got tossed on our porches yesterday and today was mighty thin. Retailers expect a very slow holiday sales season, and they're going to be stingy with their ad dollars from here on out.
  • The fourth quarter is normally the best for newspapers because of holiday-related advertising, but with slow retail sales in the offing, there's every indication that the revenue slide will continue. Total revenue (including online) was down (click on "Quarterly"), year-over-year, about 13 percent in the first quarter, 15 percent in the second quarter, and 18 percent in the third. Notice a trend? (For a longer trendline, the losses during the prior four quarters in 2007 were -4.8%, -8.6%, -7.4% and -10.3%,) If the fourth-quarter bleeding holds at "just" 18 percent, total revenue for the year will come in at a hair over $38 billion, down 16.1 percent versus 2007 (which was down 7.9 percent from 2006).
  • Faced with these numbers, "stakeholders," also known as bankers and stockholders, will want to see evidence of serious restructuring. After December 31, most newspaper companies will have to report end-of-fiscal-year results, face Wall Street analysts, and hold stockholder meetings. Some, both publicly and privately owned, are laden with bank debt and will face loan covenant defaults. Banks are not in a position to be especially lenient about this, and will demand evidence of serious restructuring before issuing default waivers at the customary fees. Even firms that still possess fairly solid balance sheets will be looking to conserve cash and otherwise prop up ratios to placate stockholders.
  • The first calendar quarter of the year is typically the slowest for newspaper revenue, so the pressure will be on to announce and implement drastic measures as early as possible.
  • There will be no bailout in this sector, they're on their own. And the industry quietly failed in its single attempt (the API Summit on Saving an Industry in Crisis) to come together to develop an industry-wide strategy, agreeing instead to reconvene in six months—when it will clearly be too late.
So what will happen? I wouldn't expect much in the way of positive thinking in upcoming weeks. The talk in newspaper boardrooms will be tactical, not strategic (about "newspapers," not "post-newspapers"), and the actions under consideration will mostly be steps down a dead-end avenue. They include:
  • Further layoffs and buyouts, where there's still "fat" left to cut
  • Closing or selling underperforming papers
  • Closing distant bureaus; paring coverage of Washington, D.C. and foreign venues
  • Pulling out of A.P. in favor of the new CNN service (or no wire news at all), and creating shared statehouse bureaus
  • Combining printing, packaging and distribution operations with neighboring papers, even with competitors
  • Merging newspapers in neighboring markets, even when those markets have separate, distinct identities, interests and concerns
  • Cutting frequency—not radically and strategically as suggested here and elsewhere—but one or two days at a time, prolonging the agony.
  • Outsourcing whatever is outsourceable at a savings, regardless of quality
  • Cutting virtually all investment in capital resources and new business development (or R&D as it's called elsewhere)
Alan Mutter, the Newsosaur, is in the midst of a series, "Thinking the Unthinkable," with two installments so far, discussing these kinds of options.

There have been plenty of suggestions made by journobloggers (yours truly among them) and other industry observers on how to restructure in positive ways that will allow newspapers to become post-newspaper information utilities. Some are even being implemented here and there.

Tomorrow, I'll have a roundup of solutions, free for the taking.

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