Soft economy speeds newspaper decline, job cuts

The newspaper industry's downward spiral is accelerating as the weak U.S. economy depresses already-tumbling advertising revenue and forces more rounds of job cuts and other trims.

The developments of recent weeks come in a season when newspapers normally can anticipate boosts from upcoming holiday promotions and ads for new car models.

The decline's severity makes it even more difficult for newspapers to hang on while they figure out how to generate enough revenue from growing Internet audiences to make up for lost print ad sales.

McClatchy Co.'s Sacramento Bee and Fresno Bee offered voluntary buyouts to a majority of their full-time employees Monday, a week after The Modesto Bee made a similar offer. McClatchy also will freeze pay across the company for a year starting Labor Day, while Gannett Co. announced in mid-August it was cutting 1,000 jobs, including 600 layoffs.

Meanwhile, The San Diego Union-Tribune announced buyouts Thursday that aim to cut its staff by more than 75 positions, including some 30 in the newsroom. The offer comes a month after its owner, Copley Press Inc., said it was exploring a sale. Earlier this year, the paper cut 117 employees, or 10%, through buyouts and layoffs.

The St. Louis Post-Dispatch said Thursday that it cut another 18 jobs, while Chicago Sun-Times managers and union officials met Tuesday about additional cuts — on top of 29 reductions through layoffs and buyouts announced in January. And in mid-August, Tribune Co.'s The Chicago Tribune carried out previously announced layoffs.

Newspaper executives are cutting operating costs even further because advertising revenue has fallen faster than anyone anticipated.

Retailers are reducing back-to-school promotions, while employers are placing fewer help wanted ads given the weak economy. Foreclosures and other troubles in real estate have meant fewer classified ads for open houses. Auto dealers having difficulty selling cars lack the funds to buy large ads.

Few people expect newspapers to make a quick recovery. At best, they hope the plunge won't accelerate even more before the economy starts picking up again.

"There's no real light at the end of the tunnel for newspapers," said Mike Simonton, a media analyst at Fitch Ratings, a credit analysis agency. "It's not clear where the revenues are going to bottom out."

Although newspapers have made drastic reductions in recent years, Simonton said, "the cuts that they've taken have not been able to compensate for the decline in revenue. As the revenue picture becomes more bleak, those cost actions have accelerated."

Beyond job cuts, newspapers are consolidating operations.

The Gainesville Sun and Ocala Star-Banner in Florida, both owned by The New York Times Co., plan to merge editing, design and other tasks but continue to publish separate papers.

And on Friday, South Florida's three major daily newspapers said they will exchange basic stories during a three-month trial as each struggles to maintain coverage after cutting their newsroom staffs. The three are separately owned —The Miami Herald by McClatchy, the South Florida Sun-Sentinel by Tribune Co. and The Palm Beach Post by Cox Enterprises Inc.

According to the Newspaper Association of America, advertising revenue dropped 7.9% to $45.4 billion last year as a 19% increase in online ad spending failed to offset a 9.4% reduction in print. That's because online ad revenue made up only 7% of all advertising sales at newspapers in 2007, and print ads still command several times more money per reader.

The declines are even starker this year, especially in June and July, based on a review of the latest monthly revenue reports from newspaper companies.

While Gannett saw non-broadcast advertising revenue drop 11% year-over-year during the first five months of 2008, the nation's largest newspaper chain recorded reductions of 16.3% in June and 16.7% in July compared with a year earlier.

McClatchy saw a 15.4% decrease in ad revenue through May but drops of greater than 19% in each of June and July.

In those two months, The New York Times Co. saw a nearly 18% ad-spending decline at the flagship Times, The Boston Globe and other news media properties, after dropping only 10% through May.

The consolation?

"July was not much worse than June," said Edward Atorino, analyst at the Benchmark Co.

But online ad revenue at the Times properties grew less than 1% in July, after the company enjoyed growth rates ranging from 14% to 26% from February to June. If those trends continue, they spell further trouble for the industry because that is where newspapers are pinning their hope for the future.

Atorino said newspapers' online ads have often come as part of packages with print, so advertisers who are trimming spending eventually have nothing to spend on Internet ads either, "when you cut your budget to zero.

"Online has not proven to be unaffected by economic conditions," Atorino said.

In fact, non-newspaper companies such as Google Inc. are finding more of their growth coming from international markets — an option unavailable for most U.S. newspaper publishers.

Randy Bennett, senior vice president of business development for the Newspaper Association of America, said he remained confident newspapers will figure out how to generate enough revenue from their online operations to support newsgathering and stay in business.

But newspapers will continue to face financial difficulties next year, he said. Executives are accelerating cost reductions they likely would have had to make within a few years anyhow, he said.

"They are making a lot of these cuts up front so they can be in a position to turn the organization around," Bennett said.

More cuts could come "from companies that have been staying back and waiting," but those that already have made significant reductions shouldn't require additional rounds in the foreseeable future, he said.

Bennett also said that once newspapers get better at generating online revenue, by launching new products to drive traffic and ad sales, they may start hiring again — though they'll likely need employees with different skills from the staffers they're letting go now.

But his optimism isn't universal.

"There's certainly the risk that a number of newspaper companies could run out of time," Simonton said, "before they make the transition online, and there's no evidence that making such a transition is a certainty."

Bernard Lunzer, president of The Newspaper Guild-CWA, said the job cuts have been so drastic that papers might not have enough employees left to transition to a digital world. He worries that newspaper managers and owners aren't guarding against that.

"People have to understand the economy is cyclical," Lunzer said. "It will pick up again — if we don't diminish the product so much that they don't rebound."