FISCAL JOY OF ’99 SHOWS HOW FAR INDUSTRY HAS COME

Challenge will be to attract, retain the talent needed in this new age

It was, as Frank Sinatra once sang, a very good year.

For the newspaper industry, 1999 turned out to be a record year. A humming economy, an influx of dot-com advertising and depressed newsprint prices made for a year that even a stockbroker could love.

Inside, Senior Editor Pete Wetmore takes three different looks at publicly traded newspaper companies in 1999: a discussion with Wall Street analysts on the quarter that ended in December, a compendium of earnings for that quarter, and an overview of the year-end results of 15 of the 17 newspaper companies we track.

A couple of things jump out at you when you read these pieces. First, it's amazing what eight or nine years can do – just remember the recession of ’91-'92. Second, the management tools utilized mid-decade (cost reductions, improved automation, new product development) to recover from that recession helped make ’99 a better year than it would have been otherwise. Third, thank goodness for depressed newsprint prices.

We are on the cusp of more change in the industry, though.

As Correspondent Steven E. Brier points out in this issue's New(s) Media column, it is getting increasingly difficult to find and retain good people (especially good new media people) in our old media operations. One solution appears to be to establish stand-alone new media companies that have these newfangled tracking stocks that help increase the valuation of the old media company while providing stock option incentives for both old media and new media employees.

Learning how to find and keep new workers will lead to a new evaluation of what our employees are worth and what we'll need to pay to get them and keep them. We'll also need people with new skills (video and audio) as well as people who can understand this strange new world. Read: increased costs.

Further, in the not-too-distant future, we will come to the end of what I call "tiny type." All the material printed in seven-point or smaller type – classified liners, stock listings, sports scores, TV listings, weather reports – will go up into the new media realm.

My assumption here is that newspapers will continue to gain a similar profit margin for any advertising-related tiny type that gets moved on-line. That's not to say you'd charge the same amount for a three-line classified ad on the Web as you'd charge in print; you'd just make sure you were making the same profit.

My estimates are that almost one-third of today's typical newspaper is filled with tiny type. Think about what will happen when the newspaper universe is cut by one-third: newspapers to deliver that are one-third smaller, a press run one-third shorter and one-third less newsprint to buy. Further, with all the liner classifieds taken out of the mix, you could decide what your ad-edit ratio would be. Read: decreased costs.

And that dot-com advertising? That is going to dry up. Think about it: When Amazon.com buys Buy.com (as a hypothetical example), will the resulting company buy as much advertising as the two competitors bought? No. Read: decreased income.

I don't think most publishers are prepared to manage a newspaper company that is as radically different as the newspaper I envision five years from now. The transition will be difficult. Some publishers will be successful, others will not. We will see a number of papers close because they will have been unable to make the transition; we will see other papers lose profits and prestige because they will have had an arduous time of it.

And those companies with tracking stocks? We'll be wanting their institutional smarts back under the wing of our old media companies, because in the not-to-distant future, there will be no difference between old media and new media – it will all just be media (in our case, newspapers).

Let's hope that, as Sinatra said, it will be a "mess of good years."

– David M. Cole

Inside ...

• Analysts see 2000 as posing challenge; strong ’99 raises the bar
• Four newspaper firms report records for last quarter 1999
• Annual earnings reports positively glowing – more ads, cheap newsprint
• Chicago Sun-Times sells copies in distant cities – Phoenix, Denver
• Publishers find labor pool awash in higher costs
• Persons

From NEWSINC., Feb. 14, 2000, Copyright © 2000, The Cole Group. All Rights Reserved.