QUARTERLY RESULTS RECALL LESSONS OF HARD TIMES

Good news flows now, but steps are needed to keep it flowing

You don't have to be a Harvard MBA to realize there are two factors that drive business profitability: limited expenses and aggressive income.

As we enter into another earnings season for the publicly traded U.S. newspaper businesses, it's clear once again that newspapering can be a good business as long as you can keep the cash outflow low and the cash inflow high.

Continued low newsprint prices and robust advertising have made the first three months of 2000 a rosy one for virtually all nine newspaper companies that have reported so far (the exception is Media General, which has a significant investment in newsprint manufacturing). We anticipate that the remaining eight companies that we track will report equally cheery numbers over the next couple of weeks.

And as much as it doesn't take an Ivy League education to figure out the profitability equation, even a dropout from a state-sponsored college can remember back to less than a decade ago, when costs and income were running in opposite directions.

The early to mid-'90s were a bad time for U.S. newspapers. A recession had knocked retailers for a loop, and for the first time in history they had an alternative to advertising in newspapers for generating sales – direct mail. After that staggering body-blow, papers were then hit with the upper-cut of rapidly increasing newsprint prices. When the price of your main consumable – your major non-personnel expense – goes wildly out of control, what are you going to do?

The answer was to cut costs elsewhere and to make the overall operation more efficient. Someone once said that you can't cut your way into growth, but U.S. newspapers seem to have ceded growth to other industries in recent decades. The mentality was to figure out ways to create profitability with a shrinking customer base. Although there are many points on which that strategy can be criticized, the double-digit profit increases did in fact return when newsprint prices stabilized and advertising increased.

As I have often said, in the mid-'80s even an idiot could make money in the newspaper business – and many did. But today, a publisher has to be acutely aware of a vast number of factors to stay on top of the business.

A newspaper executive in the new century has to be an expert in an array of highly technical specialities: marketing, advertising, editorial, manufacturing, distribution, digital technology, new media, finance and personnel. In addition, the thoroughly modern newspaper publisher has to have more than a passing knowledge of all other forms of media: TV, cable, radio, magazines, books and the dreaded direct mail.

One of my journalism professors in the ’70s used to bemoan the changes of newspapers – he disdained the term "product" and believed that too many marketers were having too great a say in how newspapers were designed, executed and sold.

But it has become clear in recent years that papers had a choice in the last 30 years of the last century – either they evolved into something new, something entirely different than the newspaper of the pre- and post-World War II era, or they would die.

In a world where there were essentially but a mere handful of media available to the public, there was room for two or more newspapers in an American city. Today, when our readers complain that their biggest problem with us is that they just don't have the time to read us, there will become more and more communities where there will be no daily service at all.

And so, amid a series of record-breaking financial quarters for publicly traded U.S. newspaper companies, isn't now the time to start asking some questions about what the future will bring? What will be the U.S. newspaper of the 21st century?

And how can we make it a viable business, one in which the capitalists of Wall Street will willingly invest?

– David M. Cole

Inside ...

• Four companies report record earnings per share in first quarter
• Political season brings out new push for campaign dollars
• Pennsylvania market reflects industry bid to keep readers
• Knight Ridder-Times buying consortium builds on experience
• How not to count web traffic
• Persons

From NEWSINC., April 24, 2000, Copyright © 2000, The Cole Group. All Rights Reserved.