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Papers and the Profit Squeeze
By Andrew Haeg, Minnesota Public Radio
May 3, 2001
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The economic slowdown is sparking cost-cutting campaigns at newspapers nationwide. In the Twin Cities, both the Star Tribune and the Pioneer Press have announced plans to reduce expenses. But as newspapers look for ways to respond to profit-hungry investors, concern is growing that the measures may threaten their ability to carry out the mission of informing the public.
The St. Paul Pioneer Press is undergoing cost-cutting in the wake of plummeting profits of its parent company, Knight Ridder.
(MPR Photo/Carl Goldstein)
Other Knight Ridder papers:
  • Detroit Free Press
  • Duluth News-Tribune
  • The (Fort Wayne) News-Sentinel
  • Fort Worth Star-Telegram
  • Grand Forks Herald
  • The Miami Herald
  • Philadelphia Daily News
  • The Philadelphia Inquirer
  • San Jose Mercury News
  • The Wichita Eagle

    AT NEWSPAPERS THROUGHOUT THE COUNTRY, the story is the same. Newsprint prices are rising quickly while advertising revenues are plummeting.

    Pioneer Press Editor Walker Lundy has worked at newspapers for more than 30 years. He's seen fortunes rise and he's seen them fall, but never so severely as this year. "We've had recessions where advertising has taken a nose dive, and we've had times when newsprint has soared. We've never had them both happen at the same time," he says.

    Profits at Knight Ridder, The Pioneer Press's parent company, plunged 75 percent in the first quarter compared to last year. Profits for the same period at the Star Tribune's parent company, the McClatchy Co., dropped by 34 percent.

    Neither the Star Tribune's publisher nor editor was available for comment. But spokesman Frank Parisi said management doesn't expect relief soon. "The long-term viability of the news organizations are not threatened, but there are short-term realities we have to deal with," according to Parisi.

    Profit margins at the McClatchy Co. are still about 13 percent. At Knight Ridder, margins are closer to 19 percent. Those are healthy numbers in most industries.

    "The newspaper industry historically has had high profit margins, and increasingly so in recent years," says John Morton, a newspaper analyst in Maryland who writes a column on the industry for the American Journalism Review. "When you go into a recession - if that's what we're going into - it doesn't mean the newspapers lose money. It just means they don't make as much as they used to."

    Investors don't like to hear such messages, so they pressure companies to take action. Knight Ridder and McClatchy have decided to cut costs. Knight Ridder has said it will cut employees, although it's not yet saying how many. For now, the Star Tribune is limiting its moves to letting staffers take unpaid time off. It's also cutting travel costs.

    The Pioneer Press also hasn't announced any layoffs. Instead, it's offering early-retirement packages and severance packages for employees who want to quit.

    All this talk of cost-cutting is sparking controversy in an industry that prides itself on covering it.

    Other McClatchy papers:
  • Anchorage Daily News
  • The Fresno Bee
  • The Modesto Bee
  • The News & Observer (Raleigh)
  • The News Tribune (Tacoma)
  • The Sacramento Bee
  • Chapel Hill News
    Jay Harris, who was the publisher of the San Jose Mercury News, another Knight Ridder paper, resigned from that position. "Not entirely for newsroom-related reasons," he says. When the parent company prepared to lay off a sizable number of employees at the paper, Harris quit. In a speech before the American Society of Newspaper Editors, Harris said investor greed threatened to debase the newspaper's public mission.

    "The point has been made that American newspapers on average are better than ever. I agree. But their improvement, their upward momentum, is being overcome by the gravity of the marketplace. The drive for ever-increasing profits is pulling quality down. Unless some booster restores newspapers' upward momentum, gravity will take over with potentially irreversible consequences," Harris said.

    The Pioneer Press's Walker Lundy says despite cost cutting, the paper's journalists will continue to produce ambitious reporting like the series on academic fraud in the University of Minnesota's basketball program that won the paper the top prize in journalism.

    "When I told the staff that we were going to have to make some pretty tough changes, I also reminded them that nothing we do is going to prevent any of them from doing great journalism. If we had an opportunity to cover the story that won us the Pulitzer Prize today, we would still be able to cover it as aggressively as we did then," according to Lundy.

    The Star Tribune's Frank Parisi says it can be a juggling act - the newspaper can please both the public and investors. "The suggestion that we should lower our economic standards, financial standards, because we're going to lose sight of our public service, we don't buy that. We think we can do both," he says.

    That thinking may face a stiff challenge if corporate profits sink any lower. Barring surprise announcements of job cuts, the next big test for McClatchy and Knight Ridder comes in July, when both companies release their second-quarter results.