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Will the last person to leave the newsroom turn the lights out?

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It should be simple: If a competitor’s product is better than yours and stealing your customers, then make your product better than the competitors’ and find a way to get it to those customers.

But that’s not the attitude of managers of newspaper companies (to say nothing of their institutional partners). Increasingly, the true owners of newspaper companies seem to be investors, so the motives of investors rule the decisions made by executives of newspaper companies.

Investors believe newspaper company executives and boards of directors should base their actions solely on protecting shareholder value. That means decisions affecting the quality and quantity of journalism reflect business rather than public interests.

That’s why newspaper companies have been “downsizing” their operations — meaning they’re reducing staff. So far this year, more than 2,000 journalists have lost their jobs. It’s not just in the newsroom, either. The people who make ad sales calls, who get the paper to those who pay for it and those who actually print it — they’re getting “downsized” as well.

But these staff cuts, driven by attempts to lower costs faster than dwindling circulation and ads lower revenues, can only go so far in maintaining profit margins.

And investors know it. As a Katharine Seelye piece in The Times put it, “Old media collide with new math.” Her piece explains:

The fate of the [Knight Ridder], the second-largest newspaper publisher in the United States in terms of circulation, behind Gannett, is being closely watched as a signpost for the future of other newspapers at a time of great transformation, anxiety and uncertainty within the industry. The newspaper industry is on the defensive, with circulation stagnant, advertising dollars migrating to the Internet and newsrooms reducing their work forces to save costs.

Given all that, it may be hard to believe that newspapers are actually profitable, but they are. And Knight Ridder is among the most profitable.

So newspaper companies ought to be happy, right? They’re making money, right?

But, Seelye explains, “the company’s three largest shareholders … perceived the company’s stock as undervalued and demanded that the company be put up for sale.” That means these institutional investors believe the company is worth more as parts rather than a coherent whole. So it’s likely that KR will be finding itself unwillingly bought as a whole so that its parts can be sold off to enhance shareholder value.

At a time when raw profit margins suggest the newspaper is healthy, it’s really on the sick list. As discussions of what to cut and how and when to sell and to whom and how to appeal to what readers and how, something gets lost. And that’s the product — the news — itself.

News is rapidly being devalued by investors in newspaper chains because of the focus on maintaining or increasing shareholder value. Readers aren’t dumb: They know these cuts leave fewer journalists available to produce credible work. Is it any wonder, then, that the product — news — carried in newspapers is increasingly devalued by readers? (See the American Journalism Review “State of the Newspaper” poll) Here’s what long-time media critic Todd Gitlin and Olivier Sylvain say:

The chains are running scared from the very business of news gathering. In doing so, they’re likely tilting into a downward spiral. Shedding reporters, they’ll sacrifice scope and depth, range and investigation. This will probably cost them still more readers. Losing readers, they’ll lose advertisers and revenue, too.

That last sentence represents the crisis investors say warrants drastic actions on the part of newspapers’ management to shore up earnings. Eighty percent of newspaper revenues come from advertising — and a third of that is from classified ads. So, they say, fewer eyeballs means less revenue, which means more jobs must be cut to maintain profit margins.

Such thinking is crass and shortsighted. Newspapers’ management, instead of investing in developing a better product — the best journalism they can — and the means to deliver that product through the various media and technologies that younger audiences increasingly use, are trying to change the rules instead. Managers want to “count” readers differently than the traditional “paid circulation” model. They want to add in a Web metric to inflate “readership” to justify their increasingly high advertising rates. And newspapers have cheated in the ways that they count readers, too.

This has led to analysts’ downgrading their outlook on the newspaper industry. Says one:

Newspapers, [Fitch Ratings] says, will face not only the problems “common among slow-growth companies in mature industries,” but a swarm of other fundamental shifts such as the continued migration of news consumers to the Web, hastened by the spread of broadband — which Fitch says could begin to impact even small-city and rural publishers in 2006. [Emphasis added]

Even the old Gray Lady took a hit from a ratings firm. According to Editor & Publisher:

Prudential Equity Research Group downgraded The New York Times Co. to “underweight” from “neutral” because … [t]he company is lagging behind its peers, it’s offering little guidance for 2006, and its capital expenditures could double.

Is this forecast a result of newspaper companies’ seeking to maintain their stock price by cutting people rather than improving the product and distribution schemes? The Times has a successful Internet news operation. But success for analysts is defined as creating shareholder value. Says media critic Ken Auletta:

Today, the online edition of the Times makes money and is the most trafficked newspaper Web site in the world. The question remains, however, whether a Web business model can generate sufficient revenues to help support such an expensive newsroom. [Emphasis added]

Many media critics, including me, have called for a new “business model.” (See earlier posts here and here.) The American Press Institute plans to invest $2 million into its “Newspaper Next: The Transformation Project” campaign to examine future business models for newspapers. The Newspaper Association of America has a Web site called “Horizon Watching” in which it explores “Media Disintermediation” (no, that’s not a typo) and offers thoughts about business models. Even non-profit models have been floated.

For me, the question remains simple: After all the hacking and whacking at newsrooms, who will be left and have the capability to provide me with news I need as a citizen? As a consumer? As a voter? As this roiling wave of investor-driven decisions filters down to smaller and smaller circulation newspapers, I wonder how my hometown paper will fare.

After all, I want to know the factors that will raise my property tax. No blog is going to tell me that. I want to know what my school board is up to — because that’s half of my property tax. I want to know what’s going on in my own community. That’s what newspapers are supposed to do — give me the news I need as well as the news I want.

I’ll pay for it, too. If it’s online, so be it. If it’s delivered to my cell phone, so be it. I’ll read a book with my morning caffeine instead. Just make sure I get good journalism, the journalism I need, and I’ll pay a good price for it.

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Written by Dr. Denny Wilkins

December 12, 2005 at 6:01 pm

Posted in Uncategorized

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