Gannett to whack 1,000 jobs: Wall Street wins; public loses

If you’re a CEO whose company has shorted its customers on quality and safety, you’re breathing a little easier today.

If you’re a politician who has traded favors with the über-rich in exchange for campaign cash, you’re relieved.

If you’re a government official who has allowed ideology or bribes rather than dedication to public service to shape your decision-making, you’re home free.

That’s because there will be fewer journalists nosing around on your turf.

Gannett Co. is eliminating 1,000 jobs across its newspaper operations, including 600 layoffs. That includes 84 dailies such as The Arizona Republic and the Detroit Free Press as well as nearly 900 non-daily publications but not USA Today, reports the Chicago Tribune. That means fewer journalists available to defend the public’s interest.

What’s particularly cold about this news is Wall Street’s reaction. Gannett’s stock price had fallen about 60 percent from a year ago. When the news hit the Street, Gannett’s stock shot up. According to a MarketWatch story by Jon Friedman, a longtime industry observer:

Gannett’s stock-market jump is a commentary on how Wall Street thinks. It’s an exacting boss. There is a saying that the stock market has no memory. Professional investors care about the future — they are the ultimate frontrunners and their motto may well be: what have you done for me lately?

Gannett has historically been regarded as a prudent, well-run company. But Wall Street on Thursday isn’t rewarding the company for once having the optimism and long-range strategy of launching USA Today in 1982. Nor is the Street hailing Gannett for its years of expertise and strong management.

Instead, Wall Street is thanking Gannett for cutting costs, big time. [emphasis added]

The personnel cuts (which go beyond the newsroom) remain incomprehensible. As argued repeatedly at S&R, an industry that devalues its product by tossing overboard the people that principally create that product is foolishly reducing its ability to compete effectively with other media distributing information — including news that people want and need to lead informed, productive, satisfying lives.

The true owners of newspaper companies such as Gannett are large institutional investors concerned about obtaining the highest rate of return on an investment in the shortest time. Investors seek to maintain a newspaper industry profit margin now hovering in the mid- to high teens. But revenues are declining, mostly because of decreased print ad revenues (and a sour economy). Do the math: 16 percent X declining revenue = declining return. Astute financial analysts could probably speak to this more effectively than I. But Wall Street’s needs continue to dominate newspaper industry decision-making.

The industry sold its soul to Wall Street decades ago as a means to finance consolidation of formerly family-owned papers (with profit margins of 20 and 30 percent or higher) into conglomerates. Efficiencies of scale led to higher profits. Wall Street reaped high rewards from bankrolling a huge cash cow.

But the newspaper industry’s timid, inept leadership failed to timely recognize the competitive force of the Internet. Now the industry claims the Internet is its revenue generator of the future, pointing to ad sales figures showing double-digit growth in online advertising. But the gross of online revenue remains a pittance compared with the much larger (though declining) print ad revenue. Thus, to keep Wall Street happy, the news biz falls back on its favorite trick: Slash expenses to maintain the all-important and increasingly illusory profit margin.

The Street is thus appeased. The public is the loser. Journalists hold government (and corporations can be considered a government these days) accountable for its actions. With fewer journalists on watch, more actions of government and corporations go without public inspection.

The newspaper industry needs a new business model if the public is to be better served by journalists — as it once was, long ago.

• • • • •

More readings on the newspaper business:

• NYT’s 1Q profit bombs: Now what?
• Say what? A new business model for news should begin with … profit?
• Booting the boys off the bus: Coverage costly, newspapers whine.
• ‘Penny’ press redux: a new business model for journalism?
• Journalism then; journalism now: comprehending the difference.

xpost: Scholars & Rogues

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