Everyone trying to lose weight should know that the trick is to cut fat and not muscle. This is not a lesson media companies have learned.
Last month, Private Capital Management, a $32-billion money management firm, issued a sell-or-be-gone ultimatum to the board of Knight Ridder, the second largest newspaper proprietor in the land. And Knight Ridder has just received preliminary takeover bids.
The prospective sale presages bad news for readers and reporters, and likely in the long run, for business, too. PCM is Knight Ridder's largest stockholder, with 19 percent of the shares. Knight Ridder owns 32 daily newspapers totaling a circulation of 8.5 million on weekdays and 11 million on Sunday. Its five largest holdings are big names in journalism: The Philadelphia Inquirer, San Jose Mercury News, The Kansas City Star, The Miami Herald and Fort Worth Star-Telegram. Knight Ridder's news service alone has 42 correspondents, several of whom have been responsible for outstanding coverage of the much-hyped weapons of mass destruction issue in Iraq.
Newspaper companies are setting sliding goals and then defining themselves as business failures. When he became chairman and chief executive of Knight Ridder in 1995, Tony Ridder declared that the chain's profits of 8 percent weren't up to snuff - that the company should be able to make 15 percent. Ten years later, Knight Ridder makes upwards of 20 percent, but that's no longer enough for Wall Street, with the stock price sliding. The chain's biggest stockholder is restless. It has no soft spot for newspapers. It has a soft spot for more - not more news or stronger, more comprehensive news, but more profit next quarter and next year.
In this Knight Ridder is not alone. The Tribune Co. said it cut 900 jobs this year at media outlets including The Baltimore Sun, Los Angeles Times and Newsday, despite publishing profits close to 20 percent. The liberal group Moveon.org Civic Action has recently protested against Tribune, among other companies, charging that Tribune cut jobs this year while garnering $586 million in profits on its publishing operations - up 19 percent over last year.
Indeed, virtually every major newspaper holding company in America has announced reorganizations, sell-offs, buyouts, and - most alarming to anyone who cares about journalism's watchdog role in a democracy - staff cuts. By whacking back staff, newspapers are cutting the very newsgathering resources that are their wherewithal. They're cutting muscle, then cutting into bone. This is not only a disgrace to American journalism; it's a myopic business plan.
There is little question that publicly traded newspaper companies must, like others, create shareholder value. But as executives, board members and shareholders seek maximum returns, some of the same companies offloading reporters have been earning in double digits even as their circulation declines. Still, under worsening market conditions, to think that newspapers can be nearly as profitable as broadcasting properties - with their 30 to 50 percent returns (on free licenses, after all) - is foolish.
For one thing, electronic media, particularly the Internet, are giving newspapers a run for their money. The Pew Research Center reports that 23 percent of Americans say they go online for news every day, up from 15 percent in 2000. This trend in online news consumption is highest among young people but not limited to them: About 30 percent of Americans between the ages of 30 and 49 cite the Internet as their main source of news. People who don't start reading newspapers young rarely acquire the habit later in life.
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.
Instead of succumbing to short-term strategy, publishers need to think about new services they can offer both online and in their dead-tree editions. Specialized reporters can prove indispensable to readers. Meanwhile, shorter, shallower articles by fewer reporters may alienate more readers than they attract.
To investors thinking only of comparative returns, newspapers are immaterial - simply the occasion for profiteering. The readers' interest? Irrelevant. The public interest? Be damned. No one can guarantee that better newspapers will make more money, but newspapers need investors who care about their products even if they could make more money selling pornography, soft drinks or widgets.
Todd Gitlin, left, is a professor of journalism and sociology, and Olivier Sylvain a PhD candidate in communication, both at Columbia University.
