Gannett in the midst of massive layoff...

I haven't been covering the Gannett layoffs as much now that Gannett Blog is on top of things.  But it looks like Gannett is in the middle of a massive layoff.  It's been rumored for weeks that the Republic would have a huge layoff in December and if the news from the rest of Gannett is any indication, then the rumors have come true.    

I'm often asked why an industry with double digit profit margins needs to have layoffs.  After all, other industries operate on razor thin margins while a paper like the Republic might have a 20% profit margin.  Aren't the papers just being greedy?  Why the doom and gloom?

My response is that grocery stores for example have profit margins in the 3% range, but a lot of that is cost of goods sold.  So if they sell less, their costs drop.  They remain profitable, they are simply smaller. 

Newspaper costs are almost entirely fixed.  The first newspaper off the press each day costs nearly a million dollars and the rest cost a few cents each.  So if the Republic has a 25% profit margin on just over $400 million dollars of gross revenue then it has a net income of about $100 million and looks solid. 

But if ad revenue drops 20% or 30% then the cost structure will essentially remain the same.  So going back to the previous example, if the Republic has a 25% profit margin on $400 million of gross revenue then it has $100 million of profit and $300 million of costs.  If total revenue drops 20% then the Republic would have $320 million in revenue and still have about $300 million in costs.  That's a $20 million profit margin of just 6%. 

In fact, ad revenue dropped nearly 20%  last quarter alone.

Newspaper ad revenue fell almost $2 billion in the third quarter for a record 18.1% decline, according to new statistics from the Newspaper Association of America. What's worse, newspapers' online ad revenue fell for the second quarter in a row.

The Phoenix market has been hit harder than the national market, so it's likely that the  Republic's third quarter revenue drop is steeper than 20%.  So in my example--since revenues continue to fall--the Republic would swing to a loss in the next couple weeks. 

The industry's original plan (hope) was that internet revenue would rise fast enough to replace the lost ad (and classified) revenue and stay in the black.  That didn't happen.  In fact, as I pointed out over a year ago that strategy never had a chance of success.

So management has to cut costs.  Frankly, they have done a pretty good job.  They have cut production costs by using thinner paper stock; the paper is also much narrower, the news hole has been reduced; they have eliminated marginal rural distribution and they have laid off or bought out the more expensive employees.  Now they are planning another large layoff.  

However newspapers--perhaps more than any other industry--must have a critical mass to survive.  If the Republic management could reduce expenses to, say, $200 million a year, the paper would move back to profitability, but it would no longer look like a newspaper and revenue would plummet.  That's a death spiral.

The Tribune has already undergone this collapse.  First it laid off employees and cut circulation area, then it eliminated days, switched to a tabloid format and finally eliminated subscriptions completely. 

These changes cut costs, but they dramatically reduced revenue as well.  Not only did the Trib lose its subscription revenue, but it also can no longer accept public notices because it is no longer a general circulation newspaper.   Advertisers don't value a free paper as highly as a paid subscription paper, so ad revenue will have plummeted as well.  It looks to me that the Tribune is in a winding-down mode. 

The Republic could easily lose its critical mass as well. 

Normally, the management would continue to spend enough money to make the Republic look like a viable paper and operate at a loss until revenues come back but that strategy has two requirements--a temporary downturn and a strong parent.  The Republic has neither.  The Arizona economy will take years to recover meanwhile, advertising dollars will still migrate to other media and classified revenue will continue to disappear.  As for the strong parent, Gannett stock is down over 77% this year alone.

So what will the Republic look like in the future?  Well, it's not going away.  It may migrate to the web.  That would eliminate all the production costs but probaly still wouldn't be profitable with the existing labor pool. 

My guess is that it will look like the Tribune in the next couple years and the Arizona Capitol Times in a decade. 

But one thing's for sure.  This isn't going to be a pretty week. 

Comments

[Captain Obvious]

"The first newspaper off the press each day costs nearly a million dollars and the rest cost a few cents each."

My suggestion would be to not print the first copy then.

[Brian]

When I attened the Walter Cronkite school of journalism in the 90s one of my professors was an editor at the Republic. He saw the handwriting on the wall and made sure his student's new the future of the newpaper business.

I have never worked in my field of study and am glad for that.

I'm sad to see so many people layed off, but it was bound to happen.

We live in a digital age and new delivery is shifting to an electronic medium.

[Brian]

Based on the fact that I can't even spell "knew" correctly, it is a good thing I don't work in the newpaper business!!! ;)

[DGN]

I happened to sit next to an older gentleman at a football game recently.

We struck up a conversation, and in the midst of our talk he related how he had just sold an item on craigslist.org. It sold within a matter of hours.

He was impressed with the speed of the sale and the fact that it was free. He told me the newspaper could never have matched that.

The gentleman I was speaking with was a former publisher of the Tribune.

[TS]

A couple minor points:

1) No newspaper worries about losing its "subscription revenue." Subscriptions, by themselves, have always been money losers. When you factor in all the associated costs, from marketing to carriers, a paper loses money on every subscription.

The important factor is total circulation, which determines how much a paper can charge for ads.

2) The idea that advertisers prefer a paid-subscriber model over free distribution is outdated. Just ask alternative weeklies, which have been raking in huge profits for decades.

Advertisers couldn't care less about paid subscriptions. They care about the response to their ads. Period.

[bella]

TS, yes this is somewhat true, but to bigger advertisers, there isn't much value in "free". If I am going to insert or advertise, I want to know who, what and where. Smaller advertisers DO want response but if no one is picking up your FREE publication because it's not a good source of anything...well... no point. No circulation? How are they determining rates? Are they going to charge the same? Lower? The Trib may just be having their last gasp.

Also, the audience isn't as certain as it was prior to becoming free, your circulation isn't a specific number (as much as it can be anyway) as it may have been with paid subscribers (captive audience) and someone who picks up your paper and buys it.

In the Trib's case, they have NEVER cared about their subscribers/readers anyway so it's neither here nor there.

As a side note, when a place says they are migrating everyone to one part of the building to shut down another part of it to "cut costs & save money"... that's a VERY, VERY bad sign.

Trib folks (the GOOD ones that are still left after January), I wish you the best.

[Kevin Boneske]

The negative impact that results from a monopolistic media takeover has become obvious in recent years in Northeast Wisconsin. For example, the Gannett Corporation's buy-out more than 4 1/2 years ago of what were known for decades as the Algoma Record-Herald, Kewaunee Enterprise and Luxemburg News, which were replaced in 2007 by the "Kewaunee County News," has brought about change for the worse with corporate cookie-cutter journalism placing profit margins over people.

Along with the local staffing cuts, Gannett initially rolled out the Kewaunee County News in a tabloid-style publication as the megacorporation went "on the cheap" with less space for news and sports, before trashing the tabloid after only about a year of existence. The so-called "broadsheet" format that now appears also illustrates Gannett's preference for superficial journalism.

The year before Frank Wood sold out the newspapers he owned in Northeast Wisconsin to Gannett, former Door County Advocate editor Warren Bluhm, who is now the opinion editor for Gannett's Green Bay Press-Gazette, described the Gannett Corporation as "the print equivalent of the Wal-Mart-style companies that swoop in, gobble up locally owned businesses and crush what's left of local competition with predatory pricing and adherence to corporate formulas. Lord help any community that is 'blessed' to have its local flavor absorbed by Gannett."

While I held in high regard a number of the staff members who remained before Gannett's "launching" of the Kewaunee County News, it is the megacorporation's misguided management that has tainted what appears locally. For example, I witnessed how certain editors prefer being cozy with certain sleazy people in power, rather than publicly holding them accountable for disgraceful deeds.

To put it simply and nicely, it was because of Gannett's sleazy practices that I sought out employment elsewhere after more than seven years being a journalist for the former Algoma Record-Herald, Kewaunee Enterprise and Luxemburg News.

When I wasn't hampered by the heavy hand of Gannett's misguided management, however, I enjoyed covering issues of interest to people in Kewaunee County. Individuals from across the political spectrum praised my election-related coverage, for example.

I worked most of 2007 as a reporter in Wisconsin's Northwoods, before returning to Northeast Wisconsin in early 2008 to begin another better-paying job than what I had in approximately 2 1/2 years working in the Gannett Empire.

In 2007 I filed a labor standards complaint against Gannett with the Wisconsin Department of Workforce Development after the megacorporation resorted to smear tactics against me. The DWD found Gannett violated state employment regulations after improperly releasing false accusations about me contained in personnel records I disputed.

While Gannett claims to promote journalistic "diversity," the megacorporation arguably turned the newspaper market in Northeast Wisconsin into the Green Bay Press-Gannett, Kewaunee County Gannett, Door County Gannett, etc., etc. Hopefully other information sources, such as blogs on the World Wide Web, will provide true diversity by covering in-depth what Gannett would rather suppress or superficially present.