New York Times Company and Knight-Ridder Announce Further Layoffs Based on Glum Advertising Forecasts Triggering Major Sell-Offs As Major US Newspaper Groups See Their Shares Sink Below 52-Week Lows

Philip Stone September 22, 2005

It was only last May that the New York Times Company announced 195 layoffs so another internal “Arthur” and “Janet” note this week so soon afterwards announcing another 500 employees are to go – 4% of its workforce -- has rocked the US newspaper establishment. “Arthur” is Arthur Sulzberger Jr, chairman of the New York Times Company and publisher of the New York Times, and “Janet” is Janet Robinson, president and CEO. When they talk of hard times ahead the whole industry shudders.

Add to that Knight-Ridder announcing on the same day that 100 newsroom employees at its two Philadelphia newspapers must go, that the San Francisco Chronicle has bought out 90 employees but wants at least another 30, that Newsday cuts 45 jobs and reduces its New York City coverage, that The Los Angeles Times, The Houston Chronicle and  … well, no need to go on, you get the general picture!

With the third quarter coming to a close it is evident that September – usually a strong advertising month since people have returned from holidays and its back-to-school time – has been quite dismal and forecasts running through Christmas seem no brighter.

Arthur and Janet told staff, “Given the continued financial challenges and the cloudy economic outlook for the remainder of the year, we believe it is prudent and necessary to initiate this additional reduction.”  About half the job losses will come from the New York Times operations – including 45 in the newsroom – about 160 from its New England operations including 35 at The Boston Globe and the rest will be spread through other parts of the company.

The Times warned that its third quarter earnings would be well below forecasts. If it were not for 27% advertising increases at its digital businesses while about.com, that it bought earlier this year for $410 million, had a 39% increase in ad sales, the overall results would be even more dismal.

Knight-Ridder had already warned its third quarter earnings would be down 20% and said that August advertising revenues were “soft”. It is cutting 75 newsroom personnel – 15% -- from the Philadelphia Inquirer, and The Philadelphia Daily News is cutting 19% of its newsroom, 130 down to 105.

More and more Wall Street analysts are taking a very gloomy view of the US newspaper business, seeing very little advertising growth in print itself while costs continue to go up sharply for such staples as newsprint (about 9% higher this year).  Newspapers showing decent advertising advances are doing it mostly on the back of their digital operations.

Morgan Stanley says newspaper company shares are down about 11% thus far this year, and went down 5% last year.

Goldman Sachs had told investors last July when prices were “rock-bottom” that there was still room for them to fall even further, and the NYT and KR announcements this week showed how right that advice was. The New York Times Company, Gannett, and Knight-Ridder broke through their 52-week lows this week. Gannett, the largest US newspaper, interestingly said it had no plans for wholesale firings such as those at the NYT and KR, but that didn’t stop (or maybe it was the cause of) a 5 % fall in the share price as it broke through the 52-week low.

This is Arthur...

...and this is Janet.

The media itself is of two minds about all of this.  For instance on one day last week the respected Forbes.com web site ran a headline, “Don’t Write Off Old Media.” And less than four hours later ran the headline, “Newspapers Get Beaten to a Pulp” There is a sense this can’t all really be happening, and yet it is.

And when James J. Cramer, a respected analyst with a very large public following, writes in The Street.com, “For the last decade …there’s been no growth in the business.”  With newsprint and delivery charges ever-increasing, “a bleaker situation looks, alas, even more bleak than I thought,” then it is a fair indication of what Wall Street really thinks.

There is no question that sites such as Craigslist have severely dented classified revenues. But now Merrill Lynch weighs in with even more bad news – that retail ad revenues could get hit hard from Federated Department Stores shifting its advertising spend to direct mail and TV, and it believes that’s why August’s overall newspaper advertising numbers were down.

Indeed, Federated had a direct effect on what happened in Philadelphia. It recently acquired Strawbridge’s department store, but since Federated was already an advertiser it combined its spend, reducing the overall amount. Federated is said to spend nationally about $900 million annually on newspaper ads – about 2% of the industry’s ad receipts – and any diversion or reduction of spend quickly hits a newspaper’s bottom line.

But not everyone is down on newspaper shares. Private Capital Management (PCM), a leading US portfolio manager with an excellent track record that only handles private portfolios of $2.5 million or more, has been taking advantage of share price declines to become among the largest shareholders in several of the major newspaper companies, according to the Wall Street Journal.

PCM is the largest shareholder in Knight-Ridder at 18%, it holds 15% of the New York Times Company (only the Sulzberger family has more), and substantial holdings in Gannett, Media General, McClatchy, Journal Register Co., Lee Enterprises, Inc. and Belo.

In all it has around $4.billion of its $29 billion invested in the US newspaper business. It kind of makes you wonder what they know that we don’t.

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