Bad News For Press Manufacturers – Newspaper Foes Are Doing Printing Deals To Cut Capital Expenditures and Better Utilize Capacity

Philip M. Stone October 23, 2008

Newspapers that have been foes over the years are discovering that it doesn’t hurt to be friends after all, especially when it comes to a win-win for all involved – except for those employees who lose their jobs because of such new-found collaboration.

Which is why much is being made of the deal announced this week that Tribune’s Sun Sentinel in Ft. Lauderdale, Florida, is going to undertake, starting in December, to print the competitive newspapers from “up the road” – the Palm Beach Post, Palm Beach Daily News and La Palma.

But for those Cox newspapers in Palm Beach it means the loss of some 300 jobs in the production, mailroom and transportation departments.  It was only this past summer that the Palm Beach newspapers eliminated 300 positions in  advertising, circulation, production and some newsroom jobs,  so for newspapers  that had 1,350 employees at the start of the year it means a total cull of some 45% of staff within  little more than a year. A sign of the times.

But the deal doesn’t stop at printing. The Sun Sentinel will deliver the Post’s newspapers to warehouses in four counties including Palm Beach. The issue at the Post newspapers was simple – either spent a fortune upgrading aging presses and build a new printing plant to house them, or do a deal with a competitor that has great press facilities and spare capacity. It’s a win for Palm Beach in not having to make the capital investment; it’s a win for Tribune  that  desperately is looking for new revenue streams and it gets more use out of its presses at its Deerfield Beach printing plant located just some 26 miles (47kms)  south of Palm Beach.

It’s not the first such deal that a Tribune newspaper has made.  The Baltimore Sun is printing and in some cases delivering The Washington Times. The Chicago Tribune has been distributing the Chicago Sun-Times since late last year.

And within companies there is printing consolidation going on. In California, for instance, McClatchy’s Modesto Bee is going to be printed “up the road” by its sister Sacramento Bee that has faster presses with greater color capacity.

What seems to be going on is that in the poor economic climate that for newspapers is expected to last well into 2009, newspaper publishers are looking for ways to put off major capital investments – and they don’t come much bigger than new printing presses with a new plant to house them. Is such investment the way forward now or better to do a deal with someone who already has great color output and has the spare capacity?

That was the choice, for instance, facing the Lee Enterprises Courier in Waterloo, Iowa, that has done a deal with the Color Web division of the Cedar Rapids Gazette. The Courier has 25-year-old presses and the current facility would not be able to house the new presses needed and thus the outsourcing.

There’s no question there will be more and more of these types of deals announced as newspapers contemplate making decisions they wouldn’t have dreamed of making just two years ago.

Dean Singleton, CEO at Media News, really put the cat among the pigeons earlier in the week when he said he was contemplating editorial outsourcing for his California newspapers. That came as a shock to the unions who said they were not aware of such plans and three unions issued a joint statement saying, “A Media News proposal to wipe out copy desks at newspapers across the country threatens not only hundreds of jobs, but also quality and credibility -- values the beleaguered newspaper industry needs now more than ever."

But no matter how much the unions may beat their chests on such outsourcing ideas, they actually have a rather bleak stark choice. Either go with the outsourcing and downsizing or find themselves out of work because their newspapers no longer exist. They have only to look at McClatchy to see how precarious things can get.

Fitch this week downgraded McClatchy’s debt yet again even further into junk territory; the company has already renegotiated its debt at higher interest to avoid violating some covenants and it is cutting away at every unnecessary cost it can find in order to preserve cash flow to meet debt payments, and it is making property sales where prudent. And yet its shares are down more than 90% over three years, its September advertising figures were the worst so far this year, and CEO Gary Pruitt says he sees no improvement for October.

So companies like McClatchy are doing whatever they need to do to keep up with the loans payments and stay within the rules of the loans and many newspapers are now financially in an environment where they have to do what they have to in order to survive. As Singleton said, “Fond memories of dead newspapers will do nothing for our communities.” 

Other newspapers have decided to test the loan default waters, probably as pressure on their lenders for easier terms. Minneapolis and Philadelphia newspapers have already skipped debt repayments,  but they are still around to tell the tale. Gatehouse Media, owner of some 500 newspapers,  has been delisted from the New York Stock Exchange -- its shares are around 19 cents each -- and its second largest owner has sold out.  Some Gatehouse newspapers have stopped Monday publication to save on costs.

It’s this type of environment that is forcing newspapers to do deals never really contemplated before. Take Tribune again in Baltimore, it wanted local video on its Web site so did a deal with a TV station in the market that it doesn’t own. The station provides its local video to the newspaper’s web site, the station sells advertising inventory within that video, and the newspaper gets a share of the revenue. Not very often that competitive newspapers and TV stations in the same market get into bed together, but such are the times.