McClatchy Activates Its New Print Business Model – Chops Headcount By 10% After A 15.4% Advertising Revenue Decline Through May, And Other Publishers Won’t Be Far Behind

Philip M. Stone June 17, 2008

There have been all sorts of signs in the past couple of months that the print advertising outlook is getting bleaker, not better, and McClatchy now confirms it by ordering a 10% workforce slash throughout its 30 daily newspapers. The Miami Herald, for instance is cutting 250 full-time employees – 17% of its employees – and the Charlotte Observer is eliminating 123 positions – 11.5% of its staff. In all about 1400 jobs will be gone.

And this from a company that since the end of 2006 until April of this year had already diminished employee numbers by 13%, so when publishers talk about staff having to understand the realities of new business models this McClatchy action makes it as clear as it could be what that really means.

CEO Gary Pruitt makes it perfectly clear that the new business model also means transitioning away from print into an integrated multimedia company. He talks about a realignment of the workforce and the company must put most of its efforts into multimedia, but it still intends to retain reputable print products. Well, how can it do that with 23% less workers since 2006? Given as well a managed company as McClatchy surely it couldn’t have been that overstaffed?

Pruitt  said the company’s five-year plan “recognized the need for a workforce smaller than today’s; in adjusting to the current economic environment, we find we must move more quickly to that goal.”

Now whether or not in hindsight one thinks McClatchy was smart in buying the Knight Ridder newspapers back in 2006, the fact is Pruitt and his people are considered to be among the most shrewd in running a US newspaper company, and if their five-year plan called for fewer employees then you just know the five-year plan of a whole lot of other newspaper companies are calling for similar.

Sometimes it is done in bits and drabs as Gannett’s letting loose some 55 employees earlier in this month at four New Jersey newspapers; Tribune is already warning of big layoffs as it seeks to make its newspapers a 50-50 split between editorial and advertising, meaning less news, meaning less reporters.

The financial bottom line to the McClatchy announcement is that it will save about $70 million annually as it targets savings of up to $100 million over the next full year.

The problem McClatchy faces, as do others, is the print advertising downturn this year is far worse than even the most pessimistic forecasts, and starting with March the numbers have been just awful. McClatchy for instance, says its print advertising revenue is down by 15.1% through the end of May, but in May itself the revenues were down 16.6%. The company has never before resorted to mass layoffs – it has relied on a bit here, a bit there, and normal attrition.

This 10% slaughter says things are much worse than we thought they were going to be, we don’t see any light at the end of the tunnel, and since we already planned to be a company with less employees we had better speed up that process before we become another Journal Review with the shares going under a $1, we are booted off the New York Stock Exchange and we have trouble meeting our debt obligations.

McClatchy shares closed Monday at $8.02, down 1.6% on the day which is also a bit ominous since usually company shares go skyward when huge layoffs are announced, so the markets are also not sure whether this action is going to save the day?  The shares are down more than 80% since McClatchy first announced in March, 2006, it was buying Knight Ridder.

McClatchy did have some good news – although not as good as it should have been – that digital revenues were up 12.9% in the month over a year ago. The question there is why only 12.9%? It should have been at least in the late teens or even with a 2 in front, can that be yet another sign that online growth is slowing down which is exactly what newspapers don’t need right now? Newspapers are scrambling to make their operations such that digital will make up for print losses, but the print declines just keep getting bigger and bigger and the digital gains are not only failing to match those declines, but digital growth is slowing down, too.

And that is made clear from McClatchy’s May trading statement  -- print advertising revenues were down 16.6% and digital was up 12.9% but the net result is that total advertising revenues for May were down 15.4%. In other words those digital revenues are yet to make much of a dent in the overall McClatchy revenue stream.

And that’s what’s really going on here. With the cost base as it is less people are just going to have to do more work. The company brags that even with these losses “we continue to employ by far the largest and most experienced newsrooms in each of our communities and will continue to do so. They enjoy greater reach and employ better tools today than ever in our 151-year history, and we do not intend to slack in pursuing our obligations.”

Don’t know what “better tools” means but very likely that doesn’t refer to human beings. What the announcement  doesn’t say is how they are going to continue without “slack” to pursue those “obligations” when total staff is reduced staff by 23% over a two year period. Could it be the criteria for those “obligations” are being lessened and that is what to us, the readers, “new business models” really means?

Don’t misunderstand, business is business, and if a company has to chop positions in order to stay financially healthy enough to employ those who are left then so be it, but the nonsense about the product not suffering as a result is just that, nonsense. The spinning that all is well under such circumstances tries one's patience and is an insult. If everyone is cutting back and you do, too, but you still have more, that doesn’t mean you’re as complete as you once were, nor that the public is being served as well as it once was.

Yes, we all -- publishers, editors, readers --  must adjust to new economic realities; just don’t keep telling us that as a result the editorial product  is as good as it once was; that eliminating news beats is in the public interest; that our print read is as full and complete as it once was even with the newspaper web site.

For newspapers that are being forced to cutback staff these are sad times, not just for the employees but also for their faithful readers.