BOB GARFIELD: While the Federal Reserve and Wall Street quibble over whether the economy is in recession, there is one place where the question is not in doubt. That would be the media business where an advertising drought has devastated revenues in broadcast, online and print media alike. For example in the last reporting period the magazine industry sold 10 percent fewer ad pages than a year ago. Newspaper chain Knight-Ridder saw its March ad revenues decline six percent from the year 2000. Inevitably such declines result in cuts in editorial budgets. Joining us now to discuss what that portends is media securities analyst John Morton of Morton Research. John, how bad is it out there?
JOHN MORTON: It looks as though in the first three months of this year that advertising revenues for newspaper companies fell more drastically than any time in anybody's memory. So it's a, a very, very sharp decline and regardless of whether the national economy is officially in a recession, the newspaper industry certainly is.
BOB GARFIELD:I guess something else is different. If this is the sharpest drop in recent memory, it's also at a time when a greater percentage of daily newspapers in this country are owned by public companies than ever before. Is--isn't that true?
JOHN MORTON: That is true. The public ownership now represents about-- pretty close to 60 percent of national daily circulation.
BOB GARFIELD: So when public ownership meets advertising recession, what happens?
JOHN MORTON: Well unfortunately what's been happening is layoffs, restraints on, you know, editorial initiatives, travel; there's been some squeezing of news holes -- you know, the amount of space devoted to news.
BOB GARFIELD:Now I know you're a newspapers guy but you cover media companies in general. What's happening in television and magazines as well?
JOHN MORTON: Well they're having some of the same difficulties although not quite as dramatic as in newspapers because the biggest part of the decline in newspaper advertising has been in classified advertising.
BOB GARFIELD: How severely have layoffs reached the newsroom?
JOHN MORTON:It's not dramatic, but Knight-Ridder for example at most of its newspapers has announced layoffs; most recently in St. Paul; before that in Akron and in, in Philadelphia; in-- San Jose they kind of backed off of it a little bit when the publisher resigned. And the New York Times has said it is going to be laying off some; Dow Jones has been doing that.
BOB GARFIELD: How coldhearted, how ruthless do these companies have to be to keep Wall Street happy?
JOHN MORTON:Well in some respects as ruthless as they have to be. Wall Street is not sentimental about the newspaper business. It's become very shortnosed. They really only care about, you know, what's going to happen the next quarter in this year; and bear in mind that Knight-Ridder and Tribune Company and Gannett are three newspaper companies that have only one class of stock, and so theoretically they could be vulnerable to an unfriendly takeover if they don't perform well. All the other major publicly owned newspaper companies have two classes of stock. The families hold the voting stock and it's not traded. So it's not really as crucial a, a thing for them as it is for, say, Knight-Ridder and Tribune and Gannett.
BOB GARFIELD:I've read a number of comments from people on Wall Street saying to complainers in the newsroom: get a life. You just have to understand that you're not working for a newspaper. You're working for an advertising medium. You're working for a business. But--isn't there a comparable argument that can be made to the people on Wall Street that there is no business unless there's some level of quality journalism?
JOHN MORTON: Well right. I mean you know the newspaper business is different, say, from your average green bean canner. I mean I recall, you know, years ago when I used to spend a lot of time on Wall Street trying to talk institutions into investing in newspaper companies, I met you know one analyst who said well he really likes newspapers because when times get tough they can always cut loose some reporters and editors who, after all, aren't revenue-producers. And you know and, and that's I think, you know, a fairly typical attitude as though these folks don't produce revenues. Well of course they produce revenues! I mean what do they think they're selling out there?
BOB GARFIELD:When Jay Harris left the San Jose Mercury because of the profit pressures which he said would put an undue burden on the editorial operations--
JOHN MORTON: Yeah.
BOB GARFIELD: -- he was roundly applauded by editors around the country; in fact literally got a standing ovation when he spoke at the American Society of News Editors.
JOHN MORTON: Right.
BOB GARFIELD: Can the editorial side of newspapers stand up to their publishers and stand up to Wall Street or are they just going to have to take their licks?
JOHN MORTON: They'll just have to take their licks. I mean I, I think what Jay did was very symbolic and I think it may have given some newspaper executives some pause [LAUGHS] - but-- how can you stand up to Wall Street if they hand you the pink slip? [LAUGHS] I mean it's-- there's not much that you can do about it.
BOB GARFIELD: John Morton, thanks very much for joining us.
JOHN MORTON: All right. Bye.
BOB GARFIELD:Securities analyst John Morton runs Morton Research. Joining me now is Mike Burbach, editor of the Columbus, Georgia Ledger-Enquirer, a Knight-Ridder paper where budget cuts have found their way into the newsroom. Mike what's the damage so far?
MIKE BURBACH: We took one position out of the editorial page; we took one position out of the copy desk; and we took one-- the person whom we let go was a community reporter.
BOB GARFIELD: So is there anything that you're not covering that you would have otherwise covered if the times weren't so lean?
MIKE BURBACH: Not yet. We're doing our best to try to make our cutbacks and our trims invisible to readers.
BOB GARFIELD: What about the news hole? I imagine that has been shrinking somewhat.
MIKE BURBACH:I think if we really got down and analyzed the heck out of it, we would find that we have somewhat less news hole this year than last year, but not by a huge amount.
BOB GARFIELD: Do you know what the profit margins are-- that your publisher has to meet [...?...]. [BOTH SPEAK AT ONCE]
MIKE BURBACH: I do.
BOB GARFIELD: Have you been meeting them the last four years?
MIKE BURBACH: We have!
BOB GARFIELD:And is the expectation from Knight-Ridder that they - your margins increase; that you stay stable? Are they willing to give you the benefit of the doubt in this recessionary period? What, what are you hearing from above?
MIKE BURBACH: Well it's no secret at all that Knight-Ridder has set goals to out-perform its peers, and to do that you have to keep improving your financial performance, so-- no, they expect us to do better.
BOB GARFIELD: Have you had to bite your lip to senior management?
MIKE BURBACH:No, I'm not biting my lip. You know I don't spend any time whining, because I figure that's a waste of my energy and everybody else's. I don't like cuts. I would rather that I had, you know, one of the millions that we send to Knight-Ridder shareholders. But I don't. I'd rather I was 6' 6" and could dunk a basketball but I'm not.
BOB GARFIELD: And of those 52,000 subscribers have you gotten a single letter complaining about what's missing from the Ledger-Enquirer?
MIKE BURBACH: Nope.
BOB GARFIELD: Do you run Beetle Bailey?
MIKE BURBACH: Beetle Bailey? Yep, we still run Beetle.
BOB GARFIELD: What would happen if you dropped Beetle Bailey?
MIKE BURBACH: I don't [...?...]. [BOTH SPEAK AT ONCE]
BOB GARFIELD: How many letters would you get?
MIKE BURBACH: How many letters would we get if we dropped Beetle? We'd probably get a few hundred, which is quite a few for a paper our size.
BOB GARFIELD: Mike Burbach, thanks for joining us.
MIKE BURBACH: Yup. Thank you. Good luck.
BOB GARFIELD: Thank you. Mike Burbach is editor of the Columbus, Georgia Ledger-Enquirer.