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L.A. Times, Philadelphia Inquirer Face Pressure of Newsroom Job Cuts

November 10, 2006 at 6:45 PM EDT

RAY SUAREZ: Now, a week of turmoil in the newspaper business. Jeffrey Brown has our Media Unit look.

JEFFREY BROWN: The news for newspapers has not been good for some time, as shrinking readerships leave more and more of them stained with red ink. Nine of the nation’s top 10 papers reported slides in circulation in a recent six-month period, and this week saw several dramatic turns.

In Los Angeles, Times editor Dean Baquet was fired Tuesday, after refusing to go along with staff cutbacks demanded by the paper’s parent, Tribune Company. Reports then emerged that two California billionaires would submit a bid to buy the entire Tribune Company and its diverse holdings.

On Wednesday, the paper cuts came to the Philadelphia Inquirer, where editor Amanda Bennett was replaced, even as the Inquirer and its sister paper, the Daily News, feel more pressure to cut costs after a recent sale to a group of local businessmen.

And to update us on the state of play, we’re joined by Washington Post business reporter Frank Ahrens.

Frank, first for context, is it right to see all of these particular stories as just pieces of that larger story about newspapers today?

FRANK AHRENS, The Washington Post: Absolutely. This is a real, real fundamental change the industry’s going through, unlike any that I have ever seen or anyone of this generation has probably ever seen.

Profit margins and job cuts

JEFFREY BROWN: So in Los Angeles, we have a very public fight over the limits of cutting in a newsroom, when does it hit the editorial content, and an editor who is very popular is out?

FRANK AHRENS: Right. It really came down to kind of a two-pole control system between Chicago and Los Angeles. The Los Angeles Times is owned by the Tribune Company in Chicago. And Chicago bought the Los Angeles Times -- the Tribune Company bought the L.A. Times in 2000 with a number of other papers. And it set up a real kind of Midwest-West Coast culture clash.

And Tribune seeks high return on its investment. It was making its papers achieve 25-, 26-, 27-percent profit margins, which are really unseen in almost any other business. And in this era when newspaper circulations are sliding and ad revenue is flat at best, and declining fairly steadily in big cities, the way you get that return is by cutting.

And Chicago told L.A., "You got to make some cuts." And first, the publisher said, "Well, I'm going to side with the editor on this." And the publisher is the guy that runs the business, and he should be Chicago's man, in terms of Chicago's thinking. And when he sided with the editor, he was out. They brought in a new publisher, and a month later or so the editor is out.

JEFFREY BROWN: And now a new editor will come in from the Chicago Tribune, so presumably he now will have to go ahead with the cuts.

FRANK AHRENS: It looks that way, yes.

Buyer for the Tribune Co.

JEFFREY BROWN: Now the Tribune Company itself, the parent of the L.A. Times, is also in play. And I mentioned in our set-up the two billionaires that are offering a bid on it. Update us on that situation.

FRANK AHRENS: Right. When Tribune bought the Times Mirror Company in 2000, they got a lot more than a few newspapers. They got some Chandlers.

The Chandler family was the owning family of the Times Mirror Company and the L.A. Times for several, several years. And with the merger, they got seats on the Tribune board. Well, over the past year or so, as Tribune stock has, in their estimation, underperformed, they have said, "Listen, we're not getting the kind of investment out of this company that we want."

And they have essentially forced Tribune to put itself up for sale. They believe that the company is worth more sold to somebody else or split up. And over the past month or so, the Tribune Company has been accepting bids. They say it's going to get wrapped up by the end of the year.

And it's brought a number of interesting people out of the woodwork. There's big, private equity funds that most people have never really heard of, and then there's names, like David Geffen, that people have heard of.

JEFFREY BROWN: So it's still not clear whether it will be eventually sold intact or split up?

FRANK AHRENS: It's not clear, but I think it's probably safe to say the smart money is on it going -- at least a lot of it -- as one unit. The problem is, if you've owned a thing for a long, long time, the way the Times Mirror and Tribune have owned these newspapers for a long, long time, if you try to sell them off one piece at a time, the tax repercussions are so high that it's almost not worth selling them. So it's in their best interest to try and sell the whole kit and caboodle as one unit.

Job cuts at Philadelphia Inquirer

JEFFREY BROWN: All right. Now onto Philadelphia. We were there earlier this year for a story for the NewsHour after it was sold to a group of local businessmen, but it looks as though the same issues of pressures on cost-cutting are still there.

FRANK AHRENS: Right. Philadelphia -- as I said earlier, big city dailies have been hit the worst by this, because in big cities, readers, consumers of news have lots of places to go for news. And advertisers have lots of ways to reach them.

In smaller cities, newspapers are doing pretty well because there aren't that many ways to get to readers except through the local paper. But in places like Philadelphia, which has been a declining Rust Belt city for a number of years, they've lost a couple hundred thousand in circulation over the past 20 years. And they were already -- for instance, they were already cut, I guess, 75 or 80 people out of the newsroom. Now it looks like they might have to cut maybe even more than a third of reporters within the next few weeks.

JEFFREY BROWN: Leading to an unhappy newsroom, I guess. And I've heard even some talks about a possible strike.

FRANK AHRENS: That is true. That is a possibility. I was talking to the chief union steward there a couple of days ago.

I'd just like to make the point that it's often thought -- we talk about cuts as in a pejorative way, that it's always a bad thing. I think it's fair to say there is some right-sizing going on in our industry. For years and years, when newspapers really owned the kind of the monopoly on local advertising, reporters and editors were hired essentially as coverage needs and desires dictated. "I need five more reporters in the suburban bureau." "You got them."

Well, now that the industry is having to face the real economics of its circumstance, it's having to make budget and hiring decisions just like every other company.

Newspapers good private investment

JEFFREY BROWN: OK, fair enough. Also interesting to note, I guess -- you were talking about it with the Tribune Company -- there are people out there who see some value in newspapers, even though we talk a lot about all the woes, that there are people that are looking at them as places to invest.

FRANK AHRENS: Absolutely. See, here's the thing. For the past 20, 25, 30 years or so, most big newspapers and newspaper companies have been publicly owned, traded on Wall Street. See, Wall Street values growth over everything else. What's your quarter-over-quarter growth? And because that drives the stock price and investors are all about the stock price, understandably.

Well, newspapers haven't been growing much in the past -- well, they've been always losing circulation for nearly two decades now. But they still produce a lot of revenue, less than they used to, but a lot of revenue. In the industry, they say they throw off cash.

Well, Wall Street doesn't care so much about that. Private investors love enterprises that throw off cash. They don't care so much about the growth. They care about cash, because, if a private investor wants to buy a big paper, he or she's going to have to take out a loan, and cash helps pay down that loan.

JEFFREY BROWN: All right, Frank Ahrens of the Washington Post, thanks for the update.

FRANK AHRENS: Absolutely. Thank you.