TERENCE SMITH: What has been the consequence of September 11th to you, your company and your papers?
TONY RIDDER: Well, I'd say that it's been one of the biggest stories in the last 50-plus years. So people throughout the company have traveled to the Middle East, to Washington, New York. It's an enormous story that we are going all out to cover.
But it's happening at the same time that ad revenues are falling. Since September 11th, our ad revenue has taken an even further drop than we were experiencing prior to September 11th.
TERENCE SMITH: I was looking at your third quarter numbers and I saw that that income fell 27 percent. Do you have an estimate, a ballpark, of what this has cost Knight Ridder, both in reduced revenue and additional costs?
TONY RIDDER: Well, I can tell you that in September, just for those 19 days, we figure it cost us in ad revenue something like $9 million. And then it cost us, just in coverage for those 19 days, probably an additional 2 million. But, you know, that's only 19 days. We've now gone since then another 35 days or so. So the increased costs continue and revenue continues to be very soft.
TERENCE SMITH: Right. So I take it then it took a difficult situation for newspapers generally in this country and made it more difficult?
TONY RIDDER: Well, from a financial standpoint, clearly, but this is a time when newspapers can show why they are so important to helping people understand what's going on.
And so it's interesting that our circulation is up since this has happened, and people that weren't necessarily regular readers are turning to the newspaper because they can get information that they can't get anyplace else.
TERENCE SMITH: How much has the circulation gone up?
TONY RIDDER: I don't have the October numbers at this point, but it’s been, I would say, significant.
TERENCE SMITH: Right. And now when we were in your Washington bureau, I understood from Clark Hoyt that the basic message was "do what it takes, spend what it takes to cover this story." Is that right?
TONY RIDDER: Right. We had a conference call the day that it happened, actually. We had most of our editors on that conference call, and . . . I said we're going to do what it takes to cover the story the way it should be covered, so do what you have to do, but we're going to cover this story in a first-rate manner.
TERENCE SMITH: Right. Was this purely a journalistic response on your part, or is it possible that there will be an economic payoff for increased quality coverage in a time like this?
TONY RIDDER: I don't know about the economic payoff, quite frankly. . .. When circulation is growing, that's a statement about the value of newspapers. So it's not just a Knight Ridder issue, it's a newspaper issue. So I don't think we will find the benefit on the bottom line, necessarily, but it's just what you do at a time like this. When we've had a serious hurricane in Miami, we went all-out in the face of declining revenue. And when we had an earthquake here in San Jose, it was the same thing. It's just what we do in our company when there is some disaster that needs to be covered.
TERENCE SMITH: How long can you maintain this stance without crippling the company economically?
TONY RIDDER: Oh, I think we can go a long time. . .. I think that we are going to cover this story the way we've been covering it, and as the story develops in other places, we will cover it there. So I don't see us lessening our commitment to the way we cover this story, no matter how long it goes on.
TERENCE SMITH: What then do you think is the impact of this, using Knight Ridder just as an example? What are the broader economic implications for your company, as well as others?
TONY RIDDER: Well, I don't know at this point, because quite frankly we're experiencing a drop in ad revenue that's greater than anything we have experienced since World War II. And so what happened actually is that after a few weeks, we saw some slight improvement and then as soon as we started bombing in Afghanistan, then people slowed down their advertising again, and it's continued that way.
So we just don't know how long this is going to continue, because as long as there's uncertainty, consumers pull back on their spending. And as long as they're pulling back on their spending, then advertisers are pulling back on their spending with us.
TERENCE SMITH: You're talking about a pretty fundamental shift in the economics of newspapers.
TONY RIDDER: Well, but I think it will come back. I think this will eventually pass. When it passes, I don't know. But I think it will pass.
TERENCE SMITH: Cast your mind back to before September 11th, if you will, and the economic challenges that Knight Ridder was facing -- the challenges that led you to cut staff throughout the company and cut costs, in an effort to improve the profit margin.
TONY RIDDER: Well, I take exception to what you said. We were not cutting staff to improve the profit margin. Our profit margin has been falling. We were reducing staff and we were reducing other expenses in an effort to try to cushion falling revenue. This was not about improving the margin; this was trying to protect the margins to the extent that we could, knowing full well that the margins were going to fall, anyway.
TERENCE SMITH: Fair enough. I understand. And if that was the situation then, before September 11th, given the added difficulties and complexities, I wonder how you see it now.
TONY RIDDER: I see it as a much tougher revenue environment, and find that, on the expense side, we have some costs that we didn't have before. But, as I said before, in our business, when there's a big story out there, we have always gone after that story. And I think that one thing for Knight Ridder that makes this story a little different is that we have had some coordination in the past in covering the Olympics and the national conventions. But for the most part, each newspaper did their own thing, and we have a Washington bureau, but basically when we were chasing a big story, it would be sort of every newspaper for themselves. And that's the way they wanted it.
What we're doing this time is under the direction of Clark Hoyt in the Washington bureau, we are trying to coordinate this coverage so that we don't have four people in the same place covering exactly the same story in an uncoordinated manner. So we're getting the best utilization out of people. So when we have however many people we have in Afghanistan and the surrounding area ... it's being coordinated through our Washington bureau.
TERENCE SMITH: When you think back to the time you took the ad in the American Journalism Review and other publications, I guess, to explain the staff reductions that had been imposed at Knight Ridder, why did you feel you needed to do that?
TONY RIDDER: Because there has been a lot of talk in the industry about newspaper companies cutting back on expenses. That was certainly true of people that were talking about Knight Ridder. So there has certainly been criticism leveled at Knight Ridder as we have tried to cut back our expenses to try to cushion the impact of falling revenue. And there were people that were flat-out misstating the facts when they said this is all about trying to improve profit margins, which as I said before, it was not about that. It was trying to make sure that our level of profitability didn't fall too far too fast.
TERENCE SMITH: What was the consequence you were concerned about if it did fall too far too fast?
TONY RIDDER: Well, we have an obligation to our five constituencies, and certainly one of our five constituencies is our shareholders. And the other companies were doing it. People were saying, "well, as long as you're profitable, why do you cut expenses?" So partially with those ads we're trying to educate people on what we stand for and why we did what we did.
TERENCE SMITH: Explain for us what your kind of central message was in that ad and in the response to those criticisms.
TONY RIDDER: Our central message was to try to explain what Knight Ridder stands for. There were people unfairly saying that we had somehow, in the process of trying to deal with falling revenue, had somehow changed our standard. So it was really to try to explain to our employees and to people in our business what we stand for and why we did what we did.
TERENCE SMITH: In addition, as I recall, in that ad and in the Q and A you did for the employees, you defended the logic of having an economically prosperous company and the importance of having a profit margin that was in fact competitive with others in the industry, didn't you?
TONY RIDDER: Absolutely.
TERENCE SMITH: Tell me what your thought was on that. What was the argument for that?
TONY RIDDER: The argument was that this is not a family-owned company any more, this is a publicly-owned company -- and we have a responsibility to shareholders. And we have said that it's not our goal to have the highest margins in the industry, but in addition to being a top-tier company in our journalism, we want to be a top-tier -- and I say tier with an emphasis on tier -- company in financial performance.
TERENCE SMITH: Right. In fact, there's a line in that ad in which you said either we make Knight Ridder an A-team player or risk the possibility that someone else will want to. A hostile takeover, is that what you're talking about?
TONY RIDDER: I really don't want to go down that place, but I think that the best defense against keeping your company independent is to be an A player in all aspects that's defined.
TERENCE SMITH: When you look at the cuts in employees to about 10 percent across the board, were these, in your mind, temporary or were they actually permanent as a way to introduce a different, more efficient way to do business?
TONY RIDDER: Well, I'd say that they are permanent in this revenue environment. As revenues improve, if there's a justification to add people, we will add people. But it will have to be justified.
So it will depend on what happens to business and what the justification is for adding more people. But I want to emphasize that the 10 percent was throughout the company. It was not necessarily in one department more than another. It was throughout the company.
TERENCE SMITH: It was in the context of similar cuts by other newspaper companies across the country.
We went to The Grand Forks [North Dakota] Herald because it's a quality newspaper. It, of course, was dramatically in the news in 1997, the floods, and Knight Ridder was more than generous in its response rebuilding the building and what it did for the community. So we thought that was an interesting example. They had proportionately a little higher cut because they're small to begin with, so their actual percentage cut in staff was a little bit higher. When we talked to [Grand Forks Herald Editor] Mike Jacobs, who is a loyal and enthusiastic Knight Ridder person, he didn't deny that he was having some trouble juggling everything and covering everything that he had before with a diminished staff. So I wonder what concerns you have about that, about it impacting ultimately quality and comprehensiveness?
TONY RIDDER: Well, after all these reductions, our newsrooms overall have well above the industry standard, in terms of personnel that still exist in our newsrooms. So we expected [every newspaper’s leadership] to allocate the staff reductions throughout the newspaper. That was done by each publisher. So we didn't say take so many people out of production, so many people out of circulation, so many out of the newsroom. That was a local decision. But we did give them a target for how many people we thought they ought to reduce. I have to say after making those decisions throughout the company with all of our publishers, we still have well above the industry average in our newsrooms. So we did take some people out of our newsrooms, including in Grand Forks, but after all of that, we still have well above the industry average.
TERENCE SMITH: Speaking of Grand Forks, they said that they had to cut back on the features section; they'd have to have reporters covering multiple beats. Mike Jacobs himself is covering the county government, in addition to being the editor of the paper. How do you judge the impact of these cuts, and what concerns do you have that ultimately you could erode quality?
TONY RIDDER: Well, we went about it in a way that we thought would not erode quality. And so you can take specific examples of changes they made, but the decision on where to make changes within the newsroom was made in our newspapers, not here at corporate. So how they decided to reallocate resources was a local decision, and they did it in the best way they know how, and it may not be the same way we would do it if we were making that decision.
TERENCE SMITH: So if the newspaper industry was hurting on the eve of September 11th, and has experienced losses in revenue and increases in costs since September 11th, are we looking at a situation, in your opinion, where newspapers are going to be seriously hurt, even threatened – in their existence and economic viability -- as a result of this?
TONY RIDDER: No, I don't think they're threatened. They are still profitable businesses and I don't think that the newspaper industry is under any kind of threat of going out of business, financial disaster, losing money. It's nothing like a lot of other industries that really are threatened, like the airline business and insurance businesses. It's nothing like that at all.
TERENCE SMITH: Well, and if not, why not?
TONY RIDDER: Because they were fairly profitable coming into it.
TERENCE SMITH: And even if they were making cuts, industry-wide, they were doing so to remain profitable?
TONY RIDDER: Well, yes. We saw our earnings have been down, between 25 and 30 percent year to date. So even though there is all this talk about making cuts to raise the margins to make more money, which we have already talked about, which is a lot of baloney, now it's even tougher because our revenue is even weaker than it was prior to all this happening. And we're spending money on things like . .. special editions and all this staff coverage to go out and do this. But it would not be true to say that the newspaper business is threatened by what's going on right now. And I think it's really encouraging that people are turning to newspapers because they can't get enough information from the electronic media. I mean not only do we have this public service obligation, but when there is a disaster, it is a time that newspapers can prove why they're so important to American society.
It is our chance to show how valuable we are to our communities, and the case of the hurricane in Miami, it was the sort of fabric that brought the community together. That was the same thing in Grand Forks when people were scattered throughout the Dakotas and western Minnesota, it was the only way people could find out where their relatives and friends were. It was the only [way] they could find out what was going on. They could not find out from the other media.
TERENCE SMITH: That's right, and they told us that. They told us those stories. And in the future, any more cuts at Knight Ridder, or are they a thing of the past?
TONY RIDDER: Well, we have a sort of modified hiring freeze in place. We are watching our expenses. Ad revenue continues to fall. We do not have any plans for buyouts and early retirement incentives. You know, of the people that left, only I think 14 percent left as a result of a layoff. The other 86 were all due to voluntary programs, and it had been our hope we could do 100 percent of it that way, but it didn't work out. But I'm really proud of the fact that we were able to get 86 percent of the staff reductions voluntarily.
TERENCE SMITH: And you're not looking at any more staff reductions at this point?
TONY RIDDER: We're not looking at any kind of program like that. When somebody leaves, we look at whether we need to replace that person or not. So that's the way we're going about it now.