Newspapers Feeling the Slowdown : Media: The recession has made its way to the West, where dailies are cutting costs to make up for lost classified and retail ads.

By THOMAS B. ROSENSTIEL

Oct. 24, 1990 12 AM PT

TIMES STAFF WRITER

America’s newspaper publishers are seeing the recession that began in the Northeast and then spread to the South and Midwest now hit the West Coast.

One sign is that classified advertising, a traditional indicator of future economic activity, has started falling markedly at papers such as the Los Angeles Times, down 17% in the third quarter from a year ago, and the San Jose Mercury News, where double-digit declines are expected for October and the rest of the year.

At the Orange County Register, full-run classified ad volume dropped 16% in August.

In the Midwest, the drop in classified advertising began some months ago and is accelerating, with the number of ad inches sold at the Chicago Tribune down more than 20% versus a year ago. And in the Northeast, where classified linage has been off for more than a year, declines of 25% to 40% are common.

Another discouraging sign is that the final months of the year--which typically are the most lucrative for newspapers as well as for such businesses as retailers--are starting out weak and in some cases appear to be worsening.

“Our advertisers are so unsure of where the economy is going that they don’t know whether to pour it on and save the fourth quarter or hold back,” said Robert J. Hall, publisher of the Philadelphia Inquirer.

“It has moved like molasses from the Northeast southward and now has finally reached the West Coast,” said Jerry Tilis, vice president of marketing for Knight-Ridder Inc., whose papers stretch from Miami to San Jose. And despite what the federal economic statistics show, “I think the country has been in a recession for at least two quarters.”

Most newspaper companies instituted cost-cutting measures months ago--from hiring and salary freezes to reducing space for news--and as the hard times broaden, some are redoubling the restrictions.

“Everything we see out there tells us things are getting more difficult,” said David Laventhol, publisher of the Los Angeles Times.

Nationwide, however, not all signs point down. Retail advertising overall was stronger in June, July and August than in January, February and March, although still lower than in 1989, according to Media Records, which tabulates advertising linage. Classified has fluctuated and is off 7.5% so far this year.

Nor are there clear regional trends. Communities in the West where housing prices are moderate are still showing signs of economic vigor, including Sacramento, Modesto, Fresno, Portland, Tacoma and Seattle. The newspapers in those cities are enjoying growth in classified advertising.

Newspapers have had difficulty since 1988, when department store and supermarket mergers resulted in less advertising. The stock market crash of 1987, and the later consolidation on Wall Street, also hurt, particularly at papers such as the Wall Street Journal and the New York Times. As the economy worsened, starting in New England and then in New York, classified also began falling, spreading to the industry as a whole by early 1990.

The cumulative effect of so many months of hard times has left companies without a cushion. And as publishers begin budget planning, many expect that 1991 will be harder. As a result, a number of companies have instituted some of the harshest cutbacks in modern history:

* Knight-Ridder, the nation’s second-largest newspaper chain, has freezes on hiring and salaries wherever possible. At Gannett Co., the nation’s largest newspaper company, publishers were asked to concentrate on cost controls more than they did last year.

* Many papers, including the New York Times and the Los Angeles Times, are cutting the space alloted for news. At the Philadelphia Inquirer, the “news hole” has shrunk nearly 6% on weekdays and 12% on Sundays.

* The Washington Post is reportedly leaving 40 positions on its news staff unfilled, and the New York Times is leaving 25 open.

* The New York Times is also considering using thinner paper.

* At the New Haven Register, Connecticut’s second-largest daily, Editor Thomas P. Geyer was fired after refusing to lay off 31 news employees, the second round of cuts in two weeks.

In an internal memo to managers earlier this month, Dow Jones & Co. Chairman Warren Phillips said it was “prudent to take steps to reduce our costs further to bring them in line with lower revenue expectations.” The company’s business publications, dominated by the Wall Street Journal, saw pretax income drop 80% in the third quarter. The company is selling its corporate jet and some real estate, cutting back special sections at the Journal and postponing the launch of a new magazine.

Reporters have also heard that the Journal will let 40 reporters and editors go, although spokesman Roger May said: “All I can say is that the company has not announced any layoffs.”

At the Los Angeles Times, Publisher Laventhol wrote a private letter to employees this month, stating that, “Although Southern California remains among the strongest regions in the country, we are seeing disturbing signs of a downturn locally. . . . Defense industry layoffs, sharp declines in housing sales and prices, and increases in unemployment all signal” an economic decline, “intensified by the uncertainties of events in the Middle East.”

Laventhol said the paper is shrinking its news hole, which in the year and a half before had been expanded with the addition of such features as the weekly World Report section. The paper has also instituted a “modified hiring freeze,” Laventhol wrote, in which many jobs will be left open and those “certain jobs” that are filled “must go through an intensive review process, which ultimately requires my approval.”

In addition, Laventhol said The Times is trying to “examine ongoing ways to restructure our costs” for the longer term by “re-evaluating current work assignments and priorities.”

This is not to say that newspapers are losing money. Industry analyst John Morton of Lynch, Jones & Ryan said that although profitability is slipping, newspapers nonetheless are earning pretax profit margins of about 15% industrywide.

But as publicly traded companies, many newspapers feel that they must continue to report higher profits each year so that they remain attractive investments. Many newspaper stocks have fallen to their lowest point in a decade, and some analysts predict that share prices will remain low for several more months.

“There is no compelling reason to go running into the media stocks now,” said John Reidy, an analyst with Smith Barney, Harris Upham & Co. “They’re cheap, but they could stay cheap for a while. Why not wait until the economy picks up in March or, better yet, June.”

This has left some analysts wondering whether the industry’s problems reflect a temporary decline in the economy or a more permanent structural change in the newspaper business.

In one now-famous report published last summer, industry analyst Kenneth Berents of Alex. Brown & Sons called newspapers “a mature industry whose monopolistic dominance has been overcome.”

During an economic downturn, classified advertising traditionally falls first, as companies stop hiring and houses stop selling. That is followed later by declines in retail advertising. This time, however, the trend has been reversed, causing people to wonder if the advertising base for newspapers is suffering a permanent erosion.

Most analysts still attribute the slump not to changes in newspapers but to the unusual consolidation of department stores and problems on Wall Street.

“When you get right back and look at the core business of newspapers, there are no vastly dissimilar trends,” Reidy said.

“TV has structural changes because of cable competition,” said Edward J. Atorino, an analyst for the investment firm Salomon Bros. “The auto business has structural changes because of the Japanese. But there is nothing different about newspapers. There is no loss of position in the market. They are faced with the fact that their customers, such as banks, real estate and retailers, have had problems.”

Still, most analysts believe that newspapers will have a harder time in the 1990s than the 1980s. The previous decade saw unique growth, fueled by an unusual surge in sales of real estate, by merger mania and by the bull market on Wall Street.

“We’re not going to see that type of growth again,” Atorino said.