Advertising Slump Prompting Times Buyouts, Possible Layoffs
By PAT MAIO
A retail advertising slowdown is at the center of poor results at the Los Angeles Times, which has prompted parent Tribune Co. of Chicago to seek voluntary worker buyouts and perhaps layoffs at the newspaper.
Word of the budget cuts caught many on Wall Street and at the Times by surprise, though the advertising slump has been building for weeks.
For May, department store ad revenue was down 25%, according to John Janedis, media analyst with Banc of America Securities. National ads were down 5%, while classified auto sales were down 10%, he said.
Tribune as a whole has been lagging for much of the year for reasons ranging from high newsprint costs to falling ratings at WB Television Network, in which Tribune has part ownership.
Analysts generally expect an upturn in the coming months. Still, analyst Michael A. Kupinski at A.G. Edwards & Sons Inc. recently downgraded Tribune’s stock to “hold” from “buy.”
Tribune’s results were especially striking given the newspaper industry’s solid performance in the first quarter, particularly in the retail advertising area. It’s unclear whether the results at the Times are an early indicator of a broader national slump or specific to Southern California.
“Retail is pretty wild and woolly right now in Los Angeles,” said Jack Kyser, chief economist of the Economic Development Corp. of Los Angeles County, who has noted a pullback in the number of ads in the Times for Robinsons-May, Kohl’s and Mervyn’s.
Over at the Register
The Orange County Register, the Times’ Santa Ana-based rival, isn’t reporting the same problem. Ad revenue at the Register, published by a unit of Irvine-based Freedom Communications Inc., is “nicely up,” according to Alan Bell, Freedom’s chief executive.
The stakes are high for Tribune. The Times represents nearly 30% of the company’s newspaper revenue. Tribune also owns the Chicago Tribune, the Baltimore Sun and Newsday. For now, Tribune’s other papers are picking up the slack. While revenue at the Times fell 2% in May, it was up 4.1% in the newspaper division overall.
In a June 8 memo to Times workers, Publisher John Puerner said local advertising began softening in April because of market conditions,”some unique to Southern California and some unique to the Los Angeles Times.” The situation “developed quickly,” according to Puerner, who said disposable income in the area has been hit by soaring housing and gasoline prices.
“The biggest surprise for investors was how the softness translated to a decline in earnings in the face of an anticipated acceleration of ad growth over the full year at the company,” analyst Janedis said.
Layoffs and buyouts at the Times could affect 100 to 120 workers out of a total Tribune staff of 20,000. About half of the local cuts are believed to involve editorial operations. Times workers interested in the buyout are being offered one week of pay for every six weeks of employment. All the cuts are expected to be completed by the end of the month.
The pending cuts brought a sudden slap of reality to a newsroom that for weeks has been basking in the glow of five Pulitzer Prizes this year and the resulting accolades from the media world about the paper’s improving content.
“It is our job to see that this proves to be a relatively minor event in the long-term building of a first-rate newspaper,” Editor John Carroll wrote in a memo to newsroom workers.
Earlier this month, Carroll cancelled a retreat in Laguna Beach that had been set for senior editors before they knew of the financial problems.
The development also comes as the newspaper implements several changes in senior management, including the hiring of Michael Kinsley as editorial pages editor. Asked last week about the job cuts, Kinsley jokingly referred to it as “the curse of Kinsley,” noting that he has never worked at a financially successful publication. Kinsley was founding editor of Slate and previously was senior editor with the New Republic.
Officials of Tribune, Times and Hoy, its Spanish-language daily that just launched in the Southland, did not return calls seeking comment.
Some analysts speculate that San Jose-based Knight-Ridder Inc., a California publisher susceptible to high energy costs, may be next to report a slowdown in advertising.
In its June 7 announcement, Tribune warned of weaker-than-expected 2004 sales because of a soft advertising market in some regions of its publishing empire, particularly acute in Los Angeles. Another local factor is the slower-than-expected launch earlier this year of Hoy.
Wall Street isn’t happy having to digest the bad financial news at a time when newspaper stocks are supposed to be market plays amid signs of a strengthening economy.
Tribune said it would take a one-time pretax charge of $10 million to $15 million in the second quarter to cover the cost-cutting.
Newsprint prices have soared throughout the industry because manufacturers idled some facilities in order to stem the flow of losses by passing along higher prices and running more efficiently in the process.
After bottoming out at an average $425 a ton almost two years ago, newsprint prices have jumped nearly 30%, to about $550, according to Ross Hay-Roe, a paper analyst with Equity Research Associates in Vancouver, British Columbia.
“Last year was the third consecutive year of declining newspaper consumption. I’ve never seen it like this before,” Hay-Roe said. “To see that this is probably going to be a fourth consecutive year of declining consumption is hard to imagine.”
Maio is a staff writer with the Los Angeles Business Journal.
