But Wall Street’s big wet kiss notwithstanding, closing New York Newsday looks like a classic case of penny-wise and pound-foolish. The paper, which has lost money every year since it was launched in 1985, was finally close to breaking even. Confidential Newsday documents projected only trivial losses for New York this year–not the megamillions that Wall Street thinks Willes is saving.
Before we proceed, some disclosures. I recently worked at New York Newsday and have about 1,000 Times Mirror shares in my retirement accounts. Also: NEWSWEEK’S parent, The Washington Post Co., was among the companies that asked Willes about buying some or all of Times Mirror’s eastern papers. The Post Co. declined comment. Willes says the properties aren’t for sale.
This isn’t a sob story about the demise of a fine newspaper. It’s the story of a bad business decision that’s being hailed on Wall Street as a good one. New York Newsday, truth be told, was probably doomed in June when Willes arrived from General Mills. He’s now justified the “cereal killer” nickname that Times Mirror wags gave him when his appointment was announced. Willes, a financial type, was hired to turn Times Mirror around. The company, whose properties include the Los Angeles Times, Newsday and the Baltimore Sun, has produced good journalism but terrible financial results for years. Times Mirror’s excessive capital spending and bloated corporate overhead are legendary. It blew more than $300 million by selling its TV stations and the Denver Post too cheaply. And just this year, Times Mirror chucked its cable TV systems in a controversial $2.3 billion deal that preserved the dividend income of its controlling Chandler family while cutting dividends for everyone else. When top managers bungled a Wall Street presentation in February and the stock plunged, the Chandlers had had enough.
Return-hungry: Enter Willes, 54, a smart, affable guy who sees the world through numbers. But newspapers have a weird logic of their own, and in competitive markets, staying power and nerve, rather than numbers, prevail. None of New York’s three surviving papers-The New York Times, the Post and the Daily News–earns anything like the 12 to 14 percent of revenues that Willes demanded of New York Newsday. And none ever will.
In an interview on Friday, Willes said that “once I got inside the company, not only was the total performance lower than it needed to be,” but almost every property was subpar. New York Newsday, a Wall Street whipping boy, was the biggest laggard. Willes killed the paper on July 14, on the second day of a two-day New York visit. He said that he arrived with a “predisposition” to closing the paper. “What I was looking for was ‘Is there something I’ve missed?’ “he said. “I listened very carefully, and didn’t hear anything . . . I didn’t see how we could ever earn any money.”
That’s one way of looking at things. But not necessarily the right one. According to Newsday’s business plan, New York Newsday’s 1995 losses would have been just $900,000 had the paper’s managers implemented their proposed program to cut the total staff of New York Newsday and Newsday, its more established sister paper on Long Island, by about 10 percent over two or three years rather than he 25 percent immediate cut now underway. The plan projected modest New York profits starting next year. Last year, according to the business plan, the New York paper lost $3.8 million, rather than the $10 million or so generally believed. Overall, Newsday/New York Newsday earned $29.7 million before taxes last year. But its profit margin, 5.9 percent of revenues, is less than half of what Willes said he’s seeking.
Willes’s obsession with New York’s losses is shortsighted. He could cut far more by slashing Times Mirror’s bloated management ranks. A $900,000 loss to keep New York Newsday afloat and keep The New York Times on the defensive is small beer to Times Mirror. After all, it spent about that much last year just to compensate the Chandlers for the income taxes on the approximately $2 million Times Mirror gave the family to pay experts to review the cable-TV sale. It spent $1 million to bestow a bonus on chairman Robert Erburu, on whose watch Times Mirror foundered.
Willes said he didn’t trust the 8900,000 loss projection, even though it was prepared under the supervision of Times Mirror’s financial staff. “It’s easy to write out a plan, but then the marketplace makes it impossible to accomplish that plan,” he said. And in any event, Willes added, his idea of financial discipline “requires each piece of the newspaper part of the company to earn what it is required to earn, not to require some newspapers to subsidize others.” This implies that Times Mirror, notorious for pulling el foldos in competitive markets, will restrict its papers to picking low-lying fruit. They won’t be able to create innovative new publications, like the Spanish-language El Nuevo Herald that The Miami Herald started. It’s a recipe for decline.
Times attack? At Newsday on Long Island, it may be a quick decline. The turmoil caused by putting a quarter of its employees on the street won’t help business much. Worse, closing New York Newsday will expose Newsday’s Long Island heartland to The New York Times, which was so terrified by New York Newsday that it started to cover New York City better. The Times can fund the attack with the $40 million or so of ads it will inherit from New York Newsday. A Times spokeswoman says it has no such intent. Right. And The New York Times Co. is owned by the Sisters of Charity.
Willes has eliminated Times Mirror’s multimedia group and says he will mount an attack on corporate overhead. Meanwhile, he waxed rhapsodic about downsizing. “When companies cut back and focus, quality goes up and they’re tougher competition than they were before,” he said. You can’t tell that from early indications. Advertisers are reportedly fleeing Newsday. To minimize the number of people it has to fire or buy out, Newsday has invited other papers to cherry-pick the staff. That will weaken editorial quality dreadfully. At the Los Angeles Times, which is shrinking by 10 percent, one writer reportedly learned he was being fired when he discovered his company credit card had been canceled. A real morale booster.
New York Newsday’s attack taught The New York Times how to cover local news. Now the Times can use that lesson to clobber Newsday in Long Island. Mark Willes’s short-term financial discipline will cost Newsday dearly in the long run. An example, once again, of how following numbers blindly can lead you off a cliff.
