Tuesday, December 16, 2008
Mutter: Detroit still saddled with huge press costs
Blogger Alan Mutter warns that Detroit's two dailies must still deal with huge expenses for a new press installed just three years ago. He quotes newspaper production authority Alan Flaherty. "Nothing they do at this point can mitigate the cost of owning the $170 million (or maybe more) plant that they occupied in about 2005," Flaherty told Mutter in an e-mail. "At 7.5% interest and a 15-year life, the $170 million investment represents a weekly capital lease expense of $370,000." That's a bit less than $20 million a year, Mutter says.
22 comments:
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Shouldn't be too hard to sell a three year old press. People in Europe and South America still have attention spans and seem to like newsprint.
ReplyDeleteNot that ANYONE is making capital improvements right now....
Spend $170M on a hard asset, then 3 years later decide you aren't going to need it half the time?
ReplyDeleteThat's business suicide.
Think of how many jobs they could have saved be planning ahead.
I think many of us are learning that Gannett has a lot of confusion about their business model and five-year-plan (if one can say they even have one).
ReplyDeleteGive the press to the starving people in India.
ReplyDelete5:04 You are quite wrong. Newspapers are making capital improvements during this period, especially to old Flexographic presses which require additional manpower and expensive press plates. It turns out that expenses of upgrading presses can be written off in two or three years, so those improvements are being made.
ReplyDeleteAlso, I know of one major chain installing new presses in 2009 in Florida. There has already been speculation on this blog that Fort Myers will contract out its printing to this plant, once it opens.
5:04
ReplyDeleteYou are referring to the new press for the Naples Daily News. I'm not so sure that if they were not so far along with the press and new building, they wouldn't just scrap it all together. I've heard they are not even going to finish the 2nd floor cause they don't have the money.
It all seemed like a good idea when the money was flowing just a couple short years ago. Now, not so much. They may need Fort Myers to print there just to stay solvent.
So far none of the stories i have
ReplyDeleteheard have said when this delivery
change will go into effect.. Do I
get a refund on the years subscription I've paid for??
The press in Detroit is paid for. It was purchased and it's cost is rolled into the long term debt on Gannetts Balance sheet. While Detroit may have the depreciation expense there is no recurring cash expense. Detroit didn't borrow the money from a bank so there's no interest. If DNA is being charged interest because of the JOA it's coming out of Gannetts left pocket and into it's right. The lead time for a press is several years. It took over a year to install it. So the plan was conceived six or more years ago and it was done so that both the News and Freep could be published similtaneously and color could be added. There were also numerous cost efficiencies with the project including manning, reduced cuttoff and width and others. Gannett requires capital projects to have a 15% ROI which means the cash expended is recaptured in 3-5 years. On a press project the payback horizon is longer but when the project was conceived it had cost efficiencies and additional revenue potentials that could not be captured because of press limitations.
ReplyDeleteSay what you want about GCI on how it handles employees, what it pays people and any number of things, it's Capital planning process and expenditure has been world class.
No one could have seen this economy coming in 2000 when this project kicked off. If they did the project wouldn't have been started It never ceases to amaze me how ignorant and uninformned newsroom people are when it comes to the basic business of newspapers on both the operating expense and capital expenditure side.
Remember, 6:26, most of the people like Alan Mutter haven't seen the inside of a newsroom, let alone the books, in ten years.
ReplyDeleteMost if not all the people predicting the downfall of newspapers are on the outside looking in. They were either bounced out malcontents like Jon Talton or never-weres like Alan Mutter and Ken Doctor (nice job running KR Digital into the ground there, Ken).
6:26 You are quite wrong that "no one" saw this recession coming. For one, review New York University economist Nouriel Roubini's musings, which have been spot on about this recession coming, and how it is developing. By the way, he says there is worse to come. This recession was well forecast by others as well. It is just that their warnings were not heard. It's the old Cassandra story -- it is only after the disaster that you realize some saw it coming.
ReplyDelete5:04 The second floor of the new Naples building is a very sore story with Scripps, owner of the Naples paper. It is the reason the publisher there was abruptly removed, and the full story of what happened has yet to be written. The paper will relocate there, partly because the current location is very vulnerable to hurricanes and very expensive to insure. Unless you are suggesting Scripps will pull a Rocky Mountain News in Naples, and fold up -- something I guarantee you that will not happen.
Alan Flaherty is a far cry from being a production authority! I don't believe he's ever been in a production managerial role. As a consultant he doesn't have the foresight or experience to make operational long term decisions. He's out of touch and is a great spender of "other people's money." He will tell you what you want to hear and at the end of the day, he cashes his check and walks away. You are left to pick up the pieces. Cheers....
ReplyDeleteAnother note on the presses in Detroit - don't think for a minute the capacity won't be utilized a different way adding additonal revenue. We have been printing USA Today for quite a while and why not offer the new found "dark" time to other pubs - The O&E's, NYT, WSJ - nice revenue if we can get it! What else are they thinking about that we just aren't aware of yet?
ReplyDeleteIt is clear to me that GCI knew, or should have known, there was a recession coming when they committed money to the new presses. Unless you were a tortoise, you knew about the overbuilding of houses and the excesses in the mortgage markets by 2005-6. Unless they were reading their own real estate sections, corporate would have known this, too. So much for great world class capital planning.
ReplyDeleteAlso keep in mind that when the press project in Detroit began that Knight Ridder was the other half of the JOA and they picked up some of the cost, too. About half if I remember correctly.
ReplyDeleteI just permanently removed a comment from an individual who I have banned from this blog.
ReplyDelete8:19 raises a great point. With that additional press window four days a week (nights) more commercial work could be at hand. Put a couple small commercial printers out of their misery by taking over some 10-20,000 circ. runs. Sure makes sense. The WSJ might be covered, but I wouldn't be surprised to see the NYPost start a national edition using the WSJ capacity prior to 8 p.m. EST. The NYT could be in play. Gannett Offset might be looking to move something there as well. The only block could be the higher labor costs vs. running at Atlanta Offset.
ReplyDeleteTo 7:40 --
ReplyDeleteAt least Talton, Mutter and Doctor sign what they write.
Reinan's in the house!
ReplyDelete6:26 here again. It's not a normal recession that's happening here for newspapers, it's a signal change. The poster who stated that KRN paid for half the press is correct. However the depreciation is substantial but it is a book entry only no cash leaves the building.The $170 million was spent 4-6 years ago. Depreciation expense shields income from taxes and in GCI's case in Detroit state, local and federal income tax rates combined is probably 40% or more. So if you have a $175 million asset with a 25 year life you have to recognize $7 million/year in depreciation. That reduces income but also saves $2.8million in taxes/ yr so the gov't is paying for 40% of it through tax savings. DNA used to use over 100,000 tons of newsprint. at $600/tonplus ink and plates and chemistry consumables cost was probably around $70 million/ year.
ReplyDeleteThe new press had a reduced cutoff, a reduced webwidth, faster make ready's and better product counts. My guess is they saved at least 10% of those consumable costs or $7million per year. Aded in maintenance costs, reduced manning, later deadlines and I think you can see that this was a good project at the time it was planned, DNA had some very old Goss Metro's which would have been at least 30 yrs old by now and some letterpress conversions that were absolute beasts that printed horribly had a 23+9/16 cutoff and ran huge waste numbers. No one could see the meltdown we're experiencing but if DNA still had the old equipment it would still cost them more to produce the papers not less.
10:43 pm: I didn't understand a lot of what you wrote -- but you wrote it beautifully. It's like sports journalism: I don't follow sports, but if a sports story is told well, I'll lap it up.
ReplyDelete10:43
ReplyDeleteWow. Someone who knows how it works. Awesome. It has been a long time since I read anything so informative and correct. I agree that the press project in Detroit must have been conceived when the economy was running high and that it made complete sense at the time of its conception.
I have to agree with your earlier statement. It is scary how many "journalists" are totally unaware of how their company operates outside the newsroom.
Detroit may doubtfully land some national commercial printing jobs, but the likelihood of them attracting local publishers is extremely doubtful given how many plants Gannett has closed in the past few years, let alone the fact that many just flat out can’t stand, nor trusts Gannett.
ReplyDeletePlus, even if some were interested,how many would offer jobs to the scale where they’d even make sense running on those presses. Best bet to fill time seems to be in consolidating more Gannett papers at this site. Too bad for those who’ll lose the work.