Thursday, December 04, 2008
Poynter Online: Profit-layoff comparison 'bogus'
That's according to Biz Blog author Rick Edmonds, who criticizes a former Gannett employee (and maybe me, too) over those newspaper profit margins and the current round of job cuts. "It's bogus,'' he writes, "to juxtapose some leaked profit margins at Gannett papers for the first three quarters of 2007 -- ranging as high as 42% -- with this week's layoffs." Edmonds explains.
12 comments:
Jim says: "Proceed with caution; this is a free-for-all comment zone. I try to correct or clarify incorrect information. But I can't catch everything. Please keep your posts focused on Gannett and media-related subjects. Note that I occasionally review comments in advance, to reject inappropriate ones. And I ignore hostile posters, and recommend you do, too."
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Edmond's article is enlightening and kudos to you Jim for linking to it.
ReplyDeleteTwo things need to be said here.
ReplyDeleteWhile the '07 numbers are no doubt accurate, I think everyone would be shocked if the comparable '08 numbers were to be found and put up. 15 to 25 percent declines in revenue from '07 to '08 (which is probably a reasonable number) could easily translate into 50 to 75 percent decline in profit.
The other point I want to make is the shocking lack of business acumen that I see among journalists. Many haven't the foggiest idea how businesses run or how money is made. It may be that's a weakness that j-schools need to address.
But if Gannett (or anyone else) isn't making money, no one has a job. It doesn't fall from the sky, people.
Walter Abbott
I still think bottom-line thinking isn't always correct, but then again, I wasn't a business major. You have to have a good product, one would think, to make a profit. Product quality decreases, profits go bye-bye, right? Maybe making business decisions on stock prices alone won't make it.
ReplyDeleteEdmonds writes:
ReplyDelete"Such diversification into businesses with growing revenues makes a company stronger when its core businesses are suffering."
And how is that working out?
15-20% drop in revenue resulting in 80% drop in profits? Not in my experience at the community level. Gannett's strategy is to create a new digital company. Digital sounds better to investors than community newspapers, and in this economy, appearance is really all that counts.
ReplyDeleteAs far as journalists lacking business acumen, I would say AIG and Lehman and Enron really didn't have the smartest guys in the room,, either.
I wonder how bogus he would think it was if he was in one of our laid off workers shoes?
ReplyDeleteActually when estimating the impact of revenue losses you have to use the incremental margin of adding or losing a $1.00 of revenue and 70-90% loss on revenue isn't out of the question. For example if you add a full page of advertising at a large paper you are likely to generate $10k in revenue. The extra cost to produce that page of revenue is newsprint, ink, plates and some small misc production expenses and sales commissions which is going to be in the $900-$1200 range depending on the circulation. There is no other "new" or "extra" expense attached to the revenue as the news, circulation and other expenses donot increase. If you add $10,000 in revenue it's not unusual to add $8000-$9000 to the bottom line because you are dealling only with incremental or new expenses. Likewise when you lose the revenue you do the reverse. A $10,000 loss of revenue only saves you $1000 in expense.
ReplyDeleteIncremental profit is different from "average profit" which is what Jim reported on this blog. If you want a real life example of something similar look at the IRS tax tables. While your average rate on everything you earn after exemptions and deductions might be 12-18%, if you add $1000 of income the IRS wants 28-33% of the extra $1000. Profits in the newspaper industry are like the IRS tax tables. They are progressive. The more money you bring in the higher the %'age that you keep
Edmonds may be right, up to a point, but he still comes across as an apologist for Gannett. I'm surprised Jim left his comment there. The argument loses ground on two points, though, one tangental to another comment left on site. The mission of a corporation is maximizing shareholder wealth. Edmonds cites some diversifying acquisitions that may help sustain revenues. But like the auto industry, Gannett and our other media industry biggies did not invest in nimbleness. GM made lots of money off Escalades, for example, but when they suddenly are not hot anymore, GM lacks nimbleness to come up with the just-as-porfitable hot other cars -- and it has a wide lineup of cars to sell, but there's a certain sameness and expectation about them. Edmonds points out where Gannett invested, but Gannett did not invest much in developing nimble market-meeting products that are truly different, pretty much everything is there to sell advertising around. All well and good, but can we think up something else to sell, too? Let's use our imaginations, people.
ReplyDelete7:32: Exactly.
ReplyDeleteEdmonds is an idiot. He ignores the fact that online ventures are NOT pulling in the types of revenues that print has. Without subscribers, you have to rely on advertisers. And local advertisers just aren't yet convinced that online is the way to go. Talk to any ad rep at any Gannett paper out there and ask them about their success selling online ads to existing print advertisers.
He also fails to ask a key question in today's evolving media market. He writes: "Should Gannett have banked more in 2007 and prior years? Well, successful businesses, unlike successful individuals, generally don't save the money they earn." No skepticism there, no questioning whether that's a smart approach to take in the modern economy. That fails the basic rule of Commentary 101.
What a dope.
Compare to the Washington Post Co. where over 50% of their operating profit comes from the Kaplan Learning Center(s). Diversification means more than investment in new media. It means finding a growth area then purchasing or build from scratch a formidable player in that industry.
ReplyDeleteI'm highly skeptical about the purported drop in profits the revenue decline would equal. Some of these papers were raking in money. If they can't weather a few bad quarters -- if they haven't been saving for a rainy day -- then perhaps they don't deserve to exist.
ReplyDeleteThe problem with Gannett Digital, is that while they're ramping up all the great new digital products that cost millions to acquire, millions in revenue aren't flowing back in. The nut of profits online still hasn't been cracked, as above posters have noted. Sure, they'll have a great digital lineup of products, but without impressive revenue projections, I predict Wall Street will yawn and quickly lose interest.
Gannett needs to bring in some objective evaluators of online products before they plunge in. They have this habit of buying things from their own avaricious executives, Ripple6 being the latest example. I suspect there is another such purchase percolating now. WordPress, the blog software owned at least partly by the publisher of the Asbury Park Press and formerly of Westchester, is being pushed as the company-wide new choice for blogs on our web sites. That despite the fact that it isn't integrated with site memberships and GO4, and after Gannett spent rather heavily on the Pluck blogging and comment platform that lies at the heart of GO4.
Bring in objective evaluators? why pay someone to do something that's being done on a 24/7 basis. If someone at Gannett would simply read the comments from customers, I think it might clue them in that there's a problem---a big problem.
ReplyDelete