It's cutting time

Layoffs likely at Times, says memo from publisher Blethen

TO: The Seattle Times Family of Employees

FROM: Frank A. Blethen

DATE: April 12, 2001

Of all the messages I have shared with you during the past five months, this has been the toughest one to write. It is a message I have tried to avoid, but can't duck any longer.

In short, the extensive damage from the strike, combined with the rapidly deteriorating economy, has forced us to accept a new reality:

We no longer have the revenue base to support the current level of jobs, infrastructure and programs we all enjoyed pre-strike.

Knowing that the strike put us in a precarious position financially, your Leadership Council did an amazing job creating a post-strike budget for 2001 that sought to minimize job, content and service cuts and to protect our competitive position. Unfortunately, the March revenue drop of almost 20% from last year is an urgent and sober wake-up call. We now know that the remaining year's budget revenue forecasts are far too optimistic, and with the economic deterioration continuing, we must immediately downsize the company to what revenues can sustain.

This won't be easy and it won't feel good to any of us. But it is a critical necessity to ensure we stabilize the business and protect our independence.

There are no sacred cows or protected programs in this process. We must challenge everything and eliminate anything that is not essential. We have to become a smaller company, quickly.

We will look at layoffs, program cuts, newshole reductions and service cuts that had been untouchable prior to this.

Only three things are not under consideration: (1) core content that drives reader loyalty; (2) 5:30 a.m. and porch home delivery; and (3) $0.25 single copy.

These three items are essential for success in a downsized environment and they are the foundation for our future.

Until now, we have been optimistically characterizing the post-strike environment as "stabilizing and rebuilding." Now it is clear that our mission is not to rebuild, but to "stabilize and reinvent" ourselves into a smaller company.

I worry about our competitiveness and our marketplace position. We will do everything we can to be smart about newspaper content as we go forward. We know we can't do everything we did in the past. So what we do must preserve and nurture the connection with our most loyal readers.

As difficult and unpleasant as this will be for all of us, we are still better off than the rest of the industry. Knight-Ridder, for instance, is laying off people and cutting content simply to maintain their 21%-plus profit margins.

The significant loss of circulation and advertising revenue because of the strike is what makes this economic downturn so much more difficult to deal with than ones experienced in the past.

In a few days, we must publicly report our audited circulation results for the six-month period ending March 30. This report underscores why downsizing is so important. It represents significant circulation revenue losses and erodes our ability to support advertising volume and rates.

Our combined (Times and P-I) daily circulation will be down 9,761, or 2.4%, at 394,159. That's well below our minimum target of 400,000 necessary to sustain the business at prior levels. Sunday is worse. It is down 18,088, or 3.6%, at 482,828, well below the 500,000 figure necessary to sustain prior advertising levels.

As bad as this looks, it becomes worse later. These figures do not include the lowest months during the strike. Unfortunately, when we reach the September six-month circulation report, it will reflect the strike losses and the numbers will be much lower.

History

History is instructive at a time like this.

Our Seattle Times history reminds us that there are critical points in time when changes in our external and internal environments force us to downsize and reinvent ourselves to survive. When these critical moments occur, they are a crisis for the company and its employees. Either the company makes necessary and dramatic changes, which usually include downsizing, or it doesn't survive.

Our most critical points were around 1930, 1953, 1972, 1980, the early 1990s and now 2001.

Many of you will remember the advertising recession of the early '90s. Some of you will even remember the early '70s when the famous "Will the last person leaving SEATTLE — Turn out the lights" billboard appeared.

Like those past crises, we have always done what is necessary to downsize and preserve the business. The new reinvented company has always become a new foundation for a successful future. This will be the same.

One element that makes this more difficult is that, in the past, it was a matter of downsizing because revenue wasn't growing. Now, for the first time, we actually have to cope with a dramatic reduction in revenue.

DOWNSIZE IMPERATIVE

The critical imperative is to downsize the company as quickly and smartly as we can so that we may stabilize ourselves, albeit as a smaller company.

The Leadership Council and Executive Council have been meeting for several days to determine how we proceed and where we cut. Over the next several days, we will share with you the decision and cuts as quickly as we can. Alayne Fardella will also follow up this message with a summary of what has already been cut or eliminated.

Unfortunately, this will prolong the uncertainty, change and disruption we have been dealing with for several months. The best way for us to achieve stability quickly and to minimize the amount of downsizing is for each of us to zealously protect the company resources we have control over and to maximize any revenue or customer relations opportunities at this critical time.

Rumors

There are two rumors out there that seem to be gaining prominence and that people are frequently asking me about. They involve the ability of the Seattle-area and the JOA to sustain two newspapers, and the continuance of independent ownership. Let me briefly address them.

Can Two Metropolitan Newspapers Survive in this Marketplace?

This is the most frequently asked question I get, both inside and outside the company. It is an important question that has many ramifications for employees and our community.

Operating under the inefficiency of a JOA and supporting two newspapers is much more expensive than a single-paper operation. The complexity and expense hinders the ability of an organization to effectively compete in today's very difficult competitive world. If the agency loses 15% of our classified revenue to the internet as predicted, this problem becomes even worse.

Moving The Seattle Times to the morning was a bold and untried JOA experiment. The choice was to watch our afternoon newspaper slowly and painfully die or try a model not done elsewhere — with both newspapers in the only timeframe the market wants.

Since no one had done this, none of us knew how the market would respond. While the reaction to the Times' move was very positive, the early circulation trends indicated Seattle was not an exception and the market would select its preferred newspaper. In short, the market would pick a winner and a loser just like it always has elsewhere. The strike accelerated this trend and damaged overall circulation.

In the March circulation audit figures I referred to earlier, I mentioned that combined daily (Times and P-I) circulation will be down 9,761 or 2.4%. This deterioration is not even between the two newspapers. The Seattle Times is up 7,240, or 3.3%, and the P-I is down 17,001, or 9.1%. We have moved from a gap of 32,000 to 56,000.

While this type of market choice and trend is no different than what would be expected from industry experience, we had hoped it might be different here with two good newspapers and with equal marketing and promotion, instead of the usual model where one paper has a significant business advantage.

There is no JOA in the country where the two newspaper owners have invested more lavishly in trying to prove that this marketplace might be different.

This is a catch 22 as it will erode the agency's overall resources in trying to market and distribute two news products.

Typically, the agency will suffer further as the marketplace continues to widen the gap between the two products over time. These are ominous implications for our competitiveness.

Will Independent Ownership of The Seattle Times Survive?

Ever since the public chains started aggressively buying family, independent newspapers 25 years ago, I have been asked this question. With only a handful of independent newspapers left — and us being the largest — it gets asked more frequently now. Knight-Ridder's substantial unsolicited offer to buy the Blethens out last fall and Hearst's insistence during JOA renegotiations of a First Right of Refusal if the Blethens ever sell have fueled speculation. Now the financial damage of the strike and the deteriorating economy seem to have kicked off a new wave of questions about whether or not the Blethen family has the interest and resolve to maintain independent ownership.

The loss of independent ownership is the most remote consequence you can imagine. But I also have to tell you something I would not have told you in the past: as remote as this is, it is a possible consequence if we don't quickly get the company downsized and stabilized. The best way to put this to rest is to stabilize the company and then get back to pursuing the journalistic, community service and workplace aspirations of the past.

FRANK

 
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