PAPER CUTS

As a battle cry to rally the troops, the letter from the publisher of the Rocky Mountain News sounded more like a call to retreat.

"Having spent over 20 years at the Rocky Mountain News," wrote Larry Strutton in the paper's in-house newsletter last month, "I am very aware of the effective grapevine that has always existed here. Based on that, I'm sure that most, if not all, of you have heard at least bits and pieces about my determination to have the News become operationally cost-competitive with the other paper. In this column I want to eliminate the rumors and give you the facts.

"As you may have read, Mr. Singleton recently refinanced his newspaper empire to the tune of $190 million. He did that by selling junk bonds...We were able to learn exactly what their revenue, expenses and profits have been for the past six years. And two things became clear: Their operating expenses are considerably lower than ours, and they have enjoyed profits totaling $34.9 million during 1989 through 1993."

What Strutton doesn't say is that recently his paper has come nowhere close to enjoying any profits. What with buying into baseball teams and building expensive--and bug-ridden--printing plants and blowing budgets to cover the Pope, the News keeps posting losses estimated as high as $40 million last year in an industry newsletter.

Although News owner Scripps Howard isn't as accommodating at divulging statistics about specific newspapers on corporate filings as is Post owner Dean Singleton, "we have a healthy parent company and we don't have to worry about it pulling us down," Strutton writes. Selling them out is the more likely possibility; rumors continue to fly that Scripps Howard could cut its losses with the News, the company's former flagship, just as it did with its Pittsburgh paper last year. After all, Strutton notes in his letter, "stockholders rightfully expect a fair return on their investment in Denver."

In May two Singleton companies filed inches-high stacks with the Securities Exchange Commission. Reading through them is about as exciting as perusing both Denver dailies' early Sunday editions. Basically, they outline a corporate restructuring; in the process of raising $190 million, Singleton and pal Dick Scudder cut potential investors in on the action--and voyeurs in on some of their financial gyrations.

Here's what the SEC offering says about their Denver paper: It's the "fastest growing metropolitan newspaper over the past two years out of the top 50 metropolitan United States markets other than markets in which competitive newspapers were merged." (And, needless to say, any sort of friendly merger in Denver seems extremely unlikely.) That growth is likely to continue; a recent audit showed that "50.4 percent of the people who moved to Denver within the last year read the Post, compared to 29.8 percent who read the News." Even more startling is the Post's revenue growth: from $114.3 million in fiscal 1991 to $126.1 million in fiscal 1993, "a compounded annual revenue growth rate of 5 percent"--and that rate doubled in the last six months of 1993. The $34.9 million profit figure cited by Strutton doesn't actually exist in the documents, but appears to be taken from a cash-flow indicator specifically described as "not a measure of performance." But the News's publisher can be forgiven for any confusion, since he may have forgotten what a positive cash flow looks like.

The most significant statistic, however, is buried deep in the back of the filing: Late last year Times-Mirror, the Post's former owner, wrote down most of Singleton's outstanding debt for the paper's purchase, meaning that the Post's positive cash flow can be poured back into the paper itself.

"What does that mean to us?" Strutton asks his employees.
Apparently it does not mean that he should try to improve his paper in order to win some of the Post's circulation. No, "it means that, because they are the low-cost operator, they are able to discount advertising and circulation to levels that make it very difficult for us to compete in those areas. Therefore, we must take whatever steps are necessary to become as cost-efficient as they are. And we are in the process of taking several steps...

"Does that mean big layoffs? The answer is no.
"Does that mean some reassigning of people and not filling some vacancies and delaying replacements for others? The answer is yes.

"Does that mean that every employee of the Rocky Mountain News will be asked to make sacrifices? The answer is yes. We are asking everyone to help us achieve parity with the other paper in wages."

What it also means, however, is that the News publisher is not above glossing over exactly how parity will be achieved. As one example of admirable employee belt-tightening, Strutton cites the contract signed June 12 by the Pressmen's Union, which "includes a two-year wage freeze." He neglects to mention that a significant raise is also part of the package.

It's true that Post wages are lower than comparable salaries at the News--as much as 10 percent for some jobs. Singleton asked for concessions when he took over the ailing paper, and he got them. But it's also true that after some tough negotiating last year--including picketing outside the Post train to Cheyenne Frontier Days--all the unions are now back on board with new, improved contracts. The News's Newspaper Guild contract, on the other hand, is up in October--and reporters are already worrying about what Strutton's letter means to their jobs.

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