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Strib: Revenue drop ‘precipitous,’ production costs ‘unfavorable’

After three days of closed door meetings — so closed that the principals had to sign confidentiality agreements —Star Tribune management and labor just issued a joint statement about the discussions.

There’s not a ton new, though some previous themes were underlined and emphasized. Publisher and part-owner Chris Harte terms the paper’s revenue decline “precipitous.”

Strib brand strong; online growing but not money-maker
The good news, such as it is, is that the Strib still has a far-reaching brand — here, print declines are outweighed by online gains — but the company cannot monetize it. To put it in memo-speak, relative to the rest of the newspaper industry, “The Star Tribune compares favorably in terms of reach and market position but unfavorably in terms of production costs.”

Therefore, “Harte emphasized that expenses will have to be cut to get through the immediate financial challenges.”

Labor is, of course, a major expense. (And, we should note, a major asset.) Strib Newspaper Guild co-chair Graydon Royce said layoffs weren’t mentioned in what he described as “introductory” sessions. But don’t be too reassured, Strib workers: Specific cuts didn’t come up at all. Still, I’m told management is looking for substantial expense cuts throughout the company by early summer.

What is different about the current skein of meetings is that it’s not classic bargaining: The Strib imported Restructuring Associates Inc. as a mediator to find a common way forward before the union’s contract expires this summer. Formal bargaining will commence at some point. Next week, union leadership will meet with Strib employees to assess whether they should participate in this pre-bargaining or go right to the mattresses.

Speaking for himself, Royce is in favor of letting the current talks go forward, but adds he was “a bit underwhelmed” by them. “Not at the issues, but underwhelmed at how much they did or did not talk about specific problems. But I guess that wasn’t their intention.”

As reported here previously, the cash the Strib takes in from operations is diving below its debt payments. That could put owners Harte and Avista Capital Partners in violation of their agreements with lenders,a problem PiPress owners MediaNews Group is having. Harte and Avista Capital Partners would have to dig into their own pockets (unlikely, given the Strib’s declining asset value) or sell (tough, since like many homes, the Strib may be worth less than its mortgage). Most newspaper experts I talk to say you can’t cost-cut your way out of huge debt — the nut is too big and brand damage high — but it doesn’t mean management can’t try.

Asked whether management discussed this dynamic, Royce demurred, because of the confidentiality clause. “The only thing I would say on the debt thing is that I would direct you to your own previous posts; you’ve got all the information.”

Here’s the memo:
Star Tribune Union Leaders and Management Hold 3-Day Business Education Session March 21, 2008 — For the past three days Star Tribune management and union leaders met to discuss the serious financial issues facing the company and the newspaper industry.

Publisher Chris Harte opened the business education meetings by telling attendees that the Star Tribune’s current financial difficulties result from a precipitous drop in revenue while expenses have remained virtually flat.

Harte and six Star Tribune senior managers gave presentations outlining the company’s current market and financial position. Additionally two outside industry experts gave presentations on the state of the industry.

Dan Sullivan, professor of media management and economics at the University of Minnesota School of Journalism, and John Lariccia, a partner at Bain Consulting, said that some of the problems facing the national industry and the Star Tribune are systemic — declining readership and the proliferation of media outlets on the Internet that compete for audience and advertising. Others are cyclical, such as the current economic downturn.

In addition to Harte, Star Tribune speakers included Dan Shorter, president of digital media, Dave Montgomery, chief financial officer, and senior vice presidents David Walsh, advertising; Steve Alexander; circulation; Nancy Barnes, news; and Kevin Desmond, operations.

All the speakers agreed that the Star Tribune is at a crossroads, and they stressed that the company’s brand strength and market leadership are keys to future growth. Harte emphasized that expenses will have to be cut to get through the immediate financial challenges.

Other highlights of the presentations included:

— Comparisons relative to other newspaper companies. The Star Tribune compares favorably in terms of reach and market position but unfavorably in terms of production costs.

— The financial obligations of the company, including debt.

— The commitment to future growth. While the immediate challenge is to reduce expenses, the long-term viability of the company depends on growth.

In the next few days the unions will meet as a council or among their memberships to determine whether they will continue to participate in a joint problem-solving process to address issues raised in the sessions.


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