The Journalism Money Pit

Until September 11, the megacorporations that own most of the nation's news organizations were squeezing, slashing, and downsizing. Since the attacks on the World Trade Center and the Pentagon, these same corporations have, to their credit, pursued a virtual open-checkbook policy, allowing their news divisions to spend whatever it takes to cover the war on terrorism.

Now it's gut-check time. Will media executives invest in the journalistic resources needed to cover a complex, worldwide story that is likely to drag on for years? Or will they, once things have returned to normal (whatever that now means), resume their cost-cutting ways?

Despite a drop-off in advertising revenues that, even before September 11, was reportedly the most severe since the Depression years of the 1930s, the financial pressures facing the media are largely artificial. With Wall Street addicted to media-company profits of 20 percent and above, corporate executives have been cutting not to stave off losses but, rather, to maintain profits.

John Morton, a financial analyst who specializes in the newspaper business, puts it in perspective when he notes that newspaper companies rang up an average profit margin of 19 percent for the first six months of 2001. "It's all relative," he says. "It's not like newspaper companies were losing money. It's just that they weren't making as much as they were accustomed to."

Of course, the squeeze has unquestionably gotten worse since September 11. According to the New York Times, the three major networks lost about $500 million in ad revenue during the first few days after the attacks, when they broadcast commercial-free news 24 hours a day. The news media as a whole may have already spent $100 million beyond their budgets.

Advertising Age reports that analysts are revising their already-pessimistic forecasts downward: after having previously predicted a modest rise in ad spending in 2002, most now believe the decline will continue. Media corporations such as the New York Times Company (whose holdings include the Boston Globe), Knight Ridder, Gannett, and Reuters have reported miserable third-quarter earnings in recent weeks, with downward trends accelerating since the terrorist attacks.

But media companies, over the long term, remain highly lucrative enterprises. More important, they hold a public trust, considered so vital by the drafters of the Constitution that they were given explicit protection in the form of the First Amendment. That public trust has never been more crucial than it is now. This is no time for media executives to obsess over quarter-to-quarter results.

Yet, given the need to keep their stock prices up, it's hard to see how they can do otherwise. It's a vicious circle, and it will require foresight and courage to break it.

Perhaps the most optimistic media observer is Tom Rosenstiel, director of the Project for Excellence in Journalism, who thinks September 11 may have signaled a shift similar to the transition from the frivolous 1920s to the serious '30s and '40s. In both the '20s and the '90s, the media were obsessed with celebrity and scandal. Now, just as they were 70 years ago, they are being forced to turn their attention to the unhappy realities of a changed world. Rosenstiel believes the media can rise to the occasion -- although he cautions that there's no guarantee that will happen.

Consider what has happened to CNN. Before September 11, the pioneering all-news channel was sucking wind. Its corporate master, AOL Time Warner, was cutting costs, and the channel was loading up on boneheaded talk shows to compete with the Fox News Channel, its upstart conservative rival. Since the attacks, the ratings of all three news channels -- CNN, MSNBC, and Fox -- have been up exponentially, with CNN, which still has the deepest reporting corps, leading the way. The network has reportedly been able to raise its advertising rates, which will pay for more reporting. And its chief executive, Walter Isaacson, has crowed publicly that his network has rediscovered its sense of mission.