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.

Rosenstiel thinks that this is no fluke -- that bigger audiences are here to stay, and that those audiences will pull in the advertising revenues needed to pay for better news coverage. And though he cautions that he doesn't want to sound "Pollyanna-ish," he also thinks it might be possible to convince Wall Street that news organizations are better off putting more of their revenues into newsgathering and less into shareholder value. A pipe dream? Perhaps, Rosenstiel admits. But he notes that Wall Street, more than any other place in the country, was devastated by the terrorist attacks, and "they are going to have a different psychology now."

Besides, Rosenstiel asks, if supermarket profits, to cite one example, generally run five percent, why is it accepted as received wisdom that media companies must earn at least 20 percent? Those profit expectations, he says, are based on nothing other than "consensus." And the consensus can change.

Geneva Overholser, a Washington-based professor of public-affairs reporting for the Missouri School of Journalism and a leading critic of Wall Street's unceasing demand for profits, says she hopes that the "impossibility" of reconciling high profits and in-depth news coverage "is so clear now that we will finally come face to face with the need to change the way we operate." She adds: "I don't think the Street is just going to decide it will be different. We can't keep up with the old profit pressures, and we've got to tell Wall Street a different story."

(Overholser, by the way, will be among the participants in a conference at Harvard on October 28 and 29 on "Paying for the Next News," sponsored by the Nieman Foundation and New Directions for News. The purpose, says Nieman curator Robert Giles, is to develop strategies to balance profit considerations with the public interest. For more information, go to

Earlier this year, Jay Harris walked away from his job as the publisher of the San Jose Mercury News rather than comply with Knight Ridder directives to keep cutting costs. Observers were shocked. Harris, one of the highest-ranking African-American news executives in the country, was an industry star. But he said he could not in good conscience implement cuts that would hurt his already-profitable paper just to make it still more profitable. And he issued a public call for national action -- perhaps in the form of a high-profile commission -- to study how Wall Street's unrealistic profit demands were hurting the news business.

"I wish I could be as hopeful as Tom [Rosenstiel]," Harris told the Phoenix by e-mail. "On the positive side, this has been a giant reminder to the corporate managers that news is important, that it sells newspapers and attracts viewers, and that audiences expect them to do a good job. If and when they pull back they will probably catch some well-deserved flak. The question going forward is whether the CEOs and other corporate managers will pay more attention to the needs of their readers and journalism's responsibility to the nation in a time of profound national challenge, or remain beholden to large institutional investors and Wall Street analysts who likely will want the companies to do all they can for the bottom line and year-to-year growth -- the crisis facing the nation notwithstanding."

As Harris understands all too well, the price of what became business-as-usual is now coming due. For the past decade the media have focused on celebrity and scandal, sex and sleaze, providing wall-to-wall coverage of O.J. Simpson, Monica Lewinsky, and Gary Condit. The attention given to Osama bin Laden and other Islamic extremists was, by comparison, minuscule -- despite the earlier World Trade Center bombing, attacks on American embassies in Kenya and Tanzania, and the Clinton White House's misbegotten raids on purported bin Laden strongholds in Sudan and Afghanistan. Los Angeles Times media reporter David Shaw recently cited studies showing that "newspaper editors and television news executives have reduced the space and time devoted to foreign coverage by 70 percent to 80 percent during the past 15 to 20 years." It's no wonder that we now find ourselves adrift in a dangerous world that we don't understand.

Media analyst John Morton thinks it won't be long before the media revert to their downsizing ways. "I expect there will be considerable pressure on cutting costs," he says. "Even a crisis, if it goes on forever, is no longer a crisis, and in time people will revert to their former habits."

Former Boston Globe editor Matt Storin warns that, even if the hunger for news remains strong, it won't necessarily follow that the advertising revenues will be there to support it. "At the very time when they might want more, they might get less," Storin says of news consumers. "As good as circulation and viewership is, it's the advertising that pays the bills, by and large."

Yet such a development would not only be bad for democracy -- it would, ultimately, be bad for the bottom line as well. Indeed, the war on terrorism may represent an opportunity for media that are willing to invest in the journalistic resources necessary to cover it. Business consultant (and presidential cousin) John Ellis, a columnist for Fast Company, believes that "the appetite for great reporting has never been higher," and predicts that news organizations that rise to the occasion will also, in the long run, enjoy the greatest economic success.

As a comparison, Ellis invokes the well-known story of the New York Times and the New York Herald Tribune, and the way each responded to the severe paper shortages of World War II. The Herald Tribune cut its news hole; the Times loaded up on as much reporting as it could, and cut advertising. The Times, of course, emerged from the war as New York's -- and the nation's -- leading newspaper. The Herald Tribune went out of business two decades later.

Trouble is, during World War II the Times' owners, the Sulzberger family, could do anything they pleased with their newspaper. Today, even the Sulzbergers have ceded some of their control to Wall Street.

In the current media environment, in which nearly all of our most important news organizations are owned by publicly traded corporations, the issue isn't whether individuals want to do the right thing, but whether the stock market will allow it.

Dan Kennedy is Media Editor for the Boston Phoenix and can be reached at

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