Publisher reviews The News’ financial picture

The operating profit at The Buffalo News — how much money it made before taxes — rose from 2009 to 2010.

That was the key takeaway point from a Jan. 25 presentation by Publisher Stan Lipsey on the financial status of the newspaper.

However, Lipsey, as in past years, tempered the positive news with a review of continuing worrisome trends in advertising revenue and circulation numbers.

“Our 2010 profit was very satisfactory. We were very pleased with it,” he said. “We had a profitable year, but we are facing revenue problems.”

The Buffalo News earned a total operating profit in 2010 of $16.23 million, up 5.5 percent
from $15.39 million in 2009. But the net profit was down sharply by 36 percent to $8.11 million from $12.7 million
because of taxes and last year’s $4.8 million in voluntary buyouts, not basic operations. Total revenues were down, but so were the company’s expenses.

Lipsey acknowledged that the results weren’t as bad as executives had expected a year ago, although the long-term revenue and expense trends, displayed through a two-line graph, still aren’t pretty. Still, he noted that profits are down 60 percent, or by $29.9 million, from $46.15 million in 2001, and warned that the company would have to cut expenses again, even employees, if revenues keep falling.

“The job is not to let those two lines (revenues and expenses) cross. We just can’t allow that,” Lipsey said. “Revenues are going to go down, and the only way to prevent that is to make sure the expenses go down at the same rate.”

He said that without cutting costs — which are down from $109.59 million in 2006 to $92.05 million last year — The News would not be profitable and would be in trouble. Those cuts included voluntary buyouts and some layoffs that reduced the workforce.

“We don’t have the same doom and gloom we had in 2009,” he said. “But we have extreme pressure to avoid going into a loss situation. It is a very tough business.”

Lipsey said he doesn’t want to make staff cuts in editorial or advertising. He also said the company has made cuts outside of union ranks, including middle-management, although he didn’t say anything about upper management.
For now, he said executives are “going to wait to see how the first quarter shakes out,” but noted that revenues were off 17 percent in just the first three weeks of January.

According to the News’ presentation, advertising revenues last year fell 4.2 percent to $73.3 million, while circulation revenues fell 3.2 percent to $28.7 million. New media revenues rose 10 percent to $4.4 million, while rotary press revenues from printing other newspapers more than quintupled to $1.82 million from $349,708.

Over a five-year period, advertising revenues have fallen 31 percent, or $33.4 million, and circulation revenues are down 12 percent, or $3.7 million, while new media is up 185 percent or $2.9 million. Specifically, within that drop in advertising revenues, classified ads have fallen by $11.6 million to $19.6 million from $31.2 million, while retail ad revenues are down $16.5 million. Overall, advertising revenues now represent 67 percent of all revenues, down from 76 percent in 2006. Advertising industry-wide is expected to fall to a 25-year low.

“That arrow is not going in the right direction,” Lipsey said. “That is the heart of all our problems.”

However, new media revenues now account for almost 6 percent of total revenues, and are expected to rise 26 percent this year, and to reach 10 percent of total revenues by 2012 — still a small part of the picture.

In circulation, revenues have fallen 11.4 percent in five years. Within daily sales, home delivery subscribers fell less than one percent percent to 120,843 while single-copy sales fell 13 percent to about 31,096. For Sunday, home delivery fell 1.9 percent to 180,399, while single-copy is down 7.6 percent to 52,732, for a total of 240,135, down 3.3 percent from 248,146. The lower Sunday circulation means the company can’t charge as much on preprint ads.

On the expense side, payroll costs fell 3.1 percent to $37.2 million, pension expenses decreased slightly to $5.74 million, employee benefits are down 9.3 percent to $10.88 million, workers compensation costs are down 16.4 percent to $2.05 million, and depreciation expenses fell 1.7 percent to $4.46 million. Newsprint costs rose 8.1 percent to $11.23 million. In all, total revenues last year fell 2 percent to $108.3 million, while expenses dropped
3.2 percent to $92 million.

Two of the biggest factors driving down the company’s profits were taxes and the pension charge, both of which are new. In the case of the taxes, Berkshire Hathaway recently changed the way it is structured, turning all of its 70 companies into subsidiaries. This means the News — which used to be classified as a division so the parent paid the taxes — is now responsible for its own taxes.

The second and larger factor was the pension charge, which Lipsey said was a surprise to News executives. The company had counted on using its overfunded pension to fund last year’s buyouts without having to spend any money. But under national accounting standards, it had to replenish whatever it took out in the same year, causing the charge.

So what is News management doing to address the problems?

Executives cited efforts to boost new revenue sources, including the new direct mail business and especially digital media such as ShopBuffalo, Classified Buffalo, videos and movie trailers. Lipsey said he has also tasked President Warren Colville and a team of his choosing to explore what other papers around the country are doing, such as in Houston and Phoenix. In addition, executives are discussing a “paywall” for online readers, although they fear a loss
of readers and revenues.

“We’ve probably performed better than most newspapers in terms of managing the losses. We’re trying to change,” Colville said. “But we can’t bring people back. We can’t bring Rosa’s back. We’re doing well, but not nearly enough. We’re not going to be able to invent new customers to buy the Buffalo News.”

Reported by Jonathan Epstein.