If any company and any top executive personify the high-flying nature of the media business during the 1980s, that company is Time Warner and that executive is Steven J. Ross. Time Warner, which came into existence in 1989 with the merger of Time Inc. and Warner Communications, is now the second-largest media company in the world after Bertelsmann of Germany, with interests stretching from magazines to cable television to records to book publishing.

Presiding over this gigantic enterprise as co-c.e.o. is a man whose regular salary and bonus last year of nearly $ 75 million he received in connection with the merger.

But as at so many companies in the media industry, which in the mid-1980s led all other industries in profitability, all is not well in TimeWarnerland. Many investors were unhappy this summer when the company announced plans to sell rights to buy more stock -- and thus decrease the relative value of their holdings -- in order to pay off the enormous debt incurred in connection with the merger. At the same time, concern about the editorial integrity of the company's magazines was being prompted by several examples of what appeared to be inappropriate business-side involvement.

Still, despite the problems, Time Warner is a long way from the poorhouse, having enjoyed a strong year in 1990, not counting the debt costs. And instances of high-quality journalism continue to abound -- for example, a recent investigation in Money magazine detailing how financial con artists parade as radio talk-show hosts.

In many ways, the mixed and changing fortunes of Time Warner are symbolic of what has happened in general to media companies in recent times. For years they had been overlooked, even after a trend toward going public had put most of the biggest news companies into shareholders' hands. Then, suddenly, they became objects of desire to investors and potential owners, who saw in them what appeared to be limitless possibilities to increase revenues by raising advertising rates, to enjoy the benefits of consolidation and monopoly, and, not so incidentally, to provide entree to the country's social and political inner circles. As Forbes magazine noted in early 1987, "America's communications media increasingly took on the look of a giant investment souk," owing to the realization that they have "been able to generate rivers of cash decade after decade." The eighties were also a time when any remaining illusions about journalism as an enterprise different from other businesses were finally put to rest. "We're in this to make money," said Keith Gollust of Coniston Partners in 1985 in explaining his interest in taking over Storer Communications.

By early this year it was clear that the media boom on Wall Street had come to an end. As the title of a May 13 Forbes story about prospects for media companies put it, "The Party's Over." After a decade in which no price seemed too high to pay for a broadcast property or to launch a new magainze, reality set in along with the recession. Reports on the previous twelve months told the tale. The average sale price of an AM/FM radio station, which had soared to more than $ 6 million in 1987, dropped to under $ 2 million. Profits for many of the major media companies crashed -- in a few cases straight through the floor: Dow Jones, down 66 percent from the year before; the New York Times Company, down 75 percent; NBC broadcasting operating profits, down an estimated 21 percent; CBS broadcasting, an estimated loss of $ 50 million

Nor did the first six months of 1991 offer much ground for believing that media companies' troubles were over. Indeed, in some cases, the slide accelerated. Gannett, the country's largest publisher of daily newspapers, reported that its earnings were down 20 percent, while the New York Times Company reported a decline of 76 percent and Media General recorded a drop of 50 percent. CBS said its second-quarter earnings were down 63 percent.

The main reason everywhere for the poor showing was continued severe weakness in advertising. The Wall Street Journal, for example, which experienced a 9.7 percent drop in ad linage in 1990, saw linage drop 21.2 percent in the first quarter and 9.4 percent in the second quarter of this year. Ad revenues for newspapers, magazines, and television networks were all down about 7 percent in the first few months of 10991. (Cable, however, increased.)

Warren Buffett, regarded as one of the smartest investors in the country and head of a company that is the largest shareholder in Capital Cities/ABC, commented recently that he thinks media companies will be "considerably less marvelous" than he thought only a few years ago. Tom Ferguson, president of the Washington Post Company, was quoted in a Wall Street Journal story on ad revenues as saying, "There's no light at the end of the tunnel." And even with indicators showing that the economy as a whole was slowly improving, David Pecker, c.e.o. of Hachette Magazines, told Crain's New York Business in June that "everybody has written off this year."

The declines prompted a continuing onslaught of layoffs, cutbacks of the newshole, and budget slashing. Coming on top of the economies that had been imposed to insure continued high profits during the 1980s, the new cuts left news staffs shaken and many employees bitter. In January, the parent company of The Atlanta Journal and Constitution announced it was cutting its workforce by 133 people. Gralla Publications has dropped close to 100 magazine staffers, or more than 20 percent of the total, over the past few months. CBS recently announced layoffs of 400 people, more than a quarter of them news employees, on top of several earlier rounds of cuts. "It's not just the layoffs -- it's the demoralization, people asking, 'Who's going to be next? Now what?'" Joan Snyder, one of the recent CBS casualties, told the Los Angeles Times in May. "Being at CBS News today is like watching the lights go out on a skyscraper, one by one."

But wait a minute. Is this really the end of Western civilization? Is there really no light at the end of the tunnel?

To search for answers, the place to begin is not the company cafeteria or even the executive dining room, but Wall Street. While laid-off journalists have every right to feel aggrieved, and while media executives may be running around likes headless chickens, one need look no farther than the investment community for some perspective on the current scene. True, major investor Warren Buffett has tempered his enthusiasm about the prospects for the media industry. But he also predicted that many media businesses will remain "economic marvels in comparison with American industry generally." A similar note was struck last fall by media analysts John Morton, who remarked that while it's true that newspapers aren't making as much money as they have been, "all that is really happening is that instead of being two or three times more profitable than most businesses, newspapers this year are reduced to being only one or two times more profitable."

The numbers bear out the sanguine evaluations of the experts. And where better to begin that at the top? Of all the numbers that looked healthy last year, surely none looked healthier than top media c.e.o.s' compensation. Steve Ross of Time Warner was clearly in a class by himself. Buyt no one among the top media executives was likely to be volunteering for the lobster shift in order to qualify for extra pay. Among news media companies listed in a recnet Business Week survey, ten of fourteen top executives had cash compensation of over $ 1 million dollars, pretty much on a par with the $ 1.2 million average of all American top management. And that, of course, does not include the value of stock options and the like, which in some cases were far more than actual salary. Comparing the total of all forms of compensation at the top with salaries of typical reporters, the gap at Capital Cities/ABC was about 85 to 1, the same as the national average, and at Gannett, a little over 60 to 1. (This compares with an estimated 17 to 1 ratio in Japan.)

Nor did many companies stint when it came to giving the bosses raises, despite the drastic cuts among lower-level staff. While Dow Jones profits were plummeting by 66 percent and the company was laying off at least forty-five news employees, chairman Warren Phillips got a cash increase of 4 percent, to $ 1.16 million, plus $ 122,000 in long-term compensation. At CBS, c.e.o. Laurence Tisch got an increase of 2 percent, to $ 1.35 million, despite the company's nearly 63 percent plunge in profits.

Joan Snyder, the laid-off veteran CBS producer, may have expressed the feelings of many of those she left behind when sho told the Los Angeles Times, "When I think of the new owners and the money they have made on the networks, I think, hell, if you're such a philanthropist, why not plow the money back into CBS News?"

While executive pay looked particularly healthy, it was hardly the only number that did so. As analyst Morton noted, media company profits, while dismally down from their own best years, still look far from disastrous relative to other industries. In 1990, when the whole economy dropped into recession, the average profits of all Fortune 500 industrial companies were down 11.7 percent. This was virtually the same as the 12 percent drop recorded for the publishing and printing industry. And some media companies beat the average handily: Gannett's much-discussed first-ever earnings decline as a public company anounted in reality to only 5 percent.

More significant in terms of relative health is the issue of how many cents of every dollar of sales showed up as profit on the bottom line. In 1990 the median profits of all Fortune 500 industrial companies as a percent of sales was 4.1 percent -- in other words, out of every $ 1 earned, 4.1 cents were profit. Some media companies did far better: for example, Fortune calculated the Washington Post's profits as a percent of sales at 12 percent; McGraw-Hill's at 9 percent. Even in the wretched first quarter of 1991, when ad revenues were plummeting and the costs of covering the gulf war were skyrocketing, Business Week estimated the Tribune Company's profits as a percent of sales at 4.5, and Capital Cities/ABC's at 4.7. The Washington Post and Dow Jones, for all the hand-wringing, did no worse than American industry as a whole -- 4.3 percent.

Newspapers generally talk about pre-tax profits rather than the bottom line. One recent estimate is that pre-tax margins for newspapers will be close to 17 percent this year. That is down from the 24 percent of five years ago, but as analyst Morton has noted, "There are lots of industries that do not see 15 percent margins in the midst of their biggest booms in history."

A similar pattern holds true when one looks at return on equity, which is an investor's method of calculating how much a company earned with each dollar invested in it by its shareholders. The median for all Fortune 500 industrial companies was 13 percent last year. While many media companies didn't hit that average, others exceeded it: at the Washington Post is was 19 percent; at Gannett, 18 percent; at Knight-Ridder, 17 percent; at McGraw-Hill, 18 percent.

Probably the best indication that things were not as grim as they might at Chronicle COLORING TV SOUTH AFRICA by Norman Oder Oder, a writer who lives on Long Island, has visited South Africa twice this year. Critics have long disparaged the South African Broadcasting Corporation as "his master's voice," alluding to the state-owned broadcaster's faithful adherence to government views. Still, just as South African politics have opened up in the past two years, so has the SABC. Once-demonized politicians like African National Congress leader Nelson Mandela appear regularly on t my business. And I stand by all the misstatements that I've made. . . .

(Audience now sees video bite of Quayle's Unit selling at about $ 30, which was 25 times earnings, and Dow Jones was selling at about $ 28, or 28 times earnings, compared with the 16 times earnings of 500 representative stocks tracked by Standard & Poor's.

Having said all this, however, and having made the case that a lot of media companies are crying all the way to the bank, it's only fair to point out that businesses, like journalists, look for trends. The financial trends have been unmistakeably down of late, and it would be a foolish management that failed to note this and take measures to deal with it. Adding urgency to these short-term realities, the unexpected -- and in some cases, large -- drops in revenues brought on by the recession were really like a cold bucket of water. They caused top executives to look hard at longer-term issues like newspaper readership and changing demographics, and much of what they saw was alarming. "There are problems that just won't go away when the economy improves," Cathleen Black, the new head of the American Newspaper Publishers Association, said at a meeting in late spring.

For example, in 1965 a Gallup poll found that 67 percent of adults under thirty-five said they had read a paper the day before; in 1990 a similar survey by Times Mirror found that number to be 29 percent. In 1965 some 52 percent said they had watched TV news the day before; in 1990 the figure was 41 percent.

In the long term, such trends can only lead to an eventual drop in newspaper circulation (which has been sustained to date by population growth), and to a steady erosion of network audience.

To be sure, not all of what has been happening suggests a public withdrawal from news. During the gulf war, for example, the public demonstrated that when the news was compelling, the audeince was there.

Another long-term trend of note, on the business side, is the shift of retail advertising away from traditional media and into coupons, promotions, and direct mail. This shift hurts all media, but newspapers are also affected in a second way: because classified advertising, which is highly sensitive to the economy, now accounts for a much larger piece of the overall ad revenue pie, newspapers' incomes are likely to be marked by far more volatility than in the past.

In sum, to the extent that media companies are experiencing short-term and dramatic financial downturns, the end of the recession will take care of them. To the extent that altered patterns of culture and commerce mean a shifting from one medium to another, and an increasingly corporate cast to news companies, the future offers prospects of wrenching change.

For journalists, the challenge will be to learn to live with the financial realities, while at the same time, fighting against the corporate values that so often accompany them. That will require two forms of activity now now common in American newsrooms: serious financial analysis, by news employees, of their organizations; and collective action -- not individual gestures or expressions of concern -- aimed at giving journalists a voice as one of the stakeholders in media corporations. NET INCOME OF MEDIA COMPANIES, 1990 Company 1990 Sales 1990 Net Income % Net Down (in millions of dollars) from 1989 FORTUNE 500 -11.7 AVERAGE Capital Cities/ABC 5,480 478 -1.6 Times Mirror 3,633 180 -39 CBS 3,516 111 -63 Gannett 3,446 377 -5 Knight-Ridder 2,305 149 -40 New York Times Co. 1,777 65 -76 Dow Jones 1,728 107 -66 Washington Post Co. 1,439 175 -12

sources: Fortune, April 22 and June 3, 1991 ADVERTISING REVENUE DECREASES First quarter of 1991 compared with first quarter of 1990 for newspapers and broadcast; first five months for magazines News organization Decline Time Warner (magazines) -9.8 Hearst (magazines) -3.0 Conde Nast -4.5 Hachette -7.4 Times Mirror -12.0 Knight-Ridder -8.5 CBS (television network) -13.0 NBC (television network) -12.0 sources: Crain's New York Business, June 17, 1991, for first four; New York Times, April 24, 1991, for Times-Mirror; USA Today, April 26, 1991, for Knight-Ridder; estimates by Robert Coen in Broadcasting, June 10, 1991, for CBS and NBC

A SAMPLING OF MEDIA LAYOFFS, 1990-91 Company Number Laid Off % of Workforce Atlanta Journal 133 2.5 and Constitution Daily News, Los Angeles 50 4.2 The Patriot Ledger and 40 6.7 Memorial Press Group San Antonio Light 45 6 Cahners Publishing 200 (est.) 5 to 9 (Variety, etc.) Gralla Publications 96 21 (magazines) CBS Inc.* 400 6

* Since 1986, the number of employees at CBS News, a division of CBS INc., has dropped by more than 500 (Washington Post, April 6, 1991), or 35 percent. Source: Presstime, May 1991 for newspapers; Ad Age, January 21, 1991, for Cahners; Magazine Week, May 27-31, 1991, for Gralla; Broadcasting, April 8, 1991, for CBS.

EXECUTIVE PAY

Company          Executive       Salary & Bonus  % Change   % Change in Co.
                                     1990        from '89  profits from '89
 
CapCities/ABC    D. Burke            $ 1,030,000        -1              -1.6
CBS              L. Tisch              1,350,000        +2             -63  
Dow Jones        W. Phillips           1,158,000        +4             -66  
Gannett          J. Curley             1,300,000        +1              -5  
Knight-Ridder    J. Batten               846,000       +25             -40  
NYTimes          A. Sulzberger           463,000       -22             -76  
Times Mirror     R. Erburu               882,000       -23             -39  
Washington Post  K. Graham               555,000       -25             -12

sources: Business Week, May 6, 1991, for pay; Fortune, April 22 and June 3, for profits

TWO MEASURES OF CORPORATE HEALTH

Company           1990 Profits  1990 Return on Equity as % of Sales
                                                                         
 
FORTUNE 500
MEDIAN                4.1               13.0 
Times Mirror          5                  9.4
Gannett              11                 18.3 
Knight-Ridder         6                 16.7 
McGraw-Hill           9                 18.1 
NYTimes               4                  6.1 
Dow Jones             6                  7.4 
Washington Post      12                 19.3 
CBS                   3.2                3.3 
CapCities/ABC         8.7               14.2

sources: Fortune April 22 and June 3, for sales as percent of profits and Fortune 500 medians. Business Week, May 6, 1991, for 1990 ROE figures

 
CHANGING READERSHIP AND VIEWERSHIP
 
% of Adults under 35          1965  1990

                                                                                
who said they had read        67%   29% 
a paper the previous day

who said they had watched     52%   41% 
TV news the previous day

source: The Quill, April 1991, taken from data in a Gallup poll and a poll by the Times Mirror Center for People and the Press

cjr  |  archive  |  resources  |  contact  |  search  |  subscribe