By Dan Kennedy • The press, politics, technology, culture and other passions

The Globe is not losing $85 million

So says Poynter Institute business analyst Rick Edmonds.

In a revealing post — made all the more interesting following the Boston Newspaper Guild’s narrow defeat of a package designed to save the New York Times Co. about $10 million — Edmonds reports that Times Co. spokeswoman Catherine Mathis has clarified some of the murk. (Via David Folkenflik.)

Edmonds writes that the $85 million operating loss the Globe is said to be ringing up in 2009 actually “includes depreciation, amortization and special charges.” His best guess: the Globe is on track to lose about $20 million this year, and the concessions demanded by the Times Co. would roughly cover that.

Of course, following today’s Guild vote (the deal lost by a heart-stopping margin of 277-265) management only has $10 million in hand, in the form of concessions agreed to by unions other than the Guild. Management has threatened to impose a 23 percent pay cut, which the Guild, in turn, says it will appeal to the National Labor Relations Board.

It’s impossible to know what’s going to happen next, at least not tonight. But one thing that ought to be acknowledged is that the folks at 135 Morrissey Blvd. have continued to put out a very good newspaper despite months of uncertainty, even chaos, with respect to the Globe’s future. I’m sure that will continue.

Update: The Globe itself made some of the same points on April 24, though Edmonds’ main argument — that the paper’s true operating loss this year is likely to be $20 million — doesn’t quite emerge.

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50 Comments

  1. Jerry

    Ah, yes, EBIDTA. I thought so.

  2. NewsHound

    Yes, I suspected as much, too. Wonder how much is allocated for interest. And how much is allocated to the New York Times Co. for management services. And, also, non-recurring charges.The Times had every right to attempt to negotiate a more appealing contract for the Company, but its style is inconsistent with appropriate business etiquette.

  3. Rich

    Why are you acting like depreciation and amortization aren't legitimate expenses? They certainly are, as you should know if you've ever run a business.Now, if you want to say "the Globe does not have a negative $85 million cash flow" that's one thing.But to say "the Globe is not losing $85 million" because you feel like ignoring non-cash expenses to make a point is BS.Depreciation and amortization expenses are how you match the one-time cost of a capital asset to the revenues it produces over its lifetime. If you ignore depreciation and amortization you are definitely overstating the condition of the company.

  4. mike_b1

    Rich is absolutely correct.

  5. Dan Kennedy

    Rich and Mike: Fine. The point is that Edmonds has come up with a figure more than four times lower than the Times Co.'s number with respect to how much the Globe needs to cut in order to operate at break-even.In fact, for the first time we have some inkling as to why the Times Co. was demanding $20 million in the first place.Here's how Edmonds — who understands this stuff pretty well — puts it: "The Globe is not 'on track to lose $85 million,' at least not on a cash basis. In fact, the paper may be getting close to break-even."

  6. NewsHound

    Rich – you most certainly are correct that depreciation is a legitimate expense. In accrual accounting in trails the cash outflow for major items to be capitalized. This is intended to provide a clearer picture of actual earnings.In the case of the Boston Globe though, the cost allocated to the purchase of equipment for depreciation continues or is accelerated if the business is suspended. Operating the equipment such as printing presses causes wear and tear, thus the depreciation consistent with declining value. Shutting down and trying to sell a major daily newspaper printing press these days looks rather bleak.The concept of ever replacing the printing press is looking rather bleak these days too. So, under normal conditions depreciation is an ongoing expense. But, this is not an ordinary time.

  7. mike_b1

    Dan, is there a reason the NYT should be satisfied with the Globe breaking even? I would think that, like any other business, the NYT would seek a 50% gross margin and at least 20% net.In which case, $85 million seems like an appropriate number.

  8. Mike from Norwell

    Boy, actually agreeing with Mike here. Businesses that don't aim to operate at a profit tend not to exist over time. I know that "profit" is a proverbial four-letter word to some, but it is a fundamental requirement of an organization to operate at a profit; even non-profits won't last too long spending more than they take in.

  9. NewsHound

    Profit equates with return on capital. It is an alternative to interest. Interest at one and two percent hardly keeps up with inflation.Breaking even in 2009 with a major metropolitan newspaper can be considered satisfactory. There is nothing to lose by continuing, hoping for a better day due to innovation, technology and a return to a better economic cycle.Considering we are in the midst of a near capitalistic collapse and the second worst economic downfall in a century, breaking even isn't so bad and most especially, in such a mature business as a major city daily newspaper.

  10. mike_b1

    Newshound, except that, in downturns, businesses tend to shed unprofitable (or less-profitable) units in order to "focus" on the stronger ones.

  11. Tim Allik

    The problem is this: there is no indication that the revenue slide at the Globe will level out. Instead, the rate of decline is increasing. The rate of decline will continue to increase until digital revenue equals or exceeds print revenue. But we're not even close to that. Sure it's tough to see management get the easy treatment even as workers suffer cutbacks. But it's hardly exceptional. In fact, it's almost a cliche. Welcome to our country. I suspect that the split on the recent Guild vote went down mostly by age. The lifetime employment guarantees that Brian Mooney, Daniel Totten and the other 100 current Globe Guild staffers won a generation ago are irrelevant to the hundreds of Guild members who don't have such guarantees – younger and middle-aged Globe workers with kids, mortgages, and impending college tuition to worry about. Perhaps the "no" voters can afford to wait this out, hoping for a fair legal settlement months or years down the road even as newspaper revenue continues its inevitable decline. Others probably feel like they need to recognize a different time frame.

  12. NewsHound

    Mike – management should always be allocating capital to those areas which provide the greatest, safest, more durable returns or, put another way, the quality vs. quantity profit ratio.You are correct that especially in downturns responsible management will discontinue unprofitable operations or business units not likely to become profitable enough to substantiate current losses and protect the overall company.Projecting the future of major metropolitan newspapers such as the Boston Globe, and when if ever it will be able to return a profit is most challenging and horribly uncertain.On a cash basis it might make some sense to continue with the Globe at break even. However, if the assets can be liquidated and better employed elsewhere, such as paying off a 14% loan, it makes a lot of sense to shut the Boston Globe aside from $10 million here or there. However, we don't seem to have all the information. Mr. Mooney speculates the cash would be negative. If the future looks worse to the decision makers, taking the hit now instead of a bigger hit later can make sense.

  13. O-FISH-L

    Dan, what's your take on the 20% of Guild members who didn't even bother to vote?

  14. Dan Kennedy

    The idea that newspapers can earn a 20 percent profit margin is a fallacy that grew out of a few years' worth of high revenues, cost-cutting and the demands of Wall Street.Real newspapering historically has been a break-even proposition.Fish, I do not know what to make of the no-shows. I find it inexplicable.

  15. NewsHound

    I think the No-Shows thought no matter which way the vote went it wouldn't be good and in their mind balanced almost equally – not terribly different than the overall vote results.

  16. b.f.

    Situation at Globe currently reminds me of what happened at NY Daily News in early 1990s before workers there went on strike against Tribune Company–before London media baron Maxwell and then Boston Properties' Mort Zuckerman finally purchased NY Daily News and kept it in business.But as an alternative to the Globe being sold to some billionaire like, Bill Gates or David Geffen ) who might now want to get into the newspaper business, perhaps Boston Globe employees should consider turning the Globe into an employee-owned newspaper like the Milwaukee Journal? See following link:http://www.journalcommunications.com/Employee_Ownership.html As a 1992 book edited by Krimmerman & Lindenfeld), titled "When Workers Decide: Workplace Democracy Takes Root In North America," observed:"…At least three very large printers or publishers, the Bureau of National Affairs, Journal Communications (which also owns radio and televisions tatins), and Quad/Graphics are employee-owned. Indeed, employee ownership has been in place for more than 40 years in the first two of these highly profitable companies, a step taken by previous owners to preserve local control of their enterprises. Extensive shopfloor employee participation is the rule in all three cases. Journal Communications had developed councils to represent separate plants or departments (e.g., the `Milwaukee Journal') within the overall corporation"Ironically, although the New York Times company apparently claims it has to break its previous contracts with its workers because it lacks money, the Mexican billionaire who owneds a lot of NY Times Company stock in January 2009, apparently is still very wealthy.

  17. mike_b1

    Dan, do you have some data you can point us to, or is that your own best guess?Here are the stats from 2000-07, a cost-cutting era, to be sure, but also a very profitable one.is Dan right?

  18. NewsHound

    Dan – you're certainly not totally wrong about the fallacy of newspapers making money. Over the last few hundred years a lot of newspapers struggled along without big profits. It was quite typical with small dailies and weeklies. Modern typesetting equipment followed by desktop publishing and offset printing helped improve the bottom line for weeklies.During the last 40 years many newspapers did have attractive profits some in the 30% and 40% range. The Ingersoll newspaper confederacy is one example with high profit margins. Its tactics were detailed in a description of its ownership of the North Adams Transcript in a book written by Loren Giglione about 25 years ago.Ingersoll profit leader group did eventually go broke trying to grow even larger.Newspapers on average did have earnings in the 20% range, more like about 10% for successful weeklies and about 28 percent for daily publications.

  19. mike_b1

    Or perhaps Newshound, who appears to agree with me on the profit benchmarks, can point us to those data.

  20. NewsHound

    Mike – that is a good chart you posted. However, to convert to normalized earnings for ongoing enterprises there should be an allowance of about 3.5% for depreciation or capital outlay budget. Under normal conditions it is anticipated that the business is an ongoing enterprise and thus there is wear and tear and new technology requiring capital outlays for replacing equipment. This is not a normal time though as I think we all know. Positive or negative cash flow is everything this year. This is not the year to look for rainbows.But you are correct, newspapers traditionally are profitable. As we know, many but not all of the current problem is attributed purchasing newspaper companies with borrowed money. Hardly anyone is receiving an adequate return on investment this year, thus insufficient cash to service debt. And, anyone who grossly overpaid in acquiring newspaper properties, such as GateHouse is most likely stuck up the proverbial creek for a long time or forever.

  21. NewsHound

    There are many weeklies that had profits better than 10% – some more than 30% – but darn few in that range. Some were thrilled at 3 and 4%.Many smaller newspapers provided an income to the publisher, spouse, and family and beyond that there was little profit. Even with small profits they always felt they could sell their business for big dollars and retire with sufficient cash, and they sometimes did.One of the GateHouse daily newspapers was predicted by its owner-publisher 40 years ago to go broke if newsprint went over $150 a ton. It is still publishing.

  22. Nial Liszt

    **… I do not know what to make of the no-shows. I find it inexplicable.**They could not figure out where to vote for Obama on the ballot

  23. Dan Kennedy

    Mike: I have no stats I can point to at the moment, but I'm going back quite a bit. The 1960-2005 era was the time of the great inflation in the newspaper business. In the 1980s, '90s and the early part of the current decade, most newspaper companies went public and enjoyed phenomenal profits. The profits continued through the cost-cutting years, right up until about 2005.

  24. NewsHound

    Yes, Dan – especially the 80s. Lots of optimism, too. The revolution from hot type was pretty much completed thus reducing major production costs. No cell phones, Internet, Linotypes, hot lead, teletypes. Major union upsets in the 70s simmered.

  25. Mike from Norwell

    Many smaller newspapers provided an income to the publisher, spouse, and family and beyond that there was little profit. Even with small profits they always felt they could sell their business for big dollars and retire with sufficient cash, and they sometimes did.Most small businesses (closely held) operate on zero "profit"; that is the whole goal in very small operations. That being said, that doesn't mean that the business is not making money; look to salaries paid to officers, generous retirement plans, and the ilk. Hard to compare privately held small operations (I'm in the actuarial consulting business – small operations view profits as a reason to find a new accountant). Why pay taxes twice?

  26. NewsHound

    Mike – that was true with some small newspapers. Those which were incorporated and not taking a Chapter S election often chose to maneuver profits into salaries and perks. While that was the case with some, many small newspapers barely got by but continued out of extraordinary devotion and love for what they were doing. And for some, they devoted much of their would-be profits towards the latest equipment as technology was evolving or putting out a product to tweak circulation and win awards. For them, squeaking by and having fun running a weekly newspaper was most important along with the feeling of accomplishing something of value for their community.Some even thought it amoral to operate with a stingy attitude as it would deprive the newspaper and its readers of its full potential in quality. The financial statement was kept top secret. But they were darn proud of their newspaper.

  27. Mike from Norwell

    Newshound, I certainly agree that we have examples of small town papers operating out of the common good. Here in my new town of Duxbury (guess you can't tweak your user name) we have the Clipper, which fought off the CNI version and is still the paper to read (despite the fact that the big guy actually sends the same thing I subscribed to in Norwell out for free).Only pointing out that it gets much harder to compare smaller operations and profitability levels to larger operations. For a smaller enterprise, they are very much aware of the fact that "profits" at the end of the day get taxed twice, but that's a whole different story.

  28. NewsHound

    The Duxbury Clipper is the model of weekly newspapering.Most small newspapers do not pay taxes twice. Some don't pay it once.What you're referring to didn't even apply prior to 12/31/86 when the General Utilities Doctrine expired.

  29. Mike from Norwell

    I guess we're getting older, but 86 was 23 years ago. Whole premise in a small privately held company (no matter what the business) is that if you show a profit, you pay the entity pays taxes on said profit. Then you again pay taxes when said profit is paid to the owner. Why pay twice?

  30. Dan Kennedy

    And here's my two cents' worth. Newspaper circulation has been declining since the 1920s, but the business became more profitable as more and more cities became one-paper towns.Thus the great explosion of profitability in the 1960-2005 period, especially toward the end, was based on the false premise that everything was wonderful. In fact, once newspaper companies went public and the cutting began, the foundation started to crack.

  31. NewsHound

    Mike – what you are saying is true. However, many small newspaper businesses make a Chapter S election and are taxed the same as a proprietorship, thus no double taxation.Those that remain in a C status rarely pay a dividend which would result in the double taxation. Instead, if closely held as is the usual case, owners would take a bonus reducing profit to a non-taxable range.The profitability of these operations can not be determined solely from an income statement without analysis and adjustment. That does not mean that these smaller newspaper operations did not on the surface make a profit simply because the 1120 form restated what would have been profit into excess officers salary.

  32. Mike from Norwell

    Newshound, the "profits" are gobbled up as Sub S dividends, hence no profits, at least if you're comparing them to publicly traded companies. Still trying to figure out how my clients who are Sub S making relatively paltry salaries seem to be doing as well as they appear.And to digress, if the Obama Administration decides to expand the SS tax base, you can sure as heck count on a profusion of Sub S entities (remember, Sub S dividends aren't subject to FICA taxes). My guess is there won't be a law firm left in the country that doesn't switch the day after it is enacted.

  33. NewsHound

    Dan – To add to your two cents – in the 70s and 80s when newspapers were being bought up by the larger corporations there was much speculation and fear of a free press that all of our newspapers would be controlled by a confederacy, and some might have gone as far as a conspiracy which was far fetched. The theory was that maybe of four or five CEOs would control the news. This was always dampened by the theory that these top executives wouldn't be able to control the journalists. Some major companies such as Scripps and Gannett would boast from time to time that each newspaper retained editorial freedom.Now, we've evolved to the concern of just keeping newspapers alive, first, and free and independent journalism second, it seems.

  34. mike_b1

    I wouldn't think a 45-year span where companies made money hand over fist could be waved away as a "a few years' worth of high revenues, cost-cutting and the demands of Wall Street."

  35. Gray

    So, the NYT management wants the unions to make huge concessions, but isn't even willing to put all the facts on the table? Imho it should be a matter of course to present the financial figures so that there can be a factual based discussion about where and why The Globe is losing money, and what else, besides a reduction of the costs of the workforce, can be done to stop the money drain. But, of course, this would lead to the managers, owners, and the creditors having to accept cuts, too. After all, all parties should have to bear the same percentage of the financial burden. But it seems like the managers aren't really shouldering their fair share and that the creditors see no need to reduce their interest rate at all. The unions can accept this, of course. So far, the negotiations have been a very one sided affair, a simple strongarming of the unions, based on a dishonest presentation of the facts by the NYT. Now that the workers have called the bluff, and there is increasing pressure to put all the facts on the table, the chances have become better that there will be a real compromise, with all parties accepting cuts. Let's see how this works out.

  36. mike_b1

    "After all, all parties should have to bear the same percentage of the financial burden.Why? The owners are the ones who accept the risk. The rewards should be commensurate.

  37. Gray

    "The owners are the ones who accept the risk"Exactly! Even more reason to demand that they also bear the consequences of their business decisions! Do you really want to advocate to socialize the losses? If there's profit, it's for the woners, if there are losses, the workers (who already face the risk of being laid off, btw), have to make good for it? Sry, but your argument isn't really convincing!

  38. Gray

    "After all, all parties should have to bear the same percentage of the financial burden."On second thought, I want to restate that sentence: "After all, all parties should have to bear a fair percentage of the financial burden."Mike is right: The owners are bearing the risk. So, of course, the shouldn't bear "same percentage of the financial burden" as the workers, but the brunt of it, of course! The workers have almost no influence on business decisions, so why should they be the major party being made responsible for the consequences? Not fair. Thx for pointing this out, Mike.

  39. NewsHound

    Gray and Mike – you are absolutely correct.We can wonder if the New York Times is merely attempting to break the union so that there are sufficient funds for top management to retain multi-million dollar compensation plans.If the union members are being asked at a point of emergency to make a sacrifice in an attempt to save the company, then the multi-million-dollar executives who contribute nothing to the Boston Globe should forfeit their entire salary this year and stock should be issued to the sacrificing employees dollar-for-dollar equivalent to pay reduction so they can share in the reward if successful.

  40. NewsHound

    The New York Times failed horribly with appropriate business etiquette.When employees are expected to participate in salvage efforts to save the company all details should be available to them, similar to what Mike and Gray are suggesting.

  41. mike_b1

    Gray, you have it backwards. The workers work. The management owns. Management's risk is inherent: if the business fails, they lose. Workers risk their jobs; management risks their wealth. Big difference.I'm not arguing whether it's philosophically right or wrong or fair or not. I'm saying that if I'm a Sulzburger, I would see little reason to cut my salary by a nickel in order to save an equal or greater amount for, say, Brian Mooney. For if the NYT goes bankrupt, I'm out millions, whereas all he loses is a job.

  42. Treg

    Mike_b1 (Quit giving everyone the finger, by the way) – that's ridiculous. Risking jobs is risking wealth. And workers are disproportionately affected. This is why we have unions.

  43. Gray

    Mike, you wanna say, capital should be more protected than jobs? That capital interest is somewhat more important than earning a living by hard labor? Hmm. Sry, but imho all that Sulzberger is gonna lose is a part of his wealth. He sure has other investments and doesn't live hand to mouth. The workers, on the other habd, would lose income, health care, and much of their retirement income. And in these hard times most of them certainly don't have much of a nest egg left. If the question is, if a democratic society should care more about one guy owning a company, like Pinch, or hundreds of workers who depend on their jobs for making a living for their families imho the answer is evident. No matter if you call this fair or unfair, the numbers are clearly on the worker's side.

  44. mike_b1

    Gray, from the owners' perspective, capital absolutely should be protected more than jobs. Especially now, when workers are plentiful and cash is not. We are seeing many companies cut hard and cut deep this time around. Their playbooks from the 2001-03 mini-recession taught them a valuable lesson about cash.Treg, a job is not wealth. A job is a means (and hardly the only one) for creating wealth. Not the same at all. Please, take an economics class. Again, this has nothing to do with what's "fair."

  45. Treg

    Gee, thanks for setting me straight, Mike_b1. Here I was thinking whatever personal wealth (be it in the form of income, health coverage, pension, what have you) I have is directly related to whether or not I actually have a good paying job.I know it's not "wealth" as defined in theory, smarty pants. I'm talking about the real freakin' world.

  46. mike_b1

    Hey don't complain at me when it's you who didn't know the difference. You said risking jobs is risking wealth. It's not. Risking capital is risking wealth.

  47. Treg

    Like I say, fancy pants – I'm talking about the real world. My wealth evaporates pretty fast if I lose my job.

  48. mike_b1

    You have no risk, though. You don't own a printing press, or a million PCs, or a big building. You leave and go work somewhere else. That's not risk.

  49. Treg

    Mike, you strike me as a guy who wants way too much credit for still having his old Econ 101 textbook lying around. I understand there are certain classic definitions for these terms in economic theory.But I'm living out here in that great and never-ending post-graduate economics seminar know as "life." And I assure you, I do have risk.

  50. mike_b1

    Define your risk. And no, crossing the street to get to work doesn't count. Not even in Boston.

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