TUCSON CITIZEN: A PLUG UNPULLED

posted by James Reel

Contrary to expectations, the Tucson Citizen is not dead yet. With all due respect to the journalists who are now working there on a day-to-day basis, do we really need the Citizen?

Here’s a summary of the latest, drawn from an article in today’s Arizona Daily Star, which would become the city’s only daily paper if the Citizen is shut down by its corporate owner, Gannett:

On Jan. 16, Gannett announced it was seeking to sell the _Citizen_'s masthead, its Web site and Web address, some editorial equipment, its subscriber list, vendor and contractor contacts, and wire services. Not for sale was Gannett's share of the joint operating agreement, which means Gannett will continue to pull profits from the _Star_ even if it stops publishing the _Citizen_. The combined operating income for Tucson Newspapers [the middleman agency serving both the _Star_ and _Citizen_ under the terms of the JOA] for the 12 months ending Sept. 30 was $21 million, according to Lee's annual report [Lee Enterprises owns the _Star_]. That's a 42 percent drop from the previous year. Newspaper industry experts said because Gannett was seeking to sell the _Citizen_, but not its share in the JOA, prospects for a sale were slim. The _Citizen_'s average daily circulation is about 20,000 newspapers, Gannett said in a news release. That compares with the _Star_'s 94,055 on weekdays and 147,558 on Sundays, according to Lee's annual report. … In an interview Tuesday before Gannett's announcement, Mike Hamila, owner of UNIsystems Mainframe Sales LLC in Phoenix, said he was interested in purchasing the _Citizen_. He said Gannett is insisting that a new owner publish a print edition at least three times per week instead of making the _Citizen_ an online-only publication. Gannett's spokeswoman would not confirm any such details.

Before I discuss whether or not the Citizen deserves to survive, let me just point out that Gannett is the sinister villain in this story. The huge chain, which at its peak owned about 100 papers, including USA Today, is greed incarnate (if a corporation can serve as an incarnation). Oh, Gannett can argue that things are looking bad finacially, as in this story that Reuters reported last month:

Moody's Investors Service on Thursday cut its ratings on Gannett Co into junk territory, citing the newspaper publisher's challenges in producing revenues from online initiatives that are replacing traditional newspaper readership. Moody's cut Gannett's long-term debt two notches to "Ba2," two steps below investment grade, from "Baa3," the lowest investment grade. A rating downgrade into junk territory can significantly increase a company's borrowing costs. "The downgrade reflects Moody's expectation that changing media consumption habits and the heightened level of price and volume competition that Gannett faces as it seeks to monetize its strong local-market content positions in its traditional media and newer digital distribution channels will continue to erode operating cash flow," Moody's said in a statement. "These pressures along with a deep cyclical slowdown in advertising spending and high operating leverage will lead to a weakening of credit metrics to speculative-grade levels for at least the next two years despite revenue-enhancement initiatives and significant cost reductions," Moody's said. Gannett on Wednesday said it would cut its quarterly dividend by 90 percent and use the more than $325 million in free cash flow savings to pay down debt and position itself to "seize opportunities for growth." The move came after the publisher of USA Today said in January its profit fell 36 percent on lower advertising revenue and that it planned to write down the value of its newspapers by up to $5.2 billion.

Looks terrible, doesn’t it? But read that carefully: Gannett’s profit fell, but it’s still making a profit. Oh, maybe not the 28-30 percent profit that was the company standard a few years ago, but the dollars continue to roll in, even if Gannett has not yet figured out how to make money from the Internet. The problem is that profits aren’t sufficiently high for Gannett investors (it’s more common for a newspaper, in average times, to turn a profit around 10 percent).

Let’s take a look at more recent Gannett financial news. Fox Business reported yesterday:

Gannett (NYSE: GCI: 2.52, 0.09, 3.7%) shares rocketed 14% today after the company reported that online advertising revenue at USA Today, its flagship domestic paper, grew 27% year-over-year in February. Overall, Gannett's fourth-quarter profit rose to $353.5 million, or $1.51 per share, from $343.3 million, or $1.44 per share, in the year-earlier period.

Hey, wait a minute—just a few weeks after that Reuters report, Gannett finds that it has figured out how to make money on the Internet! And profits and share values are up!

But that’s not enough for Gannett. Remember, it wants to sell off the unprofitable Citizen, but not its share in the JOA. That means Gannett could continue to suck undeserved profits from the Star for several more years, until the JOA expires in 2015. If the Citizen ceases to exist, Gannett could pull profits from the Star without the expense of supporting a newsroom of its own. Brilliant. Sleazy. Typical.

But it seems that a certain regulatory agency has noticed Gannett’s maneuverings, and now the corporation, which just a few days ago was planning to shutter the TNI plant’s south wing (where all those expensive, pesky Citizen reporters were nesting), is now back in talks with potential buyers. Jimmy Boegle blogs at the Tucson Weekly Web site:

We can piece some things together here: Gannett previously announced that a deadline for offers had come and gone without anything meaningful. Then came word that the U.S. Justice Department was peeved at Gannett for not making all that much of an effort to sell the afternoon daily–with specific unhappiness about Gannett’s demands that any would-be buyers promise to keep the paper going in print at least three times per week. Well, after the DOJ crackdown–during which Gannett’s broker had to touch base with everyone he’d contacted previously–apparently, lo and behold, Gannett found some serious would-be buyers after all.

I’m not sure anything will come of this. What buyer would want the money-sucking Citizen without the JOA share?

And this is why I don’t think we should mourn the demise of the Tucson Citizen, whether that comes next week or next year. There’s no justification for keeping the afternoon paper on life support. With a circulation of only 20,000 in a market this size, the Citizen has less impact than a single raindrop on the sands of the Santa Cruz. Hardly anybody reads the thing, meaning hardly anybody would want to advertise in it (the paper gets ads mainly because they piggyback on ad contracts with the Star, something that wouldn’t be possible without the JOA). As an afternoon newspaper, it’s doomed.

If the Citizen is to survive, it must abandon the old daily newspaper model, and that does not mean merely publishing three times a week instead of six. Tucson does not need this newspaper.

But it does need a professional, reliable source of information and analysis to keep the Star on its toes (and, for that matter, the Tucson Weekly). And that does not require a dead-tree edition. One potential model is the Seattle Post-Intelligencer, which, as of this week, is a Web-only publication. The P-I is not the best model of its kind, though; it seems that it will rely on the equivalent of wire services and reprints to bulk up its site. Outlets like the P-I and the Citizen do not need to be conduits for national-level news and reviews. That material is already easily available online from established, well-connected news organizations with a national presence. The Citizen should be exclusively, intensely local. It doesn’t need to run local movie reviews, but it does need to provide wide, intelligent coverage of all kinds of arts and entertainment in Southern Arizona, and the minutiae of prep and college sports and outdoor life. And, most importantly, it should assign its reporters to beats that have fallen by the wayside nationally as newspapers have gradually shredded themselves into pillow fluff: detailed coverage of cops and courts and local government, not just feel-good puff pieces about ordinary residents and small businesses.

Hardly anybody would pay for an online subscription, and advertising is still an iffy thing online, so new revenue sources would have to be established—and this could mean going for non-profit status, with funding coming from foundations and endowments. Profits from the JOA, which are generated mainly by the Star anyway, could serve as a financial crutch until the non-profit money engine could be built and revved up.

Such an online news operation would serve the community well, and it might even shame the Star into becoming a responsible publication again. That’s the best conceivable future for the Tucson Citizen. But as an afternoon daily newspaper, the Citizen has no future, and should be taken off life support.