Star newsroom braces for pay cuts, possible layoffs

The next two weeks could be critical in determining the level and quality of staffing in the newsroom of The Indianapolis Star, the state’s largest daily newspaper.

The paper’s union—which represents about 160 news staffers—and management have been at an impasse since employees’ union contract expired Dec. 31.

Management is asking union members to take a 12-percent pay cut and offering no guarantees there won’t be further layoffs and more unpaid furloughs.

"This is it, high noon at the O.K. Corral," said Joseph N. Boyce, a retired senior editor with The Wall Street Journal who now teaches journalism at IUPUI. "I really fear the next moves in this chess match could really hurt the product, and it’s news organizations like The Star that are essential to a healthy democracy."

Members of The Indianapolis Newspaper Guild will vote June 30 on a new two-year contract that, in addition to across-the-board pay cuts, would ensure no pay raises for the length of the deal.

Without an endorsement from union officers, few expect members to approve the contract. The next step is unclear. Management for The Star, which is owned by Virginia-based Gannett Co., certainly isn’t giving any clues.

"We’re aware the Guild has a vote upcoming. Other than that, there’s not much I can say," said John Kridelbaugh, Star vice president of market development.

The proposed contract calls for an 8-percent pay cut July 1—the day after the vote—and another 4 percent Oct. 1. Kridelbaugh said management will take a "cross that bridge when we come to it" approach to the proposed July 1 pay cut if the contract isn’t approved. Some union members fear a "no" vote from the union could evoke an even larger pay cut—as high as 15 percent—from management.

There are also fears that, either way, management will enact layoffs July 8. Those rumors have been fueled by reports on a popular Internet blog written by a former Gannett staffer still covering the company’s every move.

The blog recently referenced a memo from Gannett Chief Financial Officer Gracia Martore that projects 4,500 newspaper layoffs are coming throughout Gannett’s nationwide chain of 85 daily newspapers, including USA Today.

Still, union leadership is hoping for a better deal.

"We’ve been told future offers won’t get any better, but from our perspective, it couldn’t get much worse," said Tom Spalding, a Star business reporter who also serves as Guild president. "We feel like there’s a better deal out there still."

But union officials admit some staffers are near the end of their rope, and industry analysts fear a prolonged showdown with management or, worse, a hefty force-fed pay cut, will lead to a mass employee exodus and an erosion of critical news coverage in central Indiana.

"What’s lost in all this is that the only way for a news organization to maintain trust and integrity is through trained, ethical reporters and editors," Boyce said. "But Gannett has no loyalty to that ideal. They only have loyalty to their stockholders, and that has caused them to be incredibly shortsighted."

Already, Star staffers have endured four rounds of layoffs since August that resulted in the termination of 30 newsroom employees. The union, acknowledging The Star‘s fiscal crisis, approved two weeks of unpaid furloughs for its members this year, which amounted to almost 4 percent of their annual salaries.

And, Spalding points out, the 12-percent pay cut would be among the biggest for a U.S. newspaper. News staffers for the money-losing Boston Globe in June accepted a 5.9-percent cut. Seattle Times employees recently approved a 12-percent pay cut plus 11 days of unpaid furlough. patch will soon vote on a contract that includes a whopping 23-percent cut.

The average wage of Star news employees is $56,974, while the average for building-services employees, another group represented by the union, is $23,537, Spalding said.

Gannett, like most newspaper operations, has been battered by a swooning economy, which, combined with the growth of Internet news outlets, has hammered advertising sales.

The company, which posted a 60-percent decline in profits during the first quarter this year, concludes its second quarter June 30, and will present financial results and discuss the company’s future with Wall Street analysts July 15. Many think Gannett brass will want to take news of further cost savings to investors to allay their fears and shore up the company’s stock price.

"Analysts will want assurance there’s a sustainable course of action for the foreseeable future," said Edward Atorino, an analyst covering Gannett for Benchmark Co. LLC in New York. "There’s a general uneasiness right now on Wall Street about this industry."

Gannett has seen its operating income decline steadily, from $1.3 billion in 2004 to $747 million in 2008. The company doesn’t detail revenue for individual newspapers, but industry analysts believe The Star has seen a double-digit percentage decline in recent years.

Atorino isn’t expecting an especially rosy second-quarter earnings report.

"Revenue trends present a risk there could be further deterioration," he said.

Gannett’s newspapers have fought furiously to increase revenue by bolstering news coverage and ad sales on their Web sites, but Atorino said Web revenue isn’t yet where it needs to be, making up only about 15 percent of the overall ad revenue. Boyce said if Gannett loses quality journalists, it has no chance of increasing Web revenue.

Gannett has another problem. The company has a lot of debt coming due in the next two years-$712 million by June 2011, followed by $2.8 billion that matures by June 2012. Gannett has little room to change the terms of its debt covenants, leading industry analysts to believe the company may have to start slashing costs and selling off assets in the next two years.

Despite all Gannett’s troubles, industry analysts believe The Star is still a profitable operation, and local union officials don’t think Star staffers should have to pay so dearly for the troubles of the Gannett empire—which also owns 23 TV stations.

The Guild’s Spalding said management’s refusal to disclose The Star‘s financial status has complicated negotiations. The Guild specifically requested Star financials on two occasions—and was denied. Most industry analysts believe The Star still operates at profit margins around 15 percent.

"With a history of wholesale cuts, they’ve trampled their quality and stampeded their employees’ morale," Boyce said. "To protect the integrity of their product, they need to scale back profit expectations to match the realities of the industry."

The Guild realizes the industry is struggling and is willing to discuss a pay cut, Spalding said.

"I think a 6-percent pay cut would sell," Spalding said, adding that the union would also be willing to contemplate another unpaid furlough between now and the second quarter of 2010, to aid the company financially.

"The Guild wants to help The Star," Spalding said. "That serves all of us. But there has to be some give and take."