N&O offers buyouts, will cut pages

As ad revenue slumps, company strives to cut expenses, consolidates lifestyles sections

The News & Observer will again cut staff and pages as the newspaper contends with one of the worst advertising slumps in its history.

The News and Observer Publishing Co., which counts community papers such as The Cary News among its properties, on Wednesday offered voluntary buyouts to about 320 workers, or about 40 percent of its work force. All full-time employees in The N&O newsroom received offers. It's not clear how many people will leave.

Publisher Orage Quarles III said he expects "a relatively small percentage" of those who are eligible to apply for the package and that the company might limit how many employees it lets leave.

If too few employees sign up, however, the company could turn to involuntary buyouts or layoffs.

In addition to staff reductions, The N&O will trim about 10 pages a week from its publication to save on newsprint expense. The actions announced Wednesday mark the third significant cost cutting in five months.

The N&O, like most of the nation's newspapers, is struggling amid an economic downturn that has eroded advertising in three key segments: real estate, employment and automotive. While this region has held up better than many, it has weakened in recent months with unemployment rising and home sales slowing.

"We continue to tighten up in all areas of the operation based on what we're seeing," Quarles said in an interview. "The market is going to continue to be soft for longer than anyone had expected and certainly had hoped."

Exacerbating the pain is a broader shift of advertising dollars to the Internet that hurts the core print product that historically paid for journalism. Online, companies have more advertising options and can demand cheaper rates.

The N&O and its parent, The McClatchy Co. of Sacramento, Calif., have made strides capturing that online revenue. But sales have not grown fast enough to make up for declines in print.

In July, McClatchy's online revenue, which accounted for a tenth of sales, increased 12.8 percent compared with July 2007. Print advertising fell 22 percent.

Even as the Internet disrupts the business model, it's bringing benefits. The N&O's reach is at a record because of its online presence. In August, more than 2.1 million people visited one of the paper's Web sites, a 47 percent increase from the same month a year ago, said Dan Barkin, senior editor for online news.

Interest in the printed newspaper also increased. According to data from Scarborough Research, the number of Triangle residents who read The N&O at least once a week rose 6.4 percent in the past year.

"Readership is strong," Executive Editor John Drescher said. "Our challenge is to maintain the quality of the print paper while pushing to build traffic online."

The challenge is a serious one. The number of people in the newsroom has fallen 13 percent since the year began, from the equivalent of 210 full-time employees to 183.

Space for news in the printed edition declined after decisions to combine the daily Business section with the former City & State to create Triangle & Co. and to marry Sunday Journal and Arts & Entertainment to form Arts & Living.

To reduce newsprint use and costs, The N&O in early October will combine Travel with Sunday's Arts & Living section. The paper will no longer publish two features sections on Fridays. Instead, on Fridays, the What's Up entertainment section will be published in a new format that will include comics, puzzles and other features.

The changes are disheartening for some. "As papers contract, I worry," said Bob Phillips, executive director of Common Cause North Carolina, a nonprofit group that advocates for government transparency. "As an organization, part of our mission is being a watchdog over government and looking at things and seeing where things need to be reformed. ... We can't get a lot of things accomplished without a vital, healthy, vigorous press also doing its job."

Drescher said most of the previous changes to N&O sections have been well-received, and he hopes those coming will be as well. As for newsroom staffing, he said he would lobby aggressively to keep as many people as possible.

Other McClatchy editors face similar troubles. In recent weeks, at least seven papers have announced voluntary buyouts or other measures to reduce staffing. On Wednesday, The Charlotte Observer said it would trim its work force by about 9 percent.

McClatchy has demanded close attention to expenses as it tries to stay in compliance with bank agreements. McClatchy borrowed billions to buy rival Knight Ridder in 2006 and has had to work diligently to reduce the burden amid precipitous revenue declines, especially in California and Florida.

In June, McClatchy imposed the first-ever companywide layoffs, which affected 70 people at The N&O. That came after voluntary buyouts the N&O offered in April that reduced the head count by 33. In August, McClatchy imposed a one-year wage freeze.

Some have questioned whether McClatchy will survive.

"I don't particularly believe its survivability has been compromised," said Thomas Russo, a partner with Gardner Russo & Gardner in Lancaster, Pa., which owns 5 million McClatchy shares. "Whether it's in the proper form to survive or not I think is unfolding."