The Spectacle Blog

Newsweek’s Savior? The Man With No Plan

By on 8.3.10 | 1:47PM

Newsweek's staffers are reportedly exultant that the $1 sale of their magazine to audio tycoon Sidney Harman (husband of California Democratic Rep. Jane Harman) comes with a promise to keep staff layoffs to a minimum. But long-term prospects for a turnaround at the 77-year-old weekly are far from encouraging, according to details of Newsweek's financial situation obtained by Peter Lauria and Lloyd Grove:

Newsweek's financial freefall is jarring. Revenue dropped 38 percent between 2007 and 2009, to $165 million. Newsweek's negligible operating loss (not including certain pension and early retirement changes) of $3 million in 2007 turned into a bloodbath: the business lost $32 million in 2008 and $39.5 million in 2009. Even after reducing headcount by 33 percent, and slashing the number of issues printed and distributed to readers each week, from 2.6 million to 1.5 million, the 2010 operating loss is still forecast at $20 million.
Dig deeper into the document and the numbers get worse. Newsweek lost money in all three of its core areas in 2008 and 2009: U.S. publishing, foreign publishing and digital. Even with the smaller guaranteed circulation, it still retains $40 million in subscription liabilities owed to readers. And then there's Newsweek's lease foibles: last year, it paid $13 million in rent, a startling figure for a company of its size.

Never mind the first obvious problem: Newsweek got scooped on the story of its own business dealings, which is always a sign of trouble in a news organization. More ominously, Lauria and Grove report:

Washington Post CEO Donald Graham apparently considered the fact that Harman would need to retain Newsweek's back office inefficiencies as a selling point. . . .

"Harman was someone who was taken less seriously by the staff who worked on the deal because he had no plan," says a person close to the deal. "He won the bid because he had the lowest number of layoffs."

In other words, the 91-year-old Harman was preferred over other prospective buyers specifically because he didn't propose the first step necessary to stop the financial hemorrhage: Drastically reduce payroll by axing some of the dozens of senior Newsweek staffers who collect six-figure salaries.

At least Harman's deal didn't include an extension of Jon Meacham's disastrous tenure as editor -- an atavistic exercise in elite journalistic narcissism recounted by Andrew Ferguson -- but the buyer's evident failure to recognize the fundamental source of Newsweek's losses will ultimately spell bad news for Newsweek. Harman is not immortal and his wealth is not infinite and, as Lauria and Grove note, it's likely that the necessary cost-cutting will fall to Harman's heirs.

Bad business decisions are never good news, and postponing the bad news usually makes the bad news much worse.

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