Publish Or Perish? Newspapers are flush with profits today, but as readership declines and classifieds go online, the future looks cloudy. In Los Angeles, Times Mirror's Mark Willes is trying to remake the business--and getting terrible press.
By Marc Gunther Reporter Associate Irene Gashurov

(FORTUNE Magazine) – Some time ago, Mark Willes, the 58-year-old CEO of Times Mirror Corp., was ushered into the tenth-floor conference room at the New York Times, where the newspaper's editorial board welcomes heads of state, political leaders, and titans of industry. Willes, a former vice chairman of General Mills who has begun to shake up the newspaper business, was greeted politely by Arthur O. Sulzberger Jr., 48, the publisher of the Times and scion of a distinguished publishing family. Once the formalities were over, Sulzberger got down to business. "Why," he asked his guest, "are you trying to destroy American journalism?"

And that was before Willes and Kathryn Downing, publisher of the Los Angeles Times, got pilloried for devoting a special issue of their Sunday magazine to L.A.'s new Staples sports arena, which secretly shared in the advertising revenues from the magazine in exchange for sponsorship rights. That breach of the customary wall between news and commerce set off a newsroom revolt, drew the ire of the journalistic establishment, and, most remarkably, brought a public spanking from Otis Chandler, the former Los Angeles Times publisher, whose family controls Times Mirror. Denouncing Willes and Downing for their "unbelievably stupid and unprofessional handling" of the Staples deal, Chandler declared, "One cannot successfully run a great newspaper like the Los Angeles Times with executives in the two top positions both of whom have no newspaper experience at any level."

Imagine waking up one morning and reading that--in a newspaper published by your employees. It was especially hard for Willes, because he fancies himself not a destroyer but a savior of print journalism, an outsider trying to rethink an ossified business. He has taken on what may be the toughest job in the news business--the task of revitalizing the lumbering Los Angeles Times, a one-million-circulation giant that had been losing market share for a decade in the most difficult big-city newspaper market in America. Of course, Willes knew when he joined Times Mirror as CEO in 1995 that he would have to contend with rival papers, radio, TV, cable, direct mail, and the Internet, as well as a huge influx of non-English speakers, a second-rate school system, and growing public apathy about civic life--all in a place where sunshine beckons a self-absorbed populace. But he didn't expect to find himself fighting a civil war over how to save the business of newspapers without destroying their soul.

How Willes fares matters to newspapers and their readers as this centuries-old business approaches a period of wrenching change. Big-city dailies are fat with advertising right now, but over the horizon loom some of the toughest tests for the industry since the advent of television. Readership has been declining gradually for decades, particularly among women and the young; the number of people who say they read a newspaper "yesterday" dropped from 80% in 1961 to 59% last year, surveys show. Nearly all big-city papers suffered circulation losses during the 1990s, and a few--like New York's Daily News and the Philadelphia Inquirer--declined by more than 20%. Owners have responded by curbing spending; with budgets tight and the space for news shrinking, some of the romance of newspapering has faded. But by far the biggest worry for publishers is likely to be the Internet, partly because it delivers news on demand but mostly because of the threat it poses to classified ads, which contribute about a third of industry revenues. Well-financed, aggressive, and nimble Websites like and Microsoft's CarPoint have put newspapers on the defensive. "We need to win in classifieds," says John Madigan, CEO of the Tribune Co. "That's the rallying cry around here."

Some smart people say newspapers are doomed unless they act fast. At an industry convention last spring, Intel Chairman Andrew Grove warned of a coming squeeze on profits that will test publishers as never before. Ted Turner, vice chairman of Time Warner (parent of FORTUNE's publisher), says, "I wouldn't want to be in the newspaper business. I think the Internet is going to eat them first." Investors too are bearish. While newspaper company stocks perked up in mid-December, they had been trading at "20-year lows" when their price/earnings ratios were compared with the S&P 500's, says Doug Arthur, an industry analyst at Morgan Stanley Dean Witter. The market capitalization of six big publicly traded newspaper companies--Times Mirror, Gannett, Tribune, New York Times, Washington Post, and Knight Ridder--which own 54 TV stations as well as 140 newspapers, is some $56 billion. That's about two-thirds the market cap of Yahoo, which tells you all you need to know about where Wall Street thinks the future of the media lies.

For now the newspaper industry appears buoyant, at least in financial terms. Most public newspaper companies posted double-digit earnings gains in 1999, and they expect to do it again in the year ahead. Industry revenues should top $60 billion this year--more than broadcast TV's and radio's combined--and operating margins average about 20%. Small newspapers, virtual monopolies that cover local news, are thriving. More than two-thirds of America's 1,500 daily papers sell fewer than 30,000 copies a day, and "they're beloved by local residents, and great businesses," says John Sturm, president of the National Newspaper Association. Doing well, too, are the national papers--USA Today, the Wall Street Journal, and the New York Times--which are enjoying a surge in advertising from technology, financial, entertainment, and travel companies.

It's the big-city metro dailies like the Los Angeles Times, the Chicago Tribune, and the Miami Herald that face uncertain futures. Besides having to compete with electronic media, they are surrounded by suburban papers that deliver more local news and are growing faster. Most don't have the scale to build big Internet sites. And their costs tend to be above average. When Willes arrived at Times Mirror, the problems were evident: The Los Angeles Times had lost 19% of its circulation, its margins had fallen from a peak of 22% to 6.5%, and Times Mirror shares had given up half their value between 1987 and 1995. Newsprint prices were rising, and the World Wide Web was about to explode. Says Willes: "You had this confluence of rapid deterioration of financial performance and this unknown, undefined threat from the Internet."

In Willes, Times Mirror got a brainy, reserved, and self-assured leader who vowed to reinvent the business--a radical in a gray-flannel suit. The son of a Salt Lake City banker, Willes earned a Ph.D. in economics from Columbia, taught at Wharton, and spent 11 years as a banker with the Federal Reserve. He then rose to become vice chairman of General Mills, the maker of Cheerios and Hamburger Helper. Journalists were less than wowed by that resume--one media critic at Harvard sneered that Willes' ideas came from "putting yellow boxes on grocery shelves."

Willes seemed to confirm their worst fears when he shut down New York Newsday and the Baltimore Evening Sun and eliminated 700 jobs at the Los Angeles Times, including 150 in the newsroom. Headline writers dubbed him "Cap'n Crunch" and the "Cereal Killer."

Then he did something unexpected. He sold off Time Mirror's legal, educational, and medical publishing companies, art book publisher Harry N. Abrams, the National Journal, and stakes in the Speedvision and Outdoor Life cable networks. By shedding businesses in which, he said, the company couldn't lead, he made a big bet on--of all things--newspapers. The Times Mirror papers, including the Los Angeles Times, Long Island's Newsday, the Baltimore Sun, and the Hartford Courant, together will bring in 80% of the company's $3 billion in revenues this year, up from just over 50% in the early 1990s.

Willes has a clear plan for his papers, particularly the Times: In a world in which media usage is splintering, they must get big. "If we can be the only mass media left, that should present a pretty awesome opportunity," he says. "For those advertisers who really want to get to everybody--and it turns out there are a lot who do--we become the place to go." That may sound simplistic, but it's actually a bold idea. The New York Times targets upscale readers, not the masses. The Chicago Tribune reduces distribution to outlying areas to save newsprint and trucking costs. And papers routinely raise subscription prices even if that means selling fewer copies.

The Los Angeles Times has done just the opposite. Willes slashed the newsstand price from 50 cents to a quarter and declared that he wants to sell 500,000 more papers a day, a 50% increase, over the next decade. Progress has been slow--circulation has inched up by 66,000, to 1,078,186, since 1995--but Willes, Downing, and circulation head Robert Magnuson are hell-bent on attracting new readers. "There are only two strategies--the growth strategy and a going-out-of-business strategy," says Magnuson. He's dead serious. The Times reaches just 22% of households in its sprawling region, and it competes with ten other dailies, most of which outsell it in their own backyards. Downing wants to double circulation to two million, a goal that others in the industry label unrealistic or naive; until she replaced Willes as the Los Angeles Times publisher, Downing, 46, had never worked in newspapers but in legal and professional publishing.

Willes and Downing hired street hawkers, stepped up direct mail, and pushed delivery times earlier to get the paper to commuters before they hit the freeways. "We have to get better at basic blocking and tackling," Willes says. "You can have the greatest editorial content in the world, and if the paper arrives wet and soggy in the morning, readers just hate it."

When surveys found, to no one's surprise, that readers wanted more local news, Willes launched an extensive--and expensive--collection of community supplements; the company now publishes 15 editions of "Our Times." Produced by their own staffs, the inserts each circulate to as few as 20,000 homes and cover town council meetings, small businesses, and high school sports. Circulation has grown by 3% to 6% in their respective local areas. Willes and editor Michael Parks are aggressively courting Latinos, who make up nearly 40% of the Greater Los Angeles population; the paper assigned a dozen Spanish-speaking reporters to new beats focusing on Latino religion, music, TV, small business, and immigration, and it opened a two-reporter bureau in a middle-class Latino suburb. "To me, it was nutty to have three people in Moscow and no one in Huntington Park," says Parks. To get the paper into Latino neighborhoods, the Times is now distributed with La Opinion, a Spanish-language daily that is 50% owned by Times Mirror; bilingual readers can buy both papers for 35 cents, and sales have reached about 90,000 a day. Similar joint ventures are under way with Korean and Vietnamese dailies.

If that sounds a little like putting yellow boxes on shelves, well, circulation losses are a front-burner issue at newspapers everywhere. Last spring the Newspaper Association of America launched an $11.5 million project to study readership and create new marketing strategies. Already the Washington Post sells new subscriptions on weekends outside Wal-Marts, and the Chicago Tribune allows subscribers to decide which days of the week they want home delivery. In Denver an old-fashioned circulation war between the Rocky Mountain News and the Denver Post has both papers adding new sections, spending furiously on TV and radio ads, and selling six-day-a-week subscriptions for just $3.12 a year, or a penny a day.

Publishers like to say that to drive readership, everyone on the paper must get involved. "Break down the walls between departments," a 1998 NAA study advised. That's what Willes is attempting to do at the L.A. Times, and that's what the civil strife is about.

Willes provoked the hostilities when he declared his intention to "use a bazooka, if necessary, to blow up the wall between news and business." He has begun to reorganize the L.A. Times along the lines of a consumer products company, with brand managers and profit-and-loss statements for each section of the paper. He has raised the possibility that bonuses for editors would be based on readership, profitability, or both. Most journalists hate that idea. They say their job--their public trust--is to cover the news without interference. It is up to others to build circulation, keep advertisers happy, and worry about the stock price.

A lot's at stake in the debate. Traditionalists say that if editors and writers aren't shielded from financial concerns, they will feel pressure to pander to readers and give special treatment to advertisers. What if, for example, the brand manager of a health section wants to see more stories on diet and fitness and fewer about AIDS and cancer because readers and advertisers ask for upbeat coverage? "Journalism shouldn't be guided by market research," says Tom Rosenstiel, a former L.A. Times reporter who is vice chairman of the Committee of Concerned Journalists, a watchdog group. "Journalists' first allegiance has to be to the citizen and to a larger sense of the public interest."

That's true, but all too often reporters take this mission as a license to bore. Willes says that final authority over content will always rest with journalists, but that part of the job is to attract more readers. If suburbanites want local news, Latinos don't see themselves reflected in the paper, or investors are seeking mutual fund coverage, isn't it the role of journalists to respond? "Somehow the notion has arisen that independence means it's okay to be insular," Willes says. "I don't understand that to this day."

But even Willes admits the paper crossed the line by not telling readers that the Staples Center had a stake in the special issue of its Sunday magazine. That left the L.A. Times wide open to the accusation that its editorial independence had been compromised by a business deal. In an emotional newsroom meeting, Downing apologized. She told FORTUNE in the middle of the crisis, "I've done a lot of soul-searching in the past week."

Times Mirror is hardly alone in its struggle to find the right balance between journalism and commerce. Nor is the issue new. (In 1974, as a cub reporter on a now defunct daily in Paterson, N.J., I was told that only funeral parlors that advertised could be identified by name in obituaries.) The thing is, the lines have blurred everywhere, even at the most distinguished papers. A few years ago, the Boston Globe, then run by an old newspaper family, shared revenue from a special section with a local sports arena. More recently, the Washington Post entered into a news-gathering and Internet partnership with MSNBC that puts it in business with MSNBC's co-owners, Microsoft and General Electric. In neither case was more than a peep of protest heard (although the Post did cover the deal in hard-nosed fashion). And for all the rhetoric about the wall, the fact is that top newspaper editors everywhere work hand-in-hand with business people. The guiding principle, says Janet Robinson, president of the New York Times, is that the "predominant voice is always going to be the newsroom."

Still, it's not surprising that Willes has become a lightning rod. He's pushing hard, he sometimes seems naive, and he comes across as haughty to some in the newspaper fraternity. "He's sort of a loner," remarks an industry CEO. He's also not a very good listener, say a couple of former Times Mirror executives; a dozen or more senior people have left the company since Willes took over.

But even executives who have jumped ship say the media caricature of their former boss bears scant resemblance to the real Mark Willes, who cares about journalism and believes that newspapers need to further the public good. His L.A. Times remains a fine paper, with a newsroom staff of 1,000, a big Washington operation, 22 foreign bureaus, and no hint of tabloid values. Of all the things Willes has done as CEO, he's especially proud of the ambitious elementary school reading projects launched by the Baltimore Sun and the L.A. Times, which involve hundreds of news stories, volunteer projects, and donations from the Times Mirror Foundation. Says editor Parks: "Mark was brought here to fix the business. In the course of that, he fell in love with newspapers."

Willes can take some solace from Wall Street, which has applauded his performance. Times Mirror shares have tripled since he took over, outperforming the S&P 500, and he's aiming to deliver double-digit earnings growth and a return on capital of better than 12% going forward. (Earnings at all newspaper companies have been boosted by lower newsprint costs and extensive share buybacks.) With the exception of 71-year-old Otis Chandler, the Chandler family members who control 64% of the stock "thankfully remain very supportive," Willes says. They should be; he's made them lots of money.

But he seems disheartened. "What if everything you do is going to be second-guessed, if your motives are always suspect?" he asks. "That's almost an impossible environment. If it really were impossible, I'd go do something else. But it sure makes it a lot harder." There's no question that the turmoil has been a terrible distraction.

Indeed, the most telling criticism of Willes is that he's been so busy learning about newspapers and trying to calm the waters that he has yet to really focus on the most serious threat to his business and the industry: classifieds on the Internet. Already demand for help-wanted ads, the biggest classified category, has softened at some papers. "The growth of online classifieds at the expense of print has not only begun but is likely to accelerate rapidly," says Peter Krasilovsky, an analyst with Kelsey Group consultants.

By now it's evident that classifieds work better online than they do in print--they are searchable, deep, interactive, and up to date, when done right. Help-wanted ads link job hunters to company Websites. Car ads include photos and detailed specs. Homes for sale offer virtual tours. Best of all, classifieds can be distributed far more efficiently online than in print; no wonder it costs less to place classifieds on the Web than in a big-city paper.

Willes and other publishers recognize the danger and want to join forces, but they've been unable to develop a unified Internet strategy. In the help-wanted category, four newspaper-industry-backed sites are splitting the market, and the largest, CareerPath, a four-year-old consortium of eight publishers, including Times Mirror, is a disappointment even to its owners. In fact, the Tribune Co. and Washington Post Co., which have stakes in CareerPath, are so unhappy that they have launched Brass Ring, a potential competitor that offers online recruiting services. The Post promotes a local brand, too, called "We've spread our bets to make sure we're covered," says Post CEO Alan Spoon.

If newspapers don't pull together soon, they will lose the war for employment classifieds online. "They get it intellectually. But they struggle with the emotional issues and the financial dynamics," says David Israel, CEO of Classified Ventures, yet another newspaper consortium that runs auto, apartment, and auction sites. "It's really hard to cannibalize yourself and trade high-margin revenues for low-margin revenues one second before you have to." Says Jeff Taylor, the CEO of startup, the top help-wanted site: "You have a lot of jobs, a lot of ink, rolls of paper, unions, printing presses, trucks, offices, all of them being supported by the way the newspaper has run for 100 years." has a big enough lead that it could soon crush its rivals. (Classifieds have always been a winner-take-all business.) Its site works better than CareerPath's, it generates three times as much traffic, and it boasts that nearly three times as many resumes are posted on its site--all of which will bring in more employers, traffic, and revenue. What's more, Taylor plans to spend $100 million to market Monster next year, including a new round of Super Bowl ads; the company just signed a $100 million four-year deal with America Online that makes it the exclusive career search product on all of AOL's brands.

CareerPath isn't dead yet. It has more job listings than Monster because many are uploaded from the newspapers, and it ranks second in traffic, ahead of a dozen or so serious competitors. "It's amazing, considering the way we've gone about it, that we're doing that well," muses Tony Ridder, CEO of Knight Ridder. CareerPath may be folded into Classified Ventures, which is faring much better. Its site, while trailing Microsoft's CarPoint in traffic and in used-car listings, has been growing briskly since its launch less than two years ago. "Nobody has broken away from the pack, and that's good for us," Israel says. "And we haven't turned on the promotional hose yet."

Willes hasn't played much of a role in the classifieds arena, and his most Internet-savvy executive, CFO Tom Unterman, is moving to a Chandler family venture fund. Willes says he'd like to focus on local classifieds, rather than on the national sites, and wants to see more research into how people use classifieds. "You'd think we'd know everything about it because it's so important, but we actually know remarkably little because, I think, we as an industry have taken it for granted." Like the other newspaper companies, Times Mirror just formed an Internet unit, with its own financials that could be spun off or used to create a tracking stock. "We've got to figure out how we're going to fund our Internet activities without having our head cut off by Wall Street," Willes says.

Willes also says, "The newspaper industry is totally confused by the Internet. We're giving away the most valuable thing that we have, which is our content." By contrast, Tony Ridder, who moved Knight Ridder's headquarters from Miami to San Jose to immerse the company in new media, says, "I see the Internet as a great opportunity. We're the leading provider of news, information, and advertising in our local markets, and a lot of the action is local. Shopping is local. Going to the movies is local. Buying a car is local."

Resolving differences among strong-willed CEOs won't be easy, just as it hasn't been easy for Willes to get the people at Times Mirror behind him. Barring a recession, Willes and the rest of the industry still have time to attract new readers, stake out their claim as the last mass medium, and get their act together online. But they don't have time to waste.