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Lessons of a Bottom Feeder

Dave Morse has turned his most basic of businesses - community newspapers - into a success.
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Forget 21st-century industries and hot new markets. Dave Morse has turned his most basic of businesses -- a chain of community newspapers -- into a blueprint for success at the bottom of the food chain

"Why didn't you tell me this had happened?"
"We didn't want to spoil your first day on the job."

* * *


Dave Morse had just started at Courier Publications that morning, and at the end of the day he was learning from a fellow employee that Courier was about to lose its largest commercial printing account. And that wasn't his first surprise. When he'd walked into his office he found his desk swept clean, save for a telephone. There was no computer -- not in his office, and not next door in the accounting department, where people were making entries in a ledger by hand. "Look at this," says Morse, the wonder rising in his voice as he riffles through one such artifact, its inky scrawl as dated as cuneiform.

Morse recounts this chain of revelations with a glint in his eye, obviously energized by the memory. He is a man who eats circulation numbers for breakfast and gets through the rest of the day on a steady diet of Cokes. He pads relentlessly around the Courier building, dressed in a blazer, khakis, and sensible, thick-soled shoes, like an overgrown Boy Scout.

Morse started his newspaper career selling ads for the Los Angeles Times. At 26, he won the company's national sales award. He was subsequently recruited by the Christian Science Monitor, for which he served as national advertising director, assistant publisher, and president of Monitor Syndicate, the Monitor's for-profit arm. He left in 1989, after an unsuccessful bid to acquire the Monitor's television property. As a consultant to such clients as the Cousteau Society, Gannett, and a number of specialty magazines, Morse came to feel he was hovering at the edge of the fray. "I knew I wanted to stay in newspapers and be closer to the action," he says. He needed more of a daily jolt.

That brought him to Rockland, Maine, in 1991, where Courier Publications was rumored to be on the block. Morse tried to buy the small newspaper company. Its owner, Richard K. Warren, now 75, a reserved New Englander, rejected his offer but was sufficiently taken with Morse's vim and vision to make him an offer: come to Courier as publisher. Morse, now 44, was sufficiently crazy to accept.

The company had been publishing the local Courier-Gazette for 145 years, but the thrice-weekly paper was showing its age. The information superhighway was cutting through the old neighborhood, threatening local newspapers in small communities like Rockland, a town of 10,000 souls halfway up the Maine coast. News coverage had lapsed, circulation had fallen, and costs were rising. By the mid-1980s the paper had come to rely on outside commercial printing jobs to keep it afloat. But even that business had been faltering since the late '80s, with the advent of desktop publishing and quick-copy centers. By 1991 the company was on the brink, and everyone knew it. "Before Dave took over, everyone here was afraid we were going to lose our jobs," recalls Courier's production manager, Jim Smith, a 30-year veteran. Then he saw Morse come charging through the front door. "When I first met Dave I said to myself, 'Oh, my aching back. I'm not sure I'm going to survive this."

He has, and today Smith's cluttered office overlooks the clamor of the pressroom, where newsprint whirs through the presses. A chart on his office wall indicates that Courier buys newsprint in 17 sizes and weights from three suppliers. In addition to its own 7 papers, Courier prints 17 others on contract for publishers around the state. Smith now often finds himself working until 10 at night, overseeing the various pressruns.

* * *

The Strategy:
Be at the Bottom of the Food Chain
"Newspapers exist because they're the cheapest form of hard advertising around. People don't realize that newspapers are primarily advertising tools, and as long as an advertiser can efficiently place an ad in front of a lot of people, he will stay with something that financially works," Dave Morse expounds over lunch, drawing deep from his ink-stained well of knowledge. Now he leans forward for emphasis, arms crossed and planted on the table. "And I don't want anyone coming into the market beneath me. I don't want anyone coming into my niche."

Morse is alluding to the "bottom feeding" strategy he has pursued since coming to Courier. It is in the muck of the local newspaper market that he gets territorial, as that is where he sees plenty of profit settling. Morse knew that to the large media, small markets like Rockland were no-man's-land. The Rockland market is bounded on the north and south by the markets of the state's two major dailies, in Bangor and Portland. But those papers -- each 100 miles distant -- can't cover small markets effectively, as evidenced by their low penetration rates. According to a 1990 census, only about 11% of all households in Rockland subscribe to the Portland Press Herald, while 60% read the Courier-Gazette. When Morse got to Rockland he was convinced that if he did his job right, the local market would be his for the asking.

That was made all the more possible when in the wake of the recent recession many large dailies jacked up their ad rates. Moreover, says Morse, large daily newspapers have focused on international, national, and state news coverage. At the same time, the industry has gone through its worst slump since the depression. The New York Times saw total ad linage shrink by nearly 40% from 1988 to 1992. Less advertising means less news. Local news that really matters to a lot of people is the detritus at the end of the food chain, and it's been getting squeezed out of the large daily papers.

Weekly community-based papers have been feasting on the leavings and taking market share from the large dailies. From 1965 to 1992, a period during which the U.S. population nearly doubled, daily-newspaper readership stayed flat at about 60 million, according to the National Newspaper Association of America. In the same period, readership of weekly papers rose from about 30 million to 50 million. While that rise does reflect demographic changes, Morse believes it also makes a strong case that news, like politics, is ultimately local. No matter how wired the global village is, people will always care most about the immediate reality that surrounds -- and affects -- them. Morse knew how to capitalize on that phenomenon. His first step was to narrow the editorial focus of Courier's papers. He understood the concerns of a hungry and interested readership down in the murky depths of his market.

If he built circulation, the advertisers would come.

* * *

The Advertiser:
Make the Retailer's Door Open
In his impressionable youth at the Los Angeles Times, Morse recalled, the paper's bread and butter were large retailers who could afford expensive display ads. Yet he'd noted as he went up against many community newspapers that there were scores of accounts the Times could never touch. They were the small retailers with small ad budgets. In contrast to the big advertisers, who were often selling an "image," the small retailers had a pressing agenda. "The name of the game in retail is cash flow," says Morse. "The small retailer can't afford to tie up a lot of money in advertising. You want to be able to make the retailer's door open and close for the least amount of money."

Morse says the price of an ad is paramount to the typical small retailer. Most small retailers would rather opt for a $300 ad in a 10,000-copy issue of the Courier than pony up $1,000 for an ad in the Portland Press Herald with its circulation of 95,000, for the simple reason that they can easily lay their hands on $300. Scratching together $1,000 is another matter.

Bill Elfers, chairman of Community Newspaper Co., a group of 64 local weeklies in the Boston area, says that in a world of increasingly specialized media choices, the advertiser "doesn't want to be paying for readers who are not in his market." In that sense, says Elfers, many local advertisers see large metro dailies as "broadcast" media and therefore not cost-effective. Elfers notes that most people shop close to home, and only such large purchases as cars and appliances will take them any distance. So it doesn't pay for a local advertiser to buy broad coverage if he or she is selling a low-ticket item. Elfers observes that Community Newspaper has, in the aggregate, more advertising accounts than the Boston Globe, the dominant paper in the Boston area, even though the Globe's total circulation is more than double that of all Elfers's papers.

Furthermore, Morse points out, given sufficient economies of scale, producing a weekly paper can cost as little as one-seventh of the cost of a daily. That lower overhead lets the publisher keep ad rates down, retain local advertisers, and sustain life at the bottom of the pond.

* * *

The Process:
Reengineer the Company
"Wanna Coke?" It's midmorning, and Morse is fishing through his pocket for change in front of the vending machine in Courier's basement. "We negotiated even this." He taps the price sign on the machine, which reads 50¢ -- down from 70¢. "I told the vending-machine company, 'Look, if you charge only 35¢ in Wal-Mart, you can't charge us 70¢."

A can of Diet Coke comes barreling out of the machine. Morse grabs it and heads down the hall, slipping into a stream-of-consciousness account of the costs he has cut in every corner of the building. "Inflation was really low last year, right? We went back to all our suppliers and said, 'No price increases, otherwise we'll shop around.' We haven't raised our rates to our advertisers." He tests a nearby door. Locked. Good. Locking the office supply room and giving one person the key has cut that cost in half. Welcome to the tighter, brighter Courier Publications, where each of the six department heads is responsible for a line on the profit-and-loss statement, and bonuses for the whole company are tied to operating-profit targets; where the chief financial officer buys supplies at discount clubs; where Morse routinely rides delivery trucks to get his nose as close to the market as he can.

When Morse arrived, almost three years ago, Courier wasn't quite so lively. In a perverse sense, though, the tide was running in his favor because things were so bad. The board of directors saw the company's predicament and gave him room to maneuver. "There were changes that needed to be made," allows Richard Warren, Courier's majority owner.

Morse told the board he needed to modernize. He had to add technology, cut costs, and grow revenues. Fortune intervened. Maine Antique Digest, the company's major printing account and the bad-news item on Morse's first day, returned after just one month because the Connecticut printer to which it had strayed could not deliver on its promises. Morse also had considerable leeway as he introduced technological changes. Courier was so far behind the times that his innovations were not constrained by earlier, potentially incompatible equipment purchases. Best of all, another struggling newspaper company in the neighboring town of Belfast came up for sale.

Morse had had his eye on that property. A friend had been negotiating its purchase. "We'd talked about doing something together if he bought it," says Morse. "But he couldn't see how he could make it work." Morse could. "I'd followed this story for a year, and I understood the numbers." Morse allows that those numbers, produced by a creaky family business run benevolently by its owner, Emmy Saltonstall Lewis, were red and convoluted. Still, he was confident the acquisition would promote operating synergies that would jump-start Courier's return to profitability. The board -- notably Rick Warren, the publisher of the Bangor Daily News and son of Richard Warren -- was very supportive. "Rick saw what I was talking about right away," says Morse.

Soon after, his father agreed. "This was a good opportunity to create a more efficient package," says the elder Warren.

* * *

The Acquisition:
Get the Missing Pieces
In December 1991 Courier Publications bought Emmy Lewis's ailing papers -- the Republican Journal, the Bar Harbor Times, and the Bucksport Free Press -- for "a little more than $800,000," according to Jonathan Thompson, a media consultant who was an adviser on the deal. Funds to make the purchase were borrowed against Courier's assets, and part of the payment was spread out in installments over eight years. The acquisition was a virtual steal and a boost for Morse. He got what he wanted to make big changes.

Morse moved quickly. He immediately closed down the Bucksport Free Press, a low-circulation paper, and in its place started a Bucksport edition of the Republican Journal. He put the Republican Journal's building on the market for $110,000. He moved the paper's five-unit Goss press, valued at $300,000, to Rockland. The additional capacity enabled Morse, at modest cost, to start a new free paper, the Ellsworth Weekly, and to expand and customize the Weekly Courier, a "shopper" without editorial content, into three weekly broadsheets that would carry local news: the Lincoln County Weekly, the Knox County Weekly, and the Waldo County Weekly. Within a year Morse had transformed a failing two-newspaper company into a thriving seven-newspaper group. Total weekly circulation rose from 34,000 (subscription-based and free customers) at the end of 1991 to 80,000 today. When Morse arrived at Courier, revenues stood at $3 million. Today they are approaching $6 million. Profit was nonexistent. The current operating margin, 5%, continues to rise as efficiencies take hold: as budgeted for 1994, it's more than 8%.

"This made the whole thing work," says Morse with a broad, appreciative smile as he approaches the Goss, newsprint streaming through it as the Wednesday edition of the Courier comes to life. The Goss is a more flexible, higher-speed press than its aging counterpart, a King press that hums along on the other side of the pressroom. Before the acquisition, the King was tied up printing the Courier-Gazette three days a week and Maine Antique Digest one week each month. That hamstrung the company's ability to bring in additional commercial work.

With the addition of the Goss, Morse juggles production between the two presses, so he can take in much more outside work than before -- without even adding a second shift. That means a lot more volume for only marginal cost increases. The additional production capacity is what enables Courier to print the weekly tabloids for other Maine publishers. The pressruns on those jobs are short -- typically, 10,000 copies. So the press operator has time for frequent checks that ensure high quality. In just a couple of years, Courier has developed a statewide reputation for its contract newspaper-printing services, which now account for 16% of revenues.

* * *

The Regimen:
Bring Costs Under Control
As sales grew, Morse set about cutting costs to reestablish positive cash flow. The company has turned ad-sales compensation on its head, with far more of it now coming from commissions and less from salary. Some salespeople have left, unable to make it under the new incentive system. Those who remain have seen their paychecks increase up to 20%.

"Cash flow is king," says Morse. "One thing that's good about the newspaper business is, you get your money back pretty quickly." One thing that's bad, though, is that publishing a newspaper is a capital-intensive and labor-intensive business with large costs lumped in a few areas. The "three Ps" -- people, paper, and postage -- account for 80% of total costs at the Courier-Gazette. Paper and postage costs are tough to get around. People are another matter.

In his first year at Courier, Morse invested about $250,000 in technology, but he got for it a two-to-one payback over two years ($500,000 in labor expense eliminated). Moreover, technology investments yield recurring dividends, since people get paid for as long as they work, but machines do not. Morse cut 20 full-time people from the combined workforce. The editorial head count, though, has remained unchanged, while the number of papers published increased from two to seven. Nonetheless, in the past two years Courier papers have garnered 54 Maine Press awards for editorial excellence.

Cutting people has been hard. "We've tried to be sensitive about this -- especially in this economy, where most people don't have that many other options," says Morse. "Their skills don't readily translate." He argues, though, that the company had little choice. Without layoffs there would be no company and no jobs, and, he points out, there's the multiplier effect -- the company pays $2 million in wages, collects in excess of $5 million in annual revenues, and serves four counties hungry for local news. And the papers are a boon to retailers in that market, where total retail sales surpass $1 billion annually.

"You wouldn't have believed the labor intensity in this place," Morse says, stepping into a preproduction room in the basement of Courier's building and waving his can of Diet Coke at nothing in particular. "People were tripping over each other." Many of those people are now gone. In their places are machines like the Deadliner and Scan 3. The Deadliner, a $50,000 machine, came with the acquisition. "They said they could never get it to work right over at the Lewis papers. It works fine for us." The Deadliner allows copy to go straight from paper to plate, knocking out the costly film-producing step. It replaced two workers and cuts production time by 60%. Morse steps into the next room to adore more high-tech manna, the Scan 3. "This thing is great. This replaced two workers. This is a $40,000 piece of equipment. We lease it for about $10,000 a year."

* * *

The Details:
Make Customers Happy
Before its acquisition, the Republican Journal, a Lewis paper, seldom hit the street before 7 or even 9 p.m., lagging behind a rival Belfast paper. Today it's ahead of the competition, on the newsstand by 4 p.m. Being first is vital. Two-thirds of the Republican Journal's sales are single-copy, not home-delivery, sales.

Morse calls Courier a newspaper "group," not a chain, in conscious contravention to the cookie-cutter approach. When he came in he cut back on nationally syndicated material. That cleared out the news hole for more local, staff-written news. "We dictate editors, not editorial," he says. Each paper has a distinctive design and voice reflective of its readership. All customers can transact business with their local newspaper: they can buy an ad, lodge a complaint, or write a letter to the editor in Belfast, Ellsworth, Bar Harbor, or any of the other towns. Meanwhile, behind the scenes, thanks to the technological advances Morse has introduced, administration, accounting, billing, circulation, and production are centralized in Rockland.

It's easy, economical, and efficient for an advertiser to place an ad in any combination of Courier's seven papers. The rates provide for commensurate discounts that recognize the number of papers in which an ad runs as well as the number of times it runs. At the end of the month, though, each advertiser receives a single itemized bill.

Morse's technology investment has also enhanced Courier's ability to track invoices. Courier takes pains to alert advertisers to bills that will soon be overdue and to remind them that early payment will net them a discount. In Maine's chronically sluggish economy, it's tempting to cut the advertisers a lot of slack to keep their business. Morse seeks a middle ground.

He finds that retailers tend to forget a bill that is long overdue. Morse explains: "In retailing, five months is an eternity. Our job is to keep these guys in business. We are as responsible for their paying our bills as they are."

Ultimately, Morse sees himself as the advertisers' business partner -- together exploring this lucrative spur at the end of the information superhighway. While newspaper publishing is conventionally seen as an information-based business, Morse says, "beyond that, it's really a marketing and distribution business." Courier already does a brisk business printing advertising inserts for customers and offering them postal-distribution services. "It doesn't have to be just information you're distributing," says Morse. "Maybe a customer wants to get a promotional sample of a product to everybody who lives on a certain street. Well, we know how to find those people and how to get products in their hands."

* * *

The Future:
Create More Opportunities
Another day, and the peripatetic Dave Morse is prowling the building. He has just met with managers from the post office, where he's been sniffing out new ways to cut costs. "We run $1 million worth of business through the post office each year. That's a lot of money." Morse is excited because he's going to drop his Ellsworth paper in the mail rather than use routine delivery. "This is gonna be great." Advertisers will love it; a rival Ellsworth weekly won't. "They'll think twice about raising their rates." He enters the pressroom where Maine Antique Digest is being collated by hand. It seems labor-intensive. Has Morse looked into automating that? Naturally. "Even if a machine could customize inserts as well as a person can, the cost per thousand by machine would be about $12. By hand it costs $4." He passes the preproduction area and comments on a new high-tech camera he has his eye on. It enables a photographer to download images directly into a computer. "It would bypass printing and developing. It's incredibly expensive, maybe $2,000 or $3,000." Morse, for now, will have to control his lust.

But Morse, the perpetual optimist, the perpetual opportunist, adds with a knowing smile, "I hear it won't cost more than $900 in two years."


THE SYMBOLS OF SUCCESS

Numbers tell the tale of Dave Morse's effort to revive Courier Publications. The transition year at Courier was 1992, the first full year with the new acquisitions and changes in place. That year and 1993 were recession years in Maine. Still, the company grew ad revenues at the Courier-Gazette by 3% in 1992, and by better than 4% in 1993. In the first quarter of 1994 they were up 25%. Courier let go marginally profitable contract printing business and focused on printing newspapers only; and after a drop in 1992, revenues from contract printing rose 28% last year.

1991 1993

Revenues $3 million $5.5 million

Operating margin 0% 5%

Number of employees (including part-timers) 90 135

Number of publications 2 7

Total circulation 34,000 80,000

Area served 1 county 4 counties

Area served/total retail sales $289 million $1.3 billion*

Total ad revenues $1.8 million $2.8 million

Contract printing $1.1 million $0.9 million

*in 1992 dollars




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