What If a Recession Is Just Ahead?
Three questions (and answers) for newsroom managers
Welcome to Second Rough Draft, a newsletter about journalism in our time, how it (often its business) is evolving, and the challenges it faces.
The possibility of a recession this year or next seems to be increasing, with the stock market slumping. New York Times shares, for instance, are lower compared with two years ago, while Gannett stock is down from the point of the GateHouse merger in November 2019. Analysts are split, but many are predicting a contraction in the economy in the months ahead. I lack both the qualifications and the temperament (I’m one of those people who has “predicted nine of the last five recessions”) to join the guessing game, but I do think it’s not too soon to be asking a number of related questions.
So this week’s column is about what news managers should and shouldn’t do now to prepare for a slump, and what it might mean for our industry overall.
First, a word of warning about another saying you hear often about the markets: “past performance is no guarantee of future results.” It’s important to remember that we haven’t had a recession like the one that may be ahead in a very long time. The last recession, triggered by the pandemic, was both the deepest and shortest in modern history. The one before that was only widely understood to be happening in the wake of the global financial crisis of 2008. We haven’t had a more traditional economic pullback in more than 20 years, which means that almost no one in charge of a business has ever managed through one.
What you should do now to prepare
In rough seas, it’s wise to batten down the hatches. Unless you have copious funds in reserve, this might not be the time to fill open positions you could successfully operate without. Similarly, it may be a moment to postpone capital spending that could pretty easily be deferred a year or two. And, again unless you have large reserves or have passed a point of no return, it might not be the time to launch a risky, costly initiative. If the recession threat eases, for instance by Fall, you can always wade back in.
In the aggregate, of course, this sort of behavior is precisely the kind that triggers recessions. So President Biden would much prefer you not take the advice I have just offered. But he has access to more funds in reserve than you do.
What you shouldn’t do now
Right this minute, as best we can tell, the economy is still expanding. Unemployment is very low, wages are growing. It may be that we are experiencing transient inflation and adjustment to a post-pandemic reality. It may be that the Federal Reserve can manage a “soft landing.” So it would be wildly premature to be laying people off from a currently healthy business, or to be leaving open mission critical jobs or postponing necessary investment.
And, as suggested above, what a particular organization should do depends in large measure on how much cash it has readily available. If you have the funds to power through a downturn, this may actually represent a huge opportunity: while others pull back, you can push forward.
What it would mean
If we do have the first traditional sort of recession in more than 20 years, you can be sure that one casualty will be advertising revenues, which are generally cyclical. But beyond that, advertising programs tend to reset in recessions, as marketers are very much among those enjoined by their bosses to “do more with less.” The consequence will likely be an acceleration of the already-inexorable shift of advertising away from print, with the result of further shrinking of papers and publication days. Some of the weakest newspapers and magazines would probably not survive this.
Of even greater significance will be the effect, if any, on subscriptions and memberships/smaller donations. Here, the historical evidence is far less clear. In the legacy print businesses, circulation revenue was far less cyclical than advertising. The pandemic crash was so brief, and the salience of the news at that time so great, that reader revenues actually grew. What the behavior of online readers as consumers will be in a “normal” recession is one of the biggest business questions facing the industry, and one that will bear close attention.
The effect on larger charitable gifts, however, is easier to predict. Any prolonged decline in the markets is likely to have a significantly depressive effect. The tax incentives to donate appreciated securities will be absent, and many foundations respond to shrinking endowments by contracting their giving—ironically, at a time of increasing need. Again, the pandemic proved an exception, in part due to the counter-cyclical leadership of people like Ford Foundation President Darren Walker, a former Rockefeller Foundation colleague of mine. But it is hard to have confidence that institutional philanthropy and wealthy individuals would respond similarly to a less dramatic and potentially longer slump.
This has not been a cheery column, and I’m sorry about that. It is possible that I and others are raising a false alarm. But preparing for bad news in an attempt to limit the damage is just as much a part of management as taking advantage of favorable winds to make progress. And right now, a bit of cautious preparation seems very much in order.