Intro

By the Project for Excellence in Journalism and Rick Edmonds of The Poynter Institute

There were high hopes in many quarters of the newspaper industry in 2004. The 2000-2003 recession was expected to give way to an economic rebound. Publishers expected advertising revenue to come roaring back as it traditionally does in the early stages of a recovery. Investors, who had bid up stock prices based on newspapers' steady profitability and cyclical nature, were expecting their ship to come in. Editors, faced with deep cuts in 2001 and flat staffing and budgets since, were looking for reinvestments in news gathering.

None of that turned out as planned. Ad revenues in 2004 did increase, about 4% over all.¹ But the weakness in big-city markets and certain advertising categories, together with dull overall performance, raised questions about whether the industry had lost ad share to electronic media and others. Investors were disappointed, and by the end of the year newspaper stock prices were trailing the market.

Perennial bottom-line pressures then redoubled. There was an intense focus on cost controls, and the newsroom took its share of hits. At its annual meeting in April, the American Society of Newspaper Editors got the bad word that employment of full-time news professionals actually declined by 500 positions (about 1%) in 2003.² That more than wiped out modest gains of about 300 the year before. And that came after the deep cut of 2,000 jobs in 2001. While the full numbers have not yet been tallied, cuts appeared to outnumber expansions in 2004 budgets as well. The Los Angeles Times had the indignity of being asked to trim 60 newsroom positions by its parent, Tribune Company, just months after winning five Pulitzer prizes.³ (The Los Angeles market had an especially bumpy second quarter).

Yet perhaps the worst news came in circulation. A few companies like McClatchy and individual newspapers like USA Today and The Boston Globe showed healthy gains. But industry-wide losses continued, and it became harder to argue, as some optimists had, that at least the pace of erosion was slowing. Gannett papers lost nearly 2% year to year, which management attributed to new constraints on telemarketing.⁴

But compounding the weak circulation story were admissions over the summer that three big-city papers - the Chicago Sun Times, Newsday, and The Dallas Morning News - had overstated their paid circulation totals by tens of thousands of copies, deceiving industry auditors in the process. Under the flamboyant press lord Conrad Black (since deposed), the Sun Times's parent, Hollinger, was considered something of a rogue operation within the industry. Newsday and The Morning News were another story - successes editorially and financially. The fraud was as bad or worse at Newsday's sister Spanish-language daily, Hoy, which bragged of passing an established competitor, El Diario/La Prensa, after just five years - but did so with massive circulation padding.

Tribune Company and Belo, parent companies of Newsday and The Morning News, were profusely apologetic, and, while still investigating how and how long the abuses happened, set aside a total of more than $100 million to compensate advertisers.⁵ The Audit Bureau of Circulations (ABC) censured the publications and announced it would do tougher audits, tighten some of the loosened regulations of recent years and review others. That was a nod to the open secret within the industry that "paid" covers a variety of deeply discounted sales and trial subscriptions and that gaming the system has become more common, masking the true slippage in fully paid subscriptions and rack sales.

There were two bright spots in this otherwise cheerless picture: the growth of newspapers' online sites and their continued push into youth, Spanish-language and other targeted markets. But even these carried a few cautionary footnotes.

Online advertising revenues at public newspaper companies were up 30 to 60%.⁶ Better yet, the companies have rallied nicely in online employment advertising against their we-will-bury-you competitor, Monster.com, which encountered some bumps in its own expansion strategy as the newspaper sites fought back successfully on pricing and with links to traditional in-paper advertising. The sites are also venturing into lucrative new areas - auctions and direct sales, search and "context" advertising (premium-priced because it targets readers' interests according to the pages they view - that had been the province of dot.com startups.

Still, many believe there is still too little that's exciting about the news content and display of most online sites, often not much more than an electronic rehash of the morning's paper. Ad rates remain low, so the impressive revenue percentage increases are on a small base. If, as seems inevitable, readership shifts over time to online editions, it remains tomorrow's challenge to figure out how to "monetize" the traffic in anything approaching the profitable standards of traditional newspapers.

As had been promised in late 2003, companies are forging ahead with diversification into new kinds of publications that seek to expand total audience. Free youth papers are especially ubiquitous - it is not unusual to see announcements of two or three launches in a single week. And a few companies - notably Washington Post and E.W. Scripps - now have big investments in separate growth businesses (educational services for the Post, lifestyle cable networks for Scripps) of comparable size to the newspaper division.

By contrast, the specialty publications are tiny in scale and new enough that their revenue and profit prospects are not clear yet. Only a few of the most ambitious - Tribune's three Hoys and Red Eye, Belo's Quick and Al Dia, for example - are big enough to rise to 1 or 2% of operating costs. Coincidentally or not, these were two of the companies involved in circulation padding and are feeling the worst sting of investor disappointment with their performance.

For all the troubling trends, newspapers still deliver the single largest audience in their markets and have by far the greatest news-gathering capacity. Our content analysis confirms that newspapers, when compared with television and online offerings, continue to be the most thoroughly reported and transparent source of news available, covering the widest range of topics. Both audience and news investment can slide or stagnate, as again was the case last year, and the newspaper will remain the biggest game in town as media markets continue to fragment. But if fair performance is good enough to hold position, the edge of ambitious public-service reporting grows blunter by the year - as even top newspaper company executives now concede.⁷

Click here to view footnotes for this section.

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