Newspapers – Intro
The newspaper industry exited a harrowing 2008 and entered 2009 in something perilously close to free fall. Perhaps some parachutes will deploy, and maybe some tree limbs will cushion the descent, but for a third consecutive year the bottom is not in sight.
We still do not subscribe to the theory that the death of the industry is imminent. The industry over all in 2008 remained profitable.
But the deep recession already threatens the weakest papers. Nearly all are now cutting so deeply and rapidly that simply coping with the economic downturn has become a major distraction from efforts to reinvent the economics of the business. And even once the downturn ends, growing or stabilized revenues are no sure thing.
If the industry’s death isn’t imminent, the more pertinent question may be this: can newspapers beat the clock? Can they find a way to convert their growing audience online into sufficient revenue to sustain the industry before their shrinking revenues from print fall too far? And if some succeed and some don’t, what are the characteristics of a newspaper organization that survives and one that doesn’t?
Even if newspaper institutions do survive, moreover, will print be part of the mix – perhaps just on Sundays with newsstand-only issues the rest of the week?
Sorting out the answers requires trying to assess how much of the problems of 2008 to ascribe to the recession and how much to attribute to structural problems caused by Internet competition. The general consensus, and our own sense, is that roughly half of the downturn in the last year was cyclical, that is, related to the economic downturn. But the cyclical problems are almost certain to worsen in 2009 and make managing the structural problems all the more difficult.
Indeed, the scenarios taking shape in late 2008 and early 2009 were dire.
Several metro newspapers are threatened with closing – the Rocky Mountain News closed in February, for instance, and the Seattle Post-Intelligencer was almost certain to follow in March. There is not yet a major city without a newspaper, but that, too, could be coming soon. Among the cities faced with that distinction are New Haven, Conn., whose New Haven Register is the flagship of the bankrupt Journal Register chain, and San Francisco, whose Chronicle has been losing money for years.
Some large newspaper companies were close to failing. The Tribune Company, burdened with the huge $13 billion debt taken on a year earlier in real estate mogul Sam Zell’s acquisition of the company, filed for bankruptcy reorganization in December.1 GateHouse Media was effectively broke by mid-2008, and Journal Register, Philadelphia Newspapers, and the Minneapolis Star-Tribune went into bankruptcy early in 2009.
Most of the papers of all these companies, however, are still profitable, and could continue in business once separated from the parent company’s debt.
In the current calculus, it does not make sense for newspapers to kill their print versions and go online-only. The Sunday paper and some late-in-the-week issues still are flush with ads, and print still commands premium ad pricing. Papers still make roughly 90% of their revenue from print and, although the numbers vary by paper, the cost of printing and delivering the printed newspaper averages 40% of costs. For now, it doesn’t add up to sacrifice potentially 90% of revenues to save 40% of costs.2
But several papers already, and likely more in 2009, are taking the half-step of deleting the traditional paper several days a week to save on production and delivery costs, with the hope that it will not cost them much in advertising or alienate their print audiences. The East Valley Tribune in suburban Phoenix announced in fall 2008 that it would take that course, and it was followed in December by the Detroit Free Press and Detroit News, which do business under a joint operating agreement.
As a deep recession on top of the loss of print classified revenue to electronic competitors took hold in mid-2008, conventional cost cutting simply was not enough for less profitable papers. With more of the same expected for most of 2009, the financial distress and the closings, bankruptcies and online-only experiments will spread in a widening circle.
And the trends seen in 2008 are signs of serious problems, bad in 2006 and 2007, getting worse in 2009:
●CIRCULATION: Losses continued and, in fact, accelerated to 4.6 % daily and 4.8% Sunday, in the six months ending September 30, 2008, compared to the same period a year earlier. The year-to-year losses were 2.6 % daily and 4.6% Sunday in the 2007 period compared to that period in 2006.3 More papers plan to retreat geographically and put less money into selling new subscriptions in 2009. The industry also continues to struggle to find a metric for total print and online readership that will be meaningful to advertisers. The online standard – unique monthly visitors – does not compare in frequency or intensity of attention to average daily print circulation.
But the problems were not uniform. Circulation at the three national papers (the New York Times, the Wall Street Journal and USA Today) and at small and mid-sized papers did better than at the metros. At the metropolitan area newspapers, losses of 10 percent or more in a single year were not uncommon.4 A few papers showed small circulation gains in 2008, but that was very much the exception.
●ADVERTISING: This fell by 13% in first quarter of 2008. But that drop jumped to 15% in the second quarter and 18% the balance of the year as the economic downturn kicked into full force. Problems include big losses of classifieds to digital competitors, the real estate crash, a collapse in employment advertising, huge reverses in the auto industry and consolidation and bankruptcies in retail. Newspapers took in $49.5 billion in advertising just two years ago. In 2008, it was about $38 billion, a 23 % decline.5
●EARNINGS: They plunged. The industry remains profitable, but operating margins are dropping and now average in the mid to low teens, and they are under much greater pressure in 2009. Even with very aggressive cutting, companies were not able to shed costs as quickly as revenues fell away. And now some big metro papers – the Washington Post and the Boston Globe, for instance – are just breaking even or losing money.
Some industry critics think that companies should be accepting still lower margins and investing the difference in newsrooms and new ventures. That is a fair topic for debate. Right now, however, even profitable newspaper companies are experiencing the compound pain of much diminished revenues and falling margins. The declines are so precipitous that a few more years at the same pace would put some companies out of business. The stock market operates on expectations of the future, not looking at the recent past.
●OWNERSHIP: Stocks fell sharply again. Most public company shares have lost more than three-quarters of value from their peak. Two – Journal Register and GateHouse Media – effectively went to zero. Lee Enterprises and McClatchy were trading for less than $1 a share in early 2009.
Two numbers put that into perspective. After losing 42 % of their value between 2005 and the end of 2007, publicly traded newspaper stocks lost 83% of their remaining value during 2008.6
Several private companies seem similarly distressed, conceding that they have missed debt payments and are renegotiating with lenders (including the Minneapolis and Philadelphia companies mentioned above and Morris Communications, based in Augusta, Ga.).
Debt, once little more than a footnote in newspaper finances, is dragging down many companies. Any that made a big acquisition when times were better and transactions much pricier earlier the decade (McClatchy and Tribune are the most obvious) are hard pressed to cover or pay down the debt and have profits left over.
That has pushed the market for newspapers even lower. Many properties were put up for sale in 2008 but there were only a few big deals completed (Newsday). Some papers companies (Ottaway and Landmark) were withdrawn from the market. Others languish.
●NEWS INVESTMENT: Drastic cuts in news staff and news space were made and more are on the way in 2009. With cuts accelerating to match the higher pace of ad revenue decline, we initially expected newspapers had cut roughly 5,000 newsroom jobs in 2008. That number proved fairly close to the formal industry census that appeared a month later. According to the American Society of News Editors census, 2,400 full-time professional newsroom jobs were lost at American dailies in 2007 and 5,900 more in 2008.7 That amounts to daily newspapers losing about 17% of their news staffs since the start of 2001. And the percentage could be even higher given that ASNE did not include those working online at papers or at free dailies in 2001.
Higher newsprint prices (up about 25%) caused newspapers to cut back space devoted to news.8 Separate business and features sections disappeared at many newspapers. “Quick read” condensed papers are emerging on Mondays and Tuesdays in some markets, and a very few have stopped printing on several weekdays, asking their readers to turn online for a news report those days.
Fewer people and less space equates to significant erosion of the serious, accountability reporting that newspapers do more than any other medium.
●ONLINE: Audience as measured by unique visitors, page views and unduplicated reach continues to grow. But online ad revenues, a healthy pocket of growth even as recently as 2007, shockingly went negative (-2.4 %) in the second quarter of 2008 and for the rest of the year.9 A big share of this advertising is still tied to classified. Questions remain about efficacy of banners and other display formats. The supply of available advertising space is abundant online so prices are actually falling. And the downturn is causing advertisers to cut new media as well as traditional media budgets. All these factors sent the once-robust growth of online advertising into reverse.
So, to paraphrase Ronald Reagan, is there a pony in here somewhere?
On the plus side, the industry, despite a popular conception of it being in a death spiral, remains substantial and even profitable:
●Even diminished, besides the $38 billion in ad revenues, the industry represents 48 million papers sold daily and better than 45,000 professionals gathering and editing the news.10
●That should be a viable business for years to come if costs can be brought under control. But controlling costs also means reducing the journalism offered, which could blunt growth online and hasten declines in print. As General Motors and Chrysler demonstrated in 2008, mere bulk does not ensure success.
●To a degree, newspapers have been adaptive. Most made strides in 2008 in breaking down walls between print and online editorial operations and strengthening their online ad sales force. Modest successes with sites targeted at moms or other narrow audiences are the more the rule than the exception. So are supplemental lifestyle publications allowing advertisers to display luxury items in targeted zip codes or sell to the health and fitness crowd.
●Newspaper organizations are also better focused now on catching the next revenue waves as they develop. They are more willing to partner with others in the industry, as in the Yahoo Partnership, to increase the volume and targeting of national ads. Serving news and advertising to mobile devices or electronic downloads to tablet formats like Amazon’s Kindle could be emerging news/advertising platforms that work for newspapers.
And yet… the big new things seem always about to arrive but end up being rolled ahead to a more distant future. Asked whether 2009 would be the year mobile explodes as a market, one agency executive joked, “I’ve believed them every year they have said that, and I believe them again.”
The industry was also late to innovate and there are questions about whether a mature industry can attract the kind of innovators and entrepreneurs that might be lured instead to Silicon Valley.
And then the financial crisis and its ripples through the broad economy will have the likely effect of slowing down the coming of the next big thing or things as it simultaneously zaps traditional revenue streams.
Some would argue that the industry cooked its goose with two bad pricing decisions years ago. Even after some modest increases in 2007 and 2008, American newspapers still are priced cheaply (less than half the cover price that prevails in Europe and Japan).11 Raising those rates now could prove a tough sell to budget-conscious consumers in a down economy where the newspaper’s space and staff are shrinking, but a number of newspapers implemented single-copy or home-delivery increases in 2008.
A second mistake may have been to make website content, much of it still drawn from big and expensive legacy newsroom operations, available for free. There remains some hope that Google and the rest of the aggregating gang might be persuaded to pay for what they are harvesting. But many now believe that the free content genie cannot be put back in the bottle. Search and links are how the majority of traffic arrives at newspaper websites.
This leaves the industry pinning hope on a broad view of the value of its journalism. In what traditionalists tend to dismiss as a cacophony of talking heads, celebrity infotainment, opinion-driven blogosphere exchanges and information overload, the integrity and sense-making of professionally done news should be more valuable than ever.
For the immediate future, however, the amount of this journalism that the newspaper industry will produce – down already in the last three years – will continue to shrink.
1.Andrew Ross Sorkin, “Tribune Files For Bankruptcy,” New York Times, December 8, 2008
2. Trends and Numbers, Newspaper Association of America (90% revenues).
Co-author Edmonds’ estimate based on data from Inland Press Association Cost and Revenue Studies (40% costs)
3. Jennifer Saba, “FAS-FAX: Most Major Newspapers Continue Circulation Declines,” Editor and Publisher, October 27, 2008
4. Martha R. Gore, “Newspaper Readership Declines in Major Cities,” Suite101.com, December 9, 2008
5. Newspaper Association of America, “Trends and Numbers” at NAA.org. Most recent figures are as of the end of 2007, adjusted for further losses in 2008
6. Alan Mutter, “Newspaper Share Value Fell $64B in 2008,” Reflections of a Newsosaur, January 1, 2009
7. Newsroom Employment Census. American Society of Newspaper Editors, April 29, 2008
8. “Newsprint Price Increase Squeezes All Newspapers,” The Rural Blog, July 3, 2008
9. Newspaper Association of America, “Trends and Numbers” at NAA.org. Most recent figures are as of the end of 2007, adjusted for further losses in 2008
*For the year, online advertising in newspapers declined 0.4%, according to an estimate by eMarketer. The firm projects another decline in 2009, of 4.7%. That compares with an increase of 18% in 2007.
10. Newspaper Association of America, “Trends and Numbers” at NAA.org. Most recent figures are as of the end of 2007, adjusted for further losses in 2008
11. Rick Edmonds, “What Should a Newspaper Cost?” Poynter Online, May 2, 2008