Newspapers: Building Digital Revenues Proves Painfully Slow
By Rick Edmonds of the Poynter Institute, Emily Guskin, Tom Rosenstiel and Amy Mitchell of PEJ
Updated February 11, 2013: See our latest report, Newspapers Turning Ideas into Dollars, for four revenue success stories.
The newspaper industry enters 2012 neither dying nor assured of a stable future. The industry has rallied around a story about itself – that year-by year it is developing new digital products and new revenue streams to transition from dependence on print advertising. In 2011, that traditional advertising pool declined for a sixth consecutive year. The website of the Gannett Company, emphasizing those digital initiatives, now intentionally has no mention of newspapers on its home page.
If this transformation were going well, one would expect the new revenues to get closer each year to replacing ad revenues lost in print. In 2011, according to Newspaper Association of America statistics, online advertising was up $207 million industry-wide compared to 2010. Print advertising, though, was down $2.1 billion. So the print losses were greater than the digital gains by 10 to 1.1
That was even worse than a 7-to-1 ratio of print losses to digital gains in 2010. And during 2008 and 2009, steep declines in print were accompanied by small losses in online too. (An earlier PEJ study examined print losses to digital gains for a sample of papers using 2010 figures and found similar results.)
Even if the newspaper industry can find a sustainable model online, moreover, those ratios mean newsrooms will be much smaller than they were a decade ago.
In a July conference call, an industry analyst asked McClatchy’s chief executive, Gary Pruitt: If cost-cutting were a baseball game, what inning would it be in?
Pruitt replied, “Well, it feels like the 19th.”2 He was saying, in effect, that the process has dragged on, that progress has been in baby steps and that no end is in sight. And the effort has been wearing for company executives and publishers trying to lead to a destination unknown as well as for business and news staffs perpetually asked to do more with less.
One indication of how long the decline has gone on – and how slow the process of trying to reverse the downward trends has been — is the number of industry leaders leaving or being replaced. In 2011, the CEOs of the largest newspaper company, Gannett (Craig Dubow), and the industry’s largest private company, MediaNews (William Dean Singleton), stepped aside for health reasons. New York Times CEO Janet Robinson retired under pressure late in the year. Tom Curley, the Associated Press’ president and CEO, announced early in 2012 that he would be retiring, too. And during the course of 2011, the top editor’s job turned over at The New York Times, USA Today, the Los Angeles Times and a host of metros.
The half-formed question for the industry now seems to be whether organizations need to go all in for digital by installing top executives and editors who specialize in new media. Another question is whether their organizations can weather another five years or more of transition if the effort takes that long?
In a PEJ report on digital revenue that looked in depth at 10 newspaper companies, executives predicted that in five years many newspapers would print only on Sundays, or perhaps two or three days a week.
The particulars of 2011 were challenging at best:
- Advertising revenues over all were down 7.3%, despite gains in online revenue of 6.8%. Ad revenue was at $23.9 billion – less than half its peak of $48.7 billion in 2000. Revenue is predicted to fall again in 2012. The deep recession is partly to blame, but newspaper advertising has not bounced back in the last two years as other media resumed growth. Circulation revenues added a little less than $10 billion in 2011. Over all, therefore, newspapers are now less than a $34 billion-a-year industry, down from $59.2 billion in 2000.3
- Most newspapers are profitable on an operating basis, many with margins in the mid-teens. But net margins – after interest, taxes and special charges – are razor-thin. And most papers achieved profitability largely through cutting. Some papers also operated in the red for 2011, essentially choosing to reinvest in new programs rather than drop earnings to the bottom-line.
- Audiences continue to hold up much better than revenues, but after a decade of losses, the case the industry can make to advertisers for premium-priced print ads has weakened. Print circulation (measured under a new set of auditing rules) continued to decline in 2011, especially on weekdays. Most measures of audience on various digital platforms showed growth. But the continuing murkiness of digital data — the fact that different measuring companies’ data are so different and doubts about which metrics make sense — continues to be one of the factors that complicates selling advertising on digital platforms.
- Stock prices, after a modest rally in 2010, fell by about 25% in 2011. Those who bought newspaper stocks before the ad collapse of 2007 to 2009 and are still holding have taken a beating – McClatchy, for instance, which purchased the Knight Ridder chain in 2006, has fallen from $70 in 2005 to under $3 a share in February 2012.4
- After several years of stasis, newspapers began changing hands again in late 2011. The trend of private equity owners gaining control through bankruptcy proceedings continues to grow, though their intentions often remain mysterious since the typical hedge fund operators say nothing publicly. Prices are low and a variety of new owners are coming forward. Some hometown buyers – including Warren Buffett in Omaha – have also emerged.
- Newsrooms continued to shrink as companies, and to remain in the black, felt the need for more rounds of cost reductions. The contemporary newsroom has fewer articles to produce after trims in the physical size of paper and reduction of the space devoted to news. At the same time, the remaining editors and reporters are also being stretched further by the need to generate content suitable for smartphones and tablets and establishing a social media presence as well as putting out the print paper daily and feeding breaking news to websites.
Strength on Sunday
While the growth of digital and other new revenue streams fell short of covering print declines, there were a number of positive trends. One of those, is that Sunday print editions did relatively well in 2011. Circulation stabilized, and at some papers increased. Also, preprint insert advertising, despite the beginnings of electronic coupon competition, has held up relatively well. The “super-couponing” craze finds some eager bargain hunters buying five or six copies of the Sunday paper to maximize their savings.
The industry is responding by increasingly emphasizing Sunday-only or Sunday and some additional days in marketing new subscriptions in preference to trying to get new seven-day-a-week readers. Also, as noted in last year’s report, Gannett papers and many others now offer “Sunday select” – an insert package free on request in certain upscale ZIP Codes to households not receiving the full Sunday paper. That extends the reach of the industry’s most popular advertising format and covers for declining household penetration as Sunday circulation has waned over two decades.
The Sunday emphasis is a revenue and profit plus, but it also may represent a tipping point of sorts. Sunday advertising now represents 35% to more than 50% of the total at most papers.5 As papers target Sunday readers, more valuable to advertisers than those on weekdays, they may gradually opt to serve weekday readers with a website report, other digital editions or, in some markets, a smaller-format, free tabloid version.
A Move Toward Paid Content
Another positive development in 2011 is that after years of talk and no action, the industry began to embrace pay walls for digital content.
The New York Times did this most prominently, but, according to Newspapers & Technology roughly 150 small, mid-sized and metro dailies also have instituted variations of the so-called metered model that The New York Times used or offered premium paid sites.6 Typically, a metered plan allows free views of a limited number of articles, so a site retains its traffic from search, links and social media recommendations.
More frequent readers are asked to pay a monthly rate, for which they get unlimited access. The new pricing model also allows organizations to sell so-called bundled subscriptions to print readers, who gain access to the website and often mobile and tablet editions too, either free or for a modest additional charge of a dollar or two a month. This payment structure encourages people to continue to receive the print edition, which is more profitable, particularly for the ad-rich Sunday edition, and helps shore up print circulation. It also is moving companies away from the concept of pay walls, which sound as though they keep people out, and moves more toward the concept of full access, which invites people in.
At The New York Times, for instance, a Sunday-only subscriber gets access to all other digital editions of The Times. Looked at another way, the 390,000 who have signed up for the digital edition could get home delivery of the print version on Sundays as a freebie.7
Dozens more papers are likely to follow in 2012, though there are still notable holdouts, including The Washington Post, USA Today and many metros that fear the loss of users seeking breaking news to other free websites and potential loss of online ad revenue.
The Times’ first full report on results of the pay wall, instituted March 31, was altogether sunny. Besides the 250,000 digital-only subscribers, 75,000 more were paying for the iPad and e-reader versions by the third quarter of 2011. The paid total had grown to 390,000 by the end of the year. An advertising sponsor is providing 100,000 more users with a year’s free trial subscription.8 Far from cannibalizing print, The Times’ bundled deals actually supported a modest growth in paid Sunday subscriptions. Digital unique visitors were also up slightly (though page views were down) and digital advertising was holding steady.
The Times was less than clear, however, about how many of those subscribers were paying full freight rather than a trial rate. Some bumps in building audience or retaining ad revenues could still lie ahead. Also, the Times high-quality/high-price/high-demographic strategy may or may not be a fit for more modestly scaled newspaper organizations.
But signs are positive for others making the switch. Morris Communications’ Augusta Chronicle began a metered-model pay wall four months before the Times in December 2010. Page views actually went up 5% in the next three months. The Augusta offer began by allowing up to 100 page views per month free, gradually reducing that threshold to 15. It charges digital-only subscribers $6.95 per month and print subscribers an additional $2.95 for digital access.9
In some ways Augusta is viewed in the industry as the more relevant example than The New York Times. And by midyear, chains like Lee and GateHouse Media were installing variants at most of their small and mid-sized papers.
Metro papers have been slower to embrace paid digital plans but are coming along. The Boston Globe and The Dallas Morning News, which both decided on a high-cost, high-quality print strategy several years ago, now charge for online access to their journalism as well. The Star Tribune of Minneapolis started a pay wall in October. First reports saw traffic and projected ad revenues down slightly but added digital subscription revenue making up the difference, according to publisher Mike Klingensmith.
The Milwaukee Journal Sentinel launched a bundled subscription strategy in early January 2012. And Gannett has announced that all 80 of its community papers will have digital pay packages by the end of the year.
In March 2012, The Los Angeles Times put up a metered pay wall, providing 15 stories a month for free. After that, readers need to buy a subscription. The digital-only subscription, which starts at 99 cents for a month, rises to $3.99 a week after that month.
Why and why now? The pay systems re-establish the principle that users should pay for valued content, expensive to produce, whatever the platform. It gives flexibility to raise the subscription price in later years or charge more for a particularly convenient medium like tablets. The change is unlikely to have a big financial impact, positive or negative, right away, but it better positions newspaper organizations eventually to wean themselves away from print.
A companion development, much less noticed, has been the industry’s launch of a licensing organization, NewsRight, seeking to collect royalties for the content originators from aggregators. The rights agency, led by former ABC news president David Westin, opened for business the first week of January 2012, after three years of development led by the Associated Press. AP remains the biggest investor and is joined by 28 other news organizations.10
Westin concedes that success is far from guaranteed. But the participation of most major newspaper companies is important. NewsRight will begin slowly, asking commercial enterprises that scrape stories and sell online news digests to business clients to pay licensing fees. Asking royalties from bigger players and for aggregated short summaries may come later. For a start, only text stories aggregated in the United States will be tagged and tracked. Plans are to add photos, video and international markets later.
If the venture achieves critical mass, it will also yield detailed real-time metrics on which stories are being most heavily aggregated. That data will be of use to the participating content creators and possibly to public relations and advertising customers in tracking the trajectory of a given news topic. But the effort faces a number of hurdles. The arrangement is non-exclusive – all publishers, including the AP, have existing licensing agreements in place with businesses and schools. The nonprofit Copyright Clearance Center has been collecting royalties for several decades. One company, Attributor, and other newer businesses already track pickups by aggregators and ask for payments.
Like pay walls, this innovation has been under discussion for years, peaking in early 2009, when American news executives joined Rupert Murdoch in decrying Google and a host of other aggregators for helping themselves to content. A successful path for NewsRight would position newspaper organizations to collect fees for their content both from their regular readers via digital subscriptions and from the huge and expanding aggregation sector.
Tablets, Mobile and Social Media
We noted in last year’s report a wave of excitement in the industry for the potential growth opportunities in smartphones and tablets. If anything, 2011 bolstered rosy predictions about consumer enthusiasm for these devices and their substantial use – among an array of choices – to access news reports.
The Newspaper Association of America offered the summary statistic in December that mobile traffic (tablet and phones) was up 65% in a year as measured by page views, comparing September 2011 to September 2010.11 A Pew Research/Economist study on tablets, released in October, found that the 20% of tablet readers surveyed who use news apps typically go directly to a news organization’s app (as opposed to accessing the content through a browser). More than a quarter of the tablet readers exhibit some willingness to pay for their favorite app news sources.12
Another Pew study, in January 2012, confirmed that tablets (such as Kindle Fire and the iPad) had huge sales during the holiday shopping season, growing in ownership among adults in the U.S. roughly 50% since the summer of 2011, from 12% to 18%.13 Amazon announced that it was selling a million Kindles per week worldwide during the holiday season. So, earlier forecasts of a super-fast adoption curve remain on track.
But the qualifier here for newspaper organizations is a familiar one – will they be able to monetize the new platforms? With the exception of e-reader editions, most news to smartphones or tablets remains free or included in bundled subscription offers to print subscribers.
And mobile advertising – estimated at $1.45 billion in 2011 and expected to almost double in 2012—may again not connect up strongly with news content, as has proved the case on the web.14 Another AP initiative, iCircular, offers the equivalent of preprint inserts in a mobile format. And shopping apps from individual newspaper organizations attempt to carve out a share of that very popular use of the devices. But do consumers need the middleman of a newspaper organization to plan their shopping or make price comparisons on intended purchases? They may simply turn instead to Amazon, the shopping sites of the stores themselves or verticals like Yelp for restaurants.
Probably even more of a challenge, mobile advertising is a growth target for Google in 2012. Analysts estimated in January that Google will receive $4 billion to $6 billion in mobile ad revenues worldwide this year.15
In the more modest domain of video advertising, pre-rolls and other video ads have been available on newspaper websites for five years. But the $300 million in local video advertising revenues those organizations booked in 2011, according to analyst Gordon Borrell, is only an eighth of the total. The field is dominated by digital-only enterprises, principally YouTube, and by “pure play” advertorials or targeted electronic classifieds for jobs or cars.16
Social media and e-readers are parallel cases. Newspaper organizations have cranked up their Twitter and Facebook efforts, finding social media both a means to drive traffic to their stories and a reporting resource to find sources quickly during breaking news events. E-reader editions bring in some subscription revenues, and the rising popularity of longer format minibooks may bring publishing opportunity for salable storytelling. As yet, though, neither social media nor e-readers are a revenue difference-maker. And Facebook is already booking 14% of all internet display ads.17
Alternative Revenue From Freestanding Businesses
Another bright spot for newspapers in 2011 has been the growth of freestanding affiliated businesses, some digital, others not. As we have reported the last several years, the industry has sorted itself out, with many newspapers shutting down their presses and outsourcing printing and those retaining presses viewing outside print jobs as a profit center. The Dallas Morning News now gets almost 10% of its revenue from contract printing, according to publisher Jim Moroney.18
The Washington Post has developed successful events and newsletter businesses over the last two years. Each is free to participants or readers but draws sponsorships from organizations trying to reach a targeted audience. The Post also has launched a social media agency and a Facebook social reader (showing what your friends are reading). Both events and social media advice are gaining momentum at other papers. But the modest added profits are helpful rather than game-changing.
An earlier PEJ study on newspaper economics found that almost half the newspapers that provided data reported trying to develop some form of nontraditional revenue. The most common effort involved functioning as online consultants for local merchants, helping with everything from search engine optimization to building websites. In most cases, this was producing relatively modest revenue, but there were some papers and companies who were seeing significant success.
Gannett has made a long string of digital acquisitions over the last decade, some hits others not. Most recently it bought Fantasy Sports Ventures in late January, a network that is the nation’s fifth-largest sports website and an addition to USA Today’s already strong presence in the lucrative online sports field.
Some older ventures have also fared well. Gannett, Tribune and McClatchy, for instance, own CareerBuilder, which now has a larger volume of U.S. employment listings in the reviving recruitment market than Monster. That gives the companies a valuable stake in a growing company should they ever wish to sell it, plus a share of CareerBuilder ads on their websites and dividends they can use to reinvest, pay down debt or any other purpose
McClatchy CEO Pruitt told an investors meeting in December that the company expected to receive almost $30 million in such payments from its stakes in CareerBuilder and similar national online car and real estate classified businesses.19 That income does not appear in the company’s report of operating results. Nor does the Newspaper Association of America yet attempt to measure “other” income in its industry statistical profile. So this modest but increasing element of recovery for newspapers has remained largely unnoticed.
Unfortunately, digital ventures are subject to their own ups and downs. The New York Times Company’s About.com and similar smaller services, such as Media General’s DealTaker, experienced sharp declines in traffic after Google revised its search algorithm early in 2011, making it harder for such sites to game the system and end up in the first page of rankings.
The Rise and Semi-Fall of Discount Programs
One other major development of 2011 was the popularity of discount programs such as Groupon. We wrote in last year’s report about Groupon’s meteoric rise, its deal-of-the-day offers giving an assortment of local businesses a potent tool for attracting new customers. In the process, Groupon sucked away a portion of local merchants’ ad budgets that used to go to newspapers and their websites.
As some analysts had expected, Groupon’s growth rate in the U.S. slowed substantially in 2011. With questions about some of its accounting practices (treating marketing costs as if they could be allocated to future fiscal years), its initial public offering of stock in November was not the runaway success the company had hoped.
The industry scrambled to create its own deal-of-the-day clones, such as Gannett’s DealChicken and McClatchy’s service called dealsaver, and found the basic formula easy to replicate, even for a single paper unaffiliated with a chain. So a worst-case scenario was averted, but newspaper organizations did not gain back a big share of what they lost in 2010 to Groupon and the other big national service, Living Social, also a young privately owned company.
While 2011 turned out to be yet another disappointing year financially for newspapers, some of their most noteworthy direct competitors experienced reverses as well. Patch, AOL’s network of 863 hyperlocal sites, has seen little sign of advertising success and dim prospects going forward. Expansion into new markets leveled off in 2011 and there were cost trims continuing into 2012, both pulling back on full-time hires and reducing freelance budgets.20 But even stalled, Patch has continued to baffle analysts. Between salespeople on the street and enough advertiser-friendly content like event listings and restaurant reviews, it has been a factor for newspapers in the suburban communities where AOL has focused its effort.
Also, as we and others have predicted, some of the independent, mostly nonprofit local news websites experienced setbacks as their initial foundation and benefactor launch-funding ran out. Both Voice of San Diego and the Center for Public Integrity began 2012 with layoffs. San Francisco Bay Citizen’s angel, financier Warren Hellman, died in December 2011 and the operation is being merged with the Center for Investigative Reporting. The Chicago News Cooperative, which like Bay Citizen had contributed regional content to The New York Times, ran out of money and ceased operations in February 2012.
Once again, though, this sector is not going away and many of the sites look to be sustainable if unlikely to expand greatly.
But looking just at news competitors like Patch or a vigorous independent news site like MinnPost or the mass of localized special interest sites is far too narrow a frame of reference. Aggregators, including such tablet start-ups as Zite and Flipboard appear to be booming as news content creators struggle – a central point of a talk on the state of the digital business The New York Times’ Martin Nisenholtz presented to the Newspaper Association of America’s MediaXChange convention in March 2011.21
And the most frightening competitors, as discussed in the overview are the biggest of the big guys, such as Apple and Google. Apple typically regulates the terms of service, captures the customer data and takes a healthy cut of subscription revenues. Besides the crushing force of search advertising, Google can afford an endless series of acquisitions (more than 100 in the last decade, according to Wikipedia’s count) and niche product launches. Google and Apple can put much more money in and move more quickly at promising new revenue possibilities than the newspaper industry can hope to match. And there is no sign that this imbalance will end. Moreover, to the extent that the core business of these new digital giants is consumer data, which they can use to target advertising, no content producer can compete with how much they know about their users.
That makes what happened in 2011 with some core elements of newspapers worth more detail:
Print and Digital Advertising
For print advertising, the losses were fairly equally distributed. National was down 10.5% for the year, classified 11% and retail (a larger category than the other two combined) 8%. Many executives said that the first sign of a disappointing year was the decision by telecoms and some other advertisers during the first quarter of 2011 to cancel schedules in nearly all papers save those with nationwide circulation base.22
As we have written in previous reports, classified has been the leading edge of print losses, shrinking to about 25% of what it was in 2000. The 11% loss in 2011 was comparatively less bruising than that in some recent years. Among classified categories, recruitment (the smallest) nearly held even, down 1.6%, reflecting improving demand for some professions – nurses and computer specialists, for example – in some parts of the country. Auto was down 10.7%, real estate 19.8% and “other” (now the largest category, including legal notices and paid obituaries) 10%. Further economic recovery could help all three.23
Retail includes preprinted inserts, which remain popular with chains like Target and Best Buy even as they ramp up a variety of digital marketing channels. A comparatively strong start to the holiday shopping season helped, although more and more of the buying is by computer rather than in stores.
The publicly traded companies are not forecasting a 2012 turnaround, typically budgeting for print sales to be off 6% or so for the year, according to their reports at a December investors’ conference.24 A number of fourth-quarter announcements of layoffs, wage freezes, furloughs and internal cost-reduction task forces suggests that the intense pressure to do more with less while finding some money for new efforts is probably industry-wide.
The bigger issue, as noted above, is that the gains in digital advertising, up again 6.8% in 2011 after 10.9% in 2010, falls well short of the breakthrough the industry needs. All U.S. digital advertising, by comparison, was up 23% year-to-year in the third quarter of 2011. So not only are newspapers not growing fast enough online, but they also are falling behind other digital players.25
Ken Doctor, an analyst focused on digital transformation, noted in a year-end summary that newspapers have little presence in search or in ads priced by performance (as opposed to by impressions), thus missing the biggest digital categories surging for the last decade. They are not yet well positioned in the smaller, but fast-growing, video advertising sector.
“In all the areas of growth,” Doctor concluded, “news and magazine publishers are weakest. Despite uneven digital ad results reported by newspaper and magazine companies, it’s not that the money isn’t there — they just haven’t transitioned their businesses enough to compete for it.”26
We hear some promising ideas listening in on industry conferences about building digital ad revenues. Reintroducing an element of scarcity can help. For instance, the Arizona Daily Star in Tucson has created “GreenTag Tuesdays,” a display of a set number of discount offers (in print but with scanable-to-mobile QR-codes), a sort of juiced-up bargain-of-the-day. Asking merchants to reserve early to avoid being left out helps drive sales, according to publisher John Humenik.27
On a bigger scale, The New York Times and others sell home page “takeovers” – ad packages, often including video, which are the only message to appear on the first screen. These command huge premiums compared to the depressed rates for run-of-the-site display.
Some sales strategists recommend pulling back on or eliminating so-called remnant advertising to networks, an arrangement so prevalent that many advertisers wait for those deep discounts rather than placing schedules at stated rates.
Debate continues on how to rebuild an ad sales staff to maximize digital results. Consultant Gordon Borrell and Clark Gilbert, a former Harvard Business School professor now running Deseret Digital Media and the Deseret News in Utah, believe that hiring a separate corps of digital specialists leads to much greater ad volume. But many newspaper organizations are still trying to improve sales by retraining staff and juggling incentives, which for years had sales people earning bigger commissions by concentrating their effort on print.
In early 2011, the Newspaper Association of America enthusiastically backed a project, Making Measurement Make Sense, centered in the Interactive Advertising Bureau, to improve digital metrics both for measuring audience and ad effectiveness. Early in 2012, it remains a work only half completed, but it aims to develop a new set of standards accepted by both the advertising and publishing communities.
An interim comScore study connected with the project and released in January 2012 confirmed what ad buyers had long suspected, finding that nearly a third of online display ads are never seen, either because they have failed to load by the time a user moves on or are on second screens of the home page or a story the user does not reach.28
Borrell’s annual forecast contained a nugget of good news for newspaper organizations. Display growth is now keeping pace with search growth. Starting in 2006, newspapers lost share of local advertising dramatically to so-called pure plays, digital-only sites like Google or Monster, many of them with no news content. But in 2011, their growth rate stayed even and will grow faster than the pure plays in 2012, Borrell predicts.29
Circulation Numbers and Revenue
This has been the year in which the audit rules are changing and circulation totals cannot validly be compared to those of previous years. The first apples-to-apples comparison will come from the Audit Bureau of Circulations six-month period ending March 31 and released roughly May 1.
Even without strict comparability, though, the trend is clear. Daily print circulation continued to decline in 2011, though at a rate perhaps only half as bad as the worst of the last decade – under 5% rather than the peak of nearly 10%. Sunday circulation industry-wide is probably down slightly, though many individual papers have shown growth. As noted in earlier reports some of the circulation losses over time can be traced to price increases and voluntarily discontinuing service to remote areas.
While ABC is not making year-to-year comparisons, a number of the public companies keep their own figures, typically reporting a loss in the low and mid-single digits at year’s end. ABC’s total circulation (print and digital) among roughly 650 audited organizations for the six-month period ending September 30, 2011 was 33.4 million daily and 38.6 million Sunday. That contrasts with 34.0 million daily and 38.2 million Sunday in 2010.30 Those changes are relatively small and may reflect slightly more lenient rules.
Nor did the new rules lead to wide swings in the totals for individual papers or the ranking of the top papers in circulation (see data section for details).
Adding an estimate for unaudited papers, most of them smaller, and drawing on apples-to-apples reports by some companies, we calculate circulation losses for the year of 4% daily and 1% Sunday and total industry circulation at 41.7 million daily and 43.7 million Sunday for 2011.31
By another measure, the most recent Pew Research Center news consumption survey in 2010 reported that 37% of adult Americans said that they read some form of the newspaper “yesterday.” This was down from 39% in 2008 and 43% in 2006.32
The continuing declines weaken what newspapers can charge for advertising. By raising prices, newspapers have kept circulation revenue relatively steady, even as the numbers continue to fall. Statistics from the Newspaper Association of America show circulation revenue in 1997 and 2009 (the most recent year measured) identical at $10.1 billion. It probably has fallen some since. Paid circulation, by contrast, declined 22.5% in the same 12 years from 60.5 million to 46.9 million.33
The new ABC rules allow subscriptions to count as paid if the user pays as little as a penny a day. But it is unclear whether newspaper organizations are making heavier use of deeply discounted trial subscriptions. If so, that would bring down circulation revenue for the last two years not yet measured industry-wide.
However, as we have indicated in earlier editions of this report, many metro papers voluntarily shed paid circulation in remote areas. They have also economized during the continuing decline by spending less on selling new “starts,” or attempts to build circulation. Better to deliver advertisers to a smaller number of mostly loyal readers, the thinking goes, than an inflated number with a lot of churn.
The reports of publicly traded companies suggest small year-to-year circulation revenue losses in 2011 but no big swing to cut-rate distribution.
The coming of pay walls and bundled subscriptions complicates measuring total paid circulation. An important feature, some would say loophole, of the new Audit Bureau of Circulations rules is that subscriptions (or single copy buys) by the same person on an additional platform counts as added circulation. It is the same principle as if you are a home subscriber but buy another copy at a newsstand or on an e-reader.
For bundled subscriptions a household that spends a couple of dollars more a month for online access is counted as two subscriptions. In a free access monthly package, each additional platform can count as additional paid copy but only if the reader uses it a minimum number of times in a month.
Decisions on ad placements critically depend on valid metrics of audience. And while the Audit Bureau of Circulations totals are in transition, measurements of total digital audience, most of it online and mobile visitors who come for free, have always been weak and remain so. The two most frequent metrics – unique monthly visitors and page views – do indicate some sense of traffic growth and the relative strength of different sites. Varying methodologies yield very different results. Also, the large share of visitors who come only once or twice a month via search or a link and then leave quickly has earned the dismissive nickname of “drive-by traffic.” It is of minimal use to advertisers. In addition, page view totals can be manipulated by site design or by “refreshing” frequently.
The industry still has not developed convincing measures of the much smaller number of regular readers and how their buying behavior is influenced by the online ads they see. A PEJ analysis using Nielsen data from fall 2010, found that, on average, only 7% of users of the top news sites are “power users,” meaning they visit a given site more than ten times per month.”34 Some argue that the move toward requiring digital subscriptions of those heavier users will identify many in that group and support higher ad rates for placements targeting just the paid portion of monthly traffic.
Imprecisely measured or not, however, digital audiences are growing, newspaper websites are typically the best trafficked in a city and total audience reach is staying steady. David Boardman, executive editor of The Seattle Times, for example, noted that both unique monthly visitors and page views at his site had tripled since 2006.35
By the available measures, the industry’s 2011 digital audience performance was mixed. For December 2011, the most recent month measured by the Newspaper Association of America, unique visitors were up by about 7.4% year-to-year, but time per visit was down 5.4% and page views were down about 2%. Perhaps the page view decrease is related to the beginning of pay walls.36
Profits and Stock Price
When it came to profits, newspapers did slightly worse in 2011 than they had the previous year. Operating margins are often quite healthy, in the mid-teens. But for a great many individual papers and chains, interest payments, pension obligations, taxes and special charges bring the net earnings down to a token amount. Gannett, often a leader in profitability, recorded an 8.8% margin for the year, The New York Times Co. a loss of 1% and McClatchy a 4.3% margin.37 The industry-wide average, according to several analysts we polled and reported company results, remains at roughly 5% net.
Under current circumstances, however, it could be argued that straining to turn a profit is not the best strategy. The Washington Post’s publishing division and A.H. Belo’s three papers both operated at a either a loss or break even for the year. Neither company has substantial debt. Rather, they had the option of investing in developing new revenues rather than dropping more to the bottom line, as McClatchy and others have done for several years now to manage their debt burden.
Amid all these challenges, Wall Street remains lukewarm on the industry. Share prices rallied some in the course of 2010 while remaining far below the values of the mid 2000s before the advertising collapse of 2007 to 2009. For 2011, though, most were down in the range of 10% to 25%.38
The news was more encouraging in acquisitions. After years of almost no transactions, except through bankruptcy organizations, a thaw materialized, especially near the end of the year. The merger and acquisition broker Dirks, Van Essen & Murray counted 71 individual papers changing hands in 2011 compared to just 13 in 2010.39
There were several different dynamics at play that helped explain the increased activity:
- Many small and mid-sized papers have less digital or TV competition and remain dominant with readers and local advertisers. Optimists – and buyers are usually optimists – may view them as stable and profitable. Small chains and some retired publishing executives are among the buyers.
- Some wealthy local buyers emerged. Those included Warren Buffett buying his hometown Omaha World Herald for $200 million and San Diego hotel mogul Doug Manchester buying The Union-Tribune for $110 million from Platinum Equity, which had acquired the paper just two years earlier from the Copley family for less than $50 million.40
- The prices are modest compared to those prevailing in the middle of the last decade. A number of the properties – The Union-Tribune is a good example – come with valuable real estate.
- Probably the biggest transaction was the sale of The New York Times’ 19-paper regional group for $143 million to Halifax Media Holdings, a company formed two years ago to buy The Daytona Beach News-Journal.41 The Times had assembled the papers and run them at high profit margins in the 1970s and 1980s to balance out business ups and downs at its flagship paper. Lately, the regional group was shedding revenue faster than The New York Times itself, moreover, so the company chose to exit and invest the proceeds in digital development.
- Political agendas may emerge as a factor. Both Halifax and San Diego’s Manchester have indicated they want their papers to have a pro-business, pro-development tone editorially.
Private equity firms remain an important ownership force as they buy out bank creditors at reduced prices and bring organizations out of bankruptcy. Since executives of these firms tend to say little or nothing publicly, it is hard to discern a general strategy. They do tend to take an aggressive approach to digital transition.
The most high-profile case has been CEO John Paton, backed by Alden Global Capital, pursuing a “digital first” strategy at the Journal Register papers. The company spun off a separate management arm, Digital First. It has been given control of MediaNews, the much-larger company built by William Dean Singleton, which Alden acquired in 2011 when the company was in bankruptcy reorganization.
By digital first, Paton means encouraging the news staff, with heavy community involvement, to focus on breaking news and developing other content for various digital platforms. Producing the print newspaper becomes the last step in the cycle. Similarly, advertising sales staffs are directed to emphasize increasing digital ad sales with the best compensation going to those who meet ambitious growth targets.
The biggest of the private equity takeovers is yet to come when the Tribune Company bankruptcy proceedings, now in their fourth year, conclude. After many delays, it remains uncertain whether a final plan will be chosen by the end of 2012. Alden has been a member of the incoming investor group, but not its leader.
Tribune, with TV holdings as well as major newspapers, including The Chicago Tribune and The Los Angeles Times, has been run by a management committee headed by former Los Angeles Times publisher Eddy Hartenstein. According to bankruptcy filings, the company is running profitably, and it seems to be pursuing a typical agenda of cost cutting and digital initiatives rather than delaying action until the new owners take over.42
Unexpectedly, Alden and Angelo Gordon, a second private equity company, indicated at the end of January that they wanted out of their lead investment in the Philadelphia Media Network, which owns The Inquirer and the Daily News. A local group led by Edward Rendell, a former mayor of Philadelphia and a former governor of Pennsylvania, emerged as a likely buyer.
Media General announced in late February that it plans to sell some of its newspapers.
More Rounds of Cost Cutting
Private equity takeovers typically involve rounds of layoffs and other cost cutting, but more traditional companies also continue to rely on slashing expenses to break even or turn a profit as print ad revenue declines continue.
More and more companies have gotten rid of their printing presses and outsource production of the print edition. Some of these arrangements lead to earlier deadlines and later delivery, but they save substantially on labor costs.
As staffs shrink, newspaper organizations also find themselves with more office space than they need and sometimes rather grand downtown buildings for their current scale of operations. So a wave of building sales and moves to smaller rented quarters continues. The Philadelphia Media Network has sold its white tower that houses The Inquirer and The Daily News, and are scheduled to move the papers into a former department store in July. The Miami Herald sold its showcase building on Biscayne Bay (once Knight Ridder corporate headquarters) to an Asian casino developer. The Herald will be moving to space near the Miami airport.
On the cost front, newspapers caught a break in 2011 as newsprint prices leveled in midyear and the volume of paper used continued to fall. Managements continue to press for concessions on work rules and benefits at unionized papers. And such cost-saving tactics as furloughs and salary freezes or reductions continue to be common, though perhaps not as prevalent as in 2009 and 2010.
This section updated April 11, 2012.
Then there are cuts targeting newsroom costs particularly. Most common, continuing a trend started in 2010 and 2011, is for chains to consolidate copy editing and page layout at a few central facilities (the Associated Press has made a similar change in its regional and state reports). This year will see more of the same, with the result that comparatively few chain-owned papers will tailor a national and international report to their communities or lay out most of the pages readers see.
In 2011 and early 2012, there were fresh rounds of cuts at a number of papers, including small buyout programs at The Washington Post and The New York Times. Estimating total newsroom employment is tricky, however, because there may be hiring of technologists and other digital specialists at an organization where editors and reporters are being let go.
The American Society of News Editors employment census, released in April 2012, counted a loss of 1,000 full-time newsroom jobs in 2011, a decline of 2.4%..43
Higher revenue hopes for 2011 never materialized and during budget planning in the fall, 2012 looked like another year of net revenue losses. Some organizations put in another round of cuts. The Tampa Tribune, for example, eliminated 29 newsroom jobs midyear and 165 more throughout the newspaper and its website in December.44
And the layoffs have continued in the first quarter of 2012.
The losses leave 40,600 news professionals at newspapers, according to ASNE, down about 28% from its peak at the turn of the century.45
An exception to overall shrinking staffing levels is the financial, political and wire service sector. Reuters and Bloomberg have been expanding, not only adding positions but also hiring away stars from other organizations. National Journal, Politico, the Huffington Post and The Atlantic are other multiplatform organizations that are healthy and growing.
Add in those working at smaller online startups (ASNE counted about 500 such jobs in the most recent census), and it appears that several thousand of jobs lost in newspaper organizations have migrated to other journalism enterprises rather than disappearing entirely.
Making new observations on where the staff cuts have damaged newspapers during the last year is difficult. But the longer-term trends we have noted before include much less coverage of government in suburbs or remote cities, pulling back on state government coverage, the decimation of specialty beats like science and religion, fewer feature stories and elimination of many weekday feature sections, a smaller business report, typically not a freestanding section anymore.
A report prepared for the Federal Communication Commission and released in June 2011 documented these reporting losses and concluded, “In very real ways, the dramatic newspaper-industry cutbacks appear to have caused genuine harm to American citizens and local communities.”46
In our report last year, we quoted media economist Robert Picard’s finding that wage levels, beyond the top tier of organizations, are falling and will continue to fall and that a gradual “de-skilling” of journalism is in progress. That is still a concern. And fast-growing “content farms” such as Demand Media, which produce cheap, generic freelance content, had reverses of their own in 2011. Changes in Google’s search-ranking algorithm gave this work less prominent play, so it seems less likely than before to supplant the work of professionals.
The bottom line for newsrooms is twofold. Many now produce skimpy papers several days a week. Analysts and some in management have begun to talk openly, as we have for years, about whether the cutting has gone as far as it can and still allow organizations to produce substantial report every day in print and on digital platform.
Booth Newspapers, a Michigan chain owned by Advance, eliminated at least some daily home-delivered editions at The Grand Rapids Press and its other papers in mid-2011.47 Since the two Detroit papers cut back to three days a week of home delivery several years ago, this means that only a minority of readers in Michigan can now get a hometown daily delivered seven times a week. Relatively few other papers have made similar cutbacks – at least not yet.
But more and more insiders believe this is the future, if not in 2012, then sometime this decade. Reducing the cost of printing and delivering the newspaper on the days when the print paper contains less advertising could be a way to capture some of the savings of digital while maintaining the high revenue of print — a version of having it both ways. Dissenters say that newspaper organizations should think twice before cutting off loyal seven-day print subscribers, in effect encouraging them to get their news elsewhere some weekdays.
The second reality for editors and reporters is that their efforts may be spread over as many as five or six platforms. Facebook and Twitter clearly promote content distribution and enhance reporting on fast-breaking stories. The multitasking, multiplatform journalist may thus feel energized and empowered. Older newsroom hands may instead feel pulled in many directions in a confusing way and end up frustrated, especially since the payoff in business improvement or stability has been so long in coming.
All of this relates to the central issue of financial transition — getting digital gains much closer to making up for print revenue losses (a metric first proposed by French analyst Frédéric Filloux).48 In early 2005, Rick Edmonds of the Poynter Institute, the co-author of this chapter on newspapers, ran some projections that suggested that digital ad revenues would not equal those from print until roughly 2017.49 Assumptions have changed, and the advertising crash of 2007-09 intervened.
But if digital revenues (even including revenues from digital subscriptions and side ventures) were to double their growth rate to 20% a year and print falls 10% yearly, the lines would still be $1 billion from crossing in 2017. Getting through those six years will take more than just patience, however. And the industry would be smaller still than it is today, and much smaller than in 2005. Optimists might argue that individual papers and the industry could run profitably with smaller revenues as many do now. But shrinking revenues nonetheless mean fewer journalists covering the news.
There remains the chance that the exodus of print readers and advertisers will accelerate to some sort of tipping point before newspaper organizations get their act together with digital subscription and ad revenues in enough volume to make for a viable business.
John Paton’s Digital First adventure, just beginning to take root at the larger Media News chain, remains admired and closely watched. He has backed his rhetoric with action, for instance hiring former Washington Post online editor Jim Brady as the group’s editorial director.
But as a private company, Journal Register “releases only selective snippets of data indicating progress” as newspaper analyst Ken Doctor has noted, too little financial information to confirm a path to business success.50 And both Journal Register and Clark Gilbert’s Deseret News cranked up rapid digital change with failing newspaper franchises, easy to set on the back of the stove. That makes less sense for organizations with stronger print franchises.
Other publishers and company executives favor a more balanced approach, thinking that the longevity of a strong print product can be extended for many years with the right news effort and management. That does not equate to a vote for more of the same. Attachment to daily news routines or old sales and circulation department cultures stands squarely in the way of progress on the digital side. And some organizations seem all but paralyzed by the scope of the changes required.
If some editors and publishers with five years or more in the transformation trenches are burning out, and they do seem to be, that begs the question of what will be the next generation’s skill set and relevant experience? Along the way, newspapers, whatever balance they strike, are getting more serious about identifying and building the elements of an innovation business culture, not just invoking innovation as a mantra. At the same time, they have lost a lot of time. Returning to the baseball game metaphor we cited at the start of this essay: if this is the 19th inning, as McClatchy’s Gary Pruitt suggested, 2012 could prove to be more of the same – but extra inning games have a way of ending quickly.
Continue reading Newspapers: By the Numbers
- Newspaper Association of America. Trends and Numbers. ↩
- Adams, Russell. “Newspapers Edit Down Outlook.” Wall Street Journal. Aug. 22, 2011. ↩
- Newspaper Association of America. Trends and Numbers. ↩
- Yahoo Finance. ↩
- Shadunsky, Alex. “Newspaper Stocks Deserve Another Look As Fundamentals Improve.” Seeking Alpha. Dec. 28, 2011. ↩
- News and Tech. “Papers With Digital Subscriber Plans/Paywalls.” Jan. 11, 2012. ↩
- Healy, Beth. “N.Y. Times Co. Reports Profit Drop.” Boston Globe. Feb. 3, 2012. ↩
- Peters, Jeremy W. “Times Co. Reports a Profit, Aided by Digital Subscribers.” The New York Times. Oct. 20, 2011. ↩
- Moozakis, Chuck. News and Tech. Email to co-author Edmonds. Feb. 24, 2012. ↩
- Kramer, Staci D. “NewsRight Launches with 29 Publishers.” Paid Content. Jan. 5, 2012. ↩
- Newspaper Association of America. Trends and Numbers. ↩
- Project for Excellence in Journalism. “How People Use Tablets and What it Means for the Future of News.” Oct. 25, 2011. ↩
- PEJ Mobile Survey. Jan. 2012. ↩
- E-Marketer. “New Forecast: U.S. Mobile Ad Spending Soars Past Expectations.” Jan. 12, 2012. ↩
- Schonfeld, Erich. “Cowen: Google Mobile Ad Revenues Could Surge to $5.8 Billion in 2012.” TechCrunch. Jan. 21, 2012. ↩
- Borrell, ordon. “Budgeting for 2012.” Borrell Associates. Nov. 2011. ↩
- Frankel, David. “Report: Facebook, Google Overtakes Yahoo in Display Market Share.” Paid Content. Feb. 22, 2012. ↩
- Moozakis, Chuck. “One on One – Jim Moroney, A.H. Belo Corp.” News & Tech. June 30, 2011. ↩
- Edmonds, Rick. “5 Hopeful Takeaways from Annual UBS Media Investment Conference.” Poynter. Dec. 12, 2011. ↩
- Mangalindan, J.P. “AOL May Never Be Able to Patch up Patch.” Fortune. Feb. 15, 2012. ↩
- Cropper, Carol Marie. “Nisenholtz: Papers’ Content Not To Be Stolen.” NetNewsCheck. March 28, 2011. ↩
- Newspaper Association of America. Trends and Numbers. ↩
- Newspaper Association of America. Trends and Numbers. ↩
- Various company reports. UBS Media Investment Conference. Dec. 8-10, 2012. ↩
- MarkingCharts.com. “US Online Ad Spend to Grow 23.3% in 2012.” Dec. 5, 2012. ↩
- Doctor, Ken. “The Newsonomics of 2012’s Magic Formula.” Nieman Journalism Lab. Dec. 19, 2011. ↩
- Humenik, John. Presentation at Key Executives Conference. St. Petersburg, Fla. Feb. 22, 2011. ↩
- comScore press release. “comScore Introduces Validated Campaign Essentials.” Jan. 18, 2012. ↩
- Borrell, Gordon. “Budgeting for 2012.” Borrell Associates. Nov. 2011. ↩
- Audit Bureau of Circulations. Email to co-author Edmonds. Jan. 9, 2012. ↩
- Rick Edmonds’ estimate based on various company earnings reports, Jan. and Feb. 2012. ↩
- Pew Research Center for the People & the Press. “Americans Spend More Time Following the News.” Sept. 12, 2010. ↩
- Newspaper Association of America. Trends and Numbers. 2010 and 2011 numbers are Rick Edmonds’ estimates. ↩
- Olmstead, Kenny; Mitchell, Amy and Rosenstiel, Tom. “Navigating News Online.” PEJ. May 9, 2011. ↩
- Boardman, David. Email to co-author Edmonds. Feb. 23, 2012. ↩
- Newspaper Association of America. Trends and Numbers. ↩
- Fourth quarter and full year earnings releases. Jan. and Feb. 2012. ↩
- Yahoo Finance. ↩
- Dirks, Van Essen & Murray. “4th Quarter 2011.” Dec. 31, 2012. ↩
- Hamilton, Walter; Hsu, Tiffany and Perry Tony. “Developer Buys San Diego Paper.” Los Angeles Times. Nov. 18, 2011. ↩
- Dirks, Van Essen & Murray. “4th Quarter 2011.” Dec. 31, 2012. ↩
- Sass, Erik. “Tribune Bankruptcy Battle Continues.” Media Daily News. Jan. 13. 2012. ↩
- Edmonds, Rick. “ASNE Newsroom Census Reflects Decline in Traditional Jobs, Growth Online.” Poynter. May 5, 2011. ↩
- Mullins, Richard. “165 Layoffs Underway at Tampa Tribune, Sister Papers.” Tampa Tribune. Dec. 13, 2011. ↩
- American Society of News Editors. “Total and Minority Newsroom Employment Declines in 2011 but Loss Continues to Stabilize.” ASNE.org. April 4, 2012. ↩
- Waldman, Steven. “The Information Needs of Communities.” Federal Communications Commission. June 9, 2011. ↩
- Hoagland, Julie. “New Company, MLive Media Group, Formed to Carry Booth Newspapers, MLive.com to the Next Era of News.” The Grand Rapids Press. Nov. 2, 2011. ↩
- Filloux, Frédéric. “The Publisher’s Dilemma.” Monday Note. Feb. 27, 2011. ↩
- Edmonds, Rick. “An Online Rescue for Newspapers?” Poynter. Jan. 27, 2005. ↩
- Doctor, Ken. “The Newsonomics of Anton Chekhov.” Nieman Journalism Lab. Nov. 10, 2011. ↩