Posted on 07/19/2008 7:59:10 AM PDT by Ogie Oglethorpe
Bridging the Abyss
Why a lot of newspapers aren’t going to survive
By Charles Layton Charles Layton (charlesmary@hotmail.com) is an AJR senior contributing writer.
Mark Potts is a consultant, based in Washington, D.C., who hires out to newspaper Web sites, dotcoms and the like. He was a reporter and editor (Chicago Tribune, Washington Post, San Francisco Examiner) in the '70s and '80s, that golden age for newspapers before the Internet came along to spoil the party. Ad revenue — four-fifths of a daily paper's income — grew by double digits during many of those years.
Last summer, Potts and some friends were having the same conversation we all have now about the future of newspapers. Will they die out? Will they always be around but in a sad, vestigial form? Or, as the print paper shrivels, will its online counterpart finally pull in enough cash to keep the journalistic enterprise alive? And how long might that take?
Contemplating such questions, Potts imagined himself standing at the rim of a canyon, peering toward the other side where a magical world of online journalism — profitable online journalism — beckoned. "It sounds very Indiana Jones — standing on the cliff with this rickety wooden bridge across the chasm," he says.
But if our side of the chasm is the blighted world of print and the other side is our online salvation (see "Online Salvation?" December/ January), how do we get there? Where is that rickety bridge?
Potts found an answer in three small columns of numbers, which he published last fall on his blog in the form of a chart (see Scenario #1, below).
Scenario #1:
Future Newspaper Ad Revenue
YEAR PRINT ONLINE TOTAL
2007 $45.0 $3.5 $48.5
2008 $42.8 $4.2 $47.0
2009 $40.6 $5.0 $45.7
2010 $38.6 $6.0 $44.6
2011 $36.7 $7.3 $43.9
2012 $34.8 $8.7 $43.5
2013 $33.1 $10.5 $43.5
2014 $31.4 $12.5 $44.0
2015 $29.9 $15.0 $44.9
2016 $28.4 $18.1 $46.4
2017 $26.9 $21.7 $48.6
2018 $25.6 $26.0 $51.6
2019 $24.3 $31.2 $55.5
2020 $23.1 $37.2 $60.5
(Numbers in billions) Source: Mark Potts, at recoveringjournalist.com
At the time Potts made his chart, print ad revenue for newspapers was thought to be falling at about 5 percent per year, while online revenue was growing at nearly 20 percent per year. Potts simply extrapolated those percentages into future years.
His conclusions: By the year 2020 print ad revenue will be about half what it is today, and online ad revenue will be more than 10 times what it is today. The far right-hand column in Potts' chart combines earnings from both those sources. It shows total ad revenue falling and falling until 2012, staying flat in 2013 and then slowly turning around, as online growth equals and then surpasses the losses in print.
By this scenario, newspapers would be in for six more years of economic pain — continued cuts in staff, newshole and newsgathering resources — before they even start to turn a corner. (For Potts' own analysis, look up his blog, recoveringjournalist.com, and click on "Crossing the Chasm.")
Sadly, however, Potts seems to have overestimated the likely revenue gains from the Internet. No one expects online newspaper advertising to keep rising at a 20 percent clip. In fact, that 20 percent increase for 2007 (it turned out to be less than 19 percent, actually) represents a dramatic decline; online revenue had been growing by more than 30 percent in previous years.
As for Potts' assumption of only a 5 percent per year drop in print ad revenue, that seems wildly optimistic now. The actual rate of decline for 2007 turned out to be not 5 percent but 9.4 percent. Analysts expect something similar in 2008.
But the scariest problem — which Potts himself points out — is that many papers won't share in the online growth. There will be winners and losers. And even as the industry as a whole survives, we may begin seeing, pretty soon, big American cities with no daily newspaper.
"It's going to be really bloody, incredibly devastating," Potts predicts. "And I think there are going to be a lot of major metros that don't make it."
If this sounds like hyperventilation, consider the findings of a report by the Joan Shorenstein Center on the Press, Politics & Public Policy called "Creative Destruction: An Exploratory Look at News on the Internet." This report, published last August, examined trends in Internet-based news. One of its findings was that although readership of the Web sites of national "brand-name" papers (such as the New York Times and Washington Post) is increasing, that isn't the case for many other newspaper sites. Many, in fact, are losing ground.
"Unlike the brand-name sites, the typical site of a large-city daily is not growing," the report says. "The average traffic level in April 2007 was nearly identical to the level in April 2006."
And, says the report, newspaper sites in midsize cities had substantially fewer visitors in 2007 than in 2006. "Of the nine sites included in the average, two had modest growth, one had flat growth, and six had negative growth," the study says.
The study also sampled the Web sites of nine small-city dailies and found that they, too, were losing ground. "Although two of the nine sites we sampled had a traffic increase of 20 percent or more from the previous April, five sites suffered a decline, including one that lost 20 percent of its Web audience."
If newspapers' future is on the Internet, and many newspapers are losing rather than gaining Internet traffic, what does that mean? Mark Potts believes that the daily paper — whether in print or online — is simply losing its relevancy. "If a big newspaper in a metropolitan area dropped dead right now," he says, "nobody under 30 would care."
And this guy is a friend of newspapers.
Peter Appert of Goldman Sachs, who has been analyzing newspaper company stocks for 25 years, uses a more sophisticated method than Potts. He works with quarterly as well as yearly numbers and separates ad revenue into national, retail and classified. He believes national will continue to decline over time. "Retail is tricky," he says, "because the numbers are weak now," but he thinks this category won't plummet as dramatically as the others.
But classified advertising, which accounts for 30 percent to 40 percent of a newspaper's ad base, "may not exist in print at all at some future point," Appert says, "because from an advertiser's standpoint, the online alternative is a better way to reach your target audience." While papers have traditionally had a monopoly on classified ads in print, the competition is fierce online at such venues as craigslist.org, where most job postings are free, and Yahoo! and other sites where advertisers can focus on readers with specific interests, and at a cheaper rate than they have to pay for print ads.
So Appert agrees that the outlook is generally grim — so grim, he says, that some of his fellow stock analysts have turned away from newspapers as a specialty. Who wants to stake a career on a business with such poor prospects? Appert spends much of his own time analyzing non-newspaper firms — information service companies, electronic database companies and the like. "If I was covering only the newspaper industry, I would have to kill myself," he says.
His overall 2008 forecast for newspapers is this: Print will be down 9.3 percent, online up 10 percent and total ad revenue down 7.9 percent. "Frankly," he tells me, "I think people might say that my projections are not cautious enough."
Scenario #2:
Future Newspaper Ad Revenue
YEAR PRINT ONLINE TOTAL
2007 $42.2 $3.2 $45.4
2008 $38.3 $3.5 $41.8
2009 $34.7 $3.9 $38.6
2010 $31.5 $4.3 $35.8
2011 $28.6 $4.7 $33.3
2012 $25.9 $5.2 $31.1
2013 $23.5 $5.7 $29.2
2014 $21.3 $6.2 $27.5
2015 $19.3 $6.9 $26.2
2016 $17.5 $7.5 $25.0
2017 $15.9 $8.3 $24.2
2018 $14.4 $9.3 $23.7
2019 $13.1 $10.0 $23.1
2020 $11.9 $11.0 $22.9
(Numbers in billions) Source: Charles Layton, extrapolating from Newspaper Association of America revenue figures for 2007 and Goldman Sachs newspaper revenue percentage predictions for 2008.
If one plugs Appert's "not cautious enough" percentages into Potts' model and replaces Potts' revenue numbers with the actual numbers for 2007, as compiled by the Newspaper Association of America, the result is disaster. (See Scenario #2, right.) By this projection, print ad revenue for the newspaper industry would plunge from $42.2 billion in 2007 to $31.5 billion in 2010 to $19.3 billion in 2015, and on down from there.
Online revenue would rise from $3.2 billion in 2007 to $4.3 billion in 2010 to $6.9 billion in 2015 — not nearly enough to cover the stupendous losses in print.
This chart basically shows Potts' rickety bridge collapsing and dumping us into the chasm.
If you read analysts' reports on newspaper companies, you'll see frequent expressions of doubt as to how well newspapers' basic strategy — to become a hybrid print-and-online business — can work. For instance, of Gannett's 24 percent growth in online ad sales for 2006, stock analyst Tom Corbett of the investment research firm Morningstar wrote that "even with that growth, there's not much to convince us that revenue from Gannett's online advertising is enough to make up for the protracted decline in the sale of print ads." This, everyone acknowledges, is the crucial problem for newspaper companies. (See The Online Frontier, in AJR's June/July issue.)
So I thought I would try my hand at making a projection in the manner of Mark Potts. I decided to look at the Washington Post, because it is a leader in the transition to online news, with more visitors to its Web site than any other paper except the New York Times, but also because it is one of the few companies that clearly separates, in its annual report, its print and online ad revenue.
Scenario #3: Washington Post
Future Newspaper Ad Revenue
YEAR PRINT ONLINE TOTAL
2006 $573.20 $102.70 $675.90
2007 $496.20 $114.20 $610.40
2008 $431.69 $126.76 $558.45
2009 $375.57 $140.70 $516.27
2010 $326.75 $156.18 $482.93
2011 $284.27 $173.36 $457.63
2012 $247.32 $192.43 $439.75
2013 $215.17 $213.60 $428.77
2014 $187.20 $237.09 $424.29
Total Revenue Increase Begins
2015 $162.86 $263.17 $426.03
2016 $141.69 $292.12 $433.81
2017 $123.27 $324.25 $447.52
2018 $107.24 $359.92 $467.16
2019 $93.30 $399.51 $492.81
2020 $81.17 $443.46 $524.63
(Numbers in millions) Source: Charles Layton, extrapolating from figures in the Washington Post Co.'s 2007 annual report
The Post reported a 13 percent decline in print ad revenue for 2007 and an 11 percent increase in online revenue. So plotting that into the future, Scenario #3 (see right) gives us these results:
• The Post's total ad revenue would be 29 percent lower in 2010 than in 2006.
• By 2015, it would be 37 percent lower than in 2006.
• Online revenue wouldn't start to make up for the losses in print until 2015.
• Even after that, it would take many years for the total to get back to current levels.
In his introduction to the company's 2007 annual report, CEO and Chairman Donald E. Graham writes that an economically successful outcome for the Post in future years "is not at all certain, but we have a much greater opportunity than most newspapers do."
If Graham thinks the Post, with its online advantages, isn't certain to succeed, where does that leave the Los Angeles Times, with less than half as many Web site visitors as the Post, or the Miami Herald, with less than one-tenth as many?
Industry-wide, newspapers pull in 7 percent of their ad revenue from their Web sites. For the New York Times, the figure is 11 percent. The Post brings in 19 percent, partly because the paper, unlike most local dailies, is able to sell in the national as well as the local ad market.
Newspaper companies at the opposite end of the spectrum have a very long way to go.
As an economist for the Newspaper Association of America, Miles Groves was a notable presence in the newspaper game throughout the 1990s. He left the NAA in 1999, partly in frustration over the industry's failure to address the nascent challenge of the Internet and changing readership. Today he runs his own Washington, D.C.-based firm, MG Strategic Research, which advises businesses on research and marketing issues.
As early as the mid-'90s, Groves published research warning the newspaper industry of the growing challenge to its monopoly on classified advertising. "Newspapers had time to take control of the digital world and be the owner of that franchise," he says, "and we didn't do it."
Now, he thinks, "that opportunity has come and gone."
Groves can still see a future for small local newspapers — those with circulation under 25,000. And he thinks a few large ones with special advantages — the Post, the New York Times and some others — will make the transition to a digital news product, with print as a supplemental business. "But a lot of other major metros won't do that," he says. "Papers like the Chicago Tribune, the Boston Globe, the Dallas Morning News — some of them will make the transition to the digital world. Some of them will not."
So where will people get their news?
"What you'll see fill in the gap is more and more free distribution papers that will also have a digital tie-in. You'll see stronger growth of neighborhood weeklies in urban communities. I see a world where you're going to have a paper like the New York Times, with its digital piece, and then you get the local news elsewhere."
He mentions, as an example, the neighborhood blog Penn Quarter Living (pqliving.com) in Washington, D.C. "They're covering things like the arts, things going on in the neighborhood, or new restaurants or crime," he says. "You get these instant reviews going on, so you almost have to check it at least once a week. I don't think that experience is anywhere near unique.
"They don't have a revenue model because they don't need a revenue model. These are neighborhood volunteers. So how does a newspaper on a local-local level — which has always been its strength — compete against what's going on online?"
I had a similar conversation with Conrad Fink, a former journalist who teaches newspaper management at the University of Georgia. "The early hope that online growth would cover the losses of the print paper isn't coming true," he says. "Online revenue seems to be plateauing. There isn't that rapid growth anymore."
When I ask which of the major metro dailies might be the first to shut down, he immediately suggests the San Francisco Chronicle, which has been losing $60 million a year. He also thinks Tribune Co., with its crushing burden of debt, is "in jeopardy," although he finds it hard to imagine that the Chicago Tribune would ever just disappear.
Fink reels off a list of reasons why online advertising isn't paying off as it should for newspapers. To start with, many visitors to a newspaper's Web site are useless to local advertisers, because they don't live in the area. Fink cites the example of his own town, Athens, Georgia. The local paper, the Banner-Herald, draws a large number of online visitors, "but the publisher figures only 25 percent of those hits come from the Athens geographic market. Which is to say, 75 percent of the visitors to that Web site are of no relevance to local retailers. A national newspaper like the New York Times can sell those eyeballs to advertisers. Regional newspapers cannot."
Furthermore, consumers spend just seconds per visit to a newspaper Web site page. And, the ads on those pages are often intrusive and annoying in a way that print ads aren't.
Perhaps most of all, Fink laments the failure of newspapers to target specific customers — to say to the retailer, we'll deliver your ad to people who play tennis. "That kind of focusing isn't very strong in newspaper advertising," he says.
Fink can't understand why papers haven't copied some of Amazon.com's methods. "You call up a book on Amazon and you get names of books by the same author, and a list of other books you'd probably like if you like this one. Newspapers are nowhere near having that degree of sophistication on their Web sites."
For these reasons and more, he says, online ads are much cheaper than their print counterparts.
Which brings us back to Mark Potts and his rickety bridge.
When Potts posted his chart last fall, he didn't get as many negative comments as he might have expected. In fact, no one came forward to challenge his numbers. In fact, no one paid him that much attention at all. He tried to get his observations and his chart mentioned on Romenesko, but it wasn't picked up there — or much of anywhere.
In other words, the conversation Potts hoped to spark really didn't happen. Maybe people don't want to contemplate such unpleasant numbers.
A personal afterthought:
The dire predictions you have just read gave me no joy to compile and write. If these predictions are anywhere near true, it's hard to see how newspapers can keep supporting the kind of journalism that sustains a democracy. Clearly, we need smart, bold solutions — something that can shake the earth! — something beyond the knee-jerk bromides consultants have dished up since the 1980s. (Remember when shorter stories and fewer jumps off of page one were the answer?)
But however newspapers respond now, Conrad Fink tells me, "We're going to have to be damn fast about it. We're behind the curve now. We've been talking, talking, talking for years. I don't think we can delay any longer."
Senior contributing writer Charles Layton (charlesmary@hotmail.com), a former editor at the Philadelphia Inquirer, wrote about news organizations' use of online video in AJR's December/January issue.
And, of course, not one word of how people are no longer buying what they are selling due to their leftist lies and propaganda.
ping...
“If these predictions are anywhere near true, it’s hard to see how newspapers can keep supporting the kind of journalism that sustains a democracy.”
Then perhaps our Republic will survive. I’m giving long odds on that, too. But without an active fifth column with huge funding and influence, we may have a chance.
Ping.
LOL! These journalistic savants write this stuff about the demise of PIDS (Paper Information Distribution Systems - formerly called newspapers) like it is some sort of revelation. Had they been lurking here and following our Dinosaur Media DeathWatch™ threads they could have known all this two years ago.
That's their "blind spot".
That said, it can be very, very difficult coming to terms with the challenges of a full blown creative destruction trend. With all the money at stake, I'm sure they've hired some capable minds to tackle the problem.
I recall a story from some months back where a music business company -- I believe it was BMG -- brought in a number of young people from the metro London area to survey them about their musical tastes and interests.
After the day long session, they were invited to take as many CD's as they wanted from a large table piled high with products from various of their favorite bands. They all said "No Thanks" and left.
The execs were astonished, but quickly understood what had happened. This generation was completely beyond using CD's. Most likely, none of them even owned a CD player.
Since the execs highest profit business was CD distribution, they just witnessed, in graphic detail, the proverbial "writing on the wall".
Newspapers are like gays with AIDS.
They can experiment with expensive options/treatments.
They are only fooling themselves.
The financial condition of the fishwraps is terminal like the any patient with AIDS.
But, global warming will kill the Earth in only 10 years!
The problem with present day newspapers is that they don’t report the news in an unbiased manner. Plus what articles there are generally aren’t worth reading. And the eternal spin.
Indeed. Newspapers keep deluding themselves thinking it is the medium instead of the message. If I don’t want to read propaganda on paper why would I read it on a screen?
There, fixed that mistake. This is America, not Europe. It's the liberalism, stupid.
Soon the tuition for top J-schools will drop to my local town’s welding and HVAC academy, with a lot less use to society.
If the newspapers are smart, they will outsource everything. ESPECIALLY their editorial positions.
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