Posted on 05/14/2009 6:43:56 AM PDT by Zakeet
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:
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.
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.
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.
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.
Much more HERE.
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