"When newspapers fold" - Financial Times - March 16 2009
The death of a modern newspaper is a real-time, multimedia event. When journalists on the Rocky Mountain News were summoned to their Denver newsroom on February 26 to be told they were working on their final edition, they relayed the announcement through live blogs, online videos, slide shows of tearful colleagues and a minute-by-minute stream of updates on Twitter. “It’s odd to cover your own funeral,” read one tweet.
Bad news about America’s newspapers is tumbling out too fast for their presses to keep up. The closure of “the Rocky” after 150 years capped a week in which the Journal Register Company and the 180-year-old Philadelphia Inquirer joined the owners of the Chicago Tribune and Minneapolis Star Tribune in bankruptcy proceedings.
Hearst is threatening to close the San Francisco Chronicle – and on Monday said it would make the Seattle Post-Intelligencer an online-only publication. Gannett, owner of USA Today, has followed The New York Times in slashing its dividend to preserve cash. Titles from the venerable Cincinnati Post to the six-year-old New York Sun have folded.
Obituaries for the news business are being written in newsrooms around the world as advertising revenues that long subsidised the cost of newsgathering shrink, just as digital media usurp print’s role as intermediary between advertisers and customers. The crisis is affecting not just newsprint: most news magazines, broadcast news outlets and newswires are also suffering.
Nowhere, however, has the impact been greater than in the US newspaper industry, where civic identity and an often monopolistic grip over local classified advertising had sustained an array of titles with journalistic resources envied by many national newspapers in other countries. Dwindling circulation and advertising are nothing new – but until recently the hope was that newspapers might be saved by private ownership or cost-saving roll-ups of titles under fewer, stronger corporate umbrellas.
The bankruptcies and closures prompted by a near one-third decline in advertising revenues since their 2005 peak have shattered those theories, leaving owners looking for new ideas. But what prospect is there of a solution when Barclays Capital predicts a further 21 per cent fall in newspaper advertising revenues this year alone?
A debate playing out in the pages of the properties it most concerns has focused on two new hopes: that charitable endowments may replace commercial business models and that readers who have grown accustomed to finding news for free online can be made to pay.
“Enlightened philanthropists must act now or watch a vital component of American democracy fade into irrelevance,” David Swensen and Michael Schmidt from Yale University’s endowment argued in The New York Times this year. The more than $200m (£143m, €155m) annual cost of its newsroom could be covered, they estimated, by a $5bn endowment that would guarantee its independence.
Extrapolating from Yale’s calculations, the Nieman Journalism Lab estimated that it might cost $114bn to subsidise every US paper.
Charitable models exist already: ProPublica, producing “investigative journalism in the public interest”, is supported by the Sandler Foundation and other trusts. MinnPost.com was set up in Minneapolis-St Paul with funding from local families and foundations.
Outside the US, the state is at times stepping in. France is injecting €600m ($776m, £554m) over three years by doubling government advertising in newspapers and offering tax breaks for publishers’ digital investments. UK local publishers are lobbying for looser competition rules to allow consolidation.
The idea of charitable or state assistance makes many uneasy. Subsidies could create unfair competition for commercial rivals. In any event, many endowments are already suffering market-driven declines. “The idea of charitable endowments is a bit of a red herring,” says Alan Mutter, a veteran newspaper editor who writes the influential Reflections of a Newsosaur blog.
Two prominent US newspapers are supposedly sheltered by not-for-profit parents, he says, but The Christian Science Monitor has abandoned its print edition and the Poynter Institute is selling the Congressional Quarterly to support its St Petersburg Times flagship: “There’s nothing about that form of ownership that insulates you.”
Instead, the notion of charging for news online is gathering momentum after a cover story by a self-confessed “old print junkie” in Time magazine. Walter Isaacson returned to the title where he was once managing editor to argue that news should no longer be free online.
Until now, only specialised news organisations such as the Wall Street Journal, the Financial Times and trade publications have succeeded in generating meaningful online subscription revenues. With online advertising growth stalling, Mr Isaacson wrote, general news outlets needed to create “an iTunes-easy method of micropayment”, offering their product for a nickel an article or a dime a day in the same way as Apple’s music store sells tracks and albums. Past attempts to charge for individual stories have gone nowhere, but his call came as many owners were concluding that their decision to chase online advertising rather than subscription revenues was not paying off.
Cablevision, the owner of Newsday, and Hearst, publisher of the Houston Chronicle, have both said they will start charging readers of their websites. Arthur Sulzberger, chairman of The New York Times, hinted last week that it would revive attempts to charge for content, 18 months after ending such an initiative. “We have renewed our analysis of how paid content can augment our core advertising business,” he told a university audience.
With the typical item on the Google News home page linking to hundreds of similar – free – stories about the same subject, charging for most news will be difficult “unless the product dramatically changes”, says Anthea Stratigos of Outsell, a publishing research firm. To succeed, papers will therefore have to provide content that readers find more valuable than the mass of commoditised information.
“We must put staff resources behind building those channels of interest that have the greatest potential: those built around pro sports teams, moms and high school sports, to name a few,” Steven Swartz, president of Hearst Newspapers, told staff. Bluffton Today, launched by Morris Communications after it shut the Carolina Morning News, is seen as one way forward: it is hyper-local, with reader-written blogs on its website. But as one of a handful of online initiatives to have spawned a successful print iteration, it represents a model that could have new followers.
Collaboration between publishers on an iTunes for news may, however, be one of several remedies impossible under antitrust restrictions designed in an era where policymakers were more worried about over-mighty media owners colluding than the fragility of the fourth estate. Mergers of neighbouring newspapers, or between print and broadcast owners in the same market, have been blocked for decades.
Media owners express little hope that this will change under President Barack Obama, who campaigned on diversifying media ownership. “It is as if regulators went to sleep during the Eisenhower administration and woke up staring blankly at an iPhone,” John Chachas, co-head of the media practice at Lazard, which is advising on several newspaper restructurings, told the Dallas Morning News last month. Newspapers should be exempted from antitrust restrictions for long enough to establish “an industry-wide system to track and charge for the reuse of their content” by online aggregators, he argued.
Charging for news online could help publishers’ top lines but that would address only one of their problems. The spate of dire news shows the industry’s challenges fall into three broad categories: the mismatch between costs and revenues; inappropriate capital structures; and oversupply. Any hope of a durable news business rests on tackling all three.
“One inescapable conclusion of our study is that our cost base is significantly out of line with the revenue available in our business today,” Mr Swartz told his staff: “It is equally inescapable that during good times our industry developed business practices that were at best inefficient.”
Jonathan Knee, director of the media programme at Columbia Business School, likens newspapers’ “antiquated” cost structures to those in the airline industry. Labour unions, the inefficient use of printing plants and distribution networks and journalists’ frequent reluctance to ask whether what they want to cover serves the interests of readers have all kept costs high, he argues.
The industry is having to rethink its assumptions, outsourcing printing and distribution and carrying advertising on front pages that long resisted it. The cuts to costs have been sweeping. McClatchy, which owns the Miami Herald, has announced three restructuring plans since June, involving more than 4,000 job cuts in all. A concern voiced by union leaders and investors alike is that indiscriminate cuts will only make it harder to produce content valued by consumers, in print or online.
Several publishers are cutting national or foreign coverage to focus on local areas, relying on newswires for the rest. Five papers in New York and New Jersey plan to share articles and pictures. Again, competition law may complicate further collaboration.
But it is servicing debt that represents one of the largest costs for many publishers. A Moody’s analysis of six large operators in November found all but Gannett had debts above four times their earnings before interest, tax, depreciation and amortisation. In Tribune’s case, the multiple was 12.3. “A number of these newspaper companies are still reasonably good businesses but the problem is they took on too much debt,” says Mr Mutter.
Others estimate that industry profitability is even higher. Mr Knee says newspapers enjoy margins well above those of film studios or music labels – providing a cushion against falling revenues. But to reduce debt multiples to a more sustainable 2-3 times ebitda, tough restructuring will be required. “In some cases bankruptcy may be a good option,” Ms Stratigos says, because it allows publishers to deal with union contracts, pension liabilities and other operational costs.
For some publishers, closing more titles will be the only viable option. The disappearance of some competitors from an oversupplied and shrinking market may help the industry, however. Dean Singleton, owner of Denver’s other paper, said when the Rocky closed: “This dramatically improves the finances of the Denver Post.”
The prospect of fewer, more narrowly focused titles facing less competition, employing fewer journalists and charging readers who once enjoyed their content for free is an unpalatable one for many. It may also be a troubled industry’s best hope.
JOURNALISM: ‘CORE VALUES HAVE TO BE THERE FOR THE PRODUCT TO PERFORM’
In a country where a free press is enshrined by constitutional amendment and newspapers measure success by Pulitzer prizes as well as profits, concern about failing titles is coupled with anxiety about what impact the industry’s financial troubles will have on journalism.
American journalism is “under enormous stress”, Arthur Sulzberger, chairman of The New York Times, recently told a university audience. Quality reporting, whether on local government or Iraq, was becoming harder to pay for and “the immediate future looks, at minimum, grim”.
The damage already done to newsroom resources is spelt out in a report by the Pew Research Center’s Project for Excellence in Journalism, released on Monday. By the end of 2009, US dailies will employ 20-25 per cent fewer journalists than in 2001; foreign staff have suffered even deeper cuts; and half of the states in the country no longer have a newspaper covering Congress.
While some online-only newsrooms offered “solid journalism in niche areas of interest”, these and the new voices of citizen journalists and bloggers are in aggregate “far from compensating for the losses in coverage in traditional newsrooms”. The limited resources of most online news organisations could be finished off by a single lawsuit.
Not everyone is alarmed by the changes. A separate Pew study last week found that only 43 per cent of Americans thought that losing their local newspaper would hurt civic life in their community a lot. A similar number – 42 per cent – said they would not miss their local paper at all if it were to disappear, even though newspapers remain the second largest source of local news after television, well ahead of radio and the internet.
The dilemma for proprietors is that cutting editorial costs, while often a necessary response to falling revenues, risks alienating more customers. “The core journalistic values have to be there for the product to perform,” cautions Anthea Stratigos, a publishing consultant. This can still be achieved, other analysts say, if news organisations focus their limited resources well.
Pew offers one piece of positive news for “legacy” news providers, whose online audiences grew far more last year than did those for new media. “The old norms of traditional journalism continue to have value,” it concludes.
But it has one further demoralising message: “Journalism, deluded by its profitability and fearful of technology, let others outside the industry steal chance after chance online,” it says. Journalists, in other words, do not even have the consolation of being able to blame others for their woes.
EUROPE: ‘FREE NEWSPAPERS ARE IN THE FRONTLINE TRENCHES OF THIS WAR’
Not long ago, freesheets were seen as the nemesis of the paid-for newspaper. Now it seems at least as likely that the free newspaper model will be the first to fail, writes Ben Fenton.
Sly Bailey, the chief executive of Trinity Mirror, which publishes more than 100 free titles around the UK, says: “Free newspapers are in the frontline trenches of this war, simply because they only have advertising revenues.”
Across Europe, newspaper groups are struggling to cope with advertiser migration to the internet as well as recession. Both represent the most serious threat of their type that the industry has faced in peacetime, Mrs Bailey says.
It is noticeable that companies with the most serious threats to their existence have a strong element of free newspapers in their portfolio. Mecom, the UK-listed publisher with operations in the Netherlands, Germany, Poland and Scandinavia, has postponed talks with its creditors as it struggles to sell off assets. Last month, Metro International, the world’s largest publisher of free papers, announced plans for a rights offer after admitting it had breached its debt covenants and did not have sufficient working capital for the next 12 months.
Metro, which is Swedish-controlled and has daily readership of more than 18m from 81 editions in 22 countries, was looking to raise SKr550m ($65m, £46m, €50m) through its issue to shareholders. But later in February it announced it had received a takeover approach. Metro had already suspended operations of its fully-owned titles in Spain.
In the UK, Trinity Mirror and the rival Johnston Press, which between them publish around 230 freesheets, have both released dismal results in recent months, where the only bright spots were increases in circulation revenue at their paid-for titles.
Simon Baker, analyst for Credit Suisse, says that for regional newspaper groups in Europe, demand is still relatively strong and it is the advertising inventory that is really hurting. “The real solution for newspapers is to increase cover price to a new equilibrium to reflect better the balance between the consumer who really wants to read their content – and they really do – and the declining advertising demand,” he says. “Obviously, for a regional newspaper publisher for whom the freesheet was the business model, that is a fundamental challenge.”
Free papers were successful against paid-for incumbents because of their cheapness to produce. Nothing, however, that print has so far been able to think of is anything like as nimble as the internet.
