Sunday, November 30, 2008

Newspapers eye extreme cuts as crisis grows

Fearing that newspaper sales may fall as deeply next year as the record plunge in prospect for 2008, publishers are preparing contingency plans for cutting costs in previously unimaginable ways.

In the best of cases, publishers will continue aggressively nipping and tucking at staffing, benefits, newshole, and the footprint of their circulation areas. In the worst cases, some newspapers will be shut down – or endure only as skeleton-staffed online operations.

In one of the most startling of the potential initiatives, an amazing number of publishers of all sizes are giving serious consideration to eliminating print editions on certain days of the week, according to private conversations with operators who requested anonymity.

Monday, Tuesday and Wednesday editions, which typically carry the least amount of advertising, appear to be at the most risk.

With demand for newspaper advertising this year plummeting in every category (including online since March), industry ad revenues in 2008 are likely to be no better than $38 billion, or nearly 25% less than they were when sales hit an all-time peak of $49.4 billion in 2005.

In the third quarter of this year alone, sales plunged $2 billion, or a record 18.1%, in a historic, across-the-board rout paced by a nearly 31% drop in classified revenues. Bad as the third quarter was, publishers are bracing for worse, because the bottom did not fall out of the economy until the last two weeks of the most dismal three months in the history of the newspaper business.

The revenue trend in the first nine months of the year suggests that ad sales will be some 17% lower than they were in 2007. Given the deterioration of the economy that has occurred since mid-September, many publishers are planning for the possibility that sales will drop by a similar magnitude in 2009. Here’s why:

With the economy in turmoil, employers have stopped buying recruitment ads because they are not hiring, auto dealers are not advertising because no one is buying cars and real estate agents are not buying ads because they aren’t selling houses. Absent a miraculous turnaround early next year in the sectors that traditionally have generated 30% to 40% of newspaper advertising, the classified drought will continue into the new year as far as the eye can see.

The only relatively bright spot left for newspapers is retail advertising, which represents close to half of their revenues. Publishers report that many merchants are spending everything they can afford on advertising in the fourth quarter of this year in hopes of generating maximum sales during the make-or-break holiday shopping season.

By most accounts, all the heavy promotion was successful in driving post-Thanksgiving sales volume. But heavy discounting aimed at clearing out dearly financed inventories may not translate into profits for many merchants.

Thus, publishers are concerned that retail ad demand will collapse in the new year, as the recession shakes out the weakest merchants and simultaneously forces the survivors to tighten their belts. More than a dozen national and regional retail chains already are in liquidation, including Mervyn’s, Linens ’N’ Things and Whitehall Jewelers. Others, like Circuit City, are hanging on by a thread.

Fearing that next year could be worse than this one, many newspaper companies have stopped preparing the usual 12-month budgets and resorted, instead, to producing rolling, three-month (or shorter) forecasts to try to manage the impact of what appears to be a continuing slide in ad sales.

While no one knows how bad things could get before they start getting better, one thing is sure:

With approximately $12 billion in ad revenues vaporized in just three years and no economic turnaround in sight, many publishers are no longer scrambling mrely to sustain a certain level of profitability but are battling, instead, to keep their businesses solvent during the indeterminate time it will take for the economy to recover.

Even after a recovery materlizes, it will be a while before anyone can honestly say how much newspaper advertising is likely to return. Meantime, newspapers are in for the fight of their lives.

Tomorrow: Where the cuts may come

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14 Comments:

Anonymous Luis said...

Hi,

May we see a price increase in newspapers? Is it possible? (Spanish top 1 increased 10% in 2008 without a sales drop. I know the impact is limited, but, what is the price elasticity of demand?)

I think promotions are not as important for revenues in USA as they are here in Spain, but, if they get affected, our situation may be even worse from the side of revenues.

Other less important revenues (like intellectual property rights) will be affected, what may make bigger the loss the bigger and more influential the newspaper in that case.

In the other hand, how much of this loss will be compensated through revenues generated online?

I look forward to read your post tomorrow :)

Best Regards,

Luis

2:02 AM  
Anonymous Doug Poretz said...

I think there is one type of advertising that will grow. Prior to the presidential election, about 90% of the country believed that the country was going in the wrong direction. They elected a charismatic president who appears more than willing (even capable) of addressing fundamental changes. He is supported by a new Congress that gives his agenda strong political support. And all politicians are now "reporting to" a highly engaged and interactive electorate. The proposed changes will not be cosmetic -- they will be fundamental, game changing in many cases, and address a very broad range of industries from healthcare to energy and more. As a consequence, every special interest group of every size, political bias, and motivation (money, power, greed, desire to serve humanity or all the above) will raise their voices to defend the status quo and/or promote changes that will advance their interests. There will be a growth in "support this" messages at the same time that there is a decline in the "buy this" messages that have innundated the American culture since the WW II boom. I do not think this will be enough to offset the decline in ad revenues, especially for traditional media, but I do think it will have an impact. I also think, more significantly, that there will be a great cultural consequence as the American public becomes a "supporter" along with being a "consumer." That cultural consequence, in turn, will influence the media. However, I am not certain we are far enough into this phenomenon to predict how it will evolve. But, the thrust of the "buy this" messages has been to define "the American Dream" as "buy more, buy bigger, buy better, buy more expensive" -- and the thrust of the "support this" messages may well be to refine that definition to re-stress certain political values. I think the news media (traditional and new) will respond in some fashion, likely anchored in interactive debate and the coalescing of special interest groups on line, limited by neither time, geography or language -- that is, those things that gave rise to our current definition of "nation."

4:37 AM  
Anonymous Anonymous said...

Doug,

With all due respect, I think you're floating on a cloud if you think special interest advertising will save newspapers.

Regardless, your belief that Americans will now somehow wade into politics in unimaginably intense ways is a prophecy that's been made repeatedly over the course of American history, and has really never stood the test of time.

Obama's candidacy resonated because people could draw a direct link between their circumstances and his promises, not because they are now willing to put down the remote and do the long dirty job of fundamentally changing the American political system.

And let's not forget that 46 percent of the "highly engaged and interactive electorate" voted for the guy who purportedly representing a stodgy continuation of the old 18th Century ways of quill pens, bloody American expansionism, rapacious oil gluttony and all those other sins.

In other words, not everyone is on board with the new new deal.

7:05 AM  
Anonymous nobody really said...

Naaah, I can't wait until tomorrow to figure out where the cuts will come (not may....will). I'll take a few stabs:

1. Days cut out entirely or greatly reduced editions on certain days of the week, down to maybe an old-fashioned one or two section newspaper. Or "theme" days (Monday's paper is mostly sports in a small-market town with pro football, for example).

2. Huge cuts in paid-for content. Say goodbye to two pages of comics. TV listings. The weather. Mark Trail! Come back!

3. With no raises (MNI) and no more pension contributions (GCI) the norm, guess what's next? Across-the-board staff pay cuts. Chain brass know their dedicated-to-the-craft staffs won't bail, since they have no place to go anyway. They'll stay and work for less.

Along with those dollars-and-cents cuts, we also might see less fluff and more hard news. Large features sections might be a thing of the past. That news also might be more lurid and sensational. Shouldn't content be allowed to sell papers?

Just a thought.

8:17 AM  
Anonymous Anonymous said...

Most newspapers can't put out a decent product now. What are papers going to look like after more significant cuts? Why would anyone buy one? Also, doesn't it seem like the industry's strategy is to do the exact same things the exact same ways with fewer people? When are they going to try to adapt by doing things differently? It's probably already way too late.

11:05 AM  
Blogger Jim Bouman said...

Copy editing failures, basic competence in writing diminished. Headlines getting a bit more aggressive in an attempt to be more like the radio squawkers.
Sports coverage remaining very big and apparently untouchable in the staff cuts department. Editorial page and OP/ed GONE on Mondays, replaced by a full page of letters to the editor; much more use of "community columnists," half of whom are peddling sheer banality.

That's the Milwaukee Journal Sentinel

12:13 PM  
Anonymous dscott said...

I have to wonder how much of this ad revenue slide is attributable to the advertisers realization of the faulty (inflated) circulation numbers game that was being played? If you will remember the counting of give-away papers to students, libraries, etc.

Actually, I would like an honest appraisal of the efficacy of print versus radio versus TV versus internet. We all know about demographics and niche markets, however, has anyone determined which medium gives the most bang for the buck?

1:52 PM  
Anonymous Doug Poretz said...

In response to the comment by "Anonymous" -- I was pretty careful to avoid saying that there will be an increase in advertising that will save newspapers -- I simply said that whereas consumer advertising will abate, "supporter advertising" will increase -- I did not say that it will offset the decline of consumer advertising, nor do I believe it will. I stand by my assertion that there will be a surge in public affairs type communications campaigns and that will have an impact on our nation's culture. If I am on a cloud, then I am there because the pipeline of new business at my DC-based communications firm (100 people) is incredibly robust ... and others to whom I speak are confirming my thesis, including lobbyists and other public affairs and communications firms that specialize in "support this" campaigns. I would also asert this: much as I believe the center of the capital markets has been bifurcated with the equity market staying in New York and the debt market moving (please note progressive tense) to DC, I also believe that the communications industry will similarly be bifurcated, with consumer marketing centered in New York, and public affairs marketing centered in DC. You'll be able to track this with job decreases on Madison Avenue (already happening big time) and hiring on Connecticut and K (also happening, albeit with a good dose of caution).

2:32 PM  
Blogger boradis said...

All I can say is "duh." Daily news distributed on paper is about to go extinct in this country. We journalists can only hope we'll land a job in the new order that will continue to support us.

But the printers and truck drivers and delivery people are out of luck.

3:05 PM  
Blogger boradis said...

A few more thoughts.

This should be retitled "Thinking the Inevitable." With the evaporation of classifieds, the three-legged stool of newspaper sustainability is toppling. What happens to the companies should no longer be any individual's primary concern, unless they've got a lot of stock in one.

I expect the "next shoe" that will drop will be when a labor dispute in a one-newspaper town gets ugly, ending with a Web site that may also publish a weekly magazine-like product or two. It will be followed by a wave of similar settlements, which will grow into a fundamental shift in how news is delivered on the local scale -- if you want to read the news, you'll need a computer.

3:44 PM  
Anonymous Anonymous said...

It's been suggested that newspapers aren't relevant anymore.

Newspapers will be around until companies put laptops in the restrooms.

I say that with tongue-in-cheek, but people still want a physical paper to carry around and read instead of lugging a laptop everywhere.

With the laptop, they must worry about things like battery life, leaving it on the train or bus seat, getting it wet, droppping it, etc.

These are some of the same reasons that the eBook and it's ilk aren't fully successful.

When an eBook is invented that won't get ruined if it's splashed on at the pool or thrown in the back of the minivan, and that I won't worry about the cost if I lose it, then I'll buy it.

For these reasons I think newspapers are still relevant.
--Jim

11:36 AM  
Blogger boradis said...

Relevance does not matter. Financial viability matters.
Secondly, I read news on my cell phone on the bus, in waiting rooms, or in the bathroom all the time. That news is also up-to-date instead of more than 24 hours old. Newspapers have lost the portability advantage.

11:50 AM  
Anonymous benny cole said...

Yes, it is ugly time for print journalism.
Maybe there is hope in bankruptcy. Shorn of deal debt, newspapers would make money, even yet.
Imagine the Los Angeles Times, free of the debt monkey, and with employees owning a voting share of the new Times going forward. That could happen in bankruptcy court. After all, the creditors committee in bankruptcy court is going to want to own the Times, but not with Zell, who has no street cred in journalism. And creditors will want to keep the troops in place and "incentived."
Convert debt to equity, and cut employees in.
Times reporters should seriously consider this option, when Tribune goes into bankruptcy. Times reporters will have to go to a Ken Moelis or someone, and beg favors, in terms of advice.

11:55 AM  
Anonymous bmwood99 said...

If newspapers offer compelling original content not found on the web then people will continue to read newspapers. If this content is available for free on the web then they will continue to lose readers. The Wall Street Journal model is the way to go for most newspapers.

6:56 PM  

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