Tuesday, April 29, 2008

AHC and NYT lost most circ

Circulation at the New York Times Co. and A.H. Belo fell considerably more than the reported industry average in the most recent six-month reporting period, according to an analysis by Deutsche Bank.

While industry-wide daily circulation dropped an average of 3.5% and Sunday sales fell an average of 4.2%, daily circulation slid 8.3% at A.H. Belo and Sunday circulation plunged 7.8% at the New York Times Co. Particularly eye-popping was the 9.3% swoon in Sunday sales of the New York Times (maybe more articles about elegant, clothing-optional spas will help).

Analyst Paul Ginocchio reports that not one of the 10 publishing companies had an over-all increase in circulation. Even the best-performing publisher – News Corp. – lost 0.9% in daily circ and 1.2% on Sunday.

The big-name papers showing double-digit declines were the Dallas Morning News, off 10.4% daily and 7.6% on Sunday; the Rocky Mountain News, off 10.9% daily and 14.4% on Sunday, and the Miami Herald, off 11.4% daily and 9.1% on Sunday.

A larger-than-average circulation drop in one reporting period does not necessarily indicate an individual newspaper or company is any more trouble than the industry as a whole. Rather, it may reflect a company's desire to rein in distant circulation to create a tighter (and more economical) distribution footprint. Or, it could result from a decision to reduce or eliminate the sale of deeply discounted promotional copies.

Nevertheless, growth is better than contraction. Apart from the 0.3% gains at both USA Today and the Wall Street Journal, there are no other positive numbers on the table below. You can click on the image to enlarge it, but the results won't look any better.

Monday, April 28, 2008

Newspaper circ at 62-year low

The accelerating decline in circulation has brought newspaper sales to the lowest point in more than 60 years.

Based on the record 3.5% drop in daily circulation reported today for the nation’s largest newspapers, it appears that average daily circ this year will be no better than 50 million. If so, that would be the lowest level since 1946, when daily sales averaged 50.9 million, according to statistics provided by the Newspaper Association of America.

Though circulation has fallen back to pre-Baby Boom levels, the population has more than doubled since 1946. If you divide circulation by population, you will find that fewer than 18 out of 100 Americans today buy a daily or Sunday newspaper. Back in 1946, 36% of the population bought a daily paper and 31% took a Sunday edition.

While newspaper circulation has weakened since the 1980s, the decay has accelerated sharply since 2003, as illustrated in the chart below. Sunday circulation, which had been relatively more resilient than daily sales, now is falling more precipitously than daily sales. In the six-month reporting period ended on March 31, 2008, Sunday circ fell 4.2%, nearly a full point higher than daily circ.

Some of the circulation drop has been self-inflicted. As discussed here previously, a growing number of publishers have curtailed the expense of hauling papers to distant points to preserve vanity circulation that impresses neither advertisers nor shareholders.

While some publishers also have eliminated heavily discounted circulation, there is anecdotal evidence that other newspapers, including those in the San Francisco market, continue to offer such bargains as a yearlong subscription for a mere $20.

News of the worst newspaper circulation plunge in history coincided with a story today on the cover of Advertising Age, the bible fo the ad industry, which was entitled “The Newspaper Death Watch.”

Will the the tailspin in circulation and ad sales be accelerated by the growing accumulation of bad press about the press?

Friday, April 25, 2008

Where mass media lost ad share in '07

The share of advertising sold by newspapers and local broadcasters last year slipped in favor of such targeted media as the Internet and cable television.

As shown in the table below, local TV sales and print newspaper advertising suffered the deepest declines between 2006 and 2007, falling respectively 9.5% and 9.4%. Radio advertising, which is somewhat more targeted than that of newspapers and TV, nonetheless dropped 3.5% in the year.

The gainers, as you might suspect, were led by Internet advertising, which climbed 24.9% to a record $21.1 billion. While web advertising advanced a brisk 18.8% at newspapers, the gain represents only three-quarters of the growth achieved by the over-all online industry.

As total advertising spending rose by 0.4% to $171.1 billion in 2007, the share of the dollars spent at newspapers fell 3 points from the prior year to 25% of the total media market. Local TV fell 1 point in the 12 months to 10% of the market.

The Internet attracted 13% of ad dollars, rising 2 points for the year. Magazines and cable TV, which are the most targeted among the traditional mass media, each gained 1 point of market share, claiming respectively 18% and 11% of the total spend.

Thursday, April 24, 2008

Deadly duel for N.Y. tabs

Those saying Rupert Murdoch wants to buy Newsday to squeeze the New York Times are missing the point: His immediate goal is weakening the New York Daily News so he can, once and for all, dominate the Big Apple.

While a beefed-up Murdoch presence in the New York market undoubtedly would cause new troubles for the already troubled New York Times Co., the publisher with even more heartburn than Arthur Sulzberger Jr. has got to be Mortimer Zuckerman, the owner of the Daily News.

The extent of Mr. Z’s concern may be revealed shortly, if he comes forward as widely expected with an offer to top the $580 million that Mr. M reportedly has offered Sam Zell for the Long Island tabloid. Tribune Co. is being forced to sell Newsday to scrape up cash to service its hefty debt.

As the biggest-selling daily paper in metropolitan New York, the Daily News – not the Times – would have the most to lose if the Post and Newsday were successfully teamed under News Corp. Indeed, a well-executed combination of the Post and Newsday could pull enough money out of the metro advertising market as to literally suck the life out of the Daily News, which, like the Post, is known to make little or no money.

While the consolidated daily circulation of the Post and Newsday would power the two papers into unrivaled leadership in the market, the potentially decisive factor in the life-and-death battle among the tabloids would be the huge lift in Sunday circulation enabled by the combination. Sunday matters above all else, because it’s the day of the week that typically generates about half of the advertising revenue for a newspaper.

As you can see from the circulation figures in the graphic below, the combined Sunday sale of the Post and Newsday (less a bit for overlapping circulation) would put the papers in some 44% of the middle-income households in the market. The broadest and deepest penetration in the metro area would give News Corp. a major advantage in selling advertising at a time when newspaper revenues are generally contracting.

By successfully shifting sufficient market share away from the Daily News to its twinned-up tabloids, News Corp. could put the Daily News in the position that it could not survive without an ever-growing subsidy from its owner, Mr. Zuckerman.

As the 188th wealthiest man in America, Mr. Zuckerman is estimated by Forbes Magazine to be worth $2.4 billion, so he could prop up the Daily News for quite some time. But Mr. Z would be going up against Mr. Murdoch, who, as the 33rd richest man in the country, has not only $8.8 billion in personal wealth but also heads News Corp., which puts another $16 billion in cash and other assets at his command.

Sunday circulation wouldn’t be the only factor in a war of attrition between the billionaire publishers. Another major weapon in News Corp.’s arsenal would be the 314.2k copies of AM New York that Newsday distributes every weekday. The free tab would enable News Corp, to gnaw away at Daily News circulation sales while consolidating an ever-larger portion of the available advertising dollars.

If you reverse the circumstances and postulate that the Daily News bought Newsday, the outlook would be nearly as dire for the Post – but for the fact that Mr. Murdoch appears to have the resources and determination to keep his paper alive for as long as he pleases.

With the fate of each of the other tabloids depending on who wins Newsday, Mr. Z and Mr. M are likely to up the ante for a few more rounds before the matter is decided. Nothing would make Sam Zell happier.

Wednesday, April 23, 2008

Reading is so passé

Reading on the web could become almost as retro as, well, reading a newspaper. (Not that there’s anything wrong with reading a newspaper.)

A pair of companies promoting beta versions of their technology this week at the Web 2.0 Expo in San Francisco showed how they can create audio and video from simple text, thus obviating the need to read.

After wrestling a bit with Dixero.Com, I got it to render an ordinary RSS feed of Newsosaur in a highly mechanized, but reasonably understandable, voice. Dixero is based in Lugano, Switzerland, and you can subscribe to the service now to experience the effect.

A Montreal company called Xtranormal.Com built a system that allows you to make animated films on the fly by typing text and cues into a dashboard. At the moment, the players in the video are limited to a bunch of Lego-like bobbleheads available from a library on the site. In addition to the canned demos on the site you get an idea of the application from the video below.

While these science-fair projects admittedly are more fanciful than practical at the moment, imagine the day when a newspaper or broadcast website could hook simple text feeds to an Xtranormal-type system to inexpensively produce automated videocasts of the news, sports, weather and more.

The robocasts could be hosted by images of real-life (or, alternatively, synthesized) news readers and then published not only on the sites but also syndicated via widgets, YouTube and mobile devices.

If users were given a choice of RSS feeds or subjects, then each could get a uniquely tailored video. For that matter, they even could pick the roboanchor of their choice.

Web ad sales slump at newspapers

As if plunging print advertising sales weren’t bad enough, newspapers also suffered a significant slowdown in new media revenues in the first three months of this year.

Nearly overshadowed by the double-digit print declines reported widely throughout the industry, the interactive slowdown results from the stubborn determination of most publishers to try to sell online advertising to the very same people who are forsaking print advertising.

But the plan isn’t working.

In the same three months that sales leaped 41.5% at Google, online revenue at newspapers in the first quarter of this year ranged from a gain of 10% at McClatchy to an increase of 7.5% at Lee Enterprises to a decline of 3.3% at Media General. This compares with the online gains of 17%, 54% and 66% that McClatchy, Lee and MEG respectively reported in the same period a year ago.

How could Google be doing so much better than newspapers? And why are interactive sales decelerating at newspapers when they are booming at Google? The answer to both questions lies in the difference between the types of the ads sold by Google and by newspapers.

Nearly all of Google’s sales come from the keyword ads that run on the right-hand side of search results, as well as the millions of other websites that carry Google ads in exchange for a split of the revenue generated when someone clicks on an ad. This business is growing explosively because advertisers love the idea of paying for an ad only when someone cares enough to click on it – and because marketers prize the precise (and free) metrics that Google provides to monitor their campaigns.

By contrast, most newspapers generate something north of two-thirds of their online advertising revenues by selling listings in the three major classified categories: auto, employment and real estate. These would be the same ad verticals where print sales, respectively, have fallen 14%, 28.8% and 25.8% since 2005, according to the annual industry statistics compiled by the Newspaper Association of America. (For an in-depth look at the collapse of the recruitment market since 2000, see this post.)

While Google is minting money by selling truly interactive advertising, newspapers for the most part continue to base their online businesses on the idea of “upselling” web versions of classified ads to marketers who are rejecting the one-to-many print model at an ever-faster rate.

Companies like Lee and Media General may have thought they were on to something a couple of years ago when they affiliated with Yahoo’s HotJobs to gain a host of new online recruitment offerings. Though the expanded product line indeed enabled the publishers to produce enviable sales gains in 2007, the publishers have no comparable new products this year to replicate last year's one-time feat.

Worse, you can pretty much count on each of the major classified categories to continue eroding as long as the economy remains in a recession. The big question, of course, is how much business will return when the economy revives.

In the same years Google ventured deeper into banner, video and other popular new forms of interactive advertising (including mobile), newspapers inexplicably continued to put their faith and energy into trying to shore up the classified-advertising business despite its obvious and seemingly irreversible secular decline. (One way newspapers could get beyond their heavy reliance on classified advertising is discussed here.)

Now that online growth is shrinking at the same time print revenues are shriveling, publishers will be harder-pressed than ever to muster the economic resources necessary to assure the economic vigor of their enterprises.

If the new media are supposed to be saving the newspaper business, then newspapers had better act quickly to start saving their new media franchises.

Tuesday, April 15, 2008

Drive-by surfers peril news sites

While more people than ever may be visiting newspaper websites, they are sticking around less this year than they were in 2007.

That’s the troubling problem the Newspaper Association of America failed to mention this week, when it reported that the number of unique visitors at its members’ websites increased 12.3% to an all-time high of 199.1 million in the first three months of the year.

But an analysis of the first-quarter web traffic reported by the industry association determines that, by most other key measures, the relative popularity of newspaper websites has waned in the last year in spite of the industry’s professed commitment to aggressively building online products and revenues.

As you can see in the chart below, the growth in the key metrics of newspaper web activity grew explosively in 2006, decelerated in 2007 and slowed this year to the point that two of the four indicators actually declined.

In the first three months of this year, the average amount of time visitors spent on newspaper sites fell by 2.9% to 44 minutes and 18 seconds per month, or less than 1½ minutes per day. In the same period, the average number of pages viewed per unique site visitor dropped by 6.6% to 47.2 per month.

While the total number of page views rose by 4.9% to a record 9.4 billion for the first quarter of 2008, the increase was far short of the 51.9% increase achieved in 2006 and the 12.6% gain in 2007.

The decline in the average duration of sessions at newspaper web pages suggests that visitors are not utilizing the industry’s sites as primary destinations, but, rather, as places to episodically view individual articles highlighted by Google News, Drudge, Digg, blogs or any of the thousands of other places they might be.

This could be a big problem for an industry that already has enough to worry about. Here’s why:

If drive-by surfers continue to generate a growing proportion of newspaper traffic, will advertisers put a high enough value on these relatively fickle visitors to pay the premium rates necessary to continue funding these elaborate, content-rich websites?

I wouldn’t count on it.

Monday, April 14, 2008

ASNE's senselesss newsroom census

Although it’s finally pointing in the right direction, I wouldn’t put any faith in the annual newsroom census just released by the American Society of Newspaper Editors.

In a confounding statistical mélange of apples, bananas and bowling bowls, the association – which ought to know better – would have us believe that only 1,000 journalists (less than 1.9% of the work force) lost their jobs at America’s newspapers since 2006 and only 3,800 positions (6.7% of the work force) have been eliminated since the peak employment of 56,400 reached during the tech bubble in 2001.

Would the toll were that low. But common sense tells you it is not.

To pick one admittedly extreme example, the news staff of the San Jose Mercury News has been trimmed to 175 today from some 400 in 2001. Compare the 56% drop in headcount at the Merc to the 6.7% industry decline reported by ASNE in the same interval and you can see why I question the census provided by the group that ought to be the first to want to accurately assay the decimation of the nation’s newsrooms.

As you may recall, the ASNE last year reported that newsroom employment actually rose 4% between 2006 and 2007 to 57,000. When I asked the ASNE then how employment could have climbed after a year of relentless cost cutting throughout the industry, the answer from a spokesperson who didn’t want to be identified was that, um, well, uh, the ASNE changed the way it counted online staffers.

This year, yet a new methodology was employed to further confuse matters. Instead of saying that there were 57,000 journalists on the job in 2007, the ASNE now says there were 55,000. The difference, as explained by the ASNE, is that, um, well, uh, it is counting people who work at free papers in a different way this year than last year.

As a consequence of continuously tinkering with seemingly ineptly gathered data, it is likely that the ASNE is materially understating the decline in the newsroom population in the last half-dozen years. With apologies in advance for the complexity imposed by the association’s illogical statistics, here’s one example of how goofy this gets:

The association reported yesterday that the number of journalists at America’s newspapers fell by 2,400 between 2007 and this year, a 4.4% decline that brought total newsroom employment to 52,600, the lowest level since 1984. But the association inexplicably – and counter-intuitively – added 1,400 jobs to the industry total between 2006 and 2007, so as to report that the industry employed 55,000 journalists in 2007 vs. 53,600 in 2006.

For 1,400 new journalism jobs to have been created between 2006 and 2007, the industry would have had to be beefing up its newsrooms. I don’t recall that happening. Do you?

Sunday, April 13, 2008

What went wrong at JRC

Teetering near default on a tower of debt and days from being booted off the Big Board, Journal Register Co. shows how strategic missteps and bad luck can imperil even as good a business as this highly profitable chain of community newspapers.

For all that’s wrong with JRC – and there is a quite lot, to be sure – the company’s 19.3% operating profit not only compares quite favorably with those of several of the largest Fortune 500 corporations but actually surpasses the margins of such giants as Chevron (18.5%), Wal-Mart (7.5%) and General Motors (3.5%).

The ability of JRC to continue generating rich profits at a time of unprecedented contraction in the newspaper business is the direct legacy of the rigorous expense management enforced by Robert Jelenic, the chief executive who ran the company for two decades until he resigned in November to undergo cancer treatment.

In addition to leaving JRC with some of the leanest-running newspapers in the land, Mr. Jelenic also left the company with the hefty $628.4 million in debt that now threatens to force it into bankruptcy. Most of the debt results from one bold, but less than successful, acquisition he undertook in 2004 in an effort to keep the company’s sales, profits and stock price growing.

Not only did the transaction prove over time to be a serious miscalculation, but a steep drop in JRC’s sales in the last two years has made it increasingly unlikely that the company can generate enough profits in the future to service its ponderous debt.

Between 2005 and 2007, JRC’s sales tumbled 20.2% to $463.2 million, a drop nearly 2½ times greater than the over-all industry decline of 8.2% in the same period. (Some revenue was eliminated in JRC's sale of a few modest operating units, but the volume of the discontinued operations comes nowhere close to accounting for the disparity between the performance of the company and the industry as a whole.)

Caught between high debt and declining sales, the company today finds itself in a world of hurt:

:: JRC’s share price has fallen by 99% from a high of $21.84 in 2004 to $0.265 Friday at the New York Stock Exchange. The Big Board plans to ban the shares from trading this week, because the value of the company is too low to meet the minimum listing standards.

:: The company’s debt, which amounts to an untenable seven times its operating earnings for the last 12 months, is now rated at Caa1 by Moody’s Investor Services, which means the rating agency believes the company has better than a 1 in 3 chance of default. Moody’s is concerned that the company cannot generate enough cash to cover the debt repayments scheduled for 2009.

:: The largest portion of the debt that threatens to force JRC into bankruptcy resulted from the acquisition for $415 million in 2004 of a group of community papers concentrated around economically distressed Detroit. To date, the company has been forced to write off $215 million, or nearly 52%, of the value of those assets.

:: An investment banker has been hired to explore the sale of some or all of the company’s assets, but few parties are interested in acquiring newspapers these days, given the the unsettled outlook for the industry. Further, it is questionable whether a buyer, if one materializes, would pay much more than the 7x earnings necessary to extinguish the company’s debt. This fear has caused investors to hammer the stock to the point it is all but worthless.

Ironically, JRC, which owns 22 daily newspapers and more than 300 non-daily publications in six geographic clusters, got its start as the reincarnation of a newspaper empire that was run off the rails in the 1980s by Ralph Ingersoll II, a buccaneering publisher who built his eponymous empire by overpaying for newspapers and financing them with junk bonds.

When Ingersoll Publications collapsed under its debt in 1990, its investors turned to Bob Jelenic, Mr. Ingersoll’s protégé, to restart the company as Journal Register.

The strategy for JRC, which went public in 1997, was essentially the same as that of Ingersoll Publications: Build the company by aggregating neighboring newspapers into ever-larger clusters that would make it possible to sell advertising more efficiently while lowering the costs of producing the publications.

It’s a terrific idea, so long as you don’t overpay for acquisitions and have a plan to build sales while judiciously cutting costs. But the execution didn’t prove to be much better at JRC than it was for Ingersoll Publications.

As JRC pursued its rollup strategy, Mr. Jelenic sought to boost his company’s stock by aggressively reducing expenses to increase earnings as much as possible, thus earning the reputation as the most zealous cost cutter in the newspaper industry. “Nobody cinches the belt tighter than…Journal Register Co., where cost-cutting has become an art,” reported Forbes Magazine in a 2001 article titled “Cheapskate Journalism.”

Beyond shrinking staff, benefits and newshole, JRC was known for such practices as printing on ever-thinner newsprint and requiring executives to check the odometers of journalists before reimbursing them for driving to their assignments. A former JRC publisher told the American Journalism Review in 1999 that Mr. Jelenic sometimes demanded the instant firing of an employee, any employee, if his paper missed its weekly revenue target.

JRC produced some of the highest operating profits ever seen in the newspaper industry when its earnings before interest, taxes, depreciation and amortization (EBITDA) hit 29.1% in 2001. But it is hard to replicate annually such one-time savings as downsizing a newsroom or consolidating two printing plants into one. In the absence of significant sales growth from 2001 to 2003, JRC’s profitability, though still ample, began faltering.

To boost the company’s growth and potential for future profitability, Mr. Jelenic in 2004 bought 21st Century Newspapers in what it called “affluent markets” in Michigan for $415 million, paying a generous 11.5x EBITDA. But the domestic auto industry was facing a decline that, if anything, has accelerated since then.

The Michigan acquisition not only failed to produce the hoped-for sales and profits, but also saddled JRC with substantial debt at the same time revenues began falling at its properties and most other newspapers in the United States.

Now, JRC is caught in a squeeze it may not be able to survive. Unlike newspapers owned by other publishers that are trying to tough out the tough times by paring expenses, most JRC newspapers have little left to cut – and limited resources to build sales with new print and online products.

Despite its straitened circumstances, JRC in 2007 did manage to pay Mr. Jelenic more than $6.3 million in salary, severance and other compensation, which represented a fourfold increase over the nearly $1.5 million he received the prior year.

As part of his severance arrangement, Mr. Jelenic got an extra 192,000 shares of JRC to add to the nearly 2.3 million shares he already owns. Unfortunately, his stock, like mine, isn’t likely to be worth anything near what it used to be.

Thursday, April 10, 2008

Congrats, with an asterisk

Like the baseball Barry Bonds swatted into the stands to break the all-time homerun record, there ought to be an asterisk on the Pulitzer Prizes awarded to journalists this year and for the foreseeable future.

Unlike Bonds, who has been accused of using illegal steroids to enhance his performance, the writers and photographers who earned the industry’s highest honor did nothing inappropriate to devalue their achievements.

But nearly all of them were competing with an unfair advantage, because they were lucky enough to work for the relatively few remaining news organizations still in good enough economic condition to afford the staffing and other resources necessary to produce distinguished coverage.

It’s no happenstance that the Washington Post collected half a dozen Pulitzers, given that its well-staffed newsroom (now in the process of being reduced by early-retirement incentives) has been largely immune from the cost cutting that has thinned the ranks at most other newspapers. And the Milwaukee Journal Sentinel, which shared top investigative honors, still has a dedicated, 10-person investigative unit after undergoing its own bout of layoffs.

Staff cuts that have hit the indusry in the last few years require fewer people to do more work to fill the paper and feed the website, reducing the opportunities to produce ground-breaking investigations, riveting photos, sparkling features and exceptional coverage of big, breaking stories.

Although the Washington Post has suffered sales and profit declines like the rest of the industry, the newspaper represents only a fifth of the revenues of a closely-held, family-controlled company that recorded nearly $4.2 billion in sales in 2007. The sales and profits from broadcasting, cable television and the Kaplan testing and education business -- plus, the Graham family's unswerving commitment to sustaining the quality of the paper -- helped insulate the Post’s talented newsroom from the economic calamity buffeting the rest of the industry.

The Post has a far more moderate debt load than those burdening such once-formidable Pulitzer contenders as the papers owned by McClatchy and Tribune Co. (the Chicago Tribune's Pulitzer was earned for work completed prior to the sale of the company in December, 2007). Even the New York Times Co. is being forced to do more with less, owing to pressures from restive shareholders and the weak performance of such major divisions as the Boston Globe.

Regardless of how extreme the divide grows between the journalistic “haves” and “have-nots,” it always will be an honor to earn a Pulitzer, even with an asterisk. Sadly, only a shrinking handful of fortunate newspapers have a realistic hope of capturing the prize in the future.