Thursday, December 17, 2009

What the heck are publishers thinking?

A positively effervescent survey of more than 500 newspaper publishers yesterday predicted that advertising sales would drop only 0.2% in 2010 after plunging 28.4% in the first nine months of this year.

The man who conducted the survey doesn’t believe the publisher forecast. I don’t believe it. And neither should you. Which leads me to wonder: What the heck are publishers thinking?

In a survey of more than 500 newspaper executives, Kubas Consultants discovered that publishers evidently believe they are about to arrest the queasy slide in advertising revenues that has been accelerating since April, 2006.

Their lips to God’s ears, as my mother used to say. But does anyone see the economy recovering rapidly and powerfully enough to stop the long-running decline on a dime?

Take a look at the table at left, which compares the category-by-category forecasts in the Kubas survey with the actual performance of the newspaper industry in the first nine months of this year:

Do the publisher projections seem reasonable to you? Me neither.

Even the man who produced the survey has doubts about it.

“No, I don’t believe that ad sales will be down only 0.2% next year,” said Ed Strapagiel, the executive vice president who produced the Kubas poll. “On the other hand, I do believe 500-plus newspaper people would like to believe it.”

There could be “lots of reasons” for the chipper response from the publishers, said Strapagiel in an email from Toronto. His list, which follows in its entirety, certainly doesn’t contain any sparkling new initiatives to support the encouraging outlook:

:: “Wishful thinking.”

:: “Print people over-estimating the potential of online (which is the sole factor contributing positive gain).”

:: “Corporate insistence to make the online look better.”

:: “If I don't show better numbers, they'll cut my budget.”

:: Optimism is better than slitting your wrists.”

31 Comments:

Anonymous Anonymous said...

Look back last year, and you will see the same surveys forecast 2009 would be a buffo year for newspaper revenues. For me, this just shows how management is clueless of the plight the industry is in. Look at the random comments from industry leaders, who contend the problem facing newspapers will be solved, once the economy recovers. They are expecting a return to the good old days, with even better returns because of the payroll cuts they have made. They aren't lying to these people taking the surveys. They sincerely believe this. The industry still does not see the secular forces arrayed against it.

7:11 AM  
Blogger Martin Langeveld said...

Alan, there's a typo in your chart: Kubas predicted -0.4% in retail, not -40%.

I've posted my own predictions here: http://newsafternewspapers.blogspot.com/2009/12/out-on-limb-again-predictions-for-2010.html. Quoting from that: "My call for revenue by quarter (including online revenue) during 2010 is: -11%, -10%, -6%, -2%."

7:45 AM  
Blogger Newsosaur said...

The typo in the table mentioned above has been fixed.

8:00 AM  
Blogger Stan Spire said...

Does anyone want to buy stock in my buggy whip factory?

8:09 AM  
Blogger David Westphal said...

If Martin Langeveld is correct and fourth quarter 2010 is down 2 percent from 2009, isn't the real story here that publishers will finally get some breathing space? Obviously this says nothing about the longer term. But down 2 percent instead of down 20-plus percent sounds like a news story -- and it matches what we're hearing about current trending.

8:45 AM  
Anonymous Perry Gaskill said...

I'm not a numbers guy, but it seems to me the Kubas results are off because of using a 15 percent online growth to offset the print side declines. Current rules-of-thumb seem to indicate that online generates only about 10 percent of total ad revenue. I could be wrong, but unless you break the percentages out by dollar amount in each category, or provide category percentages as a percentage of total, you're not going to get an accurate picture. Kubas says the percentages are weighted, but it makes you wonder in light of what Nielsen, for example, has been indicating in the past.

Still, the Kubas report is going in the right direction by looking at declines and trying to predict at what point the decline line starts to flatten and eventually hits a floor. No offense to Stan Spire, but even the buggy whip market managed to flatten out eventually.

Another question the Kubas study raises is that if the long-term trend graph is for online revenue to rise and for print revenue to fall, at what point in time, if ever, do the lines cross? And what does that mean for resource allocation, strategic planning, and a host of other issues?

12:04 PM  
Anonymous Otis said...

Part of optimism is coming from the Q1 orders coming in now, which generally look better than Q1 last year. That's not really saying much, though.

I would guess the cream of the crop papers won't see a huge decline in 2010, but smaller regional papers will continue their trek to the grave.

1:24 PM  
Blogger Robert H. Heath said...

Thanks for the link to the Kubas report. I have just published a post on the topic based on the long-term relationship between newspaper advertising and personal consumption.

My guess -- and despite all the numbers -- it's still just a guess, is flat to down 10% for 2010.

http://roberthheath.blogspot.com/2009/12/can-newspaper-ad-revenue-recover-in.html

4:02 PM  
Anonymous Bruce Wood said...

Why isn't Kubas surveying the ad directors instead? Publishers don't want to hear the bad news and they certainly don't want to give corporate the bad news.

However, it is possible that after such a steep decline this year that, "leveling off" at a negative 2% is possible, isn't it?

6:33 PM  
Blogger chuckl said...

they've got a perfect track record about being wrong for the past 10 years, why is this a surprise?

6:38 PM  
Anonymous Anonymous said...

The reality is that most publishers are former sales people. They are used to stretching the truth to their own advantage. Everything is rosy. That way they can demand the most for the precious ad space they have, even if most of the ads on the page are sold at a discount. But it is also this attitude that causes short-sighted planning, if there is any at all and a total lack of strategic thinking. And thus, this is why they got into the mess that they are in now.

7:27 PM  
Anonymous Tom Wolfe said...

The leveling off scenario seems quite reasonable given a 'leveling' in the overall economy.
Many of us WANT to believe that newspapers have learned from the disaster of the last few years, and will utilize smarter, innovative selling approaches in a gradually improving economic environment.

7:29 PM  
Anonymous Janet DeGeorge said...

None of you get it. After having those huge losses in Real Estate, Auto and Employment for the last few years, there is nothing left. If they are not at least flat, they will be out of the classified business in those categories by 2011. They have lost over 70% of revenue in those categories since 2006. Another big year of losses in 2010 and its over for those categories, they will be profitless.

But it is the large papers with their huge overhead and high circ cost that will get hurt the worst. They cannot make up the kind of profit that classified brings in by selling retail or online CPMs.

And as far as online, there is not one publisher who can support their newspaper with online money, even if they sold out every single CPM they had. The set rates per CPM are too low, the response too minimal,and the positions available too limited.

The latest NAA yearly numbers for 2008 shows online only 10% of all advertising revenue. The only way online grows, is through switch business. Switch business that pays less than they were for print. Can't change the math.

Janet DeGeorge, classified consultant

7:42 PM  
Anonymous Anonymous said...

Are you sure they didn't misplace the decimal point?

7:46 PM  
Blogger Steve Ross said...

I am a numbers guy and I share everyone's low appreciation of newspaper management. And I can think of a lot of folks who won't be advertising, because they are out of business.

But my published data (CJR last March) -- which, frankly, is more complete and granular than anyone else's -- is clear. At most, non-recessionary forces caused 7 percentage points of the per-subscriber revenue decline. If you believe the recession is over, and that newspapers will promote circulation for the first time since 2002, then it is reasonable to assume much of the advertising volume will come back.

If you believe the recession will double-dip or at least take a long time coming back, advertising won't, either.

Move a few years down the line, though, and the advertising volume becomes more problematical -- newspapers pre-recession in the past decade did not lose revenue, they stayed even by raising ad rates. What they lost was share. And unless they invest in new technology to capture local advertising and to localize national advertising, a lot of the ad volume will pass to the most local of all media, the GPS-equipped smart phone, without any participation by the newspapers themselves.

That's very different from the past decade, where the Internet created NEW AD VOLUME. It didn't directly "steal" substantial business from newspapers or anyone else.

9:18 PM  
Anonymous Anonymous said...

At our paper some money is looking up: preprints (not available in your chart), legals (foreclosure notices) and other side businesses not directly related to advertising, which I realize is something you aren't covering.

But I do agree that given recent plummets, a leveling off will happen at some point. And that might be really bad news. But with drastic cuts, newspapers might find profitability.

Newspapers can capture the mobile ad market. It's fairly simple. Start with a basic way to do it with some geolocation, even if self-selected by readers, and build on it.

4:55 AM  
Blogger Steve Ross said...

I've been getting geo-located ads for months on my Android phone. Where's the Boston Globe and Herald, my local papers, in this market?

Part of the trouble is that newspaper folks saw the huge decline in job classified in 2001 as due to web migration. In fact, web job classified declined even more. The results were 20% economic (looser job market allows more local hiring) and 80% demographic (we worked through the small cohort of 70's births so more people started entering the job market each year).

I was in the audience at Columbia when Leonard Downie, vice president at large and former executive editor of The Washington Post, and now professor of journalism at Arizona State University, misquoted his own paper's experience with classified and with local advertising. He refused to look at my data. Refused.

But Michael Schudson, who co-authored the Columbia newspaper study, took it. He's professor of communication at Columbia's School of Journalism and a MacArthur fellow. But despite my prodding, he's not responded to the data.

Poynter folks said I cherry-picked my endpoints, so I analyzed every annual endpoint for the decade... and never heard from them again, either.

So if these obviously bright folks think all is lost, certainly run-of-the-mill newspaper management does. And all will be lost.

Interesting. I was asked last summer (on camera for History Channel) about how glass flows. Everybody knows it does. As a child, I glazed windows at my late father's hardware store in Boston. Usually, old glass is thicker at the bottom. Glass is a supercooled liquid, my father (who never went to college) said, and flows slowly. I did stories about church restoration in Europe and heard the professional restorers say the same thing. So did my college physics textbook.

Wrong. Recent calculations show that glass does flow, but too slowly to be observed even in millions or billions of years -- at least when subjected to Earth's gravitational forces. Thicker glass is at the bottom because people arranged it that way, before the days of uniform-thickness plate glass.

Because I was a physical scientist before I became a journalist, I immediately confirmed and absorbed the new information. I, my father, and the textbooks were wrong.

Why is the newspaper industry and most of academia riding the dead horse down to oblivion?

BTW, Alan, I can also set monotype in a job stick out of a California type case... and I ran a linotype in college, too, to earn living expenses.

7:50 AM  
Blogger Cupcake Man said...

1) Readers love to read news

BUT

2) Advertisers no longer want to advertise with it

SO, WHO WILL PAY FOR THE NEWS? ANSWER:

3) Telco/Cable Monopolies

WHO

4) Buy up newspaper organizations (already doing so and will increasingly pick up the remaining scraps, dirt cheap)

AND

5) Charge subscribers in their monthly bill.

So instead of reading newspapers for $100/year subscription, we’ll pay min $500/yr (for me in Canada) to read news online (and Twitter, and Facebook, and watch porn) via our internet bill, and an extra $600/yr to get it on our mobile phones. Instead of $100 for news, we pay $1100.

Wow, our generation is so advanced. We just agreed to the biggest upsell in history!

11:05 AM  
Blogger Steve Buttry said...

Alan, I tweeted yesterday that I wondered what the publishers predicted for 2009. When I wondered that again today, I decided to check. Kubas said a year ago that the publishers forecast a "terrible" year for 2009. But their projections were nowhere near as terrible as what has happened so far. In automotive, their projection was off by 50 percentage points. I blogged about it and expanded your table: http://bit.ly/5ZxvZM

12:32 PM  
Anonymous Anonymous said...

Why do publishers consistently lie on these surveys? After all, this is an industry whose product is as truthful as mankind can make it. Yet publishers put that aside and disseminate forecasts they know are false, even when afforded the cloak of anonmyity. My guess is that they are talking their stock options, hoping to keep the stock up to the strike price is reached.

4:22 PM  
Blogger Steve Ross said...

Publishers are often dumb. Publishers often lie. Publishers ALWAYS pick up the slack to try to patch nutty finances caused by overpriced purchases of newspaper properties.

But I gotta cut'm some slack for 2009 and 2010 predictions. Been a bad year for everyone except bankers.

6:44 PM  
Anonymous Anonymous said...

It is plausible that newspaper advertising percentage drops will start to level out, just because so much has been lost that it is mathmatically difficult to maintain a 23-27 percent loss year over year. The bogus part here is that online will go up 15 percent. This has been publisher's pipedreams for too long. First they covered up their weakling CPMs by moving print revenue into the web column. Poof - profitable websites. Now that print advertising has gone away, they can't pull that trick anymore. The reality will come out - that newspaper websites are bloated resource-hogging white elephants. Generating enough profits for a CEO, publisher, editor, managing editor and enough left over for, say, six or seven reporters.

7:00 PM  
Anonymous Bob Rosenbaum said...

It strikes me that the error publishers are making is that they're assuming the revenue problem is directly related to the economy. Therefore, if the economy has bottomed out, it's easy to reason that so too have the revenue declines.
They're wrong. Advertisers are going through a transformation that will permanently reduce sales of impression-based marketing in favor or response-based marketing.
It began a decade ago in B2B and is only catching up now in the consumer press. And if what happened in B2B is an indicator, consumer print media are nowhere near the bottom.
The recession has surely exaggerated its impact - as it has now for two consecutive recessions in B2B. As the economy improves, revenue declines may grow less severe. But that shouldn't be mistaken with a turn in the trend.

11:00 AM  
Blogger Steve Ross said...

Bob, I know you are repeating conventional wisdom and it kinda makes sense... but conventional wisdom simply does not square with the data. Except for a sharp drop in employment classified after 2001 -- a drop that was even sharper for Monster.com than for dailies -- ad revenue per subscriber actually rose throughout the decade.

Ad lineage fell, though. The volume was more than compensated for by a rise in ad rates at daily newspapers.

6:23 PM  
Blogger Olivier said...

Alan, thanks for the link. There is something wrong in the Kubas methodology, and they are not alone in this mistake : they look at online advertising as a whole. They put together online classified, online display, search, ...
Online classified are lost for newspapers, but nobody takes the money online. It has just vanished for almost free in Craigslist and others. Thus it would be much more interesting to get the numbers for online avertising, excluding classified.
I also looked at the Kubas report for 2009, and compared it to real figures (jan/oct) : newspaper managers predicted -9,1%, they got -28,4 %. Their mistake for online : projected +13,6 %, actual -14,4 % (a 28 % gap), was the same than for classified. I really think newspaper executives did not understand how deep the classsified model would sink, both print and online.
When you look at it from Europe, you stay astonished by the inaccuracy of the classified pages in american newspapers : ugly, grey and black, impossible to read or search in ...
Look at norvegian or swedish newspapers : beautiful full colour pages, and they still make more classified turnover in print than online. Yet, those countries are more internet oriented than the United States.
The question now is : will local retail advertising follow the same trend than classified, competition coming from new devices, such as GPS smartphones ? It's high time to give a better service to advertisers ... and readers !

2:12 AM  
Blogger Steve Ross said...

Same challenge to Olivier: Where is the data to suggest that Craigslist has killed off daily classified ads? It is conventional wisdom and seems logical at first glance to think it did, but inflation-adjusted classified ad volume except for employment actually rose steadily from 1994 to 2006 (the last pre-recession year). In current dollars it rose A LOT.... as Craigslist penetration increased! Even inflation-adjusted, it rose A LOT on a per-subscriber basis (which is how advertisers actually buy ads in the first place).

Craigslist DID hurt pennysavers. Not dailies.

Employment ads dropped for demographic and economic reasons. This isn't a poll. It's an analysis of actual NAA data. My private data is even more positive.

7:45 AM  
Blogger Numbersguy said...

Am I too late to weigh in?

Certainly, the news execs are lost. We can only hope they're no longer reporters.

At Glennco, I have a significantly different approach to forecasting. To develop the forecasting models, I use rigorous empirical methodologies: trend line analysis with relevant exogenous variables. The models developed are used to produce a simulation of future categorical NAA advertising expenditures both quarterly and long term along with risk/uncertainty measures. My forecast history of NAA newspapers' advertising expenditures series goes back to the 90's (1990'2 not 1890's).

I believe this econometric approach to forecasting produces superior results. (Compare these forecasts to anyone else.)

In November 2008, I posted an ad forecast total NAA of down 20% in 2009. During 2009, I predicted in April that 2009 would be down 18%; and, in June 2009, 2009 would be down 24%. As of November 2009, I predict 2009 to be down 28.4%.

The first real pass at 2010 shows total NAA ad. expenditures with an Expected Value of $20 billion, down 27% from 2009.

Let me say that, today, this forecast is unusually problematic. National and Online seem to be in a continuing slide, with the year over year rates of decline actually increasing. Retail and Classified might be coming into an “L” shaped recovery: the numbers stop falling.

I will do a lot more work on this to try and resolve the curve shapes. The givens are (1) a recovering economy, continuing loss of readership and circulation sales and a continued decline in household spending for “Reading” material including newspapers.

2010 will be another very difficult year.

2:15 PM  
Blogger Steve Ross said...

Numbersguy (Rick Wakefield) is absolutely correct -- you have to model. The very act of gathering information to build the model exposes some of what you don't know about your own business.

Why don't conventional rules of thumb work? well, they do until extra variables massively affect your results, or until small variations in inputs cause big variations in answers.

In 1998 I was on sabbatical from Columbia and working at the American Press Institute. We ran a big conference on classified ad prediction. Ad managers were shocked, simply shocked, to discover that as they raise ad rates, the expected volume of ads drops. But we also predicted the drop in employment advertising two years down the road. How? Well, we got predictions on how long a boom lasts. But we also had GREAT data, from the Census on the eventual uptick in the number of people entering the workforce. And we showed that until unemployment drops below about 2% in an MSA, local classified ad volume increases. But if the rate drops further, there's no one left to hire locally, so prospective employers have to look to national media (magazines and online). The relationship between jobs available, employees available, and advertising volume is decidedly nonlinear -- and not easy to calculate without software.

Three years later, at a conference at Harvard,I had a weird argument with the employment ad sales director for the Boston Globe. Their employment ad volume had fallen so much, they had to make an agreement with Monster.com. But, I said, Monster.com had suffered a bigger decline! No they hadn't, she said. Look at their 10K, I said. Why, she asked.

Another API example: A weeklong course in circulation-building. The model says it is more efficient to spend money first on improving quality BEFORE you spent money approaching prospective subscribers. Early in this decade, newspapers cut quality AND circulation budgets, but their subscriber base held steady. Well, not really. They lied. But they could have modeled to predict what would happen.

The one really fair criticism Wall Street once had about dailies is that the managers -- on both the business and managerial sides --were absolutely clueless about how to prioritize spending -- how to get the best bang for the buck. The newspaper business produces good tactical thinks but poor strategic thinkers. Magazine publishers do much better.

But history certainly shows that Wall Street could not value news properties, either!

I used to teach hardcore econometric modeling to journalists at Columbia as well -- for the class, I subscribed to FairModel, which was originally built for GE. My students were adept at comparing the model results with President Reagan's budget projections, for example, and also costed out Clinton's health care plan. But applying a general model of the economy to newspapering? I gained little traction. Few in the industry saw connections!

6:39 PM  
Anonymous Anonymous said...

Posed a potential solution to the publisher the other day - a forward-looking ad delivery solution. One part of his reaction interested me: Is this really doable? I think it is. Maybe they don't have the right people with the right technical chops trickling information up about what's possible with existing staff ... or perhaps what would be possible if they were to hire a programmer for projects.

Maybe it's a lack of confidence in home-grown technical solutions, since they lack those skills themselves. And maybe their top department heads do as well.

P.S. Putting this previously posted comment in the right blog topic this time!

9:52 AM  
Anonymous Anonymous said...

As a newspaper executive, if we budget down 20% again our owners say "why do I need you? If that's the best you can do, I'll take my chances in losing 20% without you." So sales executives will never budget/predict revenues down so much. But what this illuminates is that there are fewer people in the sales seats/territories than there were a year ago. So increasing sales will be that much harder as there are fewer people making outgoing calls.

9:34 PM  
Anonymous Anonymous said...

To the previous poster: I wonder if self-serve ads, combined with a good marketing effort at direct outreach is the future. I think we need different sales approaches, which might be less lucrative for sales people. We need smarter approaches that better serve smaller advertisers. We need better localization. These will be solved on the mobile platform - but we might not need the large sales force to do it. Keep the sales staff for the bigger advertisers and use programmers and marketers to do the rest.

7:19 PM  

Post a Comment

<< Home