Newspapers now have lost half of core sales

The decline in newspaper advertising eased in the first three months of 2010, but the industry exited the quarter with less than half the revenue base it had in the same period in 2005.

Print ad sales for the industry skidded 11.4% in the first three months of the year to $5.2 billion, according to data released yesterday by the Newspaper Association of America. This compares with $10.3 billion in the same period in 2005, reflecting a decline since then of 55.3%.

While the sales slide in the first period of this year was not as severe as the 29.7% dive in the same quarter a year ago, it nonetheless ranks as the third worst Q1-setback setback on the books. The long-term print revenue trend is illustrated below.

The only bright spot in the first-quarter numbers is that online sales increased by 4.9% to $730.4 million, marking the first time in two years that the industry posted any positive sales figure, including the crucial digital category. The Q1 online sales are well short of the industry’s best performance of $846.9 million in the fourth quarter of 2007.

The first-period plunge marked the 16th consecutive quarter of declining print ad sales – a trend that commenced, significantly, in April, 2006, or well before the global economy began to crumble.

Print advertising matters because it traditionally accounts for three-quarters of the revenue base at most newspapers, with circulation and digital media making up the rest.

The extent of the long-running decline in print advertising – the core business at every newspaper – can be illustrated by comparing sales in the first quarter of this year with sales for the same period in 2005, when the industry posted all-time high sales of $49.4 billion. Here are the stark results:

As you can see in the table above, the three principal classified categories were hammered the hardest: auto, real estate and employment. While these three verticals were at ground zero in the economic firestorm, the categories are unlikely to recover fully in the future, as advertisers in the respective categories migrate to free or low-priced websites ranging from Craig’s List to Zillow to Cars.Com.

Though hit less than the classified categories, retail and national advertising both have suffered profound contraction.

With half of its core revenue base gone, newspapers are in a race against time to develop compelling digital and niche print products to carry them into the future.

While print at the moment is far from dead, more than half of newspaper readers are over the age of 50. Because newspapers have failed to attract young readers to the degree they historically attracted their elders, they will have to change almost everything about their businesses if they have a hope of sustaining their valuable franchises.

The less-awful sales in the first months of this year gave publishers the gift of a bit more time to fundamentally reposition their businesses. But there is nothing in the first-quarter numbers to suggest that the storm for newspapers has blown over.

Newspapers need objective reader research

This column originally was published in Editor & Publisher Magazine and is being reprinted with permission. To subscribe to the magazine so you can see the full array of industry coverage when it first appears in print, click here.

“I sell bellybuttons,” said Robert M. McCormick, one of the greatest newspaper ad salesmen who ever lived.

That's the best description you'll ever hear of the classic mass-media business model, which worked wondrously well from the time the Boston News-Letter debuted in 1704 until, say, five or ten years ago.

Unfortunately, many publishers today still invest too heavily in research aimed at persuading an increasingly skeptical world of the value of the bellybutton business – and not enough in learning about the people who ought to be their readers.

The dearth of objective market research about newspaper readers not only could lead publishers into making wrong decisions about the future of their business but it also stands a good chance of undermining their credibility among advertisers. Here’s what I mean:

When the Audit Bureau of Circulations reported in April that daily newspaper circulation had tumbled some 8% from the prior year, the Newspaper Association of America promptly put out a press release saying Scarborough Research determined that “nearly 100 million” Americans, or 43% of the adult population, had read a print newspaper in the last seven days.

Good story, if true. But let’s get a second opinion.

When researchers at the Pew Center for People & the Press in 2008 asked Americans where they got their news, only 25% of the population said it was from print newspapers. This was down from the 34% who said they read print papers in 2006.

Do you suppose the number of newspaper readers jumped from 25% in 2008 to 43% in 2010? Me neither. How can the data be so divergent?

The explanation, as researchers at both Scarborough and Pew attest, is that you can get different answers by asking different questions.

In the interests of helping publishers claim as large a number of bellybuttons as possible, Scarborough uses a long-standing methodology called “aided recall” to count anyone who might have “read or looked at” a local newspaper in the last seven days. By contrast, Pew asks people, “Did you happen to read a newspaper yesterday?”

“You can make numbers go either way, based on the question you ask,” said Gary A. Meo, the senior vice president who runs the newspaper division at Scarborough. “If you ask an unaided question like Pew does, you will get lower readership numbers [for newspapers] than we do. If you ask people their source for news and rank the responses in order, newspapers are more than likely going to show up low. Most people don’t think of newspapers first. They think of TV and the Internet.”

At Pew, researcher Carroll Doherty said his measure of newspaper readership is based on a question that has been asked in polls for nearly 40 years. Back in 1965, 71% of respondents said they had read a paper on the prior day. In 2008, 25% of people said they read the print product and another 9% of respondents said they got the news from a newspaper website or through a combination of a print paper and a newspaper site.

“Our measure is probably a conservative estimate of newspaper reading,” said Doherty, conceding that other questions can suggest a higher newspaper readership. “The reason we stick with this question is that we have a long trend on it that makes it possible to track continuing changes in behavior.”

Now, I don’t object to newspapers using legitimate research techniques to put the best spin on the remaining audience they have. They need those readers and advertisers to help finance their transition to the digital realms that represent the future for their franchises.

But publishers also need an honest appraisal of where they stand in relation to competing sources of news, entertainment and advertising information. To that end, they need to conduct the kind of objective consumer research that informs the activities of every self-respecting purveyor of taco chips, aluminum foil or plug-in air fresheners.

With most newspaper executives distracted by slumping revenues, sagging profits and shrinking resources, they have not had the time, resources and emotional inclination to invest in taking a hard-eyed, hard-nosed and hard-headed look at their businesses.

But that’s exactly what they need to do in order to create honest appraisals of their Strengths Weaknesses, Opportunities and Threats. Equipped with a SWOT analysis, publishers can create SWAT teams to identify new audiences, launch new products and tap new revenue streams to replace their flagging core products.

If publishers conduct strictly self-serving research to support what increasingly appears to be an unsustainable business model, they can’t possibly make the right decisions. The only ones they fool will be themselves.

(c) 2010 Editor & Publisher Magazine

The potential economic threat to local TV news

This is the second of two posts adapted from testimony I am scheduled to present at a Media Ownership Workshop being conducted today by the Federal Communications Commission at Stanford University. The first post is here.

Once traditional television programming is married with a robust Internet feed to the family entertainment center, there is every reason to believe most modern consumers will take active control of time they spend in front of the tube.

Empowered with ubiquitous programming, unlimited choice and powerful media-delivery technology, the newly independent consumer will be decidedly unpredictable, if not downright fickle.

This will play havoc with the traditional broadcast model, which depends on assembling large audiences to view regularly scheduled programs. And that, in turn, will play havoc with local TV news coverage. Here’s why:

As broadcast audiences shrink, ad revenues will tumble. As revenues recede and profit margins are challenged, it is all but inevitable that most local broadcasters will reduce the resources they devote to covering local news.

A contraction in local TV news coverage, combined with the recent curtailment of newspaper coverage in most communities, will deprive our society of even more of the authoritatively reported information that is the lifeblood of a healthy democracy. I have seen nothing yet to convince me that crowd-sourced websites possibly can fill the void.

We already have gotten a hint of what the future could hold. Acting to trim spending during the recession, many local stations cut back their news staffs, resulting in a decline in the caliber and depth of their coverage.

The result has been ever-greater reliance on down-and-dirty stories about crime, fires and other visually arousing – but largely insignificant – events that can be covered quickly, cheaply and live.

As repeated studies have shown over the years, local TV news has scant gravitas left to lose.

According to researchers at the Norman Lear Center at the University of Southern California, only half of the average 30-minute newscast in Los Angeles is devoted to news — and only half of that news is local news. Of the 15 minutes devoted to news on a typical day, “the most common topic by far was crime,” said the USC study, adding:

One out of three broadcasts led with it. Nearly half of those were about murder, robbery, assault, kidnapping, property crime, traffic crime and other common crime. A fourth of the crime leads were about celebrity crime. And nearly a fourth of the crime leads were about crimes that didn’t take place in the Los Angeles media market.

With the gruel we call local TV news already quite thin, our society can ill afford further cutbacks. But this may be the path we are on.

Unless local broadcasters begin acting affirmatively and aggressively to explore new business models and new ways of serving their audiences, they run a real danger of squandering the valuable advantages they enjoy in the licenses granted to them by the Federal Communications Commission.

Given that our scarce broadcast spectrum is an asset which ought to be employed for the benefit of the public, the commission has a proper interest in inquiring into what steps broadcasters are taking to see to the future health of their franchises.

While I do not favor government prescriptions regarding the editorial or commercial direction of private businesses, I do believe it would be appropriate for the commission to ask broadcasters why they are not experimenting with innovative news and information services on the extra channels created in the recent shift to digital broadcasting.

Although KQED is making reasonably respectable use of its digital channels by time-shifting programming among them, the commercial broadcasters in the San Francisco market have distinctly under-utilized the additional channel capacity they gained in the conversion.

The Bay Area is fortunate to be home to some of the most innovative media projects in the country, if not the world. With the market so rich in possibilities and potential partnerships, it is amazing that our local broadcasters have been so remarkably un-innovative.

You would think enlightened self-interest would motivate these broadcasters to explore next-generation business models. If they don’t start acting on their own, maybe the FCC ought to give them a nudge.

How local TV could go the way of newspapers

This is the first of two posts adapted from testimony I am scheduled to present at a Media Ownership Workshop being conducted Friday by the Federal Communications Commission at Stanford University.

The tipping point is not yet at hand, but the economics of local broadcasting may begin to unravel as dramatically – and irretrievably – in the next five years as they did for newspapers in the last five years.

The reason in both cases will be the unparalleled consumer choice made possible by a growing mass of (mostly free) content on the Internet. And here is how it could happen:

Once it becomes as easy and satisfying to view a YouTube video on your 50-inch television as it is to watch “Two and a Half Men,” audiences will fragment to the point that local broadcasters will not be able to attract large quantities of viewers for a particular program at a finite point in time.

This will shatter the mass-advertising model that has served local broadcasters so well since the advent of the medium that some stations in the best of times were able to pocket pre-tax profits as high as 50 cents for every dollar of advertising they sold. While profits nowadays are running at a more modest 20% to 30%, they are well ahead of the pre-tax earnings of such corporate behemoths as Wal-Mart and Exxon.

The challenge to the lucrative local broadcasting model will have a direct impact on the quality, such as it is, of local television news – the medium that approximately 70% of the population counts as its primary source for news. This is a matter of great concern, for which no clear solution is evident.

The technology that appears most likely to threaten local TV broadcasters is called IPTV, which stands for Internet Protocol Television. To put it simply, IPTV enables programming to be delivered over a fast Internet connection to a set-top box plugged into a television.

Once 50 to 100 megabits per second of Internet power is barreling into the high-def centerpiece of the family room, consumers equipped with elaborate, iPad-like remote controls will be able to mix and remix anything – news, shopping, entertainment, games, music, messaging and much more – while leaning comfortably back in their easy chairs.

This will be good for consumers, but a challenge for local broadcasters. Here’s why:

The economics of cable TV programming already are geared to serving small but targeted niches. Both cable and broadcast networks will be able to sell ads (and, perhaps program access) on the shows that individuals download at their websites or at such video aggregators as Hulu. As audiences shatter, however, those options won’t be available to local broadcasters, who will be deprived of the vast reach that enabled the high ad rates and enviable profits long associated with their businesses.

To be clear: The threat is not imminent. But it also is not many years away.

Cable companies, telephone companies, satellite services and other broadband providers are beginning to move with increasing speed toward installing the IPTV gear that seamlessly can integrate traditional TV feeds with those streaming over the Internet.

The operators are motivated by the desire to ensure they are the comprehensive – and they hope, sole – communications provider for each home they serve. As such, they aim to provide video, audio, Internet and telephone service to every home with a single fat pipe – and for a single fat monthly bill.

Although barely 8% of U.S. households had access to IPTV in 2009, this disruptive technology is likely to be available to some 20% of the more than 100 million homes subscribing to pay-television services in 2014, according to senior analyst Lee Ratliff of iSuppli, a private market research company.

Twenty percent penetration of a disruptive new technology is a chillingly significant number for those of us who watched the newspaper industry lose almost half of its advertising base since 2005 – a decline that forced publishers in recent years to fire no less than 15,000 journalists and to sharply truncate the space in their papers devoted to news.

A seismic shift in consumer sentiment and advertiser behavior led to the demise in recent years of such iconic newspapers as the Rocky Mountain News and Seattle Post-Intelligencer, not to mention dozens of smaller daily and non-daily publications. Here’s how the once-mighty newspaper industry unraveled:

The year 2003 was the first point at which 20% of the homes of the United States were subscribing to inexpensive and reliable broadband Internet service. As those consumers began exercising their newfound power to control what they read, when they read it and where they read it, newspaper circulation commenced a quickening decline that has continued to this day.

The drop in readership has been profound: While 48% of Americans said they read a daily newspaper when the Net was in its infancy in 1998, the Pew Center for People & the Press reports that only 25% looked at a print paper in 2008. (Some consumers, of course, now use newspaper websites, instead.)

The drop in newspaper revenues was just as dramatic: Although newspaper ad sales remained healthy through 2005, they began a dizzying – and still unabated – decline in 2006, the first year broadband was installed in a third of the nation’s homes. After achieving all-time high sales of $49 billion in 2005, ad revenues for the industry were barely $28 billion in 2009, reflecting a drop of 43%. Despite a seeming uptick in the economy in the first months of this year, newspaper ad sales continued to decline.

To be sure, some of the newspaper malaise can be attributed to the most severe economic downturn since the 1930s. But the business is highly unlikely to revert to its former strength when the economy recovers.

Next: The threat to local TV news

Murdoch out to challenge local papers?

Just weeks after launching a Big Apple edition to challenge the New York Times, Rupert Murdoch may be getting ready to put a bit of competitive pressure on other newspaper publishers, too.

This possibility was signaled when it was revealed last week that the Wall Street Journal is buying tons of new press towers to enable it to print color on an estimated 75% more pages of the newspaper than it can today.

While Murdoch’s precise motives are not known, the news that he is expanding his presses – broken here by Newspapers & Technology Magazine – is big indeed for manroland, a German manufacturer that hasn’t seen an order this big in the United States for nearly 10 years.

The official announcement of the intended purchase, which may indicate more details of Murdoch’s plan, is expected to come later this week at the Ipex printing trade show in the United Kingdom.

From the information that has leaked out about the order to date, industry production experts believe the new units will boost the Journal’s color capacity to 56 pages per edition from the 32 pages it can print today.

News Corp. owns the satellite plants that produce approximately half of the 2 million papers it distributes daily. Contract printers – usually the same local newspaper publishers who soon may face new competition from Murdoch – churn out the balance of the daily press run. Industry sources report that press capacity also is being enhanced at some of the contract printing locations.

While the obvious purpose of the press upgrade is to make the Journal more graphically appealing to existing readers and national advertisers, it also potentially sets the stage for Murdoch to compete for readers and local advertisers with newspapers in major markets across the land.

At minimum, a jazzier-looking Journal might attract additional subscribers and could persuade national advertisers to shift more of their purchases to the paper.

Murdoch may take the opportunity to reposition the Journal as a more generally focused national paper, continuing the migration of the paper under Murdoch’s ownership away from its traditional, hard-core business and financial focus.

But the Journal’s colorful new look – and the marketing blitz bound to accompany its introduction – also may encourage high-end local retailers like department stores, jewelers and luxury auto dealers to divert some of their spending to the Journal. This particularly would be the case if the rollout were accompanied by introductory ad rates undercutting those charged by local newspapers.

It may not stop there. If Murdoch’s New York edition is successful in pulling readers and advertisers away from the NYT, he may elect to create additional local editions in other markets.

Although most observers agree that the New York edition of the Journal has not challenged the Times from a journalistic point of view, the effort has forced the NYT to respond to promotional pricing aimed at picking off both readers and advertisers. That is sure to put a dent in the top line at the Times.

Any form of serious competition from the Journal would put unwelcome pressure on local publishers, who have been battered by four years of advertising declines that have reduced industry revenues by 43% since 2005.

Although Murdoch’s global media enterprises were not unscathed by the Great Recession, he historically has subsidized his beloved newspapers with profits from such healthier businesses as movies, broadcasting, cable television, satellite TV and more.

But most newspaper publishers would have no similar cushion if they were forced to drop their subscription prices and ad rates to compete with a full-on Murdoch onslaught.

MSM earn middling marks on first iPad apps

The mainstream media have earned only middling grades from consumers for their initial iPad applications, leaving plenty of room for improvement.

A quick survey at the iTunes Store found that the average user rating of the 10 most popular news applications was 2.8 out of a possible 5 stars. Key findings:

:: As detailed in the table below, two of the three most popular apps came from Europe, not the United States.

:: Perhaps benefitting from the rich-media assets available to them, apps produced by broadcasters beat those from legacy print publishers.

:: Pay apps proved to be distinctly unpopular. Anti-pay sentiments may have been stoked by the aggressive prices charged by the two publishers who put pay walls around their apps.

Winners

France 24, an international television news channel funded by the French government, produced the only four-star entry. Its free and graphically appealing app delivers news in French, English and Arabic, while aggregating local coverage using the GPS feature of the iPad. The app, which many users called the best of the bunch, elegantly balances an exciting look and feel with a well-modulated, well-organized view of the news.

The next most popular apps, earning 3.5 stars apiece, were produced by BBC and NPR. Both free apps organize news in dense but good-looking grids that enable users to quickly click through to full stories and, often, video and audio programming. The apps benefit from the rich cross-media content produced by their parents, which in both cases are supported in part by public funding.

USA Today and Reuters each got three stars from iPad users. USA, which Apple rates as the most downloaded news app since the iPad was introduced about a month ago, skillfully recycles much content from the newspaper, but, as noted by several of the early tech adopters who bought iPads, inexplicably left out technology news. The free Reuters app is all business, featuring interactive tools to chart stocks and a nifty currency calculator. Reuters is an “excellent app that really showcases what developers can do with a little thought,” said one user.

Losers

Time Magazine got the absolute worst score, netting only 1.5 stars for an app requiring payment of $4.99 to view each issue. Summing up the discontent, one user stated: “Only $260 a year to get content freely available on the web or delivered to your door in print for a fifth of that.” Adding insult to injury, some customers complained about billing and technical issues.

Several users spanked the Wall Street Journal for charging $3.99 a week for its app, which garnered 2.5 stars. The app, which you can download for free but must pay to update, looks and feels a lot like the print product, augmented by a few videos. The format is either a plus or a minus, depending on whether you are looking for a faithfully rendered e-version of the print product or an exciting take on business news that leverages the power of the iPad. It succeeds as the former but fails as the latter.

The free Associated Press entry earned two stars for an idiosyncratic user interface that looks like a scrapbook assembled by a fifth grader instead of a well organized view of the world presented by a premiere news organization. Most users hated it, especially as it was bedeviled by numerous technical glitches. “The AP,” said one consumer, “has shot themselves in the foot.”

The free China Daily app, which netted two stars, is nothing more than an iPad version of its rudimentary iPhone app. Neither is close to the state of the art.

In the middle

Earning 2.5 stars, the free New York Times app came in exactly in the middle of the pack, taking criticism from several quarters for limiting the content in what it calls an “Editors’ Choice” edition (whose name is grammatically correct but goofy to look at).

Without identifying any sources, Gawker reported that Apple boss Steve Jobs irately dropped promotion of the app because it provided only limited content. Yet, the app is featured on several screen shots throughout the Apple website. In all likelihood NYT “Lite” is a placeholder for a more elaborate paid app, so there will be more on this story to come.

Takeaways

Although the inaugural iPad efforts are not all stellar, it would be unfair to judge publishers too harshly. This is going to be a marathon, not a sprint.

For one thing, most publishers didn’t get much notice before having to deliver their first iPad apps. The notoriously secretive Apple gave them minimal insight into the new platform and only a brief time to build their apps.

For another thing, it made sense for resource-constrained publishers to wait to see how popular the iPad would be. There was no sense putting major effort into building apps if the iPad proved to be a dud.

If the first month is any indication, however, the iPad could be a bigger hit than the iPhone. Apple said it sold 1 million units in the first 30 days, as compared with the 74 days it took to sell the first million iPhones. And a new study shows iPad users are twice as likley to be interested in general, financial and sports news than the average American.

Now that it looks as though publishers are playing with live ammo, they need to get serious about planning iPad strategies. That means going well beyond the look, feel and content contained in their legacy publications.

One of the clearest lessons they can take from the early going is that they can’t start charging for iPad apps just because they feel like it. Consumers are smart enough to tell when a publisher slaps a premium price on recycled print or web content – and they won’t go for it.

Premium apps must have premium features and services to have a prayer of succeeding.

This is the latest in a series of Newsosaur posts providing publishers with actionable revenue and content strategies for the tablet platform. The entire collection of prior articles, which has been packaged in a convenient 10-page PDF, is available here for immediate download for $1.99.

iPad users are big news consumers: study

In good news for the news media, iPad users are twice as likely to be interested in news, sports and finance than the typical visitor to the various websites operated by Yahoo, according to an analysis provided by the web portal.

Marking one of the first efforts to understand the burgeoning iPad population, Yahoo found that the initial audience for the Apple tablet is weighted toward men between the ages of 30 to 54.

With the audience skewed most strongly to those between the ages of 35 and 44, the iPad generation appears to be younger than the Kindle crowd, which trended into the 50s and beyond in an informal poll of users at the Amazon website.

In comparing iPad users to the over-all traffic at the various Yahoo properties, the portal found that iPadders are 2.2 times more interested in financial news than the average Yahoo visitor, 2.0x more interested in general news and 1.9x times more interested in sports. iPadders also accessed Flickr, the picture-sharing website, 2.4x more than the average Yahoo visitor.

Newspaper ad drop eased sharply in Q1

The decline in newspaper advertising sales appears to have abated significantly in the first three months of the year.

While this has cheered the embattled industry, it must be noted that a decelerating rate of decay should not be confused with healthy growth. The industry, as discussed below, has lost nearly half of its principal revenue base in the first period since 2006 – and it has yet to find bottom.

A survey of the six publicly held publishers that to date have reported their performance for the first three months of 2010 found that their ad sales on average fell 10.2%, as compared with drops of 28.3% in the first period of 2009 and 12.8% in the first quarter of 2008.

Lee Enterprises and Gannett reported the strongest of the weak sales, falling respectively 7.7% and 7.9%. The worst performers were Media General, Journal Communications and McClatchy, whose sales tumbled respectively 13.1%, 12.1% and 11.2%. The New York Times Co. was in the middle, with sales dropping 9.1%.

The Newspaper Association of America generally publishes the complete and definitive sales results for the first quarter late in May.

Assuming the performance of this well-diversified group of publishers is representative of the industry, it appears that total ad sales for newspapers will come in at approximately $6 billion for the first three months of this year.

If this is so, then ad sales for the first quarter of 2010 will be some 46.4% below the $11.1 billion in sales recorded in the same period in 2006, which may well stand forever as the best first quarter in the history of the business. The trend is illustrated in the chart below.

If sales for the first quarter this year indeed come in at $6 billion, they will be the lowest for the period since 1986, according to data published here by the NAA. Adjusted for inflation, the 1986 figure is worth $22 billion in 2010 dollars, according to the U.S. Bureau of Labor Statistics.

In first-quarter earnings calls to the small fraternity of securities analysts who still cover newspaper stocks, publishers were cautiously optimistic that sales would continue to firm for the balance of the year.

Sales improvement “doesn’t happen in a linear fashion consistently each month,” said Gracia C. Martore, the president and likely future chief executive of Gannett. “But I think, directionally, we are very pleased with the momentum that we had coming out of last year. As you can see, it carried through into the first quarter and…we anticipate that we’ll see further carry-through in the second quarter.”