Daily paper going the way of the milkman

Daily newspaper delivery will go the way of the milkman in a growing number of communities in 2012 and beyond.

Barring a miraculous turnaround in the economy, a sea change in the thinking of media buyers or a late-breaking proclivity for print in the sub-geezer population, publishers in ever more communities are likely to reduce the number of days they provide home delivery – or print a newspaper altogether.

Nowhere is the demise of daily delivery more dramatic than in Michigan, where more than two-thirds of the households will be unable get seven-day service after the end of January.

The rationing began with a bang in 2009, when the two Detroit dailies, the Free Press and the News, stunned the industry by cutting home delivery to just Thursday, Friday and Sunday. Although the Motown metros continue to print every day of the week, anyone wanting a paper on non-delivery days has to fetch one at a retail location.

Unsurprisingly, the Monday-Friday circulation of both Detroit papers plunged between March, 2008, and March, 2011, according to the Audit Bureau of Circulations. The daily circulation of the Free Press in the period fell 54.7% to 168,985 and the daily sale of the News tumbled 51.7% to 90,914. Even though Sunday home delivery continued without pause, the circulation of the Freep (the only title publishing on that day) is down 21.6% at 475,543. The Freep, which is owned by Gannett, and the News, which is owned by MediaNews Group, are partners in a joint operating agreement.

The daily drought is scheduled to widen to other Michigan communities in February, when the Grand Rapids Press, Kalamazoo Gazette, Muskegon Chronicle and Jackson Citizen Patriot reduce home delivery to Tuesday, Thursday and Sunday from their current seven-day schedules. Just as in Detroit, single copies of each newspaper – all of which are owned by Advance Newspapers – will be available to consumers who take the trouble to track them down. In cutting back home delivery, the Advance emphasized the intention to attract more traffic to its statewide digital portal, MLive.Com.

While determined readers for the time being still can buy a daily paper in Detroit and Grand Rapids, there has been no such option since mid-2009 in Ann Arbor. That’s where Advance replaced its seven-day Ann Arbor News with an “online digital media company” called AnnArbor.Com, which puts out print editions on just Thursday and Sunday. Since the change, daily circulation for the print product has slid by 30.8% to 30,422, according to ABC.

If Michigan is ground zero of the un-daily-ing of newspapers, it is far from alone. Johnson Newspaper Group knocked two days off the seven-day print cycle of some of its titles in Upstate New York. Media General cut the publication of its smaller seven-day papers in North Carolina to three days a week. GateHouse Media did the same in Kansas.

Anecdotally, we know there are many more cases across the country. We just don’t know how many. Although you would think that ABC, the industry-supported group that audits circulation, and the Newspaper Association of America, the industry’s principal trade group, would want to keep an accurate count of something as important as the dwindling number of daily newspapers, they profess not to know.

There is no doubt, however, why publishers are throttling their once-prized print products:

A relentless decline in newspaper advertising sales has halved industry revenues since a record $49.4 billion was collected in 2005. Although final ad figures remain to be calculated for 2011, projections based on year-to-date performance suggest that sales last year probably didn’t top $24 billion. This has been catastrophic for publishers historically accustomed to hefty, double-digital bottom lines.

In five-plus years of ever more vigorous retrenchment to salvage some degree of profitability, publishers have trimmed staff, crimped newsholes and outsourced everything from call centers and accounting to production and delivery. With scant behind-the-scenes economies left, publishers now are being forced to make the most conspicuous cuts of all: Reducing the number of days they publish or deliver papers.

The good news, given the increasing shift of consumers to digital media consumption, is that de-emphasizing print necessarily forces publishers to focus on their web, mobile and social efforts. The bad news is that most of them to date have not made impressive strides.

On average, the industry reaps less than 14% of its ad revenues from digital media, according to the NAA. That’s not nearly enough to keep publishing companies healthy if print revenues continue shrinking, as they seem likely to do in the immediate future.

Publishers cutting daily delivery realize the strategy works only if they can build their digital divisions faster than their print businesses shrink. While publishers know this is risky business, the smart ones know there is no Plan B.

© 2012, Editor & Publisher

Newspaper shares plunged 27% in 2011

In a year when the stock market flailed mightily to end up almost exactly where it started, the shares of the publicly traded newspaper companies plummeted an average of 27% in 2011.

Of the 11 publicly held newspaper companies, the stock of only one – the broadly diversified News Corp. – gained ground in the last 12 months. The stock of the publishing-cum-broadcasting company rose 10.7% in 2011 despite the phone-hacking scandal that resulted in the closing of the News of the World and led to questions about Rupert Murdoch's stewardship of the business and the arrests of a more than a dozen former editors and reporters.

The shares of all the rest of the newspaper publishers, as detailed below (click to enlarge image), fell by double-digit rates, ranging from an 11.4% drop at Gannett to a 71.3% plunge at Lee Enterprises, the latter of which averted a potential default by refinancing its debt in the final weeks of the year.

If you take the increase in News Corp.’s stock price out of the mix, the average plunge in newspaper share value last year was 30.1%. This compares with a 5.5% increase in the Dow Jones average of 30 industrial stocks and the flat performance of the Standard & Poor’s 500-stock index, which gained a meager 0.04% after a year of dramatic market swings.

Minus the $45 billion market capitalization of News Corp., the total value of the shares of the 10 other publishers at year’s end was a bit over $10 billion, or less than three-quarters of the $13.9 billion that Gannett alone was worth at the end of 2005, the year the industry set a record for the most advertising sales in history.

Newspaper stocks are significantly underperforming the market for the following reasons:

∷ Newspaper advertising revenues have fallen continuously since peaking in 2005. As reported here, newspaper advertising probably will come in at no better than $24 billion in 2011, or half of the record $49.4 billion in 2005.

∷ Tumbling ad sales mean leaner profits. Average pre-tax profit margins for newspapers, which peaked at 28.5% in 1999, still were a sturdy 24.2% in 2005 but fell to 14.9% in the first nine months of 2011, according to the International News Marketing Association, a trade group.

∷ Eroding profits make it increasingly difficult for publishers to mange the unsustainably high levels of debt that most of them shouldered before ad sales began contracting. (Even though A.H. Belo and E. W. Scripps have no debt, their shares, which fell respectively 45.4% and 21.1% in 2011, could not escape concerns over the long-term future of the industry.)

∷ In hopes of cutting expenses fast enough to shore up their shrinking profitability, publishers are reducing staff, cutting newshole and even eliminating publication days. Consequently, newspapers are not investing in developing the products and services that would enable them to compete with the growing number of digital competitors lusting after local advertising dollars.

In other words, Wall Street is worried that publishers don’t have a plan to protect the diminishing value of their franchises at a time that appealing new technologies and media formats are siphoning readers and advertisers away from their core products.