Wednesday, August 27, 2008

Publishers need to invest in new plant

U.S. publishers could boost revenues and improve the competitiveness of their newspapers by investing in modern production facilities, says Peter Klaue.

He is the founder of Peter Klaue Media Consultancy in Hamburg, Germany, which provides strategic consulting and M&A advisory services for the publishing industry.

By Peter Klaue

One of the reasons U.S. newspapers are in a significantly worse spot than publishers in Europe appears to be that they failed to modernize their plants to improve their ability to print color and produce targeted local sections.

While most American newspapers operate plants that are 15 to 20 years old –the production equipment typically is half as old at publishing companies in Austria, Germany, the Netherlands, Scandinavia or Switzerland. State-of-the-art equipment not only enables full-color capabilities but also considerably trims production costs by enhancing running efficiency.

Limited color capacity in the U.S. not only makes newspapers less compelling to readers but also is a major negative factor for advertisers.

First, black-and-white advertising is not as captivating to readers as those printed in full color. Second, and perhaps most important, is that most U.S. newspapers continue charging advertisers huge premiums for the relatively limited number of color positions available in their pages.

Publishers justify the higher rates by saying it costs more to print color on their outmoded presses – as if customers were responsible for the industry’s lack of investment, instead of the other way around.

With the charge for a color ad in a U.S. paper often three or four times the cost of a black-and-white spot of the same size, American papers are challenging advertisers to spend money with them, instead of encouraging them to do so.

By contrast, papers in Europe take advantage of their modern plants to make color so widely available that color ads are far more common than black-only ones.

Because color is routinely available in Europe, newspapers typically don’t charge extra for color advertising but, rather, charge all advertisers the same rate. And that rate is considerably higher than the average rate charged in the United States.

The 15 largest newspapers published in Switzerland charge an average of US$42.90 per thousand readers, as compared with CPMs ranging from US$19 to US$25 in the United States. Thus, Dutch, German, Scandinavian or Swiss papers on average generate between 1.5 and 2 times more revenue per ad than their American counterparts.

Modern equipment also makes it possible to efficiently print the paper in more sections.

Where the typical European paper is printed in four or five sections (including at least one highly targeted local section), many U.S. publishers actually reduce the number of sections in their papers to shave paper costs and compensate for the inefficiency of their aged production lines.

At a time most commentators and publishers agree that local news is a top priority for U.S. papers, the trend toward eliminating sections is going in the wrong direction.

Local sections are not only popular with readers but also represent a major source of potential advertising. When outdated equipment makes it too expensive or all but impossible to print and distribute targeted local sections, newspapers lose a major opportunity.

Although U.S. papers are suffering through the worst revenue and profit declines in their long history, they may want consider reinvesting in their press facilities before it is too late.

One of the most successful publishers in the world has done just that. Rupert Murdoch invested nearly US$1.2 billion in new plants in the UK to significantly increase color capacity and output.

Where such investments are out of reach, publishers need to get together to thrive: News International’s plant in Broxbourne, UK, prints Telegraph Media Group’s flagship publication. Sweden’s V-TAB prints papers for half of the newsstand racks, in a country which, by size and density of population, offers challenges in distribution comparable to those in rural U.S. states.

Recent decisions in the U.S. heading in that direction include plans to outsource printing of the Boston Herald, Washington Times and Idaho Statesman. The San Francisco Chronicle has contracted with a commercial printing company to build a new plant and take over production, while its sister paper, the Albany (NY) Times-Union is building its own new plant.

Some publishers may argue that it already is too late to turn around their papers and will elect, unfortunately, to squeeze what’s left from their businesses and then liquidate them.

However, those who have not given up might take a close look at the newspapers that are seeking to consolidate printing operations in order to reduce costs while sharing the costs of modernizing their plants.

Such decisions will not come easily in the “squeeze and cut” mode that has gripped the U.S. newspaper industry. But this may be the time for publishers to take bold action.

As Mathias Döpfner, the Chief Executive Officer of Axel Springer and member of the Board of Directors of Time Warner Inc. said, “We should not commit suicide for fear of dying!”


Anonymous Anonymous said...

...I don't BUY a newspaper for the ads, I buy it to read. Tarting up the ads may sell more ads, but it's just puting lipstick on a dead pig. I read the WSJ for years, but I've never bought a thing, nor do I pay attention, to their ads. And that's not because they're in black and grey.

8:32 AM  
Blogger The Hypervigilant Observer said...

It seems like so many publishers are caught up in a quagmire of...fear of failure.

For all the many negatives said about Murdoch...and Zell...they both seem ready to lean into the unknown.

While new efficient printing plants might be nice...more local news seems to be the new imperative.

That, of course, means people to root out that news.

Slashing staffs can't accomplish that.

10:00 AM  
Blogger Jim Bouman said...

The Milwaukee Journal Sentinel is working out of a practically new plant. But the journalism is getting thin, haggard, exhausted and whiny, while shamelessly begging for new friends among the Limbaugh- and Hannity-listening crowd.

I think they do a lot of contract printing and then stuff the cheesy advertising sludge into both daily and Sunday editions by the pitchfork-ful.

I don't need that. I need a newspaper that is interested in the news. They threw away tons of money on MKE, a free weekly, until it drowned in its own bilge.

Now they are cutting good staff-- people who can write--and hiring photogenic twits from California who cannot. There is little left of institutional memory, no sense of this community's history.

It'll be some loss when this institution folds--some, but not much. They've been jettisoning their best in an attempt to pretend they are a newspaper;this decline spreads over the past ten years.

The Packers, Brewers and Bucks are the major reason most bother to buy the printed edition or look at it online. They never passed up an opportunity to use their favoritest words: "icon" and "iconic" when describing Brett Favre. He's gone; so are they.

Glitz in the printing cannot counter the simple fact: this rag is a wizened, toothless, smelly old tart in a new red dress.

12:59 PM  
Anonymous Anonymous said...

Your comments on the Milw J/S are dead on. The new plant on 43 st is a jewel and the failure of the paper to use it to its fullest is a sad fact. Dumping its most prized asset (quality writers)is a trend that the industry is wrapping itself in.
Short sightedness is glossed over by cost savings which are only temporary in nature at best.

9:19 AM  
Blogger Jim of L-Town said...

All of Michigan's Booth newspapers (Flint Journal, Bay City Times, Jackson Citizens Patriot, etc.) have new four-color presses from Germany in the past 6 years.
The investment was huge. $30 million at the Flint Journal site alone and it has done little or nothing to stem the receding tide.
I think the premise for this article is not just off, it's way off.

12:39 PM  
Anonymous Anonymous said...

The problem is the presses. Newspapers should not consider themselves in the printing business anymore. They should sell off their printing plant. They should then only use printers who can handle their business in a modern and efficient - cost effective manner. Same with web infrastructure. Why build, when you can rent more cheaply from experts. They are not in the web site business or the printing business, but the news business. That is what they should focus on.

10:47 AM  

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