Thursday, July 30, 2009

Newspaper rally? Curb your enthusiasm

After some notable newspaper publishers this month reported better-than-expected gains in their second-quarter net profits, Wall Street responded by bidding up their battered shares. But let’s not get carried away.

The improved earnings reflect one-off events that for the most part cannot be replicated if sagging ad sales fail to rebound really hard, really fast and really soon. In other words, publishers are running out of magic at a time when there is scant evidence that ad sales are headed for the sort of dramatic turnaround that would restore the industry to its former vigor.

Things certainly looked encouraging when some of the leading companies reported their second-quarter earnings. Gannett swung to a net after-tax profit of 30 cents a share from a loss of $10.03 per share in 2008; McClatchy more than doubled its earnings to 50 cents a share, and the net at the New York Times Co. leaped 85% to 27 cents.

The performance boosted the depressed shares of the companies to some of their highest levels this year. Gannett closed Wednesday at $6.26 per share but still well below its 52-week high of $21.68, McClatchy closed at $2.27 vs. a 52-week high of $4.90 and NYT closed at $7.52 vs. a 52-week high of $16.75.

But a closer look at the operating performance of the three companies shows that none was able to cut its expenses deeply enough in the first half of the year to stay ahead of the catastrophic revenue declines eroding their operating margins.

Gannett in the first six months of 2009 reduced expenses by only 10.1% as sales fell 17.8%; McClatchy pared expenses by 20.6% as revenues dropped 25.3% and NYT trimmed spending 15.3% as sales slid 19.9%.

Consequently, the earnings of the companies before interest, taxes, depreciation and amortization fell by respectively 41.6%, 35.5% and 64.6% from the first half of 2008. This put EBITDA in the first six months of this year for Gannett at 17.3% vs. 24.3% in 2008, McClatchy at 15.3% vs. 17.7% and NYT at 4.1% vs. 9.4%.

The improved after-tax earnings of the companies that grabbed he headlines, as the publishers forthrightly explained in each of their financial reports, resulted from such singular events as debt restructurings, tax credits, the disposition of non-core assets and other legitimate – but non-recurring – adjustments.

The performance of Gannett and McClatchy compared favorably to the prior year, because they were not required in 2009 to take sort of heavy losses on overpriced assets that accounting rules required in 2008.

Battling to trim expenses as sales plunged by double-digit levels in the worst economy since World War II, publishers have resorted to heretofore unthinkable cost cutting.

They pared staffs, throttled newsprint consumption, outsourced customer-service operations and consolidated production facilities. The full extent of the savings in some cases will not be revealed until future periods, when lingering shutdown costs and severance payments no longer affect earnings.

As much as these measures helped bolster profits, they are one-time expediencies that cannot be repeated if sales continue to fall in the future at anything like the rate they have been dropping in recent years.

It is impossible to fire an employee who already has been fired, to eliminate a weekend supplement that already has been discontinued or to idle a press line that already has been scrapped. That’s not to mention such unrepeatable maneuvers as eliminating print production on certain days of the week, migrating to web-only publication or shutting a paper altogether.

To be sure, there are those who believe the expense reductions will position newspapers to prosper if ad sales perk up as the economy recovers.

“With all the cost cutting, you just have to have some reasonable growth in revenue and you’ll have spectacular earnings growth,” said John Rogers Jr., the chief executive officer of Ariel Investments, in an interview with Bloomberg News. “This economy is going to recover and people are going to advertise again.”

Rogers has put his money where his mouth is. Though he rode the shares of a number of newspaper companies down from all-time highs to record lows, he remains today the largest stockholder in Gannett and the second-biggest shareholder at McClatchy.

It would be nice if he were right. But he may be underestimating the challenges the newspaper industry faces as it seeks to recover from an accelerating decline in sales that began in April, 2006 – well before the economy unraveled.

When the economy turns around, a good number of traditional newspaper advertisers – bankrupt retailers, de-franchised auto dealers, out-of-business employers and belly-up real estate agents – won’t be there to join in the recovery.

So, you have to wonder not only when advertising will come back but also how much of it will.

You also have to worry about whether the extreme cost cutting has irreversibly damaged the appeal of newspapers.

As Ken Doctor noted in this excellent analysis at his Content Bridges blog, perhaps 828,000 stories per year are not being produced by American’s down-sized newspaper industry.

Newspaper readers, who by definition are among the most thoughtful members of society, are perceptive enough to know they are paying more today for newspapers that deliver far less news and advertising than ever before. They are doing so, to the extent they are doing so, in the hopes they can help the industry survive.

But their patience will not be infinite. If newspapers can’t find a way to do better by their readers, they are in danger of slashing themselves to oblivion.

Friday, July 24, 2009

Texas Trib, one man’s journalistic mitzvah

Looking at the news business from the hard-nosed perspective of a venture capitalist, John Thornton rapidly concluded that “serious journalism is never going to be a good business again.”

But that didn’t stop Thornton, a successful partner at the Austin Ventures investment fund, from putting $1 million of his own money into starting the Texas Tribune, a non-profit online news organization that has begun scooping up some of the cream of the state’s journalism talent.

Thornton (left) is under no illusion that the Texas Trib is going to be a juicy business, he said in a telephone interview.

Rather, he decided to fund the project to make up for what he perceives to be a growing lack of coverage of significant issues by the financially strapped dailies in the Lone Star State.

Thornton said he began to focus on the erosion of public-service journalism in the course of investigating investment opportunities a few years ago for the $3.9 billion venture fund where he works.

“In 2006, we looked at the challenges being faced by newspapers and how guys like us could make a profit,” he said. “The for-profit conclusion was to buy lead-generation businesses and that has worked out for us.”

But Thornton, who also pens the insightful Insomniactive blog, didn’t see how those investments were going to help produce quality journalism.

“I was reminded of something my pastor said when I was a kid growing up,” he explained. “If you mix politics and religion, the pastor said, you get politics. The same thing seems to be true in journalism. If you mix journalism and business, you get business. That’s when I realized serious journalism is never going to be a really good business again.”

Long active in Democratic politics and philanthropy, Thornton decided to abandon those extracurricular interests to develop a new model to produce quality journalism. “Fortunately,” said Thornton, “I am in a spot where I can indulge my greed gland in my day job and pursue my interest in journalism in my civic life.”

The path led Thornton to hiring Evan Smith, the esteemed former editor of Texas Monthly, to help found the Texas Tribune. The Texas Trib, in turn, immediately acquired Texas Weekly and the services of its estimable editor, Ross Ramsey, who will be managing editor of the Trib.

Thornton said he is more than half of the way toward raising the $4 million it will take to support the new venture to the point it can sustain itself through a combination of charitable contributions, NPR-style sponsorship fees, revenues from events and perhaps a few niche print publications.

He anticipates it will take “three to four years” to bring the Trib to the point it can generate $2 million in annual revenues to support a staff of 15 journalists without requiring further donations.

What kind of coverage can this buy? “That is a work in progress,” he said, but cited three major areas of concentration for the online publication scheduled to launch in the fall:

:: “One is the wholesale change in demographics and politics in the state and what that will mean to Texas and on the national scene.”

:: “Big story No. 2 is the Texas-Mexico border – things like immigration raids, public health, safety and trade.”

:: “The third unique Texas story is the energy industry. It probably is the biggest and most important issue under our nose and happens to be inhabited by people with enormous personalities. Nobody covers the energy industry the way the New York Observer covers the media business. We can.”

Thornton says he sees “no reason” why the Texas Trib can’t emerge as the leading voice covering statewide issues, especially since “the percentage of the newshole” devoted to major issues “has gone down as local dailies have focused on where they think their franchise is: local news.”

The Texas Trib intends to complement, not compete with, the local dailies, said Thornton. “Our message to commercial dailies is that we come in peace,” said Thornton. “We have told them we want very much to work in partnership with them. We’re not pretending to replace them.”

Although Thornton believes the Texas Trib can make an impact with an endowment of $4 million or $5 million, he sees no reason why up to $20 million a year in donations could not be available to support non-profit journalism in Texas.

“Most of my family’s philanthropy in the past has been to support dance, because my wife is a former dancer,” said Thornton. “There is $20 million a year going to dance philanthropy in Texas. Why couldn’t there be the same amount for journalism? If we could be as big as dance, you could barely spend that money responsibly. A $20 million electronic newsroom could support 150 reporters. You would kind of run out of places to put those people.”

Thornton said he believes the idea could be readily exported to other states but he is focused on proving the model in Texas first. “I grew up in the franchise-restaurant business and the clowns you took least seriously were those who talked about franchising their ideas before they opened their first store,” he said. “We want to open the first store.”

While he eventually would like to help other projects if he can, “I really want to demonstrate this can be done here,” he said. “If I can do that, then I think I will have done a big mitzvah.”

His pastor would be proud.

Wednesday, July 22, 2009

Realtors repudiate newspaper ads

If the near-term prospects for the housing market are grim, the outlook appears to be even worse for an eventual recovery for real estate advertising in newspapers.

That’s the impresion left from a survey released today by the Aim Group, a consulting organization that used to be known as Classified Intelligence. Being intelligent enough to see how rapidly the classified business is wasting, founder Peter M. Zollman has changed the name of his company.

But there’s no perfuming the results of his new poll, which discovered that nearly 6 out of every 10 real estate agents think newspaper advertising is useless.

While the survey found that nearly 80% of agents still buy print ads from time to time, they report doing so to appease the sellers they represent – not because they actually think it will move any homes.

The survey of some 200 agents by Zollman and colleague Jim Townsend is contained in an in-depth study of the global real estate classified business summarized here.

Real estate advertising in newspapers boomed along with the funny money-fueled housing market, rising to what probably will be an all-time high of nearly $5.2 billion in 2006 from annual levels of approximately $3 billion at the beginning of the decade. (See chart below.)

When the bubble popped in 2008, ad sales came in just shy of $2.5 billion, making for the lowest level since the mid-1990s, according to the Newspaper Association of America.

Given the comparatively high cost of newspaper advertising and low confidence in its effectiveness on the part of agents, it is not surprising that the Aim Group learned 43% of Realtors cut their newspaper ad budgets in the last 12 months while only 6% increased them.

If real estate advertising placed by agents isn’t long for this world, the agents themselves may be endangered, too.

By the time the housing market revives, you can bet a good number of consumers will have forsaken real estate agents in favor of buying and selling homes on their own.

Market information, detailed comps and other free tools make it a cinch to sell- or buy-it-yourself at websites like Zillow.Com. Unless you are flogging real estate in New York, there’s no charge for listing a flat, a farm or a villa with Craig, either.

For those who want a little low-priced handholding, consumers may opt to use such discount brokers as Redfin.Com, which charges buyers and sellers fixed fees for brokerage assistance that saves thousands of dollars over the 5% and 6% commissions customary among most traditional Realtors.

As proof of the growing popularity of its discount-brokerage concept, Redfin, a venture-funded company founded in 2004, reported that it recently moved to profitability despite the real estate meltdown.

Faced with the prospects of fewer transactions and more pressure on their profit margins during the prolonged housing slump, real estate agents are shifting their scarce marketing dollars into cheaper alternatives to newspapers.

According to Zollman and Townsend, the preferred venues include their own websites; social networks like MySpace and Face Book; specialized websites like Zillow and Trulia, and search marketing through Google and Yahoo.

The high-priced, online real estate sites operated by most newspapers “don’t impress,” says the Aim study. Newspaper sites frequently lack the tools and often lack the depth of inventory available at specialized web competitors.

Although demand from home sellers appears to be the largest reason that Realtors still use newspapers, a funny thing happens when buyers start shopping for new digs.

“When sellers become buyers, overwhelmingly they look for listings online, not in print,” noted the Aim report. “In its 2008 survey, the National Association of Realtors reported that 87% of home buyers used the Internet in their home search.”

Not good news for newspapers.

Saturday, July 18, 2009

Why there won’t be another Cronkite

There never will be another journalist with the stature, authority and power of Walter Cronkite.

We were lucky to have him at the CBS anchor desk during the 1960s and 1970s, two of the most turbulent decades in modern history.

But the accelerating disintegration of the media assures that no one ever will emerge again as a single, almost-universally trusted source of straight-up, down-the-middle information during great moments of national trauma and euphoria – and all the ordinary days in between.

Cronkite rightfully earned his stature as the “most trusted man in America” by applying to the ethereal – and sometimes surreal – realm of television the values drilled into him early in his career as a young United Presser: Get the facts, get them straight and get them first.

His authority relied not only on thoroughgoing mastery of the story at hand, but also a time-earned reputation as an honest broker of the information he had gathered. He betrayed no spin or bias, because he was trained to believe it would be unprofessional for a journalist to do so.

In seeking to focus the nation’s attention on such colossal failures as the Vietnam War and the Watergate break-in, Cronkite relied on facts and logic to tell the stories, reporting his findings in a dispassionate style that, he hoped, would lead viewers to the right conclusion.

Cronkite’s power derived from the fact that he was the anchor of the flagship evening newscast of the most prominent of the Big Three networks at the time there were only three national networks.

CBS was the place you went for instant and in-depth coverage when President John F. Kennedy was assassinated and Neil Armstrong landed on the moon. There almost was no other choice.

Everything has changed since then.

Audiences today have fragmented among countless cable networks and interactive venues scrambling for ratings and clicks. Like so many petulant toddlers, the vast majority of the modern “news” venues are stomping, screaming and spinning themselves crazy in the hopes of gaining attention.

Rather than emulating the values and discipline the made Walter Cronkite the towering figure he was, broadcasters for the most part have gone the other way.

That’s the way it is. And, from here on out, that’s apparently the way it will be.

Wednesday, July 15, 2009

Not BusinessWeek as usual

The newsweekly model is so badly frayed that operating BusinessWeek as usual probably won’t be possible for whoever coughs up the putative $1 it will take to acquire the magazine.

Assuming a buyer materializes, an extreme makeover will be required to steer BusinessWeek toward profitability at a time when diminishing readership, slumping revenues and shrinking relevance are perhaps more severe for newsweeklies than they are for newspapers.

One way to pump new life into BusinessWeek may be to augment, or perhaps altogether supplant, its conventional publishing model by turning the franchise into a comprehensive and authoritative destination for independently produced business, economic and securities analysis.

This admittedly radical strategy suggests a number of new and badly needed revenue ideas, as discussed in a moment. But radical ideas appear to be in order for the battered newsweekly business.

In a world where news changes literally at the speed of light – and an abundance of information is free for the taking – the idea is quaint indeed that a magazine would come out once a week to tell us what happened in the prior seven days.

As forward-looking as BusinessWeek and the other newsweeklies profess to be, the genre remains rather hopelessly anachronistic in the minds of most consumers and advertisers.

BusinessWeek faces the same problems as the general-interest newsweeklies, which in recent years have pared their rate bases, cut their staffs and repeatedly redesigned themselves in desperate efforts to reinvigorate their brands. Their actions might have bought a bit more time but certainly produced no game-changing turnarounds.

BusinessWeek might have been expected to fare better than the general-interest books, because it reached a highly desirable audience of business-oriented readers who presumably out-earned and outspent the average person paging through Time or Newsweek at the dentist’s office.

For a while, indeed, BusinessWeek seemed immune. When the global economy plunged into the blackest hole since World War II, however, business and financial advertising were sucked right in. By all appearances, the category will continue to suck for some time to come.

The New York Post reports that BusinessWeek, which ran profits as high as $100 million a year during the Internet boom, lost more than $45 million last year and may lose up to $75 million in 2009.

The buyer who plunks down a buck for BusinessWeek will have to be prepared to creatively deconstruct the advertiser-supported business model that has been the mainstay of most print publications for as long as any of us can remember.

Hence, the radical idea of turning BusinessWeek into the definitive portal for crowd-sourced business news.

The initiative would generate a wealth of original and sophisticated content at zero cost to BusinessWeek, while producing fresh revenues at the same time.

Although crowdsourcing admittedly hasn’t proven to be a particularly reliable replacement for the coverage provided by the professional press, plenty of highly competent business analysts, academics and other qualified parties are itching to tell the world what they think.

This is particularly true at a time when thousands of un- and under-employed professionals would leap at the chance to gain the visibility a publication like BusinessWeek can provide.

BusinessWeek could capitalize on this opportunity by tasking its editors to identify and recruit ongoing contributions from the best authors of market research, economic analysis, investment ideas and other business insights.

The invited contributions would be featured on the BusinessWeek website and the best of them would graduate to the print product, assuming the economics are sufficient to support one.

In addition to traditional advertising and print subscription sales, the BusinessWeek portal could make money in the following ways:

:: After providing readers with free abstracts of premium articles, research, newsletters and blogs, the site could sell access to the full product and split the proceeds with the authors.

As but one example, BusinessWeek might offer subscriptions through its portal to Grant’s Interest Rate Observer, which costs $850 per year or $65 per individual issue. Although author James Grant, an old Barron’s hand, is well known in certain circles, he might be pleased to offer his wares to a larger audience than he can command on his own.

:: BusinessWeek could sell copies of individual research reports via call-to-action buttons embedded in web articles , as well as tear-out postcards stitched into the print product.

To get a sense of the potential market for lead-generation advertising, take a look here at the dozens of reports – a few ranging to $199 and beyond – available for Wal-Mart. Morningstar sells a portfolio management tool for $178 a year. Masters-O-Equity offers an options trading system for $599. And so it goes.

:: Depending on consumer demand, niche web, print and video products could be created on topics ranging from retirement planning to how to start a business. Revenues would come from subscriptions, advertising and lead-generation advertising. That essentially is what U.S. News and World Report has done with its college and auto-buying guides.

:: Conferences and other live events, as discussed previously here, could be another important revenue source.

Where does this leave the high-priced professionally produced journalism we know and love? That will depend on how well the magazine is able to capitalize on the various new revenue streams.

But one thing seems sure: BusinessWeek won’t be capable of producing any journalism if it continues losing tens of millions of dollars a year.

Even at a cost of $1 for the whole shebang, the magazine will be no bargain without a realistic path to profitability.

Monday, July 13, 2009

Papers shouldn’t shy from for-profit events

The dicarded plan to sell seats at dinner with the publisher of the Washington Post shouldn’t be taken by newspapers as a reason to avoid hosting profit-making events that deliver journalistic and public-service benefits to their communities.

The key in organizing for-profit (and pro bono) events is to keep your commercial and ethical priorities straight. The Post, which aired its errors here, goofed not by trying to charge for an event but rather for trying to charge for the wrong kind of event.

Off-the-record power breakfasts, lunches and dinners are among the things that make the world go ’round. Nothing is going to stop them and nothing should. Publishers and editors should keep attending them. They just can’t charge for showing up.

The legitimate way for newspapers to serve the public interest and make a buck is to host events that afford multiple opportunities to generate news and profits at the same time.

If the issue is health care, as it happened to be at the salons scotched at the Post, then there was a huge opportunity for the newspaper to organize a one- or two-day event where prominent experts and interested parties could mingle to mull the issues.

Unlike almost any other organization in the nation’s capital, the Post could draw quite a crowd by leveraging its singular stature as a prominent, neutral and respected brand. The strength of the Post name, the depth of its institutional Rolodex and the persuasive power of its well-connected staff would ensure a glittering array of participants, including potentially The Prez himself.

The gabfest couldn’t help but make plenty of legitimate news, overcoming the reservations of even the most skeptical journalist.

The Post could do well by doing good, too. It could make money by selling sponsorships; charging admission; selling pre- and during-event advertising, and marketing post-event media including web, print and video accounts of the proceedings (which would contain advertising, too).

With health-care bound to be a big story for a long time, the Post could take the opportunity to launch a subscription-only product that would provide timely and actionable information to lobbyists, politicos, academics and wonks who want to follow the legislative sausage-making today and learn how to land their fair share of the federal largesse bound to be dispensed in the future.

The same formula could be employed by the Post and other media companies across the land on topics ranging from autism and economic development to green living and college hunting.

The latter ought to be of particular interest to the Kaplan division of the Post’s parent company and/or our friends at U.S. News and World Report, which have made lovely niches for themselves in the business of connecting aspiring students with institutions of higher learning. If the Post and U.S. News got together, they could produce compelling college fairs to market across the country in partnership with local publishers and/or broadcasters.

College fairs may not produce blockbuster news stories, but they could generate some additional profits to hire a few extra reporters who might. Meantime, well executed, high-profile public service events can’t help but burnish the reputation of the mainstream media as they seek to underscore their relevance to readers and advertisers alike.

With advertising sales bound to be underwhelming for some time to come (and the big-three classified categories unlikely to ever fully recover), publishers need to think more expansively than ever about how to bolster their top lines by leveraging their brands and their still-formidable market reach.

Well conceived events are one of the most efficient, least risky and most obvious ways to do it.

Wednesday, July 08, 2009

Jacko-mania tarnished media credibility

The mainstream media may have covered the bejabbers out of the death of Michael Jackson, but they hardly covered themselves in glory.

The sudden death of the pop star overshadowed all manner of truly significant national and international news for nearly two weeks. And coverage of his memorial service dominated television for much of Tuesday while generating near-record traffic on websites providing streaming video of the event.

So, yes, there was considerable interest in the story. But the media, by any measure, overdid it.

Although Jackson was a major cultural figure entitled to a proper sendoff, the wretched excess of media coverage took another chunk out of the diminishing credibility of the press.

Media executives – particularly the broadcasters who ginned up the wall-to-wall coverage – abandoned responsible news judgment and old-fashioned common sense in their decision to pander to an audience that evidently was not nearly as vast as they imagined.

The media went all out for the Jackson story in spite of a survey released last week that showed a resounding 64% of Americans believed – even before Tuesday’s media orgy– that coverage of the pop star’s passing was “excessive.” The survey was conducted by the Pew Research Center for People and the Press.

That didn't stop the media Pooh-Bahs.

Despite the prevailing public sentiment that Jackson coverage was overblown, the story has claimed the greatest proportion of coverage in the traditional media since he died on June 25, according to the Pew Research Center's Project for Excellence in Journalism, a sister organization to the Center for People and the Press.

Between June 29 and July 5, Jackson grabbed 17% of the coverage in the mainstream media, far surpassing the economy (10%), Iraq (6%), Afghanistan (5%) and health reform (5%), according to a weekly audit conducted by the Center for Excellence in Journalism. The closest competitor over the Fourth of July weekend was Sarah Palin’s surprise resignation, which tied with Jackson for 13% of the newshole.

The Jackson story represented respectively 30% and 28% of the coverage monitored on network and cable television, according to Mark Jurkowitz, the associate director of the Center for Excellence in Journalism. Newspapers, to their credit, accorded the story an average of 7% of their front-page ink.

The survey showing that nearly two-thirds of the population felt the story was overdone clearly demonstrates there was not sufficient public interest in the event to justify saturation coverage.

From a journalistic point of view, there is no conceivable argument that the massive coverage served the public interest.

Thus, Jacko-mania appears to have been a curiously ill-conceived effort among many media outlets to appeal to a public that mostly wasn’t interested.

You can’t build confidence in the press by providing breathless coverage of an overblown event that most people don’t care about.

Tuesday, July 07, 2009

Inland issues ‘reworked’ profit study

The Inland Press Association today reissued an online summary of a newspaper-profitability study after questions were raised about it.

The original summary of the findings was the basis for this Newsosaur post, which stated that Inland found newspapers with circulation greater than 80,000 suffered a 100.1% drop in operating earnings since 2004 but that they had average profits of 12% in 2008.

Tim Mather, an analyst for the association, said the report was withdrawn from the organization’s website during the afternoon so editors could “rework what was previously communicated” about its study of publishing profits over the last five years. The new summary was posted here at the end of the business day.

In discussing the revised summary, Mather said the 12% profit figure represents the average profitability of the surveyed publications over the last five years, not just 2008. He declined to provide data on 2008 profitability, saying it was available only to those who purchased the report from Inland.

When Inland first announced the study last week, it contained errors that suggested newspapers with circulation of 25k-50k had suffered a 190% plunge in profitability in the last five years. On Monday, Inland reported that the drop was 90% and today said the number is 89.1%

“The purpose of the trend analysis is to track newspaper profitability over the last five years and it does that,” said Mather. “But it is not a reflection of today’s full reality.”

Hardest hit: Profits slid 100% at big papers

UPDATED 4:21 PM - July 7, 2009: The Inland Press Association today reissued the summary of the study on which this post was based. The major change is that 12% is the average profitability of large newspapers in the last five years, not solely in 2008. Although the original post is published below, it should be read in connection with the follow-up post here.

The bigger newspapers are, the harder their profits fell in the last five years, according to newly revised data provided Monday by the Inland Press Association.

Profits fell 100.1% since 2004 at newspapers with circulation greater than 80,000, said Tim Mather, the analyst at the trade association who collated financial date reported by 120 papers across the nation.

Compared with other industries, however, publishers on average still are doing remarkably well.

Notwithstanding the triple-digit profit plunge occasioned by a 28.09% drop in advertising sales, the largest newspapers reported profits averaging 12% of sales at the end of 2008, according to the Inland study.

A 12% profit margin is more than double that achieved last year by Wal-Mart Stores, the largest of the Fortune 1,000 companies. A 12% pre-tax profit is just about a percentage point light of the margins run by Exxon and Chevron, the second and third largest corporations behind Wal-Mart on the Fortune list.

The reason margins could fall 100% and profits could still average 12% is that some newspapers plunged from proftabiliy to steep losses but other pubications still generated healthy, double-digit margins, said Mather in response to queries (see comments below) as to the validity of the data.

If average profitability were calculated on a weighted basis, then it might be lower than 12%, he explained. But the association took a simple average of the profitability of each publication in each of several circulation brackets and “that’s the way the math works,” said Mather.

As you can see from the table below, sales in the last five years fell at all but the smallest papers. However, operating profits tumbled in each and every circulation category.

Papers with less than 15k circulation reported that they were able to lift revenues despite a slump in advertising that started in 2006 and has accelerated every quarter since.

Papers with circulation of 15k to 25k suffered the least damage to their bottom lines, according to data volunteered by publishers who were guaranteed anonymity by the industry association.

When the Inland survey originally was released last week, an error in computing the data indicated that papers in the 25k-50k bracket had suffered a 190% plunge in profitability. But Mather said the actual drop was 90%.

The results in the original report were counterintuitive, because the abundance of anecdotal evidence suggests metro papers have been most deeply affected by declines in readership and advertising revenues.

Combined with high and intractable cost structures, it stood to reason that their profits would be squeezed the most.

Monday, July 06, 2009

Macy’s halved newspaper ad spend since ’05

Macy’s has cut in half the amount of money it spends on newspaper advertising since 2005, depriving the struggling industry of some $616 million in sorely needed revenues.

The drastic plunge has hit particularly hard the metro papers that used to rely on sumptuous and highly profitable schedules from the likes of Famous-Barr, Filene’s, Foley’s, Hecht’s, Kaufmann’s, May, and Marshall Field & Co.

Macy’s acquired these iconic local stores – and others – when it acquired May Department Stores Co. for $11 billion in 2005 in a highly leveraged buyout.

In 2005, Macy’s (nee Federated Department Stores) and May together spent a collective $1.2 billion annually on newspaper advertising. By 2008, the spend declined by 51.4%. Macy’s last year bought only $583.3 million in newspaper ads, according to data from TNS Media Intelligence published by Advertising Age.

Macy’s was the second-largest advertiser in newspapers in 2008, trailing only Verizon, which put $681.9 million into the medium. Macy’s far surpassed the No. 3 newspaper advertiser, General Motors, which last year ran $320.9 million in ads.

When Macy’s bought May, one of the major initiatives in the merger plan was a new national branding strategy that would subsume the names of the various local stores under the Macy’s name. The idea proved to be controversial, inspiring revolts among consumers in many cities who unsuccessfully demanded the reinstatement of the names of their favorite local stores.

But the national branding strategy also brought about a major shift in ad spending that hit newspapers particularly hard. (The prospect was predicted here in 2006.)

While Macy’s has been chopping its total marketing budget ever since the merger, the company has increased its reliance on magazine and television advertising to the detriment of radio and newspapers.

As illustrated in the table below, Macy’s put 71% of its advertising dollars into newspapers in 2005 but only 59% of its budget into the category in 2008. In the same three years, by contrast, television advertising rose to 27% from 17%.

The diminishing commitment to newspapers has played havoc with metros across the country, where pages of lucrative run-of-press department store advertising long had been one of the mainstays of their revenue plans.

Given the sharp shift in Macy’s advertising away from newspapers in three short years, this looks to be another one of the long-term secular changes – like the shrinking demand for classified advertising – that won’t be reversed when the economy perks up.

Friday, July 03, 2009

Enough already with ‘mediums’

Hey, fellow armchair copyeditors, do you see anything wrong with this sentence at the Los Angeles Times website?

“Two senior Los Angeles Times editors were given new responsibilities today as part of an effort to create a 24-hour newsroom serving multiple mediums.”

The blunder, of course, is the inappropriate use of “mediums” as a plural of the word medium.

As everyone in the media business ought to know, media is the plural of medium.

Thus, television is a medium. A newspaper is a medium. Together, they are media, not mediums.

The only time the word “mediums” is appropriate is to describe a gathering of psychics.