Tuesday, June 15, 2010

Make no mistake: Newspapers are still in trouble

With newspaper share prices up some 380% in the last 12 months, even the ordinarily incisive Economist Magazine last week offered an upbeat appraisal for an industry that many had written off for dead a year ago.

But it is flat wrong to believe that newspapers are on the mend in the United States. In fact, American publishers missed out on the broad advertising recovery that took place in the first three months of this year.

This should trouble anyone who works at a newspaper – and everyone who values the industry’s singular capability, when it is on its game, to enlighten our democracy.

As illustrated in the chart at left, newspaper and magazine sales in the first quarter dropped respectively 9.7% and 3.9% at the same time television expenditures advanced 10.5%, Internet rose 7.5% and radio gained 6.0%.

The ongoing contraction in newspaper advertising – coming on top of a 40% sales skid in the two years ended on Dec. 31, 2009 – adds further support to the thesis that the industry is suffering from major structural changes in the media market that will not reverse fully in even the best of economic circumstances.

The secular shift away from newspaper advertising is illustrated vividly in what happened in the early months of the year in the automotive category, where year-over-year vehicle sales grew by 17.2% through May after a sluggish start in January and February.

While manufacturers and dealers on average increased their ad budgets by 18.6% in the first quarter of the year, automotive classified at newspapers fell 16.0% in the same period. The over-all market data is from Kantar Media, the ad-tracking company formerly known as TNS. The newspaper data is from the Newspaper Association of America.

The story was the same in two other key verticals where advertising should have advanced as the economy perked up:

:: Although the U.S. Census Bureau reported that retail sales were up 6.3% nationwide in the first three months of the year, advertising in the single most significant newspaper category was down 11.2% in the period.

:: Although the National Association of Realtors reported that contracts to sell existing homes were up 21.1% at the end of March, real estate ad revenues at papers were down 27.3% in the first quarter of the year.

The only positive growth posted by newspapers in the first period of 2010 – which also happened to be the first advance in any category in 24 months – was an increase of 4.9% in online advertising. But this pales in comparison to the over-all industry improvement of 7.5% in the same period, suggesting that newspapers are continuing to lose ground in even the vital interactive marketplace.

With advertisers for the most part stepping up their schedules in the hopes of grabbing greater share for their businesses as the economy inches toward recovery, the above trends suggest marketers may well have learned to do without newspapers during the long recession.

Seeking to save money while building visibility for their brands, many marketers experimented during the downturn with such targeted and less expensive media as cable TV, online classified sites and niche print publications. Of course, many also learned that some of the most productive online environments – such as employer-operated job sites and Craig’s List – are downright free.

Now that the economy has improved, they see no reason to rush back to newspapers, where ad prices are high and audience response ordinarily cannot be quantified as easily as it can on Google Analytics (which also happens to be free).

By not keeping pace with the turnaround, newspapers will continue to lose ground they can ill afford to lose. The industry’s $5.2 billion in combined sales in the first quarter of this year were less than half the volume achieved as recently as the comparable period in 2005.

A revenue collapse of this magnitude would be sufficiently catastrophic for any industry. But it gets worse.

In addition to a formidable revenue challenge, newspapers are facing a soon-to-accelerate erosion of their reader base as their superannuated audience ages inexorably toward extinction.

Half or more of the circulation at most newspapers is composed of individuals who are aged 50 and older. This concentration means that newspapers on average have twice as many senior readers as exist in the population as a whole – and that, by logical extension, they are not engaging the younger readers that they must attract for a prosperous future.

While newspaper publishers have been able to boost the battered profitability and beleaguered share prices of their companies by cutting deeply into headcount and news hole, these short-term expedients are no substitute for forward-looking strategies to create innovative print and digital products to revitalize their audiences and attract fresh ad dollars.

No business ever cut its way to success. Newspapers won’t either.


Blogger enigma said...

There's no doubt that newspapers are facing a structural change. The monopoly model that has worked so well for the last half-century has been broken by the Internet.

This means to thrive, newspapers have to revert to the habits of a business operating in a competitive environment. Unfortunately, this is something that's not going to come easily.

Newspaper publishers can't just sit back and wait for the ads to come. They won't. They have to market their product, using imagination to create the advertising opportunity.

Publishers also have to invest in their product, spending lots more for a lot less profit. That's the new and the old normal. For auto dealerships, a good gross profit is 2.5 percent. Grocery stores exist on 1.5 percent. In 1900, an 8 percent profit margin on a newspaper was obscenely high.

This is the world that newspapers now exist. Will newspaper publishers face up to the challenge? I guess we'll see, but it pays to remember that what kills industry is rarely, if ever, business conditions. The fatal blow is the industry's adamant failure to address these business conditions. Industry dies because it has no will to live.

1:49 PM  
Blogger Tom said...

I sure would have a lot more confidence in this type of data if the newspaper corporations and the small owners served up more specific data about specific newspapers. Hell, they have a monopoly in their markets, what's to hide?

5:23 PM  
Blogger Danny Sullivan said...

Isn't some of the rise in internet spending going to include spending at newspapers with online editions or with other internet operations. It seems like that might make the drop less dramatic.

5:30 PM  
Blogger Unknown said...

As I read this in my iPhone, I think, "Sad but true."

6:30 PM  
Blogger msd said...

Newspapers will die a well-deserved death for their failure to be a relevant, useful player in today's wealth of media options. I worked in print and left when I saw the writing on the wall, so to speak. Their time has simply come and gone.

It's not that they didn't embrace the web, but that, almost to a man, they did it so poorly. With perhaps the singular exception of the Washington Post -- who adapted early, but more importantly, 'got it' and adapted well -- every paper failed on the web because they sought to replicate the newspaper experience online, which demonstrates a complete lack of understanding of how consumers evolve their behavior on new technologies.

The real tragedy is that it didn't have to be that way: had they saw the true trends and user behavior patterns emerging, they could have been contenders. Instead, they made the fatal mistake of not separating the journalistic mission from any given platform that will emerge and evolve.

Understanding how new technologies could leverage and optimize journalism in new ways that would resonate with readers (who are now users) could have saved newspapers. Instead, most editors, news managers, and even some die-hard reporters feel threatened by user engagement, scoff at Twitter's potential for real-time breaking news or rolling news coverage, never think that audio files of interviews or pdfs of court documents or a parallel blog about the investigative process could enrich a detailed enterprise piece that was months in the making, etc. But they'll take their 6,000 word masterpiece that runs in print, put it on the web verbatim with nothing else, and think they're web savvy.

Newspapers mistakenly equated journalism with platform; and that, to paraphrase Yoda, is why they fail.

I have little sympathy for an industry who had ample opportunity to see it coming and instead of grabbing the bull by its horns, chose to run away and hide, deluding themselves that they could remain relevant because, after all, they were 'journalists', the great public watchdog. Of course they were, but it wasn't enough, and now it's too late.

9:06 PM  
Blogger enigma said...

Mustafa: Haven't you ever heard the Marshall McLuhan quote, "The medium is the message"?

You can't separate newspaper journalism from paper and ink. You wouldn't want to separate it. The medium shapes how the news is reported and edited, it shapes what's covered and it shapes how it's consumed.

Newspapers are newspapers, TV is TV, magazines are magazines, books are books, radio is radio and the Internet is the Internet. The medium is unique and so is the message.

I don't know what journalism on the Internet will ultimately be like, but I'm certain that its awesome capability in distributed file archiving and sharing, combined with its profound revenue limitations, is creating something that will ultimately be transformative but offer little resemblance to "journalism" as we know it.

8:11 AM  
Blogger Jim said...

I'm 64, spent 38 years in the newspaper business before retiring in 2006, and I think I'm going to cry.

Jim Fitzpatrick

8:41 AM  
Blogger edward allen said...

If newspapers are sunk in such a advertising mire funk, please explain why David Black would pay $125 million to Gannett to buy the Honolulu Advertiser. He has now turned the town into a monopoly and increased ad rates. I assume he's planning on getting his investment back, something your analysis here seems skeptical about. Also, the San Diego Union sold recently to an investment group. These people aren't stupid, and they are expecting a return on their investment. The bottom line: investors don't seem to be as down as you are on the future of newspapers. I wonder what they know.

2:09 PM  
Blogger Unknown said...

Edward, by your logic we all should have emulated Sam Zell and Brian Tierney, to say nothing of Rupert Murdoch, who paid $5.5 billion or so for the Wall St Journal and soon had to write down half of it. Rich guys are somewhat irrational on the subject o newspapers. Or maybe it's just that newspapers traditionally paid a major part of their dividends in some kind of ego coin, which was no longer available when they became public companies. Anyway, it's possible David Black et al know something. But when Sam Zell bought Tribune Co he was considered pretty smart too.

5:30 AM  
Blogger Mike said...

Social Media Marketing is fast becoming the way to market your product or services. Ford Motor Co. and Volkswagen are two prime examples of this trend.

8:48 AM  
Blogger enigma said...

Mike: Don't overestimate social media. Ford and VW are making use of it, but as a small part of a very traditional TV-based marketing campaign.

9:27 AM  
Blogger palmer said...

@enigma said: "The monopoly model that has worked so well for the last half-century has been broken by the Internet."

From a news position that monopoly still exists today. What many newspapers are having a hard time getting their arms around is the enemy is not the Internet but rather, 'news apathy'.

National and World news is freely available from multiple sources and has been for years. Remove the Internet and it is still widely available through several television channels, radio (Sat. and Terr.), and even nationally distributed newspapers.

Local news is their only somewhat proprietary property... but it faces 'news apathy' as I referenced earlier. The majority of people do not have the time or concern for most local news. Local news consumers/followers can be a very vocal bunch, but, they are a minority.

Newspapers need to focus more on what many people did subscribe and pick up single copies for, advertising.

Advertising is simple. It's about putting a message in front of a consumer. Newspapers STILL have a considerable audience and strong reach, print & web.

12:15 PM  
Blogger enigma said...

Palmer: My experience has been that "news apathy" is simply a result of poor journalism. Local news coverage today is thin, obsessed with government meetings and process, and written with all the literary flair of the Federal Register. It's no surprise that readers don't care...it's news that isn't worth caring about.

Meanwhile, the cost of a newspaper subscription has been escalating to the moon.

As for advertising, I've watched it collapse because of greed and a shear lack of creativity in salesmanship. As with subscriptions, advertising has been operated on a model of "take it or leave it," and now, thanks to the Internet, advertisers are leaving it.

9:03 AM  
Blogger msd said...

enigma: But now you're equating message with journalism with message and medium, and I submit they're all distinct. Even if you accept the "medium is the message" argument, it's precisely that mind set that got papers into trouble. I'm saying that core journalistic values -- accuracy, balance, thoroughness, and the investigative techniques taught to deliver them -- are intangible, quality core assets that must remain independent and robust enough to be able to withstand and adapt to new ways of consumption.

From a user perspective, media consumption can be defined as the choices, actions, and materials used to solve the problems of fulfilling a need or realizing an intention. .

People seek out media for the content or information carried within it that can help them get their needs met. Whether you're needing to plan your leisure time (checking movie schedules), stay abreast of events (news), or relieve sexual frustration (porn), any material sought (i.e. content) -- in and of itself -- is only part of the mechanism of exchange, some of the currency by which these needs get met. What this currency buys you is the fulfillment of that need.

Note that information/content is, in a strict sense, independent from the form that carries it (media), though the two share an increasingly symbiotic, evolving complex relationship. For example, to look at movie times, I have a variety of distinct options: I can check online, look at the newspaper, call the theater on the telephone or download an iPhone app. Take your pick for porn options.

Those options make up the "choices and actions" portion of the above definition, and it's the other aspect of the currency's value: how those needs get met, not just what content is delivered to fulfill it. Content is just a part of what people seek to ultimately meet a given need; media or platform is solving the problem of how they want to meet it.

In the case of news operations, the content itself will be shaped by how well those journalistic values are applied; how that content is consumed is now shaped by emerging technologies and the study of user behavior surrounding those technologies. That's a whole discipline papers completely overlooked.

Ultimately-- and were seeing some signs of it now -- those technologies will loop back to inform and enhance the journalistic process: reporters will learn to collaborate, build query databases, etc.

But the journalistic process, the content that it produces, and the media on which that content resides and gets consumed -- are three very separate, though symbiotic, entities.

12:59 AM  

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