Bad news about America’s newspapers is tumbling out too fast for their presses to keep up. The closure of “the Rocky” after 150 years capped a week in which the Journal Register Company and the 180-year-old Philadelphia Inquirer joined the owners of the Chicago Tribune and Minneapolis Star Tribune in bankruptcy proceedings.
Hearst is threatening to close the San Francisco Chronicle – and on Monday said it would make the Seattle Post-Intelligencer an online-only publication. Gannett, owner of USA Today, has followed The New York Times in slashing its dividend to preserve cash. Titles from the venerable Cincinnati Post to the six-year-old New York Sun have folded.
Obituaries for the news business are being written in newsrooms around the world as advertising revenues that long subsidised the cost of newsgathering shrink, just as digital media usurp print’s role as intermediary between advertisers and customers. The crisis is affecting not just newsprint: most news magazines, broadcast news outlets and newswires are also suffering.
Nowhere, however, has the impact been greater than in the US newspaper industry, where civic identity and an often monopolistic grip over local classified advertising had sustained an array of titles with journalistic resources envied by many national newspapers in other countries. Dwindling circulation and advertising are nothing new – but until recently the hope was that newspapers might be saved by private ownership or cost-saving roll-ups of titles under fewer, stronger corporate umbrellas.
The bankruptcies and closures prompted by a near one-third decline in advertising revenues since their 2005 peak have shattered those theories, leaving owners looking for new ideas. But what prospect is there of a solution when Barclays Capital predicts a further 21 per cent fall in newspaper advertising revenues this year alone?
A debate playing out in the pages of the properties it most concerns has focused on two new hopes: that charitable endowments may replace commercial business models and that readers who have grown accustomed to finding news for free online can be made to pay. “Enlightened philanthropists must act now or watch a vital component of American democracy fade into irrelevance,” David Swensen and Michael Schmidt from Yale University’s endowment argued in The New York Times this year. The more than $200m (£143m, €155m) annual cost of its newsroom could be covered, they estimated, by a $5bn endowment that would guarantee its independence. Extrapolating from Yale’s calculations, the Nieman Journalism Lab estimated that it might cost $114bn to subsidise every US paper.
Charitable models exist already: ProPublica, producing “investigative journalism in the public interest”, is supported by the Sandler Foundation and other trusts. MinnPost.com was set up in Minneapolis-St Paul with funding from local families and foundations.
Outside the US, the state is at times stepping in. France is injecting €600m ($776m, £554m) over three years by doubling government advertising in newspapers and offering tax breaks for publishers’ digital investments. UK local publishers are lobbying for looser competition rules to allow consolidation.
The idea of charitable or state assistance makes many uneasy. Subsidies could create unfair competition for commercial rivals. In any event, many endowments are already suffering market-driven declines. “The idea of charitable endowments is a bit of a red herring,” says Alan Mutter, a veteran newspaper editor who writes the influential Reflections of a Newsosaur blog.
Two prominent US newspapers are supposedly sheltered by not-for-profit parents, he says, but The Christian Science Monitor has abandoned its print edition and the Poynter Institute is selling the Congressional Quarterly to support its St Petersburg Times flagship: “There’s nothing about that form of ownership that insulates you.”
Instead, the notion of charging for news online is gathering momentum after a cover story by a self-confessed “old print junkie” in Time magazine. Walter Isaacson returned to the title where he was once managing editor to argue that news should no longer be free online.
Until now, only specialised news organisations such as the Wall Street Journal, the Financial Times and trade publications have succeeded in generating meaningful online subscription revenues. With online advertising growth stalling, Mr Isaacson wrote, general news outlets needed to create “an iTunes-easy method of micropayment”, offering their product for a nickel an article or a dime a day in the same way as Apple’s music store sells tracks and albums. Past attempts to charge for individual stories have gone nowhere, but his call came as many owners were concluding that their decision to chase online advertising rather than subscription revenues was not paying off.
Cablevision, the owner of Newsday, and Hearst, publisher of the Houston Chronicle, have both said they will start charging readers of their websites. Arthur Sulzberger, chairman of The New York Times, hinted last week that it would revive attempts to charge for content, 18 months after ending such an initiative. “We have renewed our analysis of how paid content can augment our core advertising business,” he told a university audience.
With the typical item on the Google News home page linking to hundreds of similar – free – stories about the same subject, charging for most news will be difficult “unless the product dramatically changes”, says Anthea Stratigos of Outsell, a publishing research firm. To succeed, papers will therefore have to provide content that readers find more valuable than the mass of commoditised information.
“We must put staff resources behind building those channels of interest that have the greatest potential: those built around pro sports teams, moms and high school sports, to name a few,” Steven Swartz, president of Hearst Newspapers, told staff. Bluffton Today, launched by Morris Communications after it shut the Carolina Morning News, is seen as one way forward: it is hyper-local, with reader-written blogs on its website. But as one of a handful of online initiatives to have spawned a successful print iteration, it represents a model that could have new followers.
Collaboration between publishers on an iTunes for news may, however, be one of several remedies impossible under antitrust restrictions designed in an era where policymakers were more worried about over-mighty media owners colluding than the fragility of the fourth estate. Mergers of neighbouring newspapers, or between print and broadcast owners in the same market, have been blocked for decades.
Media owners express little hope that this will change under President Barack Obama, who campaigned on diversifying media ownership. “It is as if regulators went to sleep during the Eisenhower administration and woke up staring blankly at an iPhone,” John Chachas, co-head of the media practice at Lazard, which is advising on several newspaper restructurings, told the Dallas Morning News last month. Newspapers should be exempted from antitrust restrictions for long enough to establish “an industry-wide system to track and charge for the reuse of their content” by online aggregators, he argued.
Charging for news online could help publishers’ top lines but that would address only one of their problems. The spate of dire news shows the industry’s challenges fall into three broad categories: the mismatch between costs and revenues; inappropriate capital structures; and oversupply. Any hope of a durable news business rests on tackling all three.
"One inescapable conclusion of our study is that our cost base is significantly out of line with the revenue available in our business today,” Mr Swartz told his staff: “It is equally inescapable that during good times our industry developed business practices that were at best inefficient.”
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Jonathan Knee, director of the media programme at Columbia Business School, likens newspapers’ “antiquated” cost structures to those in the airline industry. Labour unions, the inefficient use of printing plants and distribution networks and journalists’ frequent reluctance to ask whether what they want to cover serves the interests of readers have all kept costs high, he argues.
The industry is having to rethink its assumptions, outsourcing printing and distribution and carrying advertising on front pages that long resisted it. The cuts to costs have been sweeping. McClatchy, which owns the Miami Herald, has announced three restructuring plans since June, involving more than 4,000 job cuts in all. A concern voiced by union leaders and investors alike is that indiscriminate cuts will only make it harder to produce content valued by consumers, in print or online.
Several publishers are cutting national or foreign coverage to focus on local areas, relying on newswires for the rest. Five papers in New York and New Jersey plan to share articles and pictures. Again, competition law may complicate further collaboration.
But it is servicing debt that represents one of the largest costs for many publishers. A Moody’s analysis of six large operators in November found all but Gannett had debts above four times their earnings before interest, tax, depreciation and amortisation. In Tribune’s case, the multiple was 12.3. “A number of these newspaper companies are still reasonably good businesses but the problem is they took on too much debt,” says Mr Mutter.
Others estimate that industry profitability is even higher. Mr Knee says newspapers enjoy margins well above those of film studios or music labels – providing a cushion against falling revenues. But to reduce debt multiples to a more sustainable 2-3 times ebitda, tough restructuring will be required. “In some cases bankruptcy may be a good option,” Ms Stratigos says, because it allows publishers to deal with union contracts, pension liabilities and other operational costs.
For some publishers, closing more titles will be the only viable option. The disappearance of some competitors from an oversupplied and shrinking market may help the industry, however. Dean Singleton, owner of Denver’s other paper, said when the Rocky closed: “This dramatically improves the finances of the Denver Post.”
The prospect of fewer, more narrowly focused titles facing less competition, employing fewer journalists and charging readers who once enjoyed their content for free is an unpalatable one for many. It may also be a troubled industry’s best hope.
Source: FT.com
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