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MBP Overview: Newspapers Struggle to Survive, Updated 4/18

The gloomy news coming from the newspaper industry - lay-offs, plummeting ad pages, shrinking readership, the rising costs of publishing a print edition - seems to continue unabated as each week brings more announcements of closures, pressure from stockholders to increase value, and speculation that the day of the print newspapers is over.

One, the world’s oldest newspaper which has lost the battle to remain in print, is perhaps an illustration of just how dire the situation for print publications has become.

Disappearing ad dollars

As ad dollars move online, newspapers are seeing their online ad revenue surge. But even a predicted growth rate online of 30 percent may not be enough to make up for losses in print revenue, and the newspaper industry could face a revenue shortfall of $20 billion by 2010, according to a report released by media research firm Outsell, in August.

Merrill Lynch said in May that although newspaper publishers are adapting their business models to adjust to the migration of advertising and readership online, these papers are “being too aggressive with their online pricing,” pointing out that some competitors such as classified sites don’t charge at all, while others charge lower prices.

Yet in the face of such competition, some major newspapers such as The New York Times and the Wall Street Journal plan to increase ad rates in 2007.

Newspaper strategies

To deal with such challenges, newspapers are cutting costs by trimming the size of their pages, offering new ad space such as on front pages and section fronts, reducing staff, and eliminating such content that, said Seattle Times editor in chief Mike Fancher of his decision to stop publishing stock tables, readers can find elsewhere.

Other newspapers, such as the Indianapolis Star and the Charleston (S.C.) Post and Courier, are reaching out to new demographics, such as mothers and families with young children, in order to boost circulation.

Newspaper groups such as The Tribune Co. are also selling off non-core assets,  while others such as Knight Ridder have been sold following pressure from stock holders to increase shareholder value.

Still, it is clear to many large newspaper groups that cost-cutting measures and small circulation gains alone are not enough.

The Yahoo Consortium 

Seeing that the migration to the web must be harnessed if newspapers are to survive, some newspapers are forming partnerships with online entities. Twelve newspaper chains - representing some 264 daily papers nationwide (as of 4/18/07) - have partnered with Yahoo to share content, advertising and technology, for example. The newspaper consortium’s deal with Yahoo initially consisted of the newspaper chains’ posting employment classifieds on Yahoo’s HotJobs classified jobs site as well as using HotJobs technology for their own jobs ads online.

However, talks have expanded beyond that, and the websites covered under the agreement will now use Yahoo for web search.

The nation’s three largest newspaper publishers - Gannett, McClatchy and Tribune - are also pulling together to offer advertisers one-stop shopping for display ads on internet sites, allowing large advertisers such as car makers and phone companies - who don’t want to waste time negotiating ad deals with several newspapers - to use a single point of purchase to reach a nationwide audience.

For newspapers to attract national advertisers on the local level has long been a challenge because of price: papers can increase price points for local advertisers who don’t have other means of reaching a local audience, while national advertisers find it easier and cheaper to engage in television advertising or magazine advertising. That way, they can reach a national audience without having to negotiate with dozens of local papers.

Online, national advertisers can, even more easily, run display or banner ads across a network or with a portal, which is why such a network may make good sense.

The local advertising market is a vital one for newspapers to capture, because it represents an enormous opportunity right now: while advertisers are migrating steadily to the web, local advertising still only accounts for about 28 percent of online advertising, versus about half of total ad spending, according to Colby Atwood, president of media research and consulting firm Borrell Associates.
Local business people step in

Some newspapers are considering selling to local business people, believing that local owners could have more luck than large newspaper groups. McClatchy, for example, sold the Philadelphia Inquirer along with its sister paper, the Daily News, to a group of local investors in May. Former GE executive Jack Welch has expressed interest in purchasing the Boston Globe, but owner The New York Times Co. has said it has no interest in selling.

Welch and adman Jack Connors reportedly see the purchase of the Globe as a civic, as well as a financial, investment, hoping to return the paper to its community roots and to stem the tide of cutbacks in editorial budgets and losses in advertising and circulation.

Newspaper industry analyst John Morton has said, however, that when local business people own a newspaper, conflicts of interest become a concern that “may be aggravated by the fact that these new owners don’t come out of a newspaper culture.”

That didn’t stop Chicago real estate mogul Sam Zell from bidding for, and winning, the Tribune Company, however. 

Readers still love ‘em

In the midst of these developments, a number of surveys have been released showing that readers still value the ads in newspapers. A Scarborough survey released last summer, for example, showed that newspapers are ranked by readers as a top media choice when making purchasing decisions on products and services. The study was sponsored by the Newspaper Association of America as part of the industry’s multi-million dollar advertising campaign designed to “surprise advertisers with the truth” about consumer engagement with newspaper advertising.

Despite such surveys, some analysts are predicting a miserable year for newspapers. Based on declines in national, retail and real estate advertising, which may continue for some time, Citigroup analyst William Bird wrote in a note to investors in October that, “A key risk for the group is that 2007 newspaper growth could be worse than expected.”

Newspapermen disagree with evil predictions

Not surprisingly, some top newspaper executives disagree with the doom and gloom surrounding newspaper industry news. McClatchy CEO Gary Pruitt, for example, has pointed out the fact that 54 percent of adults read newspapers, while nearly 60 percent do on Sundays.

He acknowledged the fact that subscriptions and ad revenues are dropping - but he added that in each of the communities in which newspapers compete, most papers have the largest news staff, the largest sales force, the biggest audience, and the greatest share of advertising in its market. “Whether it’s on the internet or off the presses, we are capturing that business,” he wrote in the Wall Street Journal last March.

To the right, see lists of related stories on: newspapers (general), studies, sales/acquisitions, new editions/ad formats/launches/initiatives, lay offs/cost-cutting,  Los Angeles Times kerfuffle, predictions, and more MBP Overviews.