'Frightsizing newspapers'
By Ken Doctor Posted Dec 1 2008
It’s tempting to consider what has happened to the American newspaper industry as a series of natural disasters.
In the ‘90s, we experienced the minor earthquakes of disrupted classifieds when such phenomena as Craigslist.org and Monster.com took revenues from newspapers. Then fires, blazes that included the generational movement to web reading and advertisers moving dollars to search-based online sites, followed. The industry was damaged, but like many a small town buffeted by natural disaster, it put on a proud face and vowed to solider on. Then the tornado hit. That tornado, a deepening and confounding cyclical economic decline, has slowed ad spending overall and has inflicted much greater damage to all the revenue lines enjoyed by the newspaper industry.
Now, as we approach 2009, the town fathers and mothers are surveying the damage all around, and girding for more trouble.
We can assess the damage by the numbers. In 2007, newspaper ad revenues declined 7.9 percent. In 2008, classified ads declined more than 20 percent, and retail ads fell by more than 10 percent. Fewer ads have meant fewer stories, and newsprint usage has dropped between 10-15 percent as a result. The bigger picture is just as grim. Share prices for companies like Gannett Co., The McClatchy Co. and Lee Enterprises declined up to 75 percent in less than a four-year period, and 5,000 newspaper jobs had been cut by mid-2008.
There are more horrific numbers, but those tell enough of the story. We’ve entered the era of the incredible shrinking newspaper. Downsizing or rightsizing may be terms used publicly, but the more apt term is frightsizing. Only panic can explain the rapid shrinking of the U.S. dailies, in newsrooms and in the products delivered daily to readers’ doorsteps. And the poor readers, along with other observers inside and outside the industry, have been left with their mouths agape.
What happened to my paper? What happened to the American press?
And how could it have happened so quickly? How could a robust industry move so rapidly toward unprofitability, with MediaNews CEO and current chair of the AP board William Dean Singleton recently suggesting that 19 of the top 50 U.S. dailies are now unprofitable?
Many veterans of the news industry will say that what has happened is less a series of natural disasters, though, than a slow-motion train wreck. It’s a wreck greatly compounded by Internet revolutions, but the engines showed signs of colliding long before. U.S. dailies really hit their apex of household penetration in the ‘50s, when the average US household took more than one paper daily. Those were the halcyon days of morning and afternoon papers that served people throughout the day, much as the World Wide Web does today.
In the years since, multi-paper towns turned into single-paper towns, and broadcast TV news and then cable TV news took chunks of readers. Radio remained strong as commute times increased. The news began to follow us, to the point that we now live in a news bubble. We don’t have to go and get the news; it comes to us, in elevators, by radio and Web and from friends’ e-mails. And newspapers have changed far too little.
Let’s take a quick tour of the recent revolutions that have turned a longstanding problem into a nightmare. Then, let’s look at where we might be going.
Jim Batten had a glimmer of the unraveling to come years ago. As CEO of Knight Ridder in the early ‘90s, he saw cracks in the newspaper business model that had created huge newsrooms. I recall him suggesting to a meeting of editors and publishers that “the newspaper industry owes more to the institution of the American department store than it does to the First Amendment.” A long-time editor, Batten savored the privilege of being part of one of the few industries mentioned in the Bill of Rights. He understood, though, that such mention only got you so far.
He understood that it was the full-ad-page-buying department stores, not the Bill of Rights, that fueled the growth of newspapers. He understood that the classifieds, which used to contribute as much as 60 percent of newspaper profit, were responsible for paying the middle-class salaries of thousands of journalists.
A decade later, around the turn of the century, I remember standing on the new mezzanine level of the Philadelphia Inquirer, where a person could peer out over more than 500 journalists churning out the news. It was a majestic view, and one that seemed timeless.
That Inquirer newsroom, like most around the country, is now emptying out.
What happened? In short, we’re in the midst of two revolutions that have quickly sapped the vitality of the U.S. print news industry.
The first revolution is the reader revolution, one with which most journalists are familiar. It might seem to be the prime culprit in our drama, but really it’s been of secondary impact.
Yes, the revolution has led readers away from print and to online. We can track that movement in print circulation decline, which has averaged 2-3 percent a year for the past four years. We can also track that movement in knowing that newsreaders spend about the same amount of time taking in news (61 minutes) as they did a decade ago. They just divide it up differently, and spend less time on print and broadcast and more online. That’s particularly true of younger readers, as we see a generational fault line with younger readers preferring digital delivery.
The revolution that has had more impact, though, is the ad revolution.
In 2008, more than $25 billion will be spent on online advertising in the U.S.. It’s the fastest growing ad segment, still growing in double digits. That’s money that’s largely come out of print and broadcast ad budgets.
It can be mind-boggling to figure out why. Could all that Google-placed search advertising make such a difference? Consider though that what the Web has done is revolutionize the relationship among buyers, sellers and middlemen.
Once businesses wanting to sell their wares had to be advertisers, buying space (newspapers) or time (broadcast). They assumed the risk, hoping that those ads would bring in sufficient paying customers. Now the risk-reward equation has shifted. Google and Yahoo, having little advertising business to put at risk, essentially told advertisers this: you don’t have to take as much risk as you used to by purchasing ads for large sums in the vague hope of reaching people who will buy from you.Only pay us when someone actually clicks on an ad and moves through to your site. In addition, they told them: our magic algorithms will ensure a friendly audience by matching up your ads with the news and info that people are looking at.
That ad revolution, abetted by scores of new online ad competitors in recruitment, automotive and real estate, has inflicted great damage, which has left newspaper companies reeling.
Yes, newspapers have transitioned online, but the data indicate that the transition has been less than successful. Local news sites simply don’t pull sufficient traffic to draw sufficient ad dollars, and they’ve fared poorly in competition with portals such as Yahoo, MSN and Google as well as with niche sites such as Marketwatch, ESPN and BabyCenter. It takes about 20 online readers to generate the ad revenue one print reader supplies. As a result, newspapers still derive only about 8 percent of their total revenues from digital sources, and remain reliant on declining print for the rest.
Add it all up, and there’s an industry formerly comfortable with more than 20 percent margins now gasping for air.
The phenomenon we are seeing is a global one, though the U.S. is plainly ground zero for it. From Japan to Western Europe, we see the same shifts in motion, though they’re slower and more nuanced. Those papers have always relied on circulation for a greater share of revenues, and that’s provided some buffer, so far. It’s easy to get depressed about the current state of the American press. At the same time, it’s worth stepping back and looking at the broader information revolution and its promise.
In the immediate term, the frightsizing of the industry is hardest on those in it. It’s a mighty disruption to be sure, as thousands of jobs, much craft and habit (good and bad) and much experience are being lost. Like mill workers and autoworkers before them, middle-aged journalists are feeling what it’s like to be cast aside with little prospect for earning the kinds of wages their craft used to provide.
For readers, though, the new age promises universal and usually free access to an infinite number of news sources and commentaries that cross borders and viewpoints as never before possible.
As the new world gets reshaped, the bifurcation between global/national and local news is also growing.
Emerging to cover the U.S. and the world are a dozen or so well-financed news operations with great journalistic and audience reach. Important here is the Web mantra: produce one, distribute many. These companies, from the New York Times to the BBC, all have booming multi-platform visions in mind. They each have their own challenges, but have good shots at success in the new world.
It is the local publishers who can’t seem to find a road map to the future. They used to bring their readers the world, the nation, sports, business, you name it.
Now, local publishers see their worlds almost exclusively through local, some say, hyperlocal, eyes. That’s meant a renewed focus on what’s happening in city halls and city neighborhoods, on local sports fields and in family life. Adjusting to this changed focus is hardest for big metro dailies, and for reporters with ambitions greater than local-coverage reporting can usually satisfy.
Beyond content focus, the means of doing journalism are rapidly changing, as journalists are called on to master blogging and learn multimedia skills.
For local readers, of course, a big question is how much reporting they’ll get, in any form, as the ranks of local reporters thin.
How will all these changes play out in local markets? McClatchy CEO Gary Pruitt makes it painfully clear that his “visibility is limited.” Pruitt clings to the tenent of community service in journalism, athough the company he heads has lost more than 90 percent of its market value in two years and was valued by Wall Street at a minuscule $350 million by midsummer 2008. “We’ll become a smaller, more efficient company,” he recently told analysts. No one wanted to ask the most obvious journalist’s question: how small, how soon?
Make no mistake, journalism is re-forming and that means lots of energy around enterprises outside the daily newspaper companies. Those enterprises, though, aren’t creating new jobs at anywhere near the rate that the old ones are being shed.
The energy around the newer journalism, however, is evident, and it’s rising in intensity. We’ve seen a dozen or so high-spirited local sites from MinnPost in Minneapolis/Saint Paul to PegasusNews in Dallas. We’ve seen national, investigative-focused ProPublica and politically-oriented Politico, as internationally-focused Global News plans a launch in early 2009. Newer entrants such as Arianna Huffington’s Post are making waves as well.
To borrow from American philosopher William James, it may be best to describe this helter-skelter journalistic world as “a blooming, buzzing confusion.” Major questions of trustworthiness and credibility have arisen amid the clamor of new voices, but, ironically, so has a newfound energy. Today, we can’t see this new world in great clarity, but we can see its contours.