There’ll Be No Bailout, But That Doesn’t Mean That Much Of The Newspaper Industry Isn’t One Step from Bankruptcy

Philip M. Stone Novermber 25, 2008

With tongue firmly in cheek a couple of months back this column suggested that since the banks and the auto industry were getting bailed out then why not newspapers? Well, the tongue is still well in cheek, but the awful truth in the intervening months is that for many newspapers to survive they may well need a bailout of one sort or another.

What really should have gotten everyone’s attention is a presentation made at an American Press Institute meeting of 50 newspaper CEOs a few days ago in which an esteemed turnaround specialist put up a chart and firmly told the publishers that their industry was in a crisis mode, one step from dissolution. So what did the 50 publishers decide – they said they would mull over the information and come back in six months with some ideas. Here’s hoping all of them have six months!

The man putting up the chart was James Shein, the well-respected Clinical Professor of Management & Strategy at the Kellogg School of Management at Northwestern University. He is a frequent lecturer and author on corporate renewal, and he is often quoted by the media. He did not mince words with his audience, “The biggest hurdles to progress are the industry’s senior leadership, including some of the people in this room. I am not sure you can take a look at your industry with fresh eyes.”

His verdict: the newspaper industry is in or approaching the full-blown crisis stage, just one step above dissolution, with some companies a little above the line and some a little below, and he really is pessimistic that the industry has the skills to fix itself without outside help.

And what really worries him is that the fall is now happening so quickly that few newspaper companies realize how little time they have. As a basic slam at financial executive officers he said many probably didn’t know how to do what is necessary now -- to determine whether a company’s return on assets still exceeds the costs of capital, to eliminate accruals and GAAP accounting from balance sheets because they could mask cash shortages, and to create forward cash-flow analysis in 13-week increments.

And if that wasn’t all bad enough another turnaround expert told the publishers that slashing staffing is not going to solve their problems. Steve Miller, executive chairman at Delphi Corporation, an auto-parts maker, warned, “Cutting staff will reduce costs, but it won’t happen fast enough, and will erode the product”. (Hark, finally an independent expert who is saying that slashing the editorial numbers is not going to do the brand any good!) “You have to reinvent the business model,” Miller said. Downsizing, he noted, should be part of a larger strategy and not just a cost-cutting goal.

Reinventing the business plan – there were lots of tips on how to go about doing that but neither Shein or Miller produced an actual new newspaper business plan model, so maybe it’s easier to say generally what needs to be done rather than actually coming up with what specifically needs to be done. So off go the publishers to ponder it all for six months when in fact what they need to be doing is instituting that new  business plan during those six months.

One participant got real close to the problem. “We don’t have a crisis of  audience,” he said referring to the fact that if you take newspaper print circulation and add the page views from newspaper web sites that readership is probably at an all-time high. “The crisis,” he said is “a crisis of revenue.” And by that he pointed out the major flaw in the current business model thus far—that for every $1 a print ad earns, the same ad on the Internet earns around 15 cents.

So the readership is there, but the ad dollars are not; so how to fix? Some publishers are putting more emphasis on ad sales, giving more commission for a Web ad sale, hiring specialist ad sales people, and the like, but while that may mean more ads might get sold will that added revenue be enough to offset what print is losing?

ftm for a few months now has been crying out that the business model is indeed broken and the emphasis now needs to go back to getting people to read print again where the real ad dollars are but to achieve that print has to give readers a good reason to buy a newspaper every day.

We made one suggestion that got a very favorable comment from a 30-year-old male – just the demographic newspapers are anxious to win back. This guy stopped reading his local metropolitan newspaper years ago for all the known usual reasons, but he was really attracted to the idea we gave a couple of weeks back that newspaper web sites should give away display advertising to their print customers that would go something like this, “See pages 5-6 of today’s newspaper for details of our two-day sale”.

The 30-year-old said, “Now that would get my attention. If I knew that Macy’s or some other store was having a sale, and the ad told me there would be menswear savings, say buy one shirt and get the second at 50% off  and I could go and save $25 or so in buying some  shirts and the like then that gives me a good reason to buy the newspaper and read it daily, if only for the advertising.”

So there’s one key in changing the business model. We know the older folks want the newspaper for news, but the younger people are more interested in the advertising bargains – they have read the news online already.  So if advertising is the one thing that can grab the young person’s attention (since under the current business plan local news – the truly premium newspaper product is still stupidly being given away for free on the Web), then the newspaper web site needs to do everything it can to promote print advertisements, and do so in a way that makes the young person think that he/she can financially benefit  from buying the newspaper.

It’s a little like the old marketing routine of adding up the value of all the food and similar coupons found in the Sunday newspaper and then promoting as a banner on the front page that the potential supermarket savings are far more than the cost of buying the newspaper.

If news is no longer the primary reason for buying a newspaper for certain age groups than accept that as fact and use the web site and other digital platforms to promote print advertising.