With European and US newspapers Continuing to Show Sharp Advertising and Circulation Declines Has The Time Come To Ask Whether They Should Be Put Into “Care and Maintenance” And Future Investments Should Be Aimed Solely At the Web?

The answer is probably that circulation and advertising growth for a general newspaper as the industry has experienced in the past is over unless that newspaper happens to be situated in a fast-growing economic area (the McClatchy model).

But if a publisher is willing to revamp the newspaper product to give readers more of what they actually want rather that what editors, through their historical thinking, believe they want (unfortunately not always the same thing), and its editorial spending is redirected into that coverage readers most want (local, local, local rather than some long piece from a foreign land) then there is still a big niche that newspapers can fulfill.

But in making those changes can publishers still rely upon the 20% - 30% margins that newspapers have historically provided? Headlines in Europe and America talk about cutting down page size, closing foreign bureaus, even outsourcing the cafeteria instead of running it in-house, and, of course, redundancies – anything a publisher can think of to try and maintain those historical margins.

But the truth probably is that those margins, for the type of print product we read today, are probably history. In the US margins on average fell last year from 21% to 19%. How much further will they fall? There’s going to come a point fairly soon where the fat is really gone and the cut gets into the meat – and the readers will surely notice that. But to put everything in perspective, there are many business sectors today that would kill to have a 19% margin so newspapers are still a very good business. It’s just very difficult to give up on what you once had.

The fact is that newspapers are today in a race for which there are many coaches out there able to tell how to run the race, and they can dictate all the changes that need to be made in order to win, but the race is really against the clock and no-one has yet figured out how to break that time barrier.

The problem is simple, the solution not yet in sight. Newspapers are losing circulation and advertising at alarming rates. On the other hand, their web activities are adding viewers and advertising at percentage rates far higher than the those percentage drops at newspapers. But advertising rates are so much lower for the web than they are for the newspaper -- it is said that for every print subscriber lost you have to add at least 20 viewers to the web site to make up lost revenue -- and that type of revenue growth is just not there right now even with all the huge increases we read about web advertising.

ftm background

Can Newspapers Maintain Their 20% Plus margins in 2006 On Print Ad Revenue That Could Actually Decline By 1.5%? The Answer May Rest On The Advertising Opportunities Their Own Web Sites Provide.
If a publisher takes as a basic premise that the trends of past years will continue in 2006 – that print advertising growth will be less than 5% -- the bears say it will actually drop 1.5% and fear that is too optimistic -- and that Internet advertising will grow from 20-30%, is there any way to continue the usual 20% plus margins?

UBS’ Own Analysts Sum Up Best What They Heard at Their Media Week: Newspapers Are Investing Online – Where Growth Potential Is Best – But That’s Just A Small Part of the Overall Financial Picture and The Bigger Part Is Having Severe Problems
It wasn’t so much doom and gloom for newspapers at the Media Week meetings last week as much as it was that with a few exceptions things don’t look like getting much better in the short-term, and while their Internet activities are doing very well indeed, when seen as part of the overall revenue picture, those activities, for now, contribute a mere pittance.

Circulation Increases Four Times As Fast As The Internet Is Growing – No, Don’t Get All Excited -- It’s Visitors to Newspaper Web Sites. On the Other Hand, Maybe That Is Something to Get Excited About!
For all the really bad news about US newspaper circulation figures – down 1.2 million in the past six months – there was one piece of good news: the numbers show undeniably that newspaper web sites are the most frequently visited for news and information.

The Bad News for Newspapers Keeps Getting Worse: “Newspaper Revenue Shifts to the Internet” Cries Out One Headline, “Bank Warns Newspapers of Rough 2006” Screams Another
Just what a newspaper publisher doesn’t want to hear: “The consistent growth in overall Internet advertising shows marketers may be shifting more of their total advertising budgets online,”, according to David Silverman, a partner with PriceWaterhouseCoopers.

US Newspaper Internet Sites Grew 2004 Advertising By 26.7%; Print Newspaper Advertising Rose by 3.9%. Which Do You Think Is the Growth Market?
For those newspaper publishers searching for double-digit advertising growth opportunities in 2005 they need look no further than their own web sites. Statistics released by the Newspaper Association of America showed record advertising revenues for US newspaper Internet sites in 2004 of $1.5 billion.

And that is the race –that web and all multi-platform activities makes up at the same pace all those current losses that print experiences as the digital information firmly takes hold.

When ftm wrote recently about this very problem at Verdens Gang (VG) in Norway we said the solution is easier said than done, and a Norwegian reader responded, “We could need an Einstein to deal with the problem.”

When one looks at the amazing advertising growth numbers earned by the Internet it becomes increasingly frustrating. You know where the money is, you know what to do to get that money, but for all of that growth that new money is still not coming in fast enough to make up for the traditional money that is lost during the ramp-up.

Take the UK for instance. Online advertising in 2005 grew by an amazing 65% and is said this year to be continuing at even higher rates. Yet this February, the UK’s largest circulation newspaper, The Sun, saw a 7.48% drop in advertising and a 5.24% drop in circulation from January

The Sun, owned by Rupert Murdoch’s News International, has its own very successful web site, and work is feverishly going on to set up a My Sun site to interface with My Space. If the Sun can’t make it really big on the web via a My Space connection then it won’t make it big on anything.

Murdoch bought My Space last year for $580 million that many people said then was way too much, but eight months later it looks like a real steal – it has the web’s second highest number of page views and it adds some 250,000 additional users each day. A tie-in there surely cannot fail.

The Sun’s February advertising declines far surpass what is coming in from its current web activities. So to narrow the gap the newspaper is hammering hard at expenses – especially editorial expenses -- even insisting on two receipts for every meal charged (the real bill and the credit card receipt – someone has got very clever there, but that’s another story!)

Last year UK national newspapers had a 10.6% share of the total UK advertising spend of £1.4 billion, yet online, which had around 8% of the spend, is forecast to surpass the national newspapers advertising revenue in 2006.

The UK has one of the world’s highest broadband penetration rates, so advertisers are going more for “rich media” ads and broadband consumers do look at these ads on the Internet.. Online classified advertising increased 62% whereas the Internet Advertising Bureau said that newspaper classified advertising actually declined 5.1%

Web advertising numbers are, however, a bit misleading, because such a large percentage of that advertising comes from search – in the UK some 55% of that $1.4 billion represents search. What is also true on the web is the survival of the fittest. Those sites with the most viewers get sold out quickly and raise their rates almost monthly, but for those outside that cluster of high viewership, it’s not such an easy life.

So getting that viewership as high as possible as quickly as possible is the top priority. That means more investment, more convergence and where does that increased investment come from – more than likely from the print product.

Sticking with News International, Murdoch has not forgotten his newspaper roots. Although he seems almost solely concentrated on the web these days, his UK operation has invested some £600 million in new color printing presses – there is a three-year budget freeze to help pay for that – but at least the investment is there. So his national newspapers will be as modern as can be and as colorful as possible; he is giving them the chance to succeed, but it will be up to editors to ensure the right editorial product is there.

Not only did The Sun’s circulation drop sharply in February. The Daily Express reduced its price to 30p but still saw a 2.48% circulation drop in February. The Daily Star, also selling at a reduced cover price of 30p m was down 3.44%. The Daily Mirror, that actually increased its price to 38p, fell 4.1%. All dismal reading.

The true answer to a newspaper’s losing fortunes these days lies in one word “content”, or more precisely, the right content.. The web has changed forever how many print readers gain their information. But there are enough statistics out there pointing the way forward for newspapers – what people want from their daily newspapers and how they balance that with what they take from the web.

But if newspapers are not willing to listen to what their readers tell them, then readers will talk with their feet and move away, and the advertisers won’t be far behind, and that is the stage we are in now.

Publishers need to adhere to what readers say they want in their print editions plus invest heavily in the multi-platform solution. Those who don’t will pay the ultimate price – failure.