For Traditional Media The Financial Woes Are Easy To Explain: It’s The Economy, Stupid!

Philip M. Stone October 2, 2008

It’s not the Internet that is causing traditional media so much trouble these days but rather the economy, according to Dean Singleton, CEO of the MediaNews Group that publishes 44 newspapers across the U.S. He still seems to believe in the cyclical theory that when the economy improves newspapers will once again be doing just fine.

“The biggest thing we need right now is an improved economy, because at least 60% of the revenue problem we’re facing today is good-old fashioned economic recession,” he told paidContent.org.

It was a fascinating interview because when you cut through all the bluster Singleton gave a real incite into how he sees newspaper economics these days, shooting down such popular myths, for instance, that a newspaper needs to earn back from the Internet everything it loses in print. He says that just isn’t so.

“If we lose $1 in print, we don’t need $1 to come back online. we need 30 cents. Maybe even 20 cents, because of the marginal profit that online produces.” In other words it costs a lot less to earn that Internet dollar than it does that print dollar. This is probably why his company focuses so much attention on what it spends to earn that print dollar.

And he is a fan of a convergent sales force that sells print and online. He says if you have separate sales forces for each they will try to outflank one another. “A consolidated print and digital sale is the future and that’s what we’re doing at all our papers.”

Betsy Brenner, publisher of the Milwaukee Journal-Sentinel, has a slightly different take on what ails newspapers. No question the economy has a lot to do with it, she told the Milwaukee Press Club recently, but the industry is also undergoing a fundamental shift in its business models that causes publishers to “lie awake at night.” In her opinion it’s really about newspapers transitioning themselves to a more digital future.

Whether it’s the economy, or revenue flight to the Internet, the fact is newspapers are earning a lot less these days, and as good a way as any of measuring that is from the Ad Age annual survey of media revenue which throws up some startling comparisons.

Twenty years ago within the top 100 US media companies, newspapers brought in 35.9% of all revenue and newspapers were the largest revenue source for 37 of the top 100 companies.  With like-to-like definitions of “media revenue” newspapers today now account for just 11.5% of the total revenue for the 100 top media companies, with only 22  of the top 100 media companies saying newspapers represent their largest income. Twenty years ago Gannett, the country’s largest newspaper publisher, ranked as the fourth largest media revenue earning company; today it is 14th.

Hard to believe that back in just 2005 newspapers were pushing at the $50 billion revenue mark ($49.435 billion) and yet based on the 2008 first half performance of just $18.8 billion in sales (including online) it looks like newspaper revenue for the year is going to fall well short of the psychologically important $40 billion mark, and it hasn’t done that since 1996.

Two newspaper online ventures – CareerBuilder and Classified Ventures -- have gotten big enough now to be included within the Media 100. And Yahoo’s launch of its APT display ad sales delivery and targeting system has the newspaper industry buzzing. Yahoo says that 784 newspapers from 35 media companies have signed up to use the open ad serving, ad targeting and ad exchange network. Via geo-targeting, APT looks to improve online display revenue by delivering more relevant targeted ads for each user

And what will be a real winner is that ad agencies will eventually be able to buy ads through APT that are served over multiple publishers sites.  Agencies’ major peeve is that currently for each newspaper they need to make a saparate sale.

Yahoo Chief Executive Jerry Yang personally introduced APT at an Ad Week presentation last week and it was obvious that with the “Chief Yahoo” so personally involved that the project has a very high priority within the Yahoo organization, as it does within the newspaper industry although most of the really big newspaper players have yet to join.

AdWeek reported that Yahoo executives are “likening its effect on advertising to the advent of color television and introduction of the DVR.”Yang himself called the system a “game changer.” Singleton, who  was on stage also for the unveiling, declined to say how much he has earned from Yahoo’s newspaper consortium so far but he seemed very pleased and did say that  online advertising revenue is currently about 25% of his company’s cash flow and he  expects that will become 50% within five years.

But, as Ad Week also noted, while it all sounds great on paper (it’s not all developed yet) “at the end of the day, the success or failure of APT boils down to one thing - execution, execution, execution.”

The go-it-alone route for newspapers is fast becoming business model history – whether it is doing deals with the Devil, as online search engine companies are often thought to be by traditional media, or doing deals with life-long traditional media competitors in order to reduce costs (we’ll deliver your newspaper here if you will deliver ours there; we’ll print your newspaper for a fee so you don’t have to make a massive capital investment;  unrelated newspaper and TV newsrooms using one another’s editorial output, and so on).

The bottom line in all this, of course, is that it really doesn’t matter so much why newspaper revenues have gone down as much as they have; what really matters is what newspapers are doing to win back that lost revenue and again achieve reasonable cash flow.