“The Internet Is No Longer An Add-on …It’s Now Our Primary Medium” – Media General’s Explanation Of How Important The Internet Is To Media Companies

Philip M. Stone June 20, 2007

For all the presentations being made this week at the Mid-Year Media Review in New York, the statement by Reid Ashe, Media General’s chief operating officer, sums up best what they all seem to be saying, “The Internet is no longer an add-on. For many applications such as breaking news or, increasingly, classified advertising, it's now our primary medium."

Now that comes from a company that owns three metropolitan newspapers, 22 daily community newspapers, and more than 150 weekly newspapers and other publications, plus 23 network-affiliated television stations. It operates 75 online enterprises aligned with those newspaper and television outlets.

And the company made clear, as have the others, that it is no longer about how many watch a television station or read a particular newspaper – it’s all about “total audience” no matter what the platform.

“At the core of our strategy is the goal of increasing our total audience in all markets. We are achieving this by creating a strong Internet presence, by introducing new products and services, and by continually enhancing our newspapers and television stations,” said Marshall N. Morton, president and ceo.

And no doubt for Media General being able to cash in on “total audience” can’t come fast enough. The company’s May newspaper revenue figures were a disaster – down 14.9% over the same month a year ago. The company has a huge problem in Tampa (see background story listed in the box on the right) and Tampa can take the blame for much of May’s terrible figures, but, as Morton said when announcing those figures last week, “We were very disappointed to see the retail category decline, a reflection of major retailers holding back on spending in virtually every market.”

And why such attention on the Internet? Morton is looking for $40 million in online revenues this year, growing to $50 million next year. “Going forward, we are focusing increasingly on display and rich media ads from local and national advertisers. These categories have grown 65% and 104% respectively, in 2007,” Morton said at the New York meeting.

For all its problems, Tampa is an interesting market. Via the Tampa Tribune, WFLA-TV, and TBO.com, Media General has a full 76% reach. But even with such reach its problem, of course, is that the increased online revenue doesn’t come close to replacing the revenue hemorrhaging at the newspaper.

Belo’s presentation by Robert W. Decherd, chairman and ceo, expounded on the same Internet theme. "We are creating new print products to reach targeted audiences and leveraging our newspaper franchises to build sustainable Internet businesses," said Decherd. "Concurrently, we are maintaining a strong focus on core newspaper operations, which remain the primary driver of cash flow."

That cash flow statement is all important -- it was also made by Media General’s Morton.  Newspapers are still cash cows – perhaps not as big as they once were, but they still turnover considerable dollars and it is that cash flow that supports the entire media organization. As Morton put it, “Strong cash flows in our Publishing segment will help fund growth in all areas.”

Belo, like all other newspaper groups, has also instituted many newspaper cost-saving measures and some have paid off handsomely. For instance, Decherd said The Dallas Morning News reduced its distribution to a 100-miles (160 km) radius of Dallas/Fort Worth, which resulted in a cost reduction of $9 million annually with little or no affect on advertising revenues.

And he warned the company was instituting further circulation measures that will save considerable sums of money, but will also mean further large decreases in circulation numbers. "Some of these circulation initiatives are ongoing, so we expect circulation at The Morning News to decline over the next few six-month reporting periods, and that rate of decline could at times exceed other major metro newspapers where different policies are in place.”

And then he laid the strategy squarely on the line. It is not about short-term results but rather long-term policies. “In actively marketing our products, the emphasis should be on attracting quality subscribers rather than seeking quantity at any cost. Instead of focusing on short-term performance, our goal over time is to deliver a stable audience with a demographic profile that is very attractive to advertisers -- and do so in the most cost effective way possible," he explained.

That kind of language will not endear Belo to a Wall Street that gets very nervous as circulation numbers decline continually, but in the long-term it is exactly what it and other newspaper groups need to do.

For the Journal-Register Company the newspaper emphasis was also on the savings their newspapers have made. Chief financial officer Julie A. Beck bragged, ““Same-store newspaper operations non-newsprint cash expenses were down 4.1 percent in the first quarter of 2007.”

Her outlook for the rest of the year: Same-store advertising revenue will be down approximately four to five per cent, while online revenues should grow by about 30% and circulation revenue should increase by approximately 0.5%. Non-newsprint cash operating expenses are expected to decline by approximately two to three per cent and newsprint consumption, also on a same-store basis, is projected to be down 5% for the year. She added that newsprint’s cost is down by about 6%.

And Journal-Register is also counting on the Internet to provide big bucks in the future. Daryl Hively, Vice President of Interactive Media, reported that the Company’s online revenue growth is approximately 23% through May.

The thorn in all this is that newspapers have been reporting pretty dire April and May numbers and there is little reason to believe that June will be any better.  And the cause is continuing -- advertising weakness in classifieds, retail and national. May classifieds were down 12.9% at both Gannett and the New York Times Company. In national advertising Gannett’s USA Today saw a 7.8% drop, and in retail the New York Times Company was down 14.9%.  And while Internet percentage increases are encouraging, they are not growing as fast this year as had been forecast and they still are not enough to replace print’s revenue losses.

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