The One Overwhelming Conclusion Out Of Media Week For The US Newspaper Industry Is That Things Will Continue To Get Worse Before They Get Better

Philip M. Stone December 7, 2007

The speakers put on their best spin about increased digital investments, more cost cutting and the like that would eventually transform their print business, but the bottom line at the UBS Media Week remained that print shows no sign of recovery for the first few months of 2008 and who knows what might happen after that.

For investors attending the three-day annual media festival there was little to take home to encourage investing in the sector. Some examples of what they heard:

• “2007 was not a good year for anybody in the newspaper business.” – Donald Graham, CEO of The Washington Post Company.
•  “As we look to 2008 many of the economic challenges remain, particularly in our California and Florida. markets – Gary Pruitt, CEO, McClatchy.
• We are not seeing much different” for the first few months of 2008 – Craig Dubow, CEO, Gannett.
• “While we believe that print will continue to be a viable medium for many years to come, overall print advertising and circulation have been declining. Therefore, our job is to grow our digital profits quickly enough to outpace print declines.” – Janet Robinson, President and CEO of the New York Times Company.

There were more comments like that but you get the general idea. Business conditions are tough, print’s decline continues unless you’re the New York Times that had remarkable success with its circulation rate increase in July, and the only real salvation, besides continuing to cut costs, is digital investment. And all of this assumes no recession; if a recession hits then all bets are off.

The most used word to discuss the future was “challenging”. The theme throughout was that since print revenues aren’t likely to increase much, if at all, that there would be single-digit percentage declines in headcount.

And Wall Street did not like much of what it heard. No sooner had Gannett, for instance, pretty much confirmed the market’s Q4 weak expectations than it shares hit their lowest intraday level in more than a decade before bouncing back a bit.

The best that McClatchy’s Pruitt could offer was “"We do expect to see some improvement in revenue as the year progresses, but it will likely still be down in the mid-single-digit range for all of 2008." And he admitted that growth would probably come because of lower debt payments than from an improvement in advertising revenues. Its shares are down 75% since it announced its buy of the Knight Ridder newspapers in March last year.

The E.W. Scripps Company, which is splitting itself in two and so basically isolating its weak newspaper business from its successful cable and television ventures, said it expects newspaper revenues to be down in the low single percentages for next year, and yes there would be headcount losses.

Since digital revenue increases currently don’t come close to making up what newspapers are losing on the print side and probably won’t for some years to come, cost cutting is still very much the vogue.  Even the New York Times has cut support positions in editorial and has budgeted overall staff reductions costs of $14 - $16 million in Q4. Editor Bill Keller has warned his staff of a general review of everything the newsroom does. “As we approach 2008, it is clear that the newsroom is going to have to do even more to tighten spending, and to help the publisher and the Times Company meet the difficult financial challenges facing our industry,” he said in a recent memo.

There’s hardly a day that goes by when some metropolitan newspaper isn’t announcing ways to cut its costs. The Seattle Times is looking at outsourcing its trucking, the Kansas City Star and the San Diego Union Tribune are offering buyouts, and the list goes on and on.

Of course none of this seems to deter Gannett’s USA Today from treating these conditions as “the good old days” when newspapers could impose annual advertising rate increases. It says it is increasing its advertising rates in 2008 by what it calls “the mid single digit range” -- for the past couple of years that figure has been 6%. Problem is its advertising revenue each year is decreasing by more than that 6%. In October it reported its ad revenue for the month was down 6.1% compared to October a year ago and Publisher Craig Moon says he expects to see advertising revenues decrease by 7% for the year.

Maybe the Olympics and the Presidential elections will help give a lift for 2008, but the best outlook Gannett Chief Financial Officer Gracia Martore could offer investors was that “the advertising environment continues to be challenging.

”But perhaps the most startling presentation came from Donald Graham, chairman and CEO of the Washington Post Company, who spent the first 18 minutes of his presentation convincing the room the company is no longer a media company but an education and media company. His enthusiasm for the Kaplan education business knew no bounds and his delight that in Q3 its revenue exceeded the media part of the business was reason to celebrate. He said that growth would continue into 2008 and that for the first nine months of this year Kaplan’s revenue growth was 21%.

“Investing in traditional media in recent years has not been rewarding; reinvesting in the education business has been very rewarding,” he said. So the Washington Post Company’s way out of the traditional media malaise is diversification -- emphasize the strength of its education business which, after all, probably provides some sort of financial cushion for the newspaper so one can’t really complain. (And he probably has board member Warren Buffett to thank for that diversification strategy).

When Graham started talking about the media side of the business his tone changed. This was not the “happy” part of the business. He made clear that he is disappointed in the Post’s results this year (Q3 revenues down 7% over the year earlier) and he said he had an absolute commitment “to do whatever is necessary to bring The Post newsroom and the business side into the transition to new media.”  He said it was “plain as day that people do not have the appetite for newspapers as they once did, but they do have that appetite for news in a larger sense.” He wants to see the Post’s news wherever people want it – online, mobile and anything else.

And he also noted that whereas when one looks at Amazon.com it is about as good a web site as one could wish for buying a book  he doesn’t believe anyone has yet come up with such a definitive news web site. And that, he said, is his aim – for the Post to come up with that definitive news web site.

Toss all the newspaper and advertising presentations together over the three days and one concludes that the future for the US newspaper business in 2008 is still dismal with continued cost cutting. There will be increased digital investments to speed up when digital income can offset print’s declines, and there will be investments in businesses outside of print, but as for the print product itself, well, the less said about that the better.

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