Check out, too, the first two installments of this post – on retailing and private equity.
#3 Newspaper Publishing
One might think that things couldn’t get any worse for the newspaper industry than 2008. Think again.
The newspaper industry enters 2009 with a boatload of problems, some of owing to the recession and others owing to the long-term decline of the industry in general. On the former score, the recession is going to have severe adverse effects on the industry as many key players are heavily indebted and will require fresh capital to maintain operations. Credit, however, is scarce, particularly to high-risk borrowers. For the same reason, I can’t imagine that there will be a great deal of interest in M&A, either. Neither trade nor financial buyers will be able to access the borrowing required to pull off deals in the industry. Newspapers, then, are stuck and by necessity will need to contract or sell off assets to generate cash, which is never a great idea in a recessionary economy. This is dynamic behind The New York Times Co.’s (NYSE:NYT) announcement that its slice of the Boston Red Sox baseball club, as well as the Boston Globe, are on the market.
Another major cyclical problem is advertising revenue, which is ebbing. While this is related in part to larger issues (discussed below), we just happen to be in a shitty advertising cycle right now, which compounds the longer-term problems with most newspaper publishers’ business models.
Outside of these cyclical problems, there are also some entrenched, long-term secular challenges as well, and these are probably more daunting than anything the recession might throw at the industry. First and foremost is managing the transition from print to digital circulation. Only a few publishers in the newspaper space have pulled this off with aplomb. Given that we’re over ten-years’ deep into the Internet Age, we are quickly entering a shake-out period where those publishers that can’t get their clicks and bricks in the right proportion are simply going to go by the wayside. Adapt or die.
That is how James Surowiecki, writing for The New Yorker, partly viewed the situation last month. He wrote:
“Papers now seem to be the equivalent of the railroads at the start of the twentieth century—a once-great business eclipsed by a new technology. In a famous 1960 article called “Marketing Myopia,” Theodore Levitt held up the railroads as a quintessential example of companies’ inability to adapt to changing circumstances. Levitt argued that a focus on products rather than on customers led the companies to misunderstand their core business. Had the bosses realized that they were in the transportation business, rather than the railroad business, they could have moved into trucking and air transport, rather than letting other companies dominate. By extension, many argue that if newspapers had understood they were in the information business, rather than the print business, they would have adapted more quickly and more successfully to the Net.”
On a related front, in 2008 we saw the model for online distribution of content shift decidedly toward the “free model,” or providing most content on the web for free in order to attract the advertising revenue that more eyeballs bring. Even The Wall Street Journal, whose content for so long was shielded by a pay-per-view barrier, has moved most of its content to the free zone.
Is the free model viable for the long term? I don’t think so – at least, not for major content-generating companies like The New York Times Co. and Dow Jones – but smaller, regional papers might not be able to generate enough traffic otherwise.
Other secular issues are directly related to the internet problem. Circulation is declining in nearly every market; classified advertising is in long-term decline as well, with web competitors like Craigslist, eBay, and social-networking websites quickly filling the space formerly occupied by newspaper classifieds.
The problem with classified advertising, long a staple income for newspapers, also reflects a larger cultural problem for newspapers. The advent of RSS feeds and the ability of users to aggregate feeds into their own personal “newspaper” destroy not just the concept of a print newspaper, but also of a news website. News-reading software is like TiVo for web content and is bound to change the very way we think of the content we receive.
The real-world ramifications for all these negative trend lines have started to hit home in force. The Tribune Company, publishers of the Chicago Tribune, the Los Angeles Times, and the Baltimore Sun declared bankruptcy last month, not long after Sam Zell purchased it for over $8 billion. The New York Sun, a small daily in the Big Apple, suspended operations. The Miami Herald is reportedly up for sale, as is the San Diego Union-Tribune.
There is sure to be more distress in the next year. Surowiecki concluded his New Yorker piece in a properly ominous tone, writing,
“But it would not be shocking if, sometime soon, there were big American cities that had no local newspaper; more important, we’re almost sure to see a sharp decline in the volume and variety of content that newspapers collectively produce. For a while now, readers have had the best of both worlds: all the benefits of the old, high-profit regime—intensive reporting, experienced editors, and so on—and the low costs of the new one. But that situation can’t last. Soon enough, we’re going to start getting what we pay for, and we may find out just how little that is.”
The Survivors
They will be bloodied and half-lame, but obviously, survivors there will be. At the top of the list is Dow Jones, publisher of The Wall Street Journal and now Rupert Mudoch’s latest media toy. Gannett Co., Inc. (NYSE: GCI) is another that will survive; The New York Times Co. will survive. What differentiates these businesses from others?
Scale and brand are two obvious things. Few newspaper organizations have the collective resources, the talent, and the vision (though “vision” in the newspaper business is a relative thing) of these companies. Also, USAToday, The Times, and The Journal are leading national brands for news and information in a way that other large regional papers are not.
Second, these businesses are beginning to catch on to the web thing. Not that they are in the vanguard by any stretch, but that they’re merely becoming competent in terms of packaging themselves and their services online. Their thinking has improved about how to go about being a multimedia information company, not just a newspaper.
Witness Gannett’s recent acquisition of Ripple6, Inc., a provider of social media services. The Ripple6’s of the world are basically the Redbook and National Geographic of the new generation of information consumers, marketing products and services to niche audiences in the guise of journalism. Kudos to Gannett for sustaining some semblance of a strategy in the digital space.
Of course, acquisitions like Ripple6 won’t cure what ills newspapers generally, but if more newspapers would conceive of their content as separate and distinct from the newspaper itself, they might be able to do more than just survive, but thrive. Time is short – the era of the newspaper in the US is quickly drawing to a close. I wish the newspapers well, but I'm certainly not investing in them.
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