The Newspaper Industry’s Decline
By James Silver
“Is 2008 the Worst Year in Modern Newspaper History?” pondered the Manhattan broadsheet renowned for its media coverage, amid the turmoil currently engulfing the industry.
Buffeted by the credit crunch, falling advertising revenues and slowly dwindling readerships, American newspapers have been making the news this year for all the wrong reasons.
In the first quarter of 2008, print advertising sales across the sector fell by 14% year-on-year - the eighth successive fall - with recruitment and real estate adverts each plunging by an eye-watering 35%.
Last week, The New York Times announced a 16.4% fall in advertising revenues for June, which followed an 11.9% drop in May.
Meanwhile earnings at Gannett, America’s biggest newspaper group, declined by 36% in the second quarter.
Newsroom staffing levels were slashed at most major titles, with The New York Times cutting 100 staffers and The LA Times announcing earlier this month that 150 editorial positions would go.
And such stories have come hot-on-the-heels of a prediction by no less a figure than Microsoft chief executive Steve Ballmer that newspapers - as we know them - had entered their final decade.
“The whole world of media, communications and advertising are going to be turned upside down,” he told The Washington Post.
“There will be no media consumption left in 10 years that is not delivered over an IP network. There will be no newspapers, no magazines that are delivered in paper form.”
Yet, despite Ballmer’s reading of the last rites for newsprint - and the seemingly unstoppable flow of grim industry statistics - one of America’s leading media analysts remains remarkably upbeat about the medium and long-term viability of much of the US newspaper market.
In an interview with Sky News Online from New York, John Rose, senior partner and managing director of Boston Consulting Group, and co-head of the company’s global media practice, described the notion that newspapers would not survive the decade in printed form as “nuts”.
He explains: “Consumers don’t move that fast. There is no question that digital media is exponentially increasing in importance, but there are lots of reasons that that statement is not going to prove to be correct - largely because there’s a whole group of consumers out there who like print media.”
He adds a caveat: “But that doesn’t mean that newspapers don’t have to fundamentally rethink their business models, because they do.”
The former EMI executive goes on to argue that the business model which made American newspapers highly profitable for decades is currently undergoing “fundamental structural change”.
He says that classified advertising in particular has “leeched away to websites like Craigslist.com, Monster.com and Autotrader.com, which are cheaper and more effective than newspaper websites”.
“All of that has created a profit squeeze based on the fact that you still have a lot of the same costs associated with creating a newspaper, but you’re generating less revenue and fewer readers,” says Rose. “And you can’t cut costs faster than the drop in revenues.”
So how does Rose foresee newspapers remaining profitable as traditional revenue streams decline?
He answers by dividing the industry into three distinct categories.
“True local market newspapers”, in his view, have a bright future.
He says: “Local town newspapers generate a lot of original content - like sports stories from the local high school or the police ‘blotter’ - which matters to its readership.
“It is content that’s not available from any other sources. Those newspapers have made a very successful migration to the web, because if you’re the local pizza parlour or movie theatre, where else are you going to advertise?”
The second segment, continues Rose, contains “the bulk of the newspaper industry - the large metro dailies like The San Francisco Chronicle, The Philadelphia Inquirer and The Chicago Tribune.”
Their prospects, he claims, look rather bleaker.
“Those papers don’t originate enough unique content which matters to a specific audience. They’re too big for truly local markets and they don’t have enough of a national audience. That’s where there’s huge overcapacity in the industry.”
The third category is America’s leading newspapers, including The New York Times and The Wall Street Journal.
These titles, according to Rose, “have the potential to be newspapers of record on specific topics for specific audiences” and look set to prosper in the digital era.
“For example, The Wall Street Journal originates a tremendous amount of financial news and information content and there’s no reason why it can’t be a US - and potentially broader - financial information source of record,” he explains.
“I’d argue you could do the same thing with The LA Times and turn it from an ailing LA-based newspaper into the entertainment industry’s source of record. Same thing with The Washington Post as a political rag.
“So these guys, who can stand for something unique because they own a content community and an audience that is in fact in synch, that is large enough to give them a decent return on investment for covering that market… those guys could have a business model that works.”
The million dollar question plaguing newspaper executives all over the world is how to build revenues from the Web, so that they replace print advertising which has been in free-fall.
Rose says he believes Web revenues will grow sharply for newspapers which meet the criteria he has described.
“I absolutely see newspapers like The Washington Post and The Wall Street Journal [successfully monetizing their Web content], because the content domain they cover is global in scope and of importance to a whole bunch of different people.
“Creating the multi-platform - print, mobile, online and video - distribution of a domain that the newspaper stands for actually has a lot of robustness in it.
“For example, you can create a premium on-demand service, so that if I’m a politico, it allows me to track the politicians or bills or political news I’m interested in and serves the stories up to me as they’re developed.
“And businesses would pay a tremendous amount of money for a service like that.
“What they won’t pay for is generic news which is widely available and free.”
So, 2008 may indeed be “The Worst Year in Modern Newspaper History”, but according to John Rose at least, we won’t be writing the medium’s obituary for quite a while yet.