MediaFile

Newspapers: They’re *still* dying

June 4, 2009

Moody’s debt analyst John Puchalla analyzed the state of newspapers today. Conclusion: The sun rises in the east, usually in the mornings. In other words, newspapers are still doomed.

Despite the report’s obvious conclusion, it’s worth reading for Puchalla’s analysis of the cost structure that newspapers deal with. Here’s an excerpt from the press release announcing the report:

Currently, a structural disconnect exists in the newspaper industry’s cost structure. Just 14% of cash operating costs, on average, are devoted to content creation — the primary value creation activity — while about 70% of costs support the print distribution model and corporate functions. The remaining 16% of cash operating costs relate to advertising sales — another critical task that drives the majority of newspapers’ revenue. The overall imbalance limits the industry’s flexibility to overcome competitive threats. …

Most newspaper companies have moved only slowly away from in-house print production and distribution, said Moody’s. Thus, high operating leverage for the industry remains, and is creating intense pressure on cash flow as revenue declines.

“Ultimately, we expect the industry will need to reverse the vertical integration strategy through cross-industry collaboration and outsourcing print production and distribution processes,” said Puchalla. “Although newspapers may lose some of their in-house control over press time, they would also release resources to beef up investment in content and technology.”

While Moody’s does not anticipate a widespread shift by issuers to an online-only business model as the revenue loss is too significant at this point, such a change would meaningfully lower operating costs. Reducing the frequency of print editions is a hybrid approach that may result in cost savings while preserving newspapers’ value-added service for advertisers, said Puchalla.

The upshot? Newspapers must “monetize” their online content (can we think up a real English word instead of “monetize?”) at the same level as print and keep cutting costs, or else their credit ratings will suffer and more of them will shutdown.

This seems to leave managers with only one way to stay in business for now. If you want your credit rating not to fall further, lay off a few hundred or thousand more employees and make sure the newspaper features a bunch of under-edited news, lame stories and mostly wire copy. Repeat process as often as possible until shareholders and bondholders have a chance to cash out. Then look for another job, maybe as a McKinsey-style efficiency consultant.

(Photo: Reuters)

Comments
15 comments so far | RSS Comments RSS

i keep hearing all this talk about the demise of the news paper industry,i am not a betting man but would risk a wager any time on the survival of news papers like “the new york times for services rendered to the democratic party.how will it be done?it will be called a national institution that can not be allowed to disappear and it will receive a yearly superscription from the government.like the auto unions for their continual support it is naive even think that any policy that does not benefit them would even be considered.

Posted by brian lee | Report as abusive
 

Monetize has been a ‘real English word’ for a while now. You might as well ask for a better word for the “internet”, or wish we could find a better way to discuss “e-commerce”.Welcome to the 21st Century. We have more words here and many of them come in handy.

Posted by Eddie | Report as abusive
 

I really like your conclusion ; )in my view, you can also say that the core of the problems in that only 14% of the full op cost are spent on content, when content is the essence and the core of newspapers value. Too much management with results that are hardly measurable task, not enough staff member passionate about their topics.A true solution for both media and agencies would be to focus their internal resources on the utmost original content that no one else can provide. Also, process of content creation shall be re-conceptualized to take into account the current landscape of sources.Newspapers jobs has always been to ask question. Let’s start asking question to themselves, challenge their vision. I am sure we – as an industry – are able to find the relevant answers about the future of our media and jobs. But first, let’s really ask the question !

 

The financial woes of the newspapers has more to do with their unwillingness to challenge the veracity of statements our politicians make. Many have been a tool of the government. Reporting news is not simply providing transcripts of statements made by the Administration or Congress. If journalists will not endeavor to bring the public the truth as to what Washington is really doing then there can be no governance by informed consent. Perhaps Brian Lee is correct. Those news agencies most helpful to certain political parties will be bailed out.As for me I will continue to surf the net to find out what is going on. I find it interesting a bipartisan bill is being sponsored in Congress to give the President authority to close down the internet whenever he deems there to be an emergency.

Posted by Anubis | Report as abusive
 

I fixed the problem with a systemic answer relating to a complex architecture, for its part Apple, Google, Amazon and the newsindustry has done everything it can to build around my intellectual property. There is One answer and only One Answer and I require $250,000,000.00 to build it and that is a Non-Negotiable Amount.Unfortunately, the industry based largely upon intellectuals work, do not like the fact that someone outside themselves has Solved the Problem. This is of course as they reach out to companies like Google who are part of the problem and have zero to do with the solution.The news industry needs to get away from the pursuit of 20 something Bong – ‘HITS’ and get back to being viable commercial enterprize, this takes a business designer and I have done the work with an original solution from outside both the standard internet industry and the news media industry, they keep choosing to keep doing the same things with the same people who are every day, ‘bankrupting them’ to get a few more points out of their share price for a clubby group of US Bankers, in need of their next ‘fix’.To which I suggest:Get over it and get me the money to do the job.You have One (1) Option and only (1) Option. I suggest you take it.

 

I have to disagree in part with Puchalla’s conclusions. I would argue that the “70% of costs” in support of the print distribution model has been borne by newspapers largely to support ad sales. Newspaper publishers have always argued from a mass reach position of dominance within their markets. And to support this position, they began publishing all sorts of frivolous things in an effort to be all things to all people – for the sole purpose of boosting subscribers and making more money from advertising sales in turn. All of these frivolous content sections are done better on the web, and have been for a long time. They should have seen this coming. Instead, they choose to fiddle as Rome burned.

Posted by Ron Lichtinger | Report as abusive
 

The potential demise of the print media is their own doing. If they would be objective in their reporting and not be in the tank for the current administration they would most likely survive. By being extremely biased in their reporting they not only hurt the country but their business.They dare not question or deeply probe this administration nor any of the democrat operatives such as Pelosi, Reid, Murtha, Frank, ACORN etc. So in return they are not reporting the news. They are just puppets of this administration and will soon be looking for a bailout. I hope they do not get a bailout but instead go back to true journalism or RIP.

Posted by Steve | Report as abusive
 

It’ll be interesting to see how monitizing (that comes up as a spelling mistake!) e-business goes given the spending generation has got used to everything being free in cyber-space. The structure of the media industry generally has driven the profit margin to such a slither via the grouping together of companies it’s in a bind of it’s own making (and it’s probably not just the media industry in that bind).

Posted by Peter H | Report as abusive
 

Chop down newspapers, save the trees!And besides, who needs these newspapers when the news are on the Internet real time?

Posted by Anonymous | Report as abusive
 

Newspapers are anothet example of LP Records and General Motors….there is no point in resisting change…the internet is just more efficient and powerful….so sadly our future genrations will see nespapers only in musuems

Posted by ssverma | Report as abusive
 

Bad news isn’t wine. It doesn’t improve with age.-Colin Powellhttp://www.allthequotes.com/

 

I have to agree with Ron Litchinger: the “distribution game” has played out. Newspaper advertisers and media buyers know that so much of their ad spend is “fluff”, bound to remain unnoticed.Advertisers reason that in a “one newspaper town” there is no better play for a “broadcast” message, especially when the tendency is universally toward audience fragmentation and higher advertising costs-per-thousand, CPMs. Large ads with good placement work; small ads buried in pack pages do not.The debate is really about ad efficiency and more particularly, about a public information model built on advertising support.The nature of the (advertisign) game remains eye-balls, subscriptions and “page views”. Advertisers have decided they were no longer willing to pay for “fluff” and henceforth require that their publishers deliver efficiency.Get focused.

 

Dear Sir,i am a regular commentator of various subjects of American newspapers.I wrote many comments on readership,about good articles,public opinions in New York Time, a b c news,n j times etc.,Today also , i have read that many leading newspapers started closing or reducing production of supplements ,or renting their premises,or reducing their work force for want of maintaining the existing low readership and on.As a regular reader of all your newspaper from college days,i am pained to say that,this is not at all a healthy trend.Newspapers are must for reading,enriching knowledge,wisdom,general awareness in the society.I do not want put blame on any websites.

Posted by krishnamurthi ramachandran | Report as abusive
 

If the newspapers prefer to maitain business models from the last century then they should die.The amount of money they generate is enough to build new infrastructure so if they continue to ignore the reality of the Internet then they don’t deserve to survive anyway.

Posted by Rod Upward | Report as abusive
 

I think this is a form of intellectual and content Darwinism that we are experiencing. This started with Music, now Newspapers and Magazines, next will be TV and then films. Gaming is huge. 80% of the films being made today have the game built right into them. There are online series and films in development now, it is all moving to a handheld microchip near you. Live theatre will survive(ironic isn’t it, the stuff that takes real talent usually lasts through the centuries:writing, theatre, painting, art),and I think you will see 3-D move into holgram depth as you have the starship burst out of the screen or you are beamed up into the terminator. The transformer will walk off the screen. This is beginning to happen, and it will continue to evolve. Coming soon to a theme park near you.These people(newspapers, and the networks are next) were arrogant, and did not get out in front of this tidal wave of change.The people who sell newspapers or magazines are selling buggy whips. TV heed this you are next.Don’t say I didn’t tell you so..

 

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