Newspapers: They’re *still* dying
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.
Could Google buy Twitter? Ask Arrington, then ask Swisher
******We sprinkled updates into this blog. We’re highlighting them like this.******Thanks to TechCrunch, U.S. tech reporters are about to spend another weekend working instead of playing. UPDATE: Or maybe Kara Swisher at All Things D will save them!******Two sources told proprietor Michael Arrington that Google “is in late stage negotiations to acquire Twitter.” He wrote:***
We don’t know the price but can assume its well, well north of the $250 million valuation that they saw in their recent funding.
***
Twitter turned down an offer to be bought by Facebook just a few months ago for half a billion dollars, although that was based partially on overvalued Facebook stock. Google would be paying in cash and/or publicly valued stock, which is equivalent to cash. So whatever the final acquisition value might be, it can’t be compared apples-to-apples with the Facebook deal.
***
Why would Google want Twitter? We’ve been arguing for some time that Twitter’s real value is in search. It holds the keys to the best real time database and search engine on the Internet, and Google doesn’t even have a horse in the game.
******Later, he updated his entry to say that another source told him talks are at an early stage and could amount to a deal to build a Google real-time search engine. Who knows how this one will shake out. Web operations like Twitter can’t get popular without people starting to fit puzzle pieces together to see which company ought to buy them. That might be why The San Francisco Business Times picked up Wired and Industry Standard founder John Battelle’s blog entry that Twitter would go to Rupert Murdoch’s News Corp for $750 million. Turns out it was an April Fool’s joke.******Then Swisher at All Things D said this:***
Twitter has to (and will) get a lot more than $250M.Robert:I see your story on this topic at http://www.reuters.com/article/technolog yNews/idUSTRE5322A220090403How come you didn’t cross-link to this blog entry? I think that would have been useful to readers who may want to join the discussion on that topic here.
Reshuffle at Yahoo, Microsoft shuffles on layoffs
Rumors of a Yahoo management reshuffling, two newspaper publisher bankruptcies and a bit of PR unsavvy on Microsoft’s part do not make for a quiet weekend. Although not exactly high-octane breaking news, the stuff kept happening in dribs and drabs throughout the weekend, leading me to update my Facebook status thus: “Anupreeta would have liked at least 30 percent more weekend.” But so it goes.
On Friday night, All Things Digital’s Kara Swisher reported that a major Yahoo management reorganization was underway, and could come as early as this week. The Wall Street Journal, which shares an owner — News Corp’s Dow Jones — with All Things D, followed with its own story a day later.
Then, Microsoft — a big employer of foreign workers which took some heat last month from politicians for announcing plans to lay off 5,000 people — dug its heels deeper into the mess. It seems the software giant overpaid some laid-off workers because of an accounting error, and now wants the money back. Yikes. Does Microsoft need to do more damage control than this?
Meanwhile, newspaper publishers continue to collapse like dominoes. On Saturday, Journal Register said it had sought bankruptcy protection, becoming the latest U.S. newspaper company to buckle under a load of debt and falling ad sales. Close on its heels, the Philadelphia Inquirer owner announced it too was filing for Chapter 11 — sending out the press release bang in the middle of Oscars.
Keep an eye on:
- Will Rupert Murdoch’s love of newspapers drag his entire empire down? Maybe, but that isn’t stopping the mogul from looking for alliances to save on costs. (The New York Times)
- Falling DVD sales could hurt the fortunes of media conglomerates. (Financial Times)
- Social networks are a telco’s best friend. (Reuters)
(Photo: Reuters)
Moody’s reads newspapers
Moody’s thumbed through the newspapers of the United States on Monday and concluded what many of us know: the outlook is negative. The summary: ad revenue falls, less money comes in, newspapers have to cut back to survive and it gets harder to pay their debt.
Having said that, this newspaper beat reporter found signs of a thaw, just like a crocus peeking through snow.
First, the negative:
The negative outlook for newspaper-ad revenue has worsened in the past six months as bleak data on the economy mounts, says Moody’s. Rising job losses, the weak housing market and tighter credit availability raise concerns that consumer spending will weaken further, extending and deepening the economic downturn.
The positive:
In addition, default risk is high for highly leveraged newspaper companies, says [Moody's Senior Analyst John] Puchalla, “although we expect some newspaper publishers to default in 2009, the ones that do are most likely to restructure their debt, rather than close shop.
And the really positive:
If you look as newspapers (and journalism) as a requirement for a functioning democracy, there’s an argument (perhaps weak) they should be bailed-out like the banks. A real meltdown in journalism (TV, web, papers) would enable government to screw the voters without worrying about being discovered. Of course the bail-out would end up making the US look a lot like Europe with much more state-funded media.
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.