Enough is Enough
Shortsighted cutbacks pose a serious threat to the future of newspapers.
By John Morton
John Morton (firstname.lastname@example.org), a former newspaper reporter, is president of a consulting firm that analyzes newspapers and other media properties.
Newspapers are cutting back. Newsroom layoffs are widespread. News space has shrunk as newspapers consolidate sections and eliminate customary features. Circulation, on the wane since the late 1980s, is being deliberately reduced to eliminate unprofitable delivery in areas far from core markets.
True, a lot of the stuff that no longer appears in print can now be found on newspaper Web sites for those with the ability and patience to look for it, using time that could be spent actually reading a newspaper. Web television listings are a particular pain, requiring multiple manipulations to learn what a glance at a printed page provides.
All these reductions are a response to two years of declining revenue and profit and a perceived shift of readers and advertisers to the Internet. They are typical of the cost-cutting most industries do when faced with adversity. Yet newspapers are unlike most industries, and what they are doing is not only wrongheaded but threatens their futures. Let me explain why.
There is no mystery about what is afflicting newspaper revenue now. While local retail and national advertising revenue is down about 5 percent, classified, which in recent years accounted for about 35 percent of total advertising revenue, is off about 16 percent. The reason for this is that the sources of most classified advertising — automobiles and real estate and job recruitment — are themselves in a tailspin.
In past newspaper recessions, the industry resorted to cutbacks like those now taking place. When the recoveries came, newspapers found themselves in weaker market positions. All the cost-cutting had taken its toll, but eventually newspapers, owing to relatively low levels of competition, were able to recapture much of what they had lost.
Now here they go again, doing the same thing, and the consequences will be worse. This time newspapers face formidable competition from the Internet.
Can newspapers really expect to recapture what they have lost with less circulation, a thinner newspaper offering fewer services to readers, with editorial products undermined in breadth and depth by layoffs and space constrictions? I think not. (If you ever hear a publisher vowing to do "more and better with less," run for the hills. Mies van der Rohe's "less is more" only works in architecture.)
So far soft advertising revenue, especially from classified, has had the most grievous impact on large metropolitan newspapers, some of which have been pushed down to barely profitable or below. Part of the reason for this is that large newspapers get a lot more revenue from classified, the most depressed category, than do smaller papers.
Another reason is that transforming changes in media industries like the Internet always impact large markets first (think television in the 1950s), then trickle down to smaller markets. Even when the trickle down is complete, smaller newspapers suffer less than large ones because competition for advertising is much less than in large, complex markets.
Still, even small newspapers are cutting back. I recently had an e-mail colloquy with an editor of a small-town daily in the Southwest. He loves his town and his newspaper, but he is troubled by a significant reduction in his staff at the same time his publisher is urging him to develop new editorial products to gain more readers and advertising.
"How am I supposed to do this?" he asked; he wondered if I knew how other small-town editors had coped in similar circumstances. I had little comfort to offer. I told him that his staff, in addition to the traditional burden of paltry pay, would now have the additional burden of being overworked. Editors at large dailies have the same problem, but at least they are able to spread the burden over a larger number of staffers. When the entire staff has ten or twelve people, there is much less running room.
Newspaper executives point to the Internet as the future of newspapers, arguing that a combination of online and print products will assure newspapers of a profitable future. Yet last year newspaper Internet revenue amounted to only 7 percent or so of total advertising. Moreover, growth in Internet revenue, which in earlier years had been 30 to 40 percent a year, has dropped to about 20 percent.
What this portends is that a successful Internet-print future will be a long time coming. And if newspapers embark on this future with lesser journalistic products, less circulation, less standing in their markets, the profits of the future likely will be much less than newspapers are accustomed to.
I will point out that despite weak advertising and all the other woes newspapers endured last year, the average operating profit margin of the publicly owned companies' newspaper operations was 17 percent. Most non-media businesses couldn't hope to achieve even half that in the best of times.
A good chunk of those profits came, you guessed it, from cost-cutting, with inevitable damage to newspapers' standing in their markets. If newspapers hope to survive the Internet transformation, in which their brand name and reputation will be paramount to success, they must stop the ax-wielding and accept that the era of exceptional profitability is over. Or should be.###