Newspapers – Intro
|By the Project for Excellence in Journalism and Rick Edmonds of The Poynter Institute
May 8, 2006 Update
The American Society of Newspaper Editor’s annual newsroom census* found that full-time professional employment at daily newspapers fell by 600 during 2005. This roughly equals the number of announced job cuts during the year and is considerably less than the 1,200 to 1,500 reduction we had projected when State of the Media 2006 was published in mid-March.
Why were the losses not as bad? Three factors mentioned in the report probably provide the explanation:
For the newspaper industry, 2005 turned out to be the year of unpleasant surprises. Every indicator, including the number of news staff members that the nation’s best metro papers field every day, was on a steep downward path.
Yet the picture heading into 2006 is ambiguous. Newspapers, by our reading of the evidence, are not headed for extinction by the end of the decade as some commentary has implied. But it is far from clear how to characterize what is going on. Is this the beginning of an orderly transition to a new set of business models in which the papers wholeheartedly follow many of their readers online? Or will newspapers inevitably shrink — in their news effort and even physically — leaving a dangerous void?
As 2005 began we said 2004 had disappointed early hopes that it might be a year of robust cyclical recovery. Then 2005 was a lot worse.
*Circulation losses accelerated, down 2.6% daily and 3.1% Sunday year-to-year for the six-month period ending September 30.1 A positive interpretation is that the figure reflects the shedding of weak or questionable circulation. But no one is bothering to dispute that there is also a flight of readers to online sources of news, at the papers’ own sites and others. The best case is that circulation losses could stabilize to around 1% annually within a year or two. But the next report, for the six-month period ending March 31, 2006 , was expected to be as bad as the last.2
*Print advertising revenues grew a paltry 1% to 2%.3 And that was not to be explained away by a recession, as the sharp decline of 2001 had been. Strong growth revenues from online and niche publications pushed total revenues to a more respectable 2% to 4%,4 but the possibility lingered that revenues could go negative sometime in the near future. That would be devastating confirmation that the industry was in decline.
*Investors and analysts didn’t like what they saw. After a strong performance in the first part of the decade, newspaper stocks began declining in the spring of 2004. In 2005 shares fell an average of 20%. Tribune Company lost 30%, the New York Times Company 35%.5
*Investment in the newsroom, meanwhile, followed business fundamentals downward. After relative stability in 2004, newspapers announced layoffs and buyouts of between 600 and 700 news people in 2005, principally at large metropolitan papers. Our estimate is that when the final tally is in, come April 2006, the industry will be down 1,250 to 1,500 full-time professionals That echoes almost exactly the losses in circulation.6
One bright spot in news performance was coverage of Hurricane Katrina. Advance’s New Orleans Times-Picayune did not miss a beat, even during a week when its reporters had to flee town and all its coverage moved online. Knight Ridder’s Sun Herald of Biloxi , Miss. , was exemplary as well. The corporations opened the purse strings for coverage, absorbed enormous advertising shortfalls and even rushed top executives and money to the scene to support staff people who had lost their homes.
*The glow of those accomplishments didn’t even get the industry through the fall. On November 1, Private Capital Management, which owns 19% of Knight Ridder stock, demanded that the company be put up for sale. Two other large institutional investors supported exploring the possibility. Knight Ridder capitulated and in early 2006 was meeting with half a dozen interested groups of newspaper companies and private equity firms.7
Takeovers have been extremely rare in the industry. To see the nation’s second-largest chain by circulation, with 32 newspapers, on the block was a shock for an industry already nervous about profits and stock prices.
Two different unhappy endings were looming. The Morgan Stanley analyst Douglas Arthur suggested that the first was a new owner who would cut much deeper than Knight Ridder had to date and boost profit margins.8 Indeed, Knight Ridder executives were sketching out how that might be done as they met with potential buyers early in 2006.9
Or second, should all the buyer interest not culminate in a premium offer and sale, that would be a blow as well, signaling that newspaper stocks were out of favor with almost everyone.
McClatchy, a company with a strong commitment to editorial quality, was among the potential bidders. As this report was going to press, the deadline for bids passed. McClatchy and one private equity firm were the only verified bidders.
If it were successful (possibly dealing off some of the slower-growing Knight Ridder properties to Media News and/or Gannett), most journalists think that would be a distinctly brighter scenario.
There may be an even more critical issue bubbling below the surface, however. Can newspapers build online news content, audience, advertising and profits enough, and quickly enough, to cover declines in print?
Newspapers’ online revenues in 2005 grew by about 30% — more at big companies and big papers, less at the many mid-sized and small ones.10
There is vast terrain for newspapers to traverse, though, if they are to get to a workable online-dominated future. Even after years of growth, online now amounts to only 3% to 5% of total ad revenue on average, more at the big, well-established national sites.
How long will it take for online to equal print in ad volume? By our count, it will take another dozen years for the lines to cross.11 And that is with Google, Yahoo and a host of other potential competitors lingering in the shadows.
Here is another way to look at the challenge. To date the metrics for measuring print and online audiences are wildly out of sync. For print it is daily circulation, or daily readership (which the industry is pushing because it yields a number higher than circulation by a factor of about 2.5). For online the standard measure is unique visitors, but that is counted by the month.12
At least two analysts, Paul Ginocchio of Deutsche Bank Securities and Lauren Rich Fine of Merrill Lynch, have estimated that when print advertising moves to online, newspapers typically take in only 20 to 30 cents for each print dollar lost. on the dollar.13
Donald Graham, the plain-spoken CEO of the Washington Post, addressed the issue in a December 2005 presentation to investors and analysts. WashingtonPost.com, already a big and successful site, will almost certainly continue to increase audience and revenues, he said. “How much can it grow in profits? That might be one of the central questions we face.”14
Note on updated employment figures dated May 8, 2006: The census, conducted primarily to measure industry progress on diversity goals, has been conducted for more than 25 years. This year 928 of 1,417 American dailies responded, and the response rate is the highest among the biggest circulation papers. The industry total is reached by projecting employment at non-responding papers according to their circulation.
This year the census added an estimate for 11 free dailies, most in large cities. With a smaller universe and several key non-respondents, ASNE is estimating employment of 1,300 in this group. It is also unclear whether the census captures newspaper online editorial employees, particularly at newspapers where online is treated as a separate unit organizationally.
Including the latest numbers, the industry has lost about 2,800 fulltime professional newsroom jobs so far this decade. But an important part of the jobs story is redeployment to online, free, youth-targeted, ethnic and non-newspaper publications, all important growth areas as traditional newspaper growth has stalled.
2. Each six-month report is a comparison with the same period a year earlier. So the poor results of the most recent six months are virtually certain to roll into the totals for the first six-month report in 2006.
5. Rick Edmonds, “A Bad Year for Newspaper Stocks – A Worse Year for the Gray Lady,” Poynter Online, January 12, 2006. Available online at: http://www.poynter.org/content/content_view.asp?id=94997
6. Our count and estimate are explained in the News Investment section of this chapter.
7. Charles Layton, “ Sherman ’s March,” American Journalism Review, February/March 2006.
On March 13, 2006, McClatchy announced it had acquired Knight Ridder for $6.5 billion to become the country’s second largest newspaper publisher. The McClatchy Company press release, “McClatchy to Acquire Knight Ridder–Becomes Country’s Second Largest Newspaper Publisher,” March 13, 2006.
8. Douglas Arthur, “Knight Ridder: A Scenario Analysis,” Morgan Stanley, November 29, 2005 . Available online at: http://www.poynterextra.org/KR/Research.pdf
9. Pete Carey, “Knight Ridder said to urge cuts” Contra Costa Times, January 25, 2006.
10. Paul Ginocchio, “Newspaper Publishers: Private Company Outlook,” Deutsche Bank Securities, December 1, 2005.
11. Rick Edmonds, “An Online Rescue for Newspapers?” Poynter Online, January 27, 2005 . Available online at: http://www.poynter.org/content/content_view.asp?id=77603
12. Newspaper Association of America, “Daily and Sunday Newspapers 2005 Readers Per Copy,” prepared by NAA Business Analysis and Research Dept., MRI Spring 2005; SRDS Circulation 2005.
13. Ginnochio and Merrill Lynch research to co-author Edmonds
14. Donald Graham presentation to CSFB Media Week Investors Conference, December 6, 2005 . Available online at: htt p://library.corporate-ir.net/library/62/624/62487/items/176243/CSFB_12.6.05.pdf.