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Newspapers: Missed the 2010 Media Rally

By Rick Edmonds of the Poynter Institute, Emily Guskin and Tom Rosenstiel of Project for Excellence in Journalism.

For newspapers, 2010 was comparatively calm after the hair-raising revenue dips of 2008 and 2009.  That was cold comfort, however, to an industry still laboring to find a sustainable business model for the future.

In a year when most other media businesses rallied, advertising revenues at newspaper organizations continued to fall – roughly 6.3% for the year. That compares to a drop of 26% in 2009.1

Print circulation also continued to decline, 5% daily and 4.5% Sunday year-to-year for the six-month period ending September 30. Losses in 2009 had been double that.2

Still, contrary to what those who have already written print’s obituary may think, newspapers generally were still operating in the black. Typical profit margins hovered around 5%.3 That, however, is less than a quarter of what they were in the industry’s glory years of the 1990s.

Online audience, though imprecisely measured, did grow some, and many papers can claim their overall audience is growing.

Most companies also saw improvements in digital revenues, especially if they diversified into non-newspaper digital ventures. Many major papers made their work available in mobile phone apps, new apps for the iPad and other tablets, and various other electronic editions – all of which consumers seem willing to pay for, though none is a short-term revenue bonanza.

But a consensus has emerged that website advertising, its rates driven down by massive available inventory, will probably never sustain a comprehensive daily news report. The clock continues to tick on finding strong supplementary revenue streams as print seems certain to stagnate or decline further.

Newspaper organizations continue to insist, as they have for several years now, that they are transforming themselves to take advantage of the digital future. But the path is hardly a well-marked four-lane highway, and the effort often seems comparable to chopping through the jungle with a machete.

As the industry heads into 2011, six trends of the last year reflect the beginnings of progress, but also some retreats and setbacks:

They have waited, by and large, due to technical and strategic challenges and a reluctance to take the plunge and lose readers and advertisers amid a weak economy. But a survey of experiments at three dozen papers by Belden Interactive found that less than 1% of consumers on average are willing to subscribe, and some papers, such as those in Harlingen, Texas, and Sonoma, Calif., quickly restored free access.4

The most anticipated version – embodied in the New York Times “metered model,” under development for more than a year, will allow free access to the home page and to articles from links and search engines. The “meter” will track usage and ask individuals to buy a full access pass once they hit a threshold number of articles in a month.

The model is designed to let papers retain traffic from light users, thus keeping unique visitor metrics and value to advertisers up.  But it will draw circulation revenue from the heaviest users and reward print subscribers. Part of the Times plan, being picked up by the Dallas Morning News as well, is to offer an all-platform access pass including mobile and tablet versions of the content.

When they do come, the paid online experiments may be important in establishing the principle that full access to expensive-to-produce content costs something. But the short-term revenue gains (even counting improved retention of print subscriptions) will not be a game-changer financially. And the risk remains that pay walls will drive down traffic and online ad revenue.

Also, it is not clear what ad formats will work best in mobile or tablets, how those will tie to news content and whether pricing will settle out at premium levels or the modest rates for generic online ads. While news is a use of these devices, it is still unclear whether it will be an important use for a majority of buyers, as compared, say, to games like Angry Birds and Farmland. So hopes remain high but there is also a chance that three hot new formats will turn out to be opportunity-lite rather than industry savior.

During 2010 a number of the most ambitious metro papers – among them the Boston Globe, The Oregonian, the Seattle Times and the Milwaukee Journal Sentinel — began rebuilding hyperlocal coverage.  There is a new formula typically relying on some professional news staff, editing and coordinating, but with most of the content coming from volunteer or semi-professional writers based in the communities they cover. The Seattle Times and some others also have established relationships with independent neighborhood blogs and websites.

AOL’s Patch has hired 500 journalists to start a nationwide network of cookie-cutter sites focusing on granular news about events and shopping in affluent neighborhoods.5 Neither Patch nor its newspaper competitors are reaping big advertising dollars yet, but the theory seems to be that hyperlocal sites will build audience and be in position for digital advertising and other revenue opportunities as they develop.

There is a modest upside for newspapers this time, however. They can partner with one of the company’s rivals like Living Social or with Groupon itself, now seeking expansion beyond a single deal a day in bigger markets with a separate newspaper offer. Or since the basic structure is replicable, newspapers can simply start their own programs as the San Diego Union Tribune and the Virginian-Pilot in Norfolk have successfully done. Groupon retains the advantages of being first mover and having a certain cachet with customers. In early 2011, it turned down a $6 billion acquisition bid from Google, raised nearly $1 billion in expansion capital on its own and has been valued by some analysts at $15 billion.8

Both 2011 and 2012 promise to be years of vigorous exploration of new digital lines of business for newspapers. But a decade of experience suggests the probability that they will encounter new disruptive competitors with powerful offerings no one can predict or prepare for. History also suggests a culture of conservatism and fear of failure are still factors that the industry must shed if it hopes to survive the transition to the digital age, especially with innovations on the business side.

Similarly, 2010 brought a slight thaw to the hard hiring freezes of the previous two years.  Still, many papers – including those at the largest chains, like Gannett, McClatchy and MediaNews — experienced additional newsroom cuts. Gannett reinstituted a week’s furlough for every employee in the first quarter of 2011. Chains and the Associated Press continue to move copy editing and page design to regional centers; other papers have simply chosen to get additional cost savings in news by cutting the corps of copy editors deeply. The result, predictably, is a notable increase in typos and fact errors in many papers.

Together, these trends mark a distinct change in the newspaper business model (or more accurately models, since organizations must consider scale of operation and competition in charting a new course).

When State of the Media was first published in 2004, the newspaper business model was simple – print advertising plus print circulation plus a little bit of “other” – often contract printing and a nascent web site.

Mid-decade, online advertising was growing by a third or more per year. Optimists hoped that growth would continue indefinitely and cover for any softness in print advertising and circulation. We cautioned at the time that, given the small starting base for online advertising, it would take more than a decade, even if that growth trend continued for online, to equal print as a revenue source. In fact, as the online base grew, the law of large numbers kicked in, and what would have been a growth of a third one year fell to a quarter the next year. More significantly, online ad formats continued to be intrusive and only occasionally effective. In addition, proliferating inventory drove rates down by more than 50%.10 At the same time, the print advertising model began to collapse more quickly than most in the industry foresaw.

Now the model has shifted again.  Industry hopes are pinned to developing many revenue streams, mostly in digital but some in print as well — some big, some modest. Perhaps, collectively, they can sustain newspaper organizations and their core news operations.

While print advertising and circulation revenue are unlikely to surge, keeping them strong for as long as possible is a priority. (Given that newspapers generate half their ad revenue on Sundays, that edition will be the most durable.)

At the same time, the digital picture has become far more complex than most newspaper executives and even online news advocates predicted. Most, some belatedly, now finally recognize that digital revenues must evolve beyond display advertising that newspapers have so long depended on. Digital revenue now typically accounts for 11.7% of the total industry ad revenue and is certain to be the base of future growth.11 Versions of paid online content may generate an additional small revenue source. Most mid-sized and metro papers now have a stable of niche publications (and some specialty niche websites) also contributing to revenue and profit. But even if publications can begin to charge for content through a range of options — from meters to specialized publications to verticals or niche content aimed at elite audiences — there needs to be more.

The roster of other prospective and developing revenue streams is extensive: ads and content charges on mobile smart phones, ads and content charges on tablet devices, e-readers, e-replica editions, bonus distribution of Sunday inserts to nonsubscribers, electronic shopping guides, direct sales sites, monetizing the interface with social media sites like Facebook and Twitter. Many papers are now in the business of printing and/or distributing competing publications and national newspapers like the New York Times and Wall Street Journal. We will discuss these potential revenue streams — and trends in cost containment — as we turn next to a discussion of the state of the newspaper business topic by topic.

Troubling audience numbers

Newspaper print circulation got better during 2010 only in the same sense that ad revenues did. Totals are still falling but not as fast as in 2008 and 2009. For the six-month period ending September 30, daily circulation was down 5%, Sunday 4.5% compared to the same period a year earlier.12 In 2009 losses had been double that.

SEE FULL DATA SET

Digital audience is not measured comparably or as reliably as print. But by the standard of unique visitors per month individual sites and the industry as a whole continued to grow in 2010. The Newspaper Association of America reported an average 105.3 million unique visitors per month in the fourth quarter of 2010, according to comScore.13 That appears to be a substantial increase from what the newspaper organization had reported for the fourth quarter of 2009, but it has changed ratings vendors (from Nielsen to comScore) so the results are not comparable.

Another way of measuring total audience is through survey data. The news consumption survey of the Pew Research Center for the People & the Press finds the total audience of newspaper readers, print and online, down slightly over the last two years — two percentage points. By this count, 37% of Americans report reading a newspaper in any form “yesterday,” down from 39% in 2008 and 43% in 2006.14

There also continues to be growth in the much smaller audiences on e-readers, e-replicaeditions, smartphones and tablets.

This audience shift – from print to digital – is viewed as logical, even inevitable. In the long run, it provides hope for the multiple-revenue-stream model executives now envision.

In the near term, though, as became more evident in 2010, transferring readership from print to digital is problematic, because of the much lower ad rates that prevail in digital.  Also, years of circulation declines seem to be taking a toll on the pricing for print ads.

One persistent stock analyst keeps asking executives at publicly traded newspaper companies on conference calls what share of ad revenue losses come from shrinking ad volume and what share from falling print ad rates. Some duck the question, citing the complexity of determining average advertising rates with a changing mix of premiums and discounts. But several said in 2010 calls that the losses are about half volume, half rates.

That closes the door on an era where advertisers continued to accept rising rates for print ads despite plateauing circulation. They did so because newspapers still represented the best way to reach large percentages of the households in a community and no other single ad buy could compete with that. Now newspaper advertisers are looking for and getting rate relief.  Some are also beginning to question the viability of print inserts to reach a large share of a given market.

In other words, about half of the continuing ad losses in print are caused by falling circulation, a dynamic that will almost certainly continue into 2011 and 2012.

SEE FULL DATA SET

Individual Papers and Print Pricing

One trend continued: Metro papers again showed the worst circulation losses. The biggest losers among the biggest 25 in daily circulation, year-to-year in the period ending September 30, were Newsday (-11.84%), the San Francisco Chronicle (-11.21%), and the Houston Chronicle (-10.53%).15

A few big papers bucked the negative pattern. The Wall Street Journal increased its daily circulation (largest in the nation) by 1.8%. The Dallas Morning News and St. Petersburg Times essentially broke even.

Again smaller dailies and community weeklies fared better in holding circulation.

We reported last year that, with the deep advertising slump, many papers had raised cover prices aggressively in 2009 — to 75 cents or a dollar daily – with comparable increases Sunday to $1.50 or $2. Subscription rates are up too. By mid-2010 the price increases had all but stopped. Executives did not think their readers were ready to pay yet more so soon and feared that raising rates would lead to even deeper circulation losses. A Newspaper Association of America survey published in February 2011 confirmed that the increases, as economic theory would suggest, drove substantial circulation losses.16

Digital Audience Growing, But Metrics Are a Mess

While newspaper websites have been around for about 15 years now, there is still no uniform “gold standard” in how audience is measured. A count of “unique monthly visitors,” the closest thing to a standard measure, comes out very differently depending on which research firm and methodology are employed. Newer options like e-readers, replica editions and apps to mobile devices further complicate matters.

One study by the newspaper group and the Audit Bureau of Circulations showed a number of papers recording healthy growth in total print and online audience even as circulation fell. The Chicago Tribune, for instance, was up 5.2% for the six months ending September 30, even though its paid circulation fell by the same percentage compared to the same period in 2009.17 The ABC has also begun breaking out paid e-circulation in all formats in its six-month reports.  The Wall Street Journal, which has long been selling paid online subscriptions, leads the way with 449,000 in the period ending September 30. The Detroit Free Press is second with just under 100,000 and the Detroit News is fifth with about 50,000.  Both papers now home deliver just three days a week and offer e-editions as part of a subscription option. The New York Times is third with 72,000 (all from various e-editions since the online metered pay wall is not up yet).18

Many newspapers rushed to the iPad market with primitive first-generation apps offered for free, intending to charge for a fuller report in 2011. Surveys by the Reynolds Institute and Scarborough Research have indicated that iPad buyers are prolific newspaper readers and suggest that many will cancel a print subscription and read the paper primarily in tablet form in the future.

It is early for any reliable figures on newspaper tablet readers and smartphone users.

The Wall Street Journal reported in late 2010 suggested that 97% of online newspaper reading is still on traditional computers, compared to 2% on smartphones and less than 1% on iPads. Those numbers will grow in 2011 and beyond, perhaps very quickly, but it will take years for the newest devices to pull equal to online readership on traditional devices.19

ABC Switches the Rules for Counting Circulation

As this report is published, the industry is finishing up its first six-month period under a sweeping set of rule changes by the Audit Bureau of Circulations that seek to take into fuller account digital audience. The period will close at the end of March, and totals will be available about a month later. Most newspapers will have a paid print audience number higher than it would have been under the old rules – but not easily compared.  Nor will there be any intelligible way to say whether industrywide circulation is up or down.

On the surface, this may seem a ploy to stem the tide of bad circulation losses – 15 consecutive six-month reporting periods of decline dating back to September 2003.

But industry officials insist that the real point is to modernize, reflecting the varieties of audiences, described above. Under the new rules, “paid” and “verified” will be counted separately, then totaled.  Paid can include copies or subscriptions sold for as little as a penny.  Hotel distribution will be counted as a separate category of paid. Free trial subscriptions will move from paid to the verified category.

Over time, the various categories of paid digital circulation will rise and will be broken out by category. But new challenges in accurate counting will certainly emerge. Most observers expect that part of paid online experiments will be the offer of an “all access” pass including tablets and smartphones. The Dallas Morning News announced such a component in January 2011. It is unclear whether in the new ABC system individual readers who buy the all-access package will be double- or triple-counted as subscribers.

By this time next year, the industry’s audience story may be better or worse but it will certainly be different. It also may be difficult, at least initially, to chart progress, given that the measurements will be all new. But it may offer a more robust measure of the industry’s reach and relevance with audiences.

Circulation Revenues – A Best Guesstimate

The Newspaper Association of America estimates 2009 circulation revenues at $10.1 billion, a 10% decline from a peak of $11.2 billion in 2003.20 Advertising revenues, by contrast have fallen by 40%.

A 2010 estimate is not yet available but will probably be flat or down slightly, since there were few price increases to offset declining volume.

Those changes ease what many observers have felt was an over-reliance on ad revenue. In 2003, advertising accounted for more than 80% of total revenue at U.S. papers; by 2009 advertising’s share was down to 73%.21 Still, in European and Asian countries cover prices have been two or three times as high and the revenue split close to 50-50 or even 60% from circulation.22

Advertising Revenues Slow to Recover

The advertising revenue freefall of 2008 and 2009 did not continue into 2010.  But ad revenues still fell – about 6.3% on the year, compared to 26% in 2009.23

That was very disappointing news for an industry that had entered the year hoping for a much more robust recovery.

Newspapers are not without prospects. The new revenue streams are developing slowly, however, and no single one seems likely to put the industry back on a positive growth path.

Wall Street added up all these factors and rendered a verdict on the industry’s financial health similar to ours.  Some stocks (Gannett, for instance) were up a little for the year.  Some (the New York Times) were down a little. Overall, it was close to a wash.  All are up from the swoon of spring 2009, but most trade at between a half and a tenth of  their value at mid-decade.29

SEE FULL DATA SET

The print advertising crash of 2007-09 was led by huge losses in the traditional bulwarks of classified – auto, real estate and employment – shrinking the category to 30% of what it once was.30 Classified was down again in 2010 but by 9.7%, slightly more than the 6.3% that the ad base as a whole declined.31 Auto advertising rallied and was positive the last two quarters of the year. An optimist might contend that real estate and employment will bounce back some as well as the slow and uneven economic recovery continues this year and next.

SEE FULL DATA SET

The 2009 ad declines were so bad that even the online portion of the industry’s ad portfolio was down, by about 12%. In 2010, it regained that lost ground.32One reason was growth in premium advertising, targeted to specific reader interests, much of it sold in a consortium with Yahoo. This more sophisticated version of display advertising has improved rates and built volume for some companies, and many consider it key to the future of display online. Yahoo, with financial issues of its own and changes in top leadership, has not backed off the partnership as feared. But some dissatisfaction surfaced in 2010 as companies experiencing less success with Yahoo complained that their ad sales staff still had not received the training needed to sell the targeted ads effectively. There is continuing debate within the industry about whether a separate digital sales force is needed or whether the traditional print sales people with the right training and incentives can do the job.

And newspapers face more and stronger competitors for local ad dollars, including from Facebook and Google Places, an expanded business directory introduced in April 2010.

SEE FULL DATA SET

The outsourcing trend of recent years continued through 2010 and early 2011.  Newspapers continue to sort themselves, some keeping their presses and trying to pick up extra business, others selling their presses and contracting for printing. The squeeze on staff and news space, though not as intense as in 2008 and 2009, also continues. A number of papers, among them the Atlanta Journal-Constitution and the Boulder (Colo.) Daily Camera have abandoned spacious downtown buildings and moved to rented space less centrally located.

Newspapers Not Dying But No Longer Wildly Profitable

The Honolulu Star-Bulletin bought the Honolulu Advertiser in February and merged the two papers as the Star-Advertiser in May.33 Otherwise there were no major newspaper closings in 2010, and the one in Honolulu, like closings of papers in Seattle, Denver and Tucson in 2009, was of a second newspaper in a two-newspaper town. Similarly, reducing frequency of publication or of home delivery as had happened in Detroit, Ann Arbor, Mich., and the East Valley suburbs of Phoenix was not a trend that picked up any steam in 2010.

By “doing what we need to do,” on the expense side, as McClatchy CEO Gary Pruitt has put it, most newspaper companies again stayed profitable in 2010. But the days of 25% margins, which critics back then often called obscene and a sign of an industry harvesting profit rather than investing for the future, are gone forever. There is no standard source for an overall industry profit figure, but analyst Ken Doctor of Outsell estimated in May 2010 that 5% to 10% is typical.34 Operating or cash flow margins are higher, but the companies then pay out some of those earnings in taxes and interest. Publicly held companies generally reported single-digit profit margins on net income for the year, among them: New York Times Company, 4.5%; Gannett, 6.4%, and McClatchy, 2.4%.35

We were among many analysts predicting a year ago that 2010 would be the year of experiments with paid online content. Instead it largely turned into the year of getting ready for these experiments.  Some papers, though, stepped ahead.

Altogether, this sends the industry into 2011 with unsettled business prospects – a continuing cost-to-revenue crunch, together with many prospective lines of new business but no sure things.

Private Equity Ownership Grows

The big ownership trend of 2009 rolled right into 2010 and early 2011. As a result of bankruptcies, private equity funds now own and operate a substantial portion of the industry. The era of newspapers being dominated by expanding publicly traded corporations is now winding down.

When the Tribune Company emerges from bankruptcy by mid-2011, seven of the 25 largest papers will be under private equity control.  That includes Tribune’s Los Angeles Times, the fourth-largest, and Chicago Tribune, the ninth-largest.  Others are the San Jose Mercury News (including all Media News bay area dailies), eighth; the Philadelphia Inquirer (including the Daily News), 11th; the Denver Post, 13th; the Minneapolis Star Tribune, 15th; and the San Diego Union Tribune, 23rd.

Also controlled by private equity now are the Orange County (Calif.) Register and the Journal Register chain.

Early on, the Wall Street firm Angelo Gordon was the leader of a number of groups.  Angelo Gordon remains active but has yielded top chair to Alden Global Capital.  Neither firm speaks at all to reporters nor analysts, so figuring out how they will run their newspaper properties is largely a conjectural exercise.

Dean Singleton’s MediaNews Group was taken over by a private equity group in January 2011. Singleton became executive chairman, COO Jody Lodovic left the company and the new owners said they would hire a new CEO.

These moves raise the possibility that MediaNews’ 61 dailies, the Tribune properties and others under private equity control might someday be merged into a single company, which would be larger than industry leader Gannett. It is not so clear what the point of such a consolidation would be or whether some economies of scale could be achieved by cooperative arrangements short of merger. Gannett itself has reduced from nearly 100 community newspapers to 81 over the last decade.36

The track record so far indicates a few patterns in private equity ownership:

Exhibits A and B were John Paton, who assumed the helm of Journal Register, based in suburban Philadelphia, in February 2010, and Clark Gilbert, who took charge of digital operations of Deseret Media in Salt Lake City in mid-2009 and added the Deseret News to his portfolio nine months later. Paton had previously assembled ImpreMedia, a large Hispanic multi-platform media company, though Paton is not Hispanic and doesn’t speak Spanish.  (Earlier in his career, he was a newspaper executive in Canada and ran a newspaper investment advisory firm).

Gilbert is a former Harvard Business School professor and a co-author of the influential Newspaper Next futures report in 2007. From the sidelines, he had been goading the industry to innovate more quickly for a decade; now he is putting theory to practice, de-emphasizing print and ramping up all things digital for Deseret Media’s owner, the Church of Jesus Christ of Latter Day Saints.

Both are popular speakers on the industry conference circuit, and they will be co-keynoters at the annual conference of the Newspaper Association of America in late March. Among other change initiatives, Paton asked the staff at all 18 Journal Register papers to put out a week’s print and web editions using only free software.  In explaining his “Digital First, Print Last” strategy, Paton said in a December 2010 speech, “Stop focusing on print. It is in any newspaper’s DNA. It is not like you are going to forget to put out the newspaper.” Traditionalists — who see many shades of good, mediocre and terrible in current print editions — might disagree. But Paton went on, “Stop listening to newspaper people. We have had nearly 15 years to figure out the web and, as an industry, we newspaper people are no good at it. No good at it at all.”37

Mike Klingensmith, publisher of the Star Tribune of Minneapolis, and Greg Osberg, publisher of the Philadelphia Inquirer, both come from magazine backgrounds and work at hedge fund-controlled papers. A private equity group is also poised to take control of Tribune Company as it two-year-old bankruptcy winds to a conclusion. A trend to watch is whether the new-breed CEOs produce the big changes promised and strong financial results – and then whether the large publicly owned chains go for leaders with unconventional backgrounds as they change CEOs in years to come.

All this leaves the funds an important player in the industry’s future, but still a wild card in where they will take the newspaper organizations they own.

Except for the continued incursion of the funds it was an uneventful year in ownership.  Some small papers and chains changed hands but there was no major merger and acquisition activity.  As analyst Martin Langeveld put it succinctly, “Nobody can afford to buy anyone else.”38

Earlier editions of this report have speculated on the possibility of wealthy local businessmen buying metro papers and running them as nonprofits or break-even investments in public service.  The trend has not materialized.  Those inclined to invest in journalism for the good of a community have gravitated instead to online services like Bay Citizen in San Francisco or the Texas Tribune, which, like ProPublica, offer some of their work to traditional newspapers.

In Newsrooms, Some Hiring But Little Staff Growth

Our reports on news investment in recent years have necessarily focused on staff cuts and their impact.  Full-time newsroom employment fell by 11,000 from 2007 to 2009, to 41,500. That is down 26% from its peak at the turn of the century.39

Our best guess for 2010 is that the American Society of News Editors annual census, when released in April, will reveal more losses but smaller ones, perhaps in the range of 1,000 to 1,500.

However, 2010 also marked a thaw in the news hiring climate. Newspaper organizations were again hiring replacements for reporters and editors who left or trying to lure away talent from other papers.

The pool of new ventures seeking capable journalists has widened.  Nonprofit investigative units and a variety of commercial websites are in the mix.  Bloomberg hired more than 100 for its Bloomberg Government site in Washington.40 The National Journal, Politico and Reuters all hired news staff for major expansion.  AOL’s Patch hyperlocal sites hired 500 reporter-editors, many of them off the staff of small-town and suburban papers with which Patch hopes to compete.41 Journalistic job boards are booming. The Gorkana site, specializing in business reporting, typically has 75 to 100 employers, some seeking multiple hires in its weekly listing. A small survey of editors by the Associated Press Managing Editors midyear found that 70% said that their top performers are tempted by jobs elsewhere.42 News staffers are not just leaving for upstream positions, but after years of pay freezes and repeated rounds of cuts, some are exiting the business entirely if opportunities arise.

SEE FULL DATA SET

As for continuing cuts, they seemed to come in several categories. Large companies under financial pressure – McClatchy, MediaNews, Gannett – continued to make rounds of staff reductions in 2010 (not just in the newsroom) and there have been additional cuts early in 2011.

An editor observed to us this spring that McClatchy “is becoming the company [CEO] Gary Pruitt said he never wanted it to be” with the debt tail wagging the news-gathering dog.  Among the McClatchy papers enduring round after round of cuts are such respected ones as the Kansas City Star, the News and Observer of Raleigh, the Charlotte Observer, the Miami Herald and the flagship Sacramento Bee. Much of the journalism at these papers, and the chain’s Washington bureau, remains ambitious and well-executed.  There is just a whole lot less of it.

The second area is continued cuts at copy desks. We noted briefly in last year’s report that copy desks were coming under particular fire, as the Star-Tribune in Minneapolis chose to decimate theirs rather than take more reporters off the street. The trend continued with a vengeance through 2010 with chains including E.W. Scripps, Tribune, Media General and Gannett (as well as the Associated Press) consolidating much copy editing and page design in regional centers, a money-saving strategy pioneered by MediaNews.

For example, more than half the pages in Tribune’s Newport News (Va.) Daily Press, are now edited and laid out in Chicago, with most feature-page and business-page copy national and generic. In theory, this frees up the staff in the city’s home base to concentrate exclusively on gathering and displaying local news.

Among the national papers, the Wall Street Journal continues to expand news staff and space, and launched a New York metro report. The Journal also has beefed up the arts and lifestyle content its Saturday weekend edition as well as launching a slick monthly fashion magazine. In February 2011, the Journal’s parent, News Corp., launched The Daily, a new publication for the iPad, with a news staff of about 100.

The New York Times, despite slumping print circulation in 2010, rocks along well staffed (no rounds of layoffs in 2010) and aggressively launching products in each new digital format.  The Times has the highest traffic of any news website and scored an editorial coup in late 2010, leading American reporting on classified documents brought to light by WikiLeaks.

USA Today is another story.  Circulation for the print edition fell 20% in two years and is 500,000 below its peak of 2.3 million.43 Marriott and other hotel chains have tightened up sponsored distribution, and the traditional target business traveler is probably now packing a laptop and can access a hometown report. Advertising has been equally weak with some issues running as few as three to four pages total in ads, a number of those remaindered space bought cheap by ad networks or occupied by house ads.

Substantial news staff cuts were instituted in September, but USA Today also undertook what publisher Dave Hunke called “a pretty radical restructuring.” The heart of it was to begin disassembling a universal desk that handles all print and digital copy and otherwise dismantling newsroom integration put together the last five years. In its place, Hunke said, will be “15 distinct content areas,” each with its own editor and general manager, together with “editing hubs by platform.”

With other large newspaper organizations still struggling to fully meld a digital and print newsroom, it seems odd that one of the pioneers is blowing up the structure. USA Today and its issues may be one-of-a-kind. But the change could spread. It seems to make sense to ask most newsgatherers to file first for the web, then develop a print story and, maybe, shoot a little video on the side. However, how many will also be able to juggle the distinct demands of writing and editing for smartphones, for tablets and the next hot format to come along?

If the emerging business model is to add multiple, smaller revenue streams together, newsrooms will need soon to develop an assortment of sub-specialists while keeping up their general reporting and editing capacity.

That is part of what is disappointing on the news side in 2010. Rising costs, especially of newsprint, will work against restoration of space and staffing on the print side. Nor is there abundant startup cash and spare-time capacity for the legacy newsroom to learn new tricks.

Other issues loom as well. Newspapers are moving on to mobile and tablet versions without fully perfecting their websites. Many remain cluttered, and the industry is uneven in using digital option ranging from databases to video to discussion chains to reinvent the news report.

As the continuing newsroom cuts thin the ranks of professional journalists, some of the work is being done at reduced levels of pay at Patch and other digital startups. So-called content farms like Associated Content and Demand Media exploit wannabe writers with piece-work rates.

As media economist Robert Picard observed in a prescient 2009 article, “Why journalists deserve low-pay,” the healthy wages that long prevailed at larger newspapers and others aspiring to high quality are a relic of the days when newspapers had exclusive control of the content.44

In the aggregation age, Picard observes, we are seeing the “de-skilling” of journalism and progressively fewer of the kinds of jobs that could support a family.

Competition and Confusion

In early February 2011, three high-profile media events happened within five days.

Rupert Murdoch’s News Corp. launched The Daily, a new publication, exclusively for Apple’s iPad.  The Daily has a freshly assembled news staff of 100 and a startup budget of at least $30 million.45

The next day, the Associated Press announced that it was forging ahead with plans to create an independent News Licensing Group — a high-tech venture it says will make good on the industry’s grand ambition to be compensated for the content that news organizations originate as others pick it up and repurpose it.

Then, Super Bowl night, The Huffington Post was sold to AOL for $315 million  — more than twice what the Philadelphia Inquirer fetched in a bankruptcy auction in April 2010. That is probably more than the market valuation of all but a few metro papers, even though it makes a small profit on revenues of $30 million in 2010, expected to rise above $50 million this year.46

Dizzying pace of change” may be one of the media clichés of the new century, but what else to call it? Any of these ventures could have a big impact on the economics of the industry going forward.  Any, or all three, might turn out to be flops a year from now.

Aside from that uncertainty, new competitors and opportunities play out very differently for papers of different scale and circumstance. The New York Times can afford to spend millions of dollars and more than a year developing and testing its version of a metered pay wall. Most metros and smaller papers will need to select both a strategy and a group of vendors if they wish to enter the paid online game.

Any of the multitude of potential new revenue streams comes with a puzzle box of questions.  What to do in-house, what to contract for? Which vendors can be counted on to deliver what they promise, and are the vendors hyping the opportunity? How much will it cost, for how long, to begin seeing a return?

And several publishers with only one or two small-circulation papers told us in early 2011 that they basically need to fund digital explorations on the cheap — out of cash flow from print. Bankers are reluctant to lend, especially for ventures with multiple uncertainties.

Even after the Huffington Post acquisition, the revenue model for AOL’s network of Patch hyperlocal sites remains unclear. But publishers in Patch communities know there is a new reporter/editor mining the beat and a new sales team trying to lure away advertisers – and feel they need to respond competitively.

As we observed early in this essay, the destination that newspaper organizations are trying to reach is pretty clear now — more robust digital enterprises to pick up the slack as print advertising and circulation fall. The path from here to there, unfortunately, once again is not clear at all.

Endnotes

  1. Newspaper Association of America. Trends and Numbers. Fourth quarter is Rick Edmonds’ estimate. After our report was published, the Newspaper Association of America released its final tally and put the drop at 6.3%.  We had previously estimated 6.4%.
  2. Peters, Jermey W. “Newspaper Circulation Falls Broadly but at Slower Pace.” New York Times. Oct. 25, 2010.
  3. Doctor, Ken. “The Newsonomics of Reborn Newspapers Profits.” Nieman Journalism Lab. May 3, 2010. And full-year earnings reports from Gannet, New York Times Co.
  4. Mutter, Alan D. “The State of Play for Paid Content, 2011.” Editor and Publisher. Feb. 11, 2011.
  5. Tartikoff, Joseph. “AOL Patch Aims to Quintuple in Sales By Year End.” Paid Content. May 16, 2010.
  6. Groupon Press Kit. Jan. 2011.
  7. Swisher, Kara. “Groupon’s Andrew Mason Speaks!” All Things Digital. March 4, 2010.
  8. Rusli, Evelyn M. and Sorkin, Andrew Ross. “Groupon Advances on I.P.O. That Could Value It at $15 Billion.” The New York Times. Jan. 13, 2011.
  9. Various public company earning conference calls. Jan. 2011.
  10. Mutter, Alan D. “Online CPM’s Fell 46% Since January.” Reflections of a Newsosaur. Oct. 16, 2008. And Klassen, Abby. “Online CPM Prices Take Tumble.” Ad Age. Jan. 26, 2009.
  11. Newspaper Association of America. Trends and Numbers.
  12. Peters, Jeremy W. “Newspaper Circulation Falls Broadly but at Slower Pace.” New York Times. Oct. 25, 2010.
  13. Newspaper Websites Reach Nearly Two-Thirds of All Internet Users in Fourth Quarter.” Newspaper Association of America press release. Jan. 25, 2011.
  14. Americans Spending More Time Following the News.” Pew Research Center for the People & the Press. Sept. 12, 2010.
  15. Peters, Jeremy W. “Newspaper Circulation Falls Broadly but at Slower Pace.” New York Times. Oct. 25, 2010.
  16. “New NAA Survey Documents Sales Trends.” Newspaper Association of America. Feb. 3, 2011.
  17. Audience Gains Can Be Found in ABC Circulation Release.” Newspaper Association of America. Nov. 8, 2010.
  18. Kramer, Staci D. “Top 25 Newspapers Daily E-Editions October 2010 (ABC FAS-FAX).” Paid Content. Oct. 27, 2010.
  19. The Habits of Online Newspaper Readers.” Wall Street Journal. Nov. 10, 2010.
  20. Newspaper Association of America. Trends and Numbers.
  21. Ibid.
  22. Chisholm, Jim. Presentation to Newspaper Association of America Capital Conference. Washington, D.C. April 12, 2008.
  23. Newspaper Association of America. Trends and Numbers. After our report was published, the Newspaper Association of America released its final tally and put the drop at 6.3%.  We had previously estimated 6.4%.
  24. Ibid.
  25. Hallerman, David. “US Ad Spending: Online Outshines Other Media.” eMarketer. Dec. 2010.
  26. Newspaper Association of America. Trends and Numbers.
  27. Various public company earning conference calls. Jan. 2011.
  28. Media General and McClatchy earnings reports. Jan. 2011.
  29. Yahoo Finance.
  30. Newspaper Association of America. Trends and Numbers.
  31. After our report was published, the Newspaper Association of America released its final tally.
  32. Ibid.
  33. Kerr, Keoki. “Merged Honolulu Star-Advertiser Begins June 7.” KITV. May 12, 2010.
  34. Doctor, Ken. “The Newsonomics of Reborn Newspaper Profits.” Nieman Journalism Lab. May 3, 2010.
  35. Full-year earnings reports from Gannett, New York Times Co., and McClatchy. Jan. 2011.
  36. Gannett Company Profile.
  37. Paton, John. Presentation at INMA Transformation of News Summit. Posted on Journal Register Digital First website. Dec. 2, 2010.
  38. Langeveld, Martin. “Predicting More Digital Convergence and an AP Clearinghouse Coming in 2011.” Nieman Journalism Lab. Dec. 22, 2011.
  39. Decline in Newsroom Jobs Slows.” American Society of News Editors press release. April 11, 2010.
  40. O’Connell, Jonathan. “Bloomberg Hiring More than 100 People in D.C. Area for Web-Based Government Information Venture.” Washington Post. Sept. 22, 2010.
  41. Tartikoff, Joseph. “AOL Patch Aims to Quintuple in Sales By Year End.” Paid Content. May 17, 2010.
  42. Sounding Board Survey 2. Associated Press Managing Editors. July 2010.
  43. Edmonds, Rick. “Why USA Today Declines Led to Radical Restructuring.” Poynter Online. Sept. 2, 2010.
  44. Woollacott, Emma. “Murdoch’s The Daily Hits the Virtual Newsstands.” TG Daily. Feb. 3, 2011. And. Horn, Leslie. “Murdoch Revelas News Corp.’s iPad Publication, The Daily.” PC Mag. Feb. 2, 2011.
  45. Coming Soon: Murdoch’s (and Steve Jobs’?!) iPad Newspaper, ‘The Daily.’ ” Thenextweb.com. Nov. 20, 2010.
  46. Swisher, Kara. “You’ve Got Arianna.” All Things Digital. Feb. 6, 2011.