No Iceberg - Separating Truth from Fiction About Newspapers In This Recession
Earl J. Wilkinson is executive director and CEO of the International Newsmedia Marketing Association (INMA).
By Earl J. Wilkinson
The death of the newspaper is one of the great exaggerations of today’s economic downturn.
It is a myth being perpetuated by people, companies, and the trade press that serve them that are in seeming cardiac arrest – many of whom have amassed debt beyond their means, possess business models vulnerable to today’s environment, and are unused to competitive profit margins.
No matter how unbiased or agnostic we try to be, we are all creatures of what we read and what surrounds us.
Being based in the United States, I am surrounded by extraordinary negativity. Not just talk about advertising declines, classified migration to the internet, and circulation woes. The talk in the States is about the death of newspapers, the death of the traditional print business model, and the death of companies that own today’s newspapers.
Recently, I decided to reach out to INMA members worldwide to understand the precise colour and tenor of this downturn.
Is the extreme negativity justified?
This brief report for INMA members is a summary of my findings. It is a narrative, based on the confidential discussions with senior executives in Asia/Pacific, Europe, Latin America, and North America.
A. CORPORATE OWNERS IN TROUBLE, NOT NEWSPAPERS
The bottom line is this: Some of the corporations that own today’s newspapers may soon disappear, but the news organisations they own will easily survive this downturn.
These corporations own newspapers that remain operationally profitable, but must restructure debts amassed in a business culture that encouraged highly leveraged ownership consolidation on the back of a harvesting strategy that may have gutted newspapers as much as today’s recession.
So, let’s start from a basic premise. Newspapers worldwide are not on the verge of collapse. Newspaper corporations in certain countries that have certain business models and certain business circumstances are vulnerable, and the recession exposes this vulnerability.
The more vulnerable position you are in, the more intense the pressure for change – especially fast change.
To over-simplify, there are newspapers whose business models allow them to be “less affected” and “more affected” by today’s downturn. In broad terms, this is what this means:
· Paid newspapers.
· Distribution in a tight geography.
· Less than 60 percent of revenue comes from advertising.
· Low reliance on classifieds in the advertising mix.
· Low debt.
· Capital expenditures not tied up in print operations.
· Low penetration of broadband internet.
· Single copy-based.
· Free newspapers.
· Distribution in a broad geography.
· More than 60 percent of revenue comes from advertising.
· High reliance on classifieds in the advertising mix.
· High debt.
· Capital expenditures tied up in print operations.
· High penetration of broadband internet.
It just so happens that newspapers in the United States, Canada, United Kingdom, and Australia mostly have business models that fall in the “more affected” category. Newspapers in many other countries are being affected, but to a far less dramatic degree than counterparts in “more affected” markets.
In the United States, the economics of a labour-intensive metropolitan daily reliant on print classified advertising and distributed to a vast exurban geography will force “second newspapers” in local markets to close. Meanwhile, newspapers that chose not to slim down operations in good times, through inaction or union intransigence, may consider closing instead of confronting the disorientation of cultural vertigo – peering over the cliff and cutting staff by half at one time.
Let’s be clear here. This means a U.S. metropolitan market is not big enough to support more than one kind of 20th century-style publishing behemoth – a peculiar entity on the world stage that falls squarely in the “more affected” category. Most markets in the world can handle several such entities. In the United States, smaller, nimbler digital news operations will likely emerge with reverse publishing on profitable days the likely model that fits the market.
A Swedish publisher put it to me this way: U.S. newspapers are being pounded on 85 percent of their business model (advertising), while his newspaper is being pounded on 50 percent of his business model. His year is tough; his counterpart in the States’ year stinks.
A Swiss publisher put it another way: “My view of what’s happening in the U.S. is that newspapers have milked advertisers and readers until that model no longer works. The minute it became difficult, they moved entirely in a different direction.” That “different direction” is the all-digital future. The Swiss publisher believes in two scenarios: a) there will be a return to print advertising post-recession; or b) the U.S. model isn’t entirely translatable to other national newspaper industries that don’t rely so heavily on advertising in their business models.
B. DEBT-RIDDEN VERSUS RECESSION-RIDDEN COMPANIES
To cut through the deluge of reporting, debt-ridden companies are behaving differently from recession-ridden companies:
· Debt-ridden: Debt-ridden companies are behaving as if their very survival is at stake; in many cases, this is true and understandable. Newspapers owned by debt-ridden companies are under enormous pressure to throw off cash and produce profit margins that are unthinkable in this kind of economic downturn. A local publisher of one such company in the United States told me they had to get rid of their plants because they had no money to water them! For debt-ridden companies, there is little long-term thinking; it’s all harvesting.
· Recession-ridden: The recession-ridden companies are in pain. The pain is greater than the other two global recessions, combined, from the past 20 years. Yet the pain is scalable. There will be the inevitable balance between cost-cutting and development. I’m hearing panic mostly from people who have never before experienced a recession at a newspaper. I’m also hearing concern from companies having difficulty securing lines of credit.
Look at the earnings statements and what you hear on the street.
I’ve heard that one of the Tribune Company’s leading newspapers may have made a US$100 million profit in an otherwise horrible 2008 due to cost containment and targeting its opportunities. But put that in the context of the US$13 billion debt the Tribune Company has amassed and must service!
You can throw off impressive profits, but the way newspaper companies structured their debt to acquire other newspapers assumed they could lift 20 percent margins to 30 percent and more. Little thought was given to the idea that margins could drop from 20 percent to 10 percent or less.
That is turning into a Shakespearean miscalculation.
Let’s separate executives at recession-ridden companies who say “business is awful” from executives at debt-ridden companies who say “I’m not sure we can meet payroll.”
In late 2008, the American Press Institute convened a summit of U.S. newspaper publishers to discuss the economic crisis facing the industry. From the reports I received, the meeting was disappointing to all present with no consensus on how publishers can collaborate moving forward or push some kind of collaborative transformation agenda.
From what I can piece together, the nuance of the differences of opinion in the room had more to do with the context of the executive present. If you represented a debt-ridden company, newspapers can’t broadly transform themselves fast enough. If you represented a recession-ridden company, the whole downturn is irritating but business will return and the only mystery is about how much cash to conserve and for how long.
If you’re a publisher with low debt or you invested in the proper capital expenditures in good times (databases, CRM systems) or you are operating in a national market with low internet penetration, there is no talk of death, bankruptcy, or other dismal subjects. The fundamentals for recovery are at your fingertips.
Where there is danger, there is opportunity. In “more affected” markets, there are a lot of changes in business models, expense allocations, and multi-media that can’t be made fast enough. In “less affected” markets, you have the opportunity of recession to force changes – though you are better positioned for some degree of recovery post-recession.
C. BEHAVIOURAL TRENDS AT NEWSPAPERS
Newspapers worldwide are behaving like recessionary businesses:
· Where to cut: The best ones are right-sizing their editorial and production operations relative to the size of revenues they can generate. The worst ones are cutting across-the-board, depriving managements of the ability to market, sell, understand customers in changing times, and evolve toward digital.
· Transformation: The best ones are turning danger to opportunity by accelerating transformation strategies. The worst ones are sticking their heads in the sand, and hoping the storm will pass.
· Treating employees: The best ones are treating their surviving employees as if they’ll be with them for the long-run. The worst ones are treating surviving employees as if they’re lucky to have what they have.
Business culture often mirrors the culture at large. The American capacity to consume and over-spend in good times is legendary; so is the American consumer’s willingness to slash everything in bad times. That mindset exists to a smaller degree in other countries, which have higher savings rates and societal checks and balances that prevent wild mood swings. How newspaper companies approach today’s crisis very much mirrors these cultural differences.
In general, the best-practice companies in this recession are the ones that can reposition strategically simultaneous to downsizing. From my phone calls, European companies are doing this better than North American companies, but there are pockets – good and bad – on both sides of the Atlantic Ocean.
D. BUSINESS MODEL OPTIONS
Broaden your horizons for newspapers worldwide, and you find a variety of business models. There is no single business model for newspapers. Ask a Paris newspaper about subscription models, and they will look at you strangely because their focus is single-copy. Ask a Tokyo newspaper about classifieds, and they may ask your definition since the concept is entirely foreign to them. Ask a New Delhi newspaper about the Internet Revolution, and they will show you data of less than 5 percent penetration. Ask a New York newspaper about investments in CRM, and they will show you no room in their capital budgets otherwise tied up in big printing presses.
One of the big discussions among newspaper executives today is about “business models.” These discussions can be put into two categories:
· How to move within the range of existing newspaper business models (see “less affected” and “more affected” above).
· How to integrate digital business models.
A senior circulation executive at a major U.S. newspaper told me he’s under intense pressure to “make circulation more of a profit centre.” Translation: How to raise rates on readers and lower distribution costs.
I know of no newspaper in the world that doesn’t want more advertising revenue. I know of no newspaper that purposefully balances their revenue model. It is what history says it is, and then newspaper executives justify it as if it were a board edict to have 67 percent advertising and 33 percent circulation.
What doesn’t get talked about is what you are assuming by embracing certain types of revenue streams. For example, business models based on brand advertising, price/point advertising, or classified advertising each carry unique upsides and downsides. It’s risky to be a highly leveraged business with heavy reliance on recession-weary classified advertising categories. For example, moving from a single-copy model to a subscription model requires knowledge of marketing channels and probably people with entirely different skill sets. Rushing to telemarketing as a saviour for the new subscription model can be bankrupting.
Focus mental bandwidth behind digital business models – not evolving suddenly into something that is not in the DNA of your company or national market.
E. WHERE NEWSPAPERS SHOULD FOCUS COLLABORATIVE ENERGY: REAL ESTATE
As for newspapers confronting the recession, here’s what I hear:
· Circulation is down, but it’s manageable.
· Retail advertising is down about what you would expect in a recession, but it’s manageable.
· It is the degree of collapse of classified verticals that scares publishers.
In visiting recently with the senior strategist at one of the United States’ leading newspaper companies, a theme emerged about classified advertising in today’s recession:
· Employment advertising has migrated to the internet and likely will only come back to newspapers as a fraction of what it once was.
· Automotive advertising is down about what you would expect it to be in a recession, but this is expected to return to newspapers.
· Real estate advertising is the one classified sector the newspaper industry should focus its energy because, mid-recession, it’s unclear the degree to which this will come back to newspapers.
The rationale behind focusing industry efforts on real estate is a long-understood but rarely discussed reality: real estate advertisers hate newspapers. They’re not sure that newspaper advertising moves homes, but agents feel pressure to advertise so they can show clients that they’re doing something.
The strategist tells me that what’s needed is a migration away from selling print ads to the real estate sector … toward evolving the newspaper into the role of marketing services agency to the real estate sector.
Another major market U.S. publisher disagreed with this notion, saying national internet pure-plays in the real estate sector are “as greedy as we are,” and there’s no disruptive innovation happening.
How can newspapers help solve real estate agents’ problems over the next five years? How is the market changing from the agent’s perspective? How can newspapers retool to be the real estate sector’s marketing services agency?
Are national press associations taking a leadership role on this subject? Are newspapers collaborating to get to the heart and inside the minds of the real estate industry?
Or are we burying our heads, unable to marshal resources to focus on a sector (real estate) with high return on investment?
F. WORD ON THE STREET
In my discussions with INMA members, I heard some interesting nuggets that I’d like to pass along:
Weak days versus strong days. While the Detroit Media Partnership is cutting back from seven-day print publishing to three-day print publishing to focus on profitable days of the week, others are finding new ways to imagine the value propositions of low-demand and high-demand days of the week. An INMA member recently suggested to me that one such idea suggested that weak days such as Monday, Tuesday, or Saturday (in the United States) be transformed into “deep dives” on “passion subjects.” Perhaps the front page and front section should be about sports during football seasons on Monday. Other INMA members who disagree with what the Detroit Media Partnership is doing say they prefer to keep their brand alive seven days a week, but allow circulations on the weak days to fall to their “natural levels.” So instead of focusing on seven-day subscriptions, these newspapers are instead focusing on three- and four-day subscription packages – no doubt the profitable days of the week. Thus, newspapers are beginning to extract themselves from the business practice of propping up weak days and instead focusing resources on strong days.
Quantity, not quality. As advertising dries up, the pressure to adjust editorial staffing levels intensifies. A Belgian publisher told me recently that it’s important not to compromise on the quality of content, but that it’s a legitimate discussion to talk about the quantity of content. He also said there are value themes that quality newspapers must address: the value of proximity, economic/political news, and sports. Maybe it is best that quality newspapers focus on these high-value areas in terms of strategic development – and de-prioritize everything else. In contrast, down-market popular newspapers that have a low reliance on advertising (25-35 percent) and a low investment in editorial quality are better weathering the economic storm.
Marketing capacity. Newspapers are quick to cut marketing in a downturn, and I’ve never seen a situation where managements didn’t quickly live to regret it. Sometimes, marketing gets cut or – my favourite – it’s decentralised. I’m already hearing about this from regretful publishers. In the old-school thinking that still dominates newspaper managements, why employ a centralised marketing staff if the budget to buy television, radio, outdoor, and more has been gutted? One publisher who de-emphasised marketing and made it a support function for the advertising department admitted they had “outgrown marketing capacity.” But he is looking for a true chief marketing officer-level executive who knows digital, brand, direct marketing, strategy, and enough about newspapers to internally infuse the company with a marketing culture – a different animal in a different era.
Diversifying my perspective and getting out of my comfort zone has been an interesting and healthy process.
INMA members in Europe, Latin America, Africa, and Asia/Pacific want to know if what’s happening in the United States is the tip of the iceberg. The recession parts have iceberg qualities, but they’re scalable. If this is your first recession, don’t worry: the sky isn’t falling. On the other hand, the debt parts are unique to certain companies and more prevalent in certain national markets.
If you push beyond national differences in demographics, history, and technology, there is an inexorable, long-term consumer movement away from print newspapers and toward digital consumption of news. Short-term, though, the main revenue opportunities remain in print. The challenge is about aligning the supply and demand of audiences with the multi-media products at our disposal. Matching up these puzzle pieces must start with a discovery process that is slow, painful, and necessary.
A South African newspaper executive told me recently that the economic environment is in “a bit of a wobble” – an under-stated turn of phrase quickly followed by the downturn pushing “cutbacks that exceed 9/11.” But as the executive talked about the pressure to produce, out came phrases like “I’ve never seen so much creativity” and how companies are looking at niche markets and thinking about audience more than ever before.
It is those opportunities in a downturn that are becoming clearer by the day:
· The opportunity to transform the product-first culture into a market-oriented audience culture.
· The opportunity to lower cost structures through the selective embrace of digital.
· The opportunity to shift capital investment strategies and manpower to CRM and customer knowledge.
· The opportunity to embrace concepts such as “open innovation” and “strategic networking” for executives starved for access to ideas and peers.
· The opportunity to infuse your workforce with people who move easily among media platforms but who particularly embrace the speed of the Digital Generation.
If you fear the worst stories in our industry, your fear is unfounded. Don’t let these worst-case scenarios hold you back. While you have to manage your company’s path through the recession, you should be feeling greater pressure to accelerate transformation before today’s window closes.
INMA will continue to hammer home these points and provide specific examples of innovation and transformation in our web site, our magazine, our reports, and our conferences. We will continue to reach out to members every day of every week to understand the twists and turns of the economy on what newsmedia companies do.
To conclude, there is no iceberg.
The calamities generating headlines are about debt – not operations. Newspapers are scaling operations to a recession, and the big revenue opportunities are in print.
Yet smart publishers are using the moment’s danger to accelerate transformation agendas that mean culture change, more money for marketing and research, a shift to digital, downsizing over-staffed and under-focused editorial departments, and the injection of speed in the way business is conducted.
My only warning for INMA members: Newspapers have about one year before the light at the end of the tunnel appears. When that light appears, the opportunity to push change will evaporate.
Earl J. Wilkinson is executive director and CEO of the International Newsmedia Marketing Association (INMA), a non-profit organisation with more than 1,200 members in 82 countries worldwide. INMA is the world’s leading provider of global best practices and marketing ideas for newsmedia companies looking to grow amid profound market change. Wilkinson may be reached at email@example.com, by telephone at +1 214 373-9111, or via web at www.inma.org.
Page first published: 09.04.2009