TheGraphicOnline

WARNING: This is the longest blog ever appearing here, or probably anywhere, so beware of starting to read it.

Most of us have come to know that newspapers are in trouble, but this week it all hit the fan:

• The Rocky Mountain News, one of Denver’s two daily newspapers, shut down completely.
• The Journal Register Co., owner of the New Haven Register in Connecticut and 19 other newspapers, filed for bankruptcy.
• The Hearst Co., owner of the San Francisco Chronicle, announced that if it doesn’t find a buyer, it will shut down that city’s only daily newspaper.
• The Philadelphia Newspapers Co., owner of both Philadelphia papers, the Inquirer and the Daily News, filed for bankruptcy.
• The Washington Post Co., whose newspaper of the same name, and its stable-mate, Newsweek magazine, announced that its fourth quarter profit plunged 77%. (This is the company whose largest outside stockholder is the fabled Warren Buffet.)
• Gannett Co., owner of our Palladium-Item and Indianapolis Star among about 90 other daily newspapers, slashed its quarterly dividend by 90% to save $325-million a year! And this came after a previous announcement (as some of your friends may have told you) all Gannett employees were given a one-week “holiday” without pay to save cash. (Strangely, I don’t remember reading anything about any of this in either the P-I or Star.)

All in one week!

Maybe two years ago — at the most, five years ago — if anybody had predicted this, nobody would have believed them.

Do you want to know how it happened? Fine. I happen to be the only one who knows the complete answer. The only trouble is – nobody asks me. Well, rightly or wrongly, here’s my answer.

There are three reasons for what might be called: The Freefall of the Newspaper Industry.
1. The immediate cause derives from the unprecedented decline of the general economy, of which we are all too well aware. It is the flip side of the old saying, “A rising tide raises all boats.” We are seeing, “A receding tide exposes all rocks.”
2. More immediately damaging to the newspaper viability is the shrinking of their customer base, of which most of us are also aware. Many big box chains are closing or downsizing, and remaining advertisers are finding other media outlets, largely the internet. Web-based classified advertising options such as Craig’s List, have virtually wiped out print classified. Since a typical daily newspaper derives 80% of its revenue from advertising (not subscriptions, as many people think), the exodus of the bulk of ads from newspapers has been devastating. Some years ago, the industry decided the answer was to start their own web sites and shift advertising to those sites; for awhile, that looked as if it might work, but it hasn’t. More about that later.
3. The third reason is most fundamental, and reflects my own opinion, so you won’t be reading it elsewhere. The economic basis of the daily newspaper industry for the past 50 years has been derived from the proven belief that “Monopoly Pays.” The Gannett empire created by Allen Neuharth, for instance, was built on the dictum that they acquired daily papers only in small or medium sized cities that were the only newspaper in town. Prosperity depended on local monopolies. Now, only one percent of cities in the United States have competing daily newspapers. There is room for only one, and a “single ownership” is enormously profitable. This philosophy has enabled the daily newspaper industry (until now) to post profit margins averaging about 22% — compared with most industries of 7-8%. They “owned” the market, and thereby could protect their monopoly position – until now.

Enter the Internet. At first, traditional newspaper people “pooh-poohed” the internet, because it was populated by a bunch of soreheads and crazies – and was no real competitor. As it grew and expanded, the internet swooped up readers of all ages, particularly younger ones, which were already falling away. Today, fewer and fewer young people read the newspapers. Why should they? They were weaned on computers and it’s free. Also, internet outlets began appearing locally that were – gasp – not owned by the local newspaper, raising the hackles of their monopolistic souls. “We cannot allow this!” the industry chorus intoned. “Protect the franchise,” ordered Neuharth to his Gannett underlings.

So it came to pass that the newspaper industry changed gears from disdain of the upstart internet to a “must have” obsession. About ten years ago or so, every daily newspaper publisher knew, or was told, that he’d better start his own web site or be branded as a laggard. They were expensive to start and they brought in very little revenue, but they “protected the franchise.” Newspapers with their own web site were proud that they still dominated the news in their own communities, a mind-set that still controls the industry. They all agreed that ad revenue from the web sites would eventually take the place of print advertising. But it didn’t. For awhile, it rose rapidly, then two years ago it leveled off and last year, it declined. Average ad revenue from newspaper web sites is now about 8% (compared with the 80% from print ads).

Put all of these hits together: The current national recession, shrinking of the former customer base, shift of much advertising to other media, and disappointment in ad revenue from newspaper-owned web sites – and that’s why the newspaper industry is in a free-fall. That’s why an alarming number of larger papers are tumbling from their former Olympian heights and dropping screaming into bankruptcy.

So it goes.

There is more, but this screed is getting much too long. Come back next week and I’ll give you “the rest of the story.”

–Vic Jose

Vic Jose :: Mar.02.2009 :: Uncategorized ::

Trackback URI | Subscribe to the comments through RSS Feed