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March 29, 2024

Financial Crisis Further Tightens Publisher Options

Important Details:  Could the vise around the neck of the newspaper industry get any tighter? If you’d asked newspaper company CEOs and publishers a couple of weeks ago, they’d probably have said, “no.” Ask them today, and the answer is different. It seemed like the “perfect storm” metaphor — about the internet ad revolution, changing generational reading habits, the decline of print reading, the rising cost of newsprint and ink — had become cliched. Now, with financial meltdown of epic proportions upon us, that vise has undoubtedly tightened a notch.

Why? All newspaper-based companies face a simple question: How do we get from here to there, with there being a shadowy terra incognita, of uncertain digital revenues and the remains of a once-robust print business. It’s that uncertain future cash flow (as much as current downturns) that have caused investors to trim share prices by more than 50% and for once-highly-sought newspaper titles (such as San Diego and Austin) to sit on the market. Consequently, companies that are largely dependent on newspaper revenues (News Corp, for instance, is not, with more than 75% of its revenue coming from non-newspaper sources) have been looking at financial restructuring. Some public companies are modeling what going private would mean. Some private companies are looking at what kind of subsidy may be worthwhile in the long-term. Most companies are concerned with their debt loads, as cash flows get reduced. Words seldom associated with newspaper companies,  like “default” and “bankruptcy”, have now entered the public conversation.

So the news of the last week is beyond perfect storm. It is wordlessly harrowing for some companies on the edge. The risk-averse nature of creditors only makes refinancing strategies harder. Some publishers are already having anxious discussions with their bankers, as the available options get more constricted. In the months ahead, Outsell expects to see some debt holders taking the reins from publishers, and then trying to figure out themselves what to do with these struggling businesses.

Implications:  How did things get to this point? Certainly, publishers have faced unprecedented challenges on multiple fronts. Most have happened over the past decade, though it must be pointed out that newspaper household penetration in the US peaked in the 1950s (at more than 100%, as households took multiple papers) and has been sliding ever since, now into the forty percentiles.

Out of a mass of numbers, one stands out most prominently. In 2007, only 8% of newspaper publishers’ revenues, globally, as tracked by Outsell, were derived from digital sources. More than 90% still came from print legacy operations, even as these revenue streams — classifieds, department stores, national advertising — have been steadily eroding.

Newspapers have simply failed to make a transition, a transition that many other publishers have made less painfully.

In fact, if you look at all of the Information Industry sectors tracked by Outsell (Market Research; Scientific, Technical & Medical; Company Information; Legal, Tax and Regulatory; IT and Telecom Reports and Services; B2B and Search Aggregation & Syndication), all but B2B have crossed the line, earning more than half of their revenues from digital sources.  If you include News, the Information Industry collectively earns 48.9% of its revenue from digital sources. With News excluded, the Information Industry now collects 88.7% of its revenue from digital.

IT and Market Research were out of the print business almost entirely by 2000, and the top 300 companies overall crossed over (earning more from digital than other) in 2007, one year after the top 100 companies overall crossed over.

Yes, those other sectors faced differing challenges than news publishers, and some started as digital or databased products. Still, they offer the best comparison, and that comparison should give publishers deep pause.

Now, with cash flow suffering, we see a lot of deep cutting in staff numbers and physical production. We also see all kinds of innovation in the news industry. Importantly, astoundingly, given the times which publishers, their staff and their readers are enduring, this innovation, though, is still largely piecemeal. Talk with people within the companies from the top down, and you’ll hear “progress” on changing ad sales techniques, on producing multimedia, on engaging communities and getting them involved as participants.  Unfortunately, “progress”  won’t cut it, and much too little of what’s here today will make it to the “there.”

As Outsell talks with those at all levels of the News industry, we hear too many stories explaining the human and mechanical barriers to real change. These would be bothersome enough in good times; in these times, they are suicidal. Too often staffers themselves and their bosses would rather witness a parade of people leaving the building, never to return, rather than make real, blow-it-up change, change that could be consistent with the values and principles of the trade, but would change the the news business in a fundamental and winnable way.

Winning means concentrating on two things: audience and product. Publishers should be asking how a General Electric or an Apple would approach the problem; is it too late for an iTunes for news? Publishers need to think wholly about about digital and print and about product design and usability—brand experiences. Ironically, publishers start with some of the most iconic brands extant. It’s now a matter of reinventing them before it’s really too late.