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October 31, 2014

NAA's New Revenue Report: Been Down So Long Looks Like Up to Publishers

As I checked out the National Association of Newspapers first-of-its-kind report – The American Newspaper Media Industry Revenue Profile 2012 — being released today, my mind kept reeling back to a March report that generated less discussion than it deserved.

The State of the News Media (SOTNM) 2013 report offers the kind of annual encyclopedic look at the U.S. news industry to which we’ve become accustomed, chockful of useful data. Yet, it offered a sense of requiem this year, as two numbers, ones not tied closely together in the report, were featured. The first  number — 30% — is the decline in newsroom size,  since its 2000 apex, with the 2013 total dropping below 40,000 full-time professionals “for the first time since 1978.”

The second noted, in an accompanying Pew study, that “31% of people say they have deserted a particular news outlet because it no longer provides the news and information they had grown accustomed to.”  While only a third of the respondents in the survey indicated much awareness of the financial downturn affecting news media, of those “people most acutely familiar with the economic struggles are the most likely to lose their patience with a news outlet: 43% of the people who said they heard a lot about the financial troubles stopped turning to a news outlet because they were dissatisfied with what they were getting.”

America’s best readers to news media: Get yourself together, regardless of your problems. Newspapers and other media don’t get graded on a curve. As consumer media, you simply have to satisfy consumers.

Within that context, let’s look at what we learn from the new NAA study. The report details the changing structure of U.S. newspaper revenue. It provides better and more granular data on how the industry is now morphing.

While it provides few revelations, the data ratifies key trends — the revolution of reader revenue, the big investment in marketing services — and begins to pick apart the old two-step ad/circulation model that we’ve lived with for so long. It’s a new baseline for the industry. It’s a baseline that will become more useful each year, as we track whether the rate of business model change is really fast enough to propel any growth in this much-shrunken industry. We’ll see whether talk of a turnaround is real, whether Warren Buffett and Aaron Kushner really bought in at a bottom, or not.

Here’s what the data reminds us:

  • All-access circulation is indeed the brightest light on the horizon. NAA, which has long tracked circulation revenue notes that it grew in 2012 for the first time since 2003.  Circulation revenue grew 5% in 2012, and revenue is the key metric here. Forget all the scrutiny given to digital-only subscriptions; it’s overall circulation revenue that counts. Digital-only circulation revenue accounted for a relatively small percentage (1%) of total circulation revenue, and even that number seems high to me. It is the All-Access, get-more-money-from-those-price-insensitive-core-readers push — now in place at more than a third of U.S. newspapers — that has made that first-time-in-a-decade circ gain possible. Revenue from digital/print circulation rose nearly five fold (499%) from 2011. Recall, though, how small that base was in 2011.
  • Marketing services is hot. It showed a 91% increase. (“The Newsonomics of Selling Main Street“). So much of that growth is start-up that the increase is less significant than the fact that of the survey’s 15 companies (mostly multi-title chains), nine are investing in the new business line.
  • Print advertising is in free fall. The industry sustained just less than a double-digit loss in 2012, down 9% And the pain is across all categories:  Retail advertising, 8%; national advertising, 15%; and classified advertising, 9%. Within the classified category, automotive, 9%; real estate, 12%; recruitment, 8%. All those numbers paint a worsening decline — and this in a time of American economic recovery. Smaller community-sized papers have generally fared better than the metros, struggling with advertising, but often holding losses to low single digits or finding a little plus business. So, an overall 9% decline shows us just how deep the print ad decline is, and how much circulation gains will struggle to overcome that deficit. The NAA survey — which covers 40% of the weekday print circulation, with data from 330 papers — is representative of both larger and smaller papers, Tom Rosenstiel, new executive director of the American Press Institute, tells me. Rosenstiel worked on the report’s data.
  • The industry is still heavily ad-dependent. 65% of all revenues are ad-related, including “print, digital, niche and delivery of preprints.” Within that figure, traditional print newspaper advertising (down that 9%) now makes up 46% of total revenue. There’s the issue in a nutshell: the category, with the down arrow — ads — still makes up two-thirds of all revenue. The one with the up arrow, circulation, accounts for only a quarter (27%). That makes the business transformation difficult.
  • The industry is still far away from a digital crossover point. Only 11% of overall revenues are now classified as digital, including the beginnings of digital circulation money. That number may become less useful over time. All-Access circulation revenue – built on not separating print and digital readers or their subscription payments – will cloud “digital” attribution. The big issue with the 11% number is that with the dependence on print for income, publishers must maintain so much of the costly apparatus that supports it, while digital-only competitors can operate on a far lower cost basis.
  • Three billion dollars in new revenues — including marketing services, events, printing and more  – now make up about 10% of the total revenues, a function both of new revenue experimentation and dramatic print ad decline.
  • Too many categories of newer revenue are so inconsistently defined as to make data comparison less than useful. Even in digital ads and “pure play digital ads,” NAA tried to get methodologies in place, but had to note “Yet the data suggest there is a wide variation in performance. At the low end, one company saw pure-play advertising account for just 1% of digital ad revenue. At the high end, one company now derives 67% of its digital advertising revenue from pure play—a sign that management strategy and market are important factors here.”  Yes, market factors and strategies do play a part, but how revenue is counted more greatly accounts for the disparities. If the industry really wants to benchmark new revenues well, it will have to adopt better standards.
  • Zero is still the aspirational number (“The Newsonomics of Zero, and the New York Times“). The industry was down 2% in overall revenues, year over year, a marked improvement over recent years. That’s the key positive of the report, prompting my borrowing of Richard Farina’s long-ago-published counterculture classic “Been Down So Long It Looks Like Up to Me,” which Rick Edmonds recently pointed out as well.  It is still inching toward the black, with many obstacles ahead. All-Access reader revenue has legs, and let’s remember that two-thirds of the industry hasn’t yet begun to capture it. So zero is in reach for the industry, and for individual publishers. One aggressive regional publisher recently put it to me this way: “We’re not there yet, to zero, but we hope to be there by the end of 2013.” One more note on the magical zero: it’s still below the rate of inflation, even now running at about 2%.
  • Overall, the industry is now down 35% from its height, to $38 billion in total revenue from a height of about $58 billion about a decade ago. It’s refreshing to see NAA step out from its long-held focus on audience (and how the digital age has expanded it) and acknowledge revenue as the core issue, bringing some better focus to what’s happening. Still, unless the industry will agree to common standards of revenue recognition, it’s going to remain tough to compare meaningful metrics of non-circ, non-ad revenue sources. I’d like to see a parallel survey of expenses. How newspaper companies spend their money is probably more important in a no- to low-growth time. Will they invest in content to further fuel the reader revenue revolution? When smart businesses find a winner, they double down.

It’s incredibly sobering to remember that three of 10 readers have abandoned news outlets. That’s a reflection both of those newsroom reductions, which have removed three of 10 journalists, and how newspapers still spend way too much money in ways that don’t improve the product. Newspapers spend 10-20% of their overall budgets on content creation. It’s not enough; readers are voting with their feet. In a time when reader revenue is what’s working — that number one bright spot — publishers have got to figure out how to spend more on the single source of growth, readers.

As new NAA CEO Caroline Little puts it, “America’s newspaper media are transforming themselves.” “In virtually every community they serve, newspapers have the biggest newsrooms, the best-known brands and significant audience market share. Now they are building on those to find new ways to serve audiences and local businesses.” All true. That said, this profound and long-required transformation has been profoundly slow. In 2013, we finally see more innovators and innovation, but the overall numbers in the NAA survey point to relatively glacial change.

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