Newspaper Futures from Doom to Bloom
Important Details: It’s become a staple of American movies and TV shows. Something big happens, usually involving mayhem. We then see the story unfold through the eyes of several characters, each with his or her own viewpoint; each seeming as valid as the others and all raising questions about "objective truth." Japanese auteur Akira Kurosawa pioneered the concept in "Rashomon," his 1950 masterpiece. We may look at the American newspaper industry in a similar way, a slow-motion collision of clashing times and business models.
Yes, it’s not all gloom and doom. Witness Friday’s announcement that the Times of London, recently reformatted to a subway-friendly tab, will hit the streets of America (well, okay, New York and New Jersey) next month. With a base of 3 million monthly uniques online, here come the Brits on old-fashioned paper, just in time to share World Cup coverage with the Yanks.
Then, look to Monday’s story that the Tribune is becoming a more private public company, buying back 25 percent of its outstanding stock for $2 billion. The Tribune will strive for savings by standardizing technology platforms serving content, circulation, and advertising businesses, and it aims for $200 million in cost reductions, including staff. It looks here like the Tribune is battening down the hatches for the rougher seas ahead.
So what, big picture, do industry captains and watchers make of all this?
Take MediaNews CEO Dean Singleton’s pragmatic view of the industry, captured at an April newspaper conference:
"I am currently completing or beginning the implementation of $500 million in presses. I just don’t buy that print is gone or is anywhere close to dying. Presses last 40 years, if we believe in spending on new presses that will last 40 years, we believe print has a long, long, long future. I can’t buy that print is beginning to go away. If you want to hear people talk about the end of the newspaper industry, don’t look to me.”
Or the the sunny outlook of Brian Tierney, new CEO of Philadelphia Media Holdings, Inc., which this week emerged as the new owner-to-be of the Philadelphia Inquirer:
"I want to work with our advertising department … I think there’s revenue being left on the table every day … We haven’t even begun to scratch the surface of what we can do there."
Try a less sanguine view, offered by the venerable Warren Buffett, whose company owns the Buffalo News and a large minority stake in the Washington Post:
"Most owners don’t yet see this protracted decline for what it is. The multiples on newspaper stocks are unattractively high. They are not cheap enough to compensate for the companies’ earnings power. Sometimes there’s a perception lag between the actual erosion of a business and how that erosion is seen by investors. Certain newspaper executives are going out and investing on other newspapers. I don’t see it. It’s hard to make money buying a business that’s in permanent decline. If anything, the decline is accelerating. Newspaper readers are heading into the cemetery, while newspaper non-readers are just getting out of college. The old virtuous circle, where big readership draws a lot of ads, which in turn draw more readers, has broken down."
Or, lastly, Merrill Lynch analyst Lauren Rich Fine’s growing pessimism, announced in a Friday report:
"We still think it is a stinker of an industry, but believe management skill and cash flow reinvestment will prove the distinguishing qualities."
Merrill Lynch revised its 2006, 2007, and five-year growth rate ad revenue forecasts down to 1.2 percent (from 1.8 percent), 1.1 percent (from 1.4 percent), and 1.6 percent (from 2 percent). It also said that margins would drop to 16 percent in 2011, down about four points from this year’s average.
In Outsell’s Opinion: It’s hard to argue with the business acumen of Dean Singleton, the Philly passion and knowledge of Brian Tierney, the investing wisdom of Warren Buffett, or the experienced financial analysis of Lauren Rich Fine. Outsell believes that the key here is that transformational trends – in reading habits and ad buying – are creating an urgency unseen before in this industry and seldom seen in others. What clearly offers itself as a challenge is the creation of a new virtuous circle. It’s probably a smaller one, but one that reinforces new reader/advertiser value chains in growing and sustainable ways.