Newsletter
A most grim profit outlook for papers
By Samantha Melamed
Sep 1, 2006, 13:30

Even with declining circulations and the tougher advertising climate, newspapers are still accustomed to hefty operating margins of more than 20 percent, but that could soon change, and not for the better.

Within four years, by 2010, the American newspaper could see a dramatic drop in profit, predicts Outsell, a media industry research firm. It is predicting a $20 billion industry-wide shortfall in revenue for newspapers by that year, the result of what it's calling a snowball effect of further declines in circulation, falling advertising revenues for their print editions, and their failure make up for those declines by increasing their online sales.

Outsell's analysis is grimmer than that offered by newspaper executives and most analysts, who see continued if more gradual erosion in newspaper circulation and advertising but gains online.

Outsell came to its conclusion after looking at trends in revenue, expenses, cost structures and margins.

The firm also conclude that daily papers' collective weekday circulation could drop by as much as 19.5 percent from 2004--to 43.9 million—as adults 18-39 continue to move their reading to the web.

But as Outsell observes, papers' online revenue growth won't come close to replacing lost print advertising. That in turn will force publishers to trim their operating margins back toward the more typical information industry level of around 12.8 percent to stay competitive.