What the year
holds for newspapers
The big stories: How they will fare in the ad recovery
By Diego Vasquez
Jan 21, 2010
Yesterday's expected announcement that the New York Times will begin charging for access to its web site next year could prompt other major changes for an industry that has been battered by declining advertising revenue and circulation the past two years. Newspapers, mostly the large metropolitan ones, are struggling on many fronts. Young people are eschewing them for the internet, graying papers' readership further every year. Classified ads are migrating online, and circulation declines, some deliberate, some not, have battered metropolitan publications. With the web hurting papers so deeply, perhaps it's not surprising that one new tactic they're embracing is to stop giving away content for free online. Though only a few papers, including Newsday, have walled off their sites, virtually every chain has talked about it. With yesterday's announcement, the Times will become the largest paper to go from free to paid, joining behind the pay wall its crosstown rival, the Wall Street Journal, which has always charged for content. People will be watching closely next year to see how the Times' plan does. John Morton, newspaper analyst and president of Morton Research, talks to Media Life about the promise of paywalls, the industry's circ woes and how layoffs have hurt the industry.
What was the biggest story of 2009 in newspapers?
That things didn’t get a lot better. If the national economy is coming out of a recession, the newspaper industry hasn’t yet, although there are some signs of improvement.
It will really depend on two things: revival of the three major sources of classifieds: auto, real estate and help wanted, and there are signs of improvement there. And the second thing is, when those sources do come back, whether papers will be able to retain as much of their ad spending as they have before, and that’s a big unknown. They’re going to lose some clearly, we just don’t know how much.
What will be the three biggest storylines in newspapers this year?
I think it will be whether there is a recovery and are newspapers benefitting from it?
Another big story for the industry will be how to erect some kind of a paywall for their web sites, like the New York Times said they’ll do in 2011. I suspect every publisher in America is thinking of it, I just don’t know if they know exactly what to do.
And one more is how well newspapers will fare having diminished themselves so much the past few years in terms of staffing and journalism. This applies, I would say, primarily to the larger newspapers.
About 70 percent of dailies in this country have circulations under 50,000, and many of these smaller papers have held up pretty well. Margins are down but not precipitously. They didn’t engage in huge numbers of layoffs, as far as we know.
And so they’ll come out of this continuing to be strong presences in their markets. They’re aided by the fact that they operate in less-competitive locations, and they tend to be closer to their readers and their advertisers, and that has shielded them from some of what’s happened.
Do you anticipate advertising in this category to begin recovery in first-half 2010? Why or why not? If not, then when?
Well, things seem to be improving very gradually in the economy, and much more gradually in the newspaper business. Again, the big question is whether, as the economy comes back, newspapers will come back with it.
How much will newspapers have lost permanently? I suspect it will be a significant amount, and I’m focusing these comments primarily on larger newspapers.
But it will probably mean that going forward the larger papers will be smaller and diminished in their journalism, and certainly less profitable than they used to be.
Will newspaper ad revenue ever regain the levels it had at its height four years ago?
As a percent of gross domestic product, I doubt it. To the extent that it will improve, it will depend very much on how they do on the internet. You’re looking at what is a very clouded crystal ball.
One thing you won’t see is a lot of acquisition activity.
So many companies got into trouble by heavily leveraging themselves when times were good to acquire more properties, and now some are plunged into bankruptcy. Not because papers weren’t profitable, just not profitable enough to offset the debt that occurred among the parent companies when the economy went south.
So I think you won’t see, at least until these debts get worked down, eagerness among these companies to acquire more properties.
Lots of publishers have been talking up paywalls. What are the arguments for and against pay walls? Do you think they will work?
I hope it works. The industry early on in the internet revolution made what turned out to be a wrong decision by accepting the false premise that information on the internet wants to be free. They did so thinking that by having a lot of visitors to their web sites they’d have a lot of advertising, and that didn’t happen.
We don’t have the numbers for last year yet but in 2008 internet ads for newspaper was only about 8 percent of the total, and that’s after 10 years [of the internet]. Although that advertising tends to be highly profitable, it doesn’t come close to offsetting what they’ve lost in their print products. So there’s got to be some way of monetizing the web sites.
The Times is doing it one way and we’ll see how others try to do it. But clearly it has to be done. At the beginning it will result in a sharp drop in visitors to web sites.
The other aspect of this is, the industry made a gift to the news thieves, more politely known as aggregators, and this will be a step toward removing some of that.
Will we see more newspaper closures this year? If so, what are the prime targets?
I don’t predict the deaths of newspapers. But the ones that we’ve had in Seattle, Denver and Tucson were wholly predictable and didn’t have anything important to say about other newspapers. They were basically kept alive by joint operating agreements.
But I think most cities that are large enough to support a daily newspaper in the past will continue to do so in the future. There may be some bumps along the way, but generally speaking these continue to be viable businesses, they just don’t throw off 30 percent profit margins anymore, and I don’t think they will again.
Do you anticipate many more papers moving to online-only or partial online publishing (i.e. one to three days a week)?
That’s been a phenomenon among very small newspapers, outside of the three I mentioned. Some suburban dailies might go that route. You might see some of that in smaller markets but I don’t think it’s likely in larger markets, although clearly the business model for newspapers in print has been seriously harmed, and maybe even broken in the long run.
That’s why discussions about monetizing web sites are so important.
Circulation at papers has been falling for years. How much of that is a conscious decision by publishers to reduce the costs of supporting outlying circ? Why has this been a smart decision?
It’s financially a smart move but probably strategically not. It feeds the notion that papers are in severe decline. But it’s true that some that had far-flung circulations were subsidizing that circulation.
It’s a double-edged sword. Losing circulation never looks good, but losing money on circulation doesn’t look good, either.
And that certainly has contributed to the overall decline in circulation, but I don’t think it’s as important as the fact that young people don’t take up newspaper reading like they used to, and they probably never will.
What is the single-most important thing for media buyers and planners to know about newspapers in 2010?
I think they should remember the point I made earlier, that a great many of this country’s newspapers are still viable and successful businesses that do provide customers to advertisers. The more down the size scale you go, the more true that is.
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