HOME
          
LATEST STORY
The news mixtape
ABOUT                    SUBSCRIBE
May 3, 2010, 10 a.m.

The Newsonomics of reborn newspaper profit

[Each week, our friend Ken Doctor — author of Newsonomics and longtime watcher of the business side of digital news — writes about the economics of the news business for the Lab.]

The first quarter newspaper numbers are in. They paint a consistent picture.

Across the board, the reporting of public news companies reflects a new, if unsteady reality. In short, that reality is one of profit. Not the big profit of 20-percent-plus profit margins — the envy of many other industries — that were a truism as recently as five years ago. Now, the profit’s more tepid, mostly in single digits: The New York Times, 8 percent; Gannett, 8 percent, McClatchy, 1.5 percent. Expectations run that news companies will show a five to 10 percent profit for the year, absent unforeseen calamity.

But that mild profit is good news. Recall that a year ago, much of the industry was in freefall. A number of companies — stunned by the quick near-Depression downturn of ad revenues — went operationally into the red. They responded with draconian cuts in staff and newsprint, and as the recovery has emerged, they’ve positioned themselves as smaller but profitable companies, though their first-quarter revenues still largely lagged the first quarter of the horrific Q1 2009. Wall Street has rewarded them with improved credit ratings and advanced share prices. There seems to be, say investors, some future here. This week’s tenacious auction in Philadelphia with lenders led by the Angelo Gordon private equity company — now a big player in the U.S. daily business — winning the papers with a $135 million bid only reinforces the notion that newspaper valuation may have been trashed too much.

It’s a fragile stability. One big question for all publishers: where do we go from here?

Here the newsonomics are constrained. While Google is off buying a company a month and Apple charts its own strong growth path, most newspaper companies have little room to maneuver. Sure, the private Hearsts — a diversified media company with newspaper interests — can invest in new companies and technologies, but for publicly owned newspaper companies, it’s a different story.

First off, their meager profits are uncertain. They then face three ways to use those profits. The three:

  • Debt reduction: Debt has been the anchor around many newspaper companies’ necks, as those that borrowed to complete acquisitions reeled as the business changed and then the economy tanked. Thirteen newspaper companies have declared bankruptcy, with that clean-up continuing. Yes, they’ve discharged a lot of debt (Alan Mutter tracks the $1.9 billion discharged in just four of the bankruptcies), but almost everyone — those now out of bankruptcy and those that avoided it — still has debt service to bear. In most cases, it is reduced, given either bankruptcy or workouts with lenders, which extended payments. Debt reduction remains not only a necessity, but a strategic goal. In most quarterly reports, news company CEOs trumpet their abilities to reduce debt, a sign of their revitalization — and an indication they hope to have more maneuvering room in the future. New York Times Co. on its 1Q debt picture: “The Company continues to improve its liquidity, reducing its debt, net of cash and cash equivalents by approximately one third to $671 million from its balance at the beginning of 2009. The majority of the Company’s debt matures in 2015 or later.” Over at Gannett, CEO Craig Dubow made a prominent point of his company’s recent $260 million quarterly debt reduction. Much of McClatchy’s first quarter statement focused on debt reduction and its refinancing.
  • Product investment: Publishers don’t have to look much beyond their own recent FAS-FAX circulation numbers — another 8.7-percent daily decline — or their talks with community members. They realize their major cuts in staff and product has diminished their business prospects; they’ve cut into bone, in parlance you often hear. A few companies, including Belo and MediaNews, have cautiously added back a little staff here, a little newshole there. They’d like to invest more in product, but agreements with lenders and their own sense of how fragile the newspaper recovery is holds them back.
  • Profit improvement: These are, after all, public, for-profit companies. Investors of all kinds expect them to grow their profits, after re-establishing the stability of them.

To put it simply, at this point, there’s not enough profit to satisfy all three goals. So, in 2010 — a year crying out for investment in innovative mobile media product creation and marketing services/advertising infrastructure build-out — news companies have far fewer resources than they’d like and they need. While once they were the big guys, looking at buying startups, for now, they’re largely on the sidelines, marveling at the mojo, the profits, and the acquisitions of the Googles and the Apples.

POSTED     May 3, 2010, 10 a.m.
SHARE THIS STORY
   
Show comments  
Show tags
 
Join the 15,000 who get the freshest future-of-journalism news in our daily email.
The news mixtape
“Not quite the cassette tape you made your high school crush, but similar in sentiment.”
The fall and rise of the news bundle
“The notifications from news apps that make it onto that lock screen are in prime position to capture attention. The lock screen is the new bundle.”
The year of yes
“The best attitude for navigating the next year is one of receptivity — understanding that so many things are opening and expanding in ways we can’t perceive.”
What to read next
846
tweets
Here’s some remarkable new data on the power of chat apps like WhatsApp for sharing news stories
At least in certain contexts, WhatsApp is a truly major traffic driver — bigger even than Facebook. Should there be a WhatsApp button on your news site?
429What’s the right news experience on a phone? Stacy-Marie Ishmael and BuzzFeed are trying to figure it out
“Nobody has to read you. You have to earn that. You have to respect people’s attention.”
343Come work for Nieman Lab
We have an opening for a staff writer in our Cambridge newsroom.
These stories are our most popular on Twitter over the past 30 days.
See all our most recent pieces ➚
Encyclo is our encyclopedia of the future of news, chronicling the key players in journalism’s evolution.
Here are a few of the entries you’ll find in Encyclo.   Get the full Encyclo ➚
Topix
NPR
DocumentCloud
The Ann Arbor Chronicle
Austin American-Statesman
MinnPost
Tucson Citizen
Forbes
Voice Media Group
Google
FiveThirtyEight
The Seattle Times