Dad, what’s a “newspaper”?

 “If you would have told them 60 years ago that in 30 years they would be flat on their backs, broke, and pleading for government subsidies, they would have thought you totally demented. Such a future was simply not considered possible.” Theodore Levitt on Railroads, 1960.

Even though Levitt is referring to the railroad industry, he might as well be describing the current state of the newspaper industry. This is the second part of my series on the newspaper industry. Go here for Part One.

Declining Dollars

Both advertising and circulation revenue for newspapers are declining; according to the Newspaper Advertising Association “total newspaper advertising dropped 7.9% to 45.4 billion in 2007, while print circulation (not revenue) is down 7% since last year according to the New York Times. Circulation is dropping as people use the internet to read their news and to get their entertainment.  Internet advertising is digging deep into the pockets of newspaper companies, as advertisers have the ability to target specific and larger audiences at cheaper rates then in print forms. Pressures from television, coupled with a slow economy have lower revenues. Websites like eBay and Craiglist have also taken a bite out of classified advertising (which makes up 40% of newspaper revenue and 50% of its profit), as there is almost no cost to sell an item on these websites.

Organizational Inertia

The newspaper industry is behind the times and is suffering a bad case of organizational inertia. Organizational inertia, as defined by Scott and Davis, is “resistance to change,” and “is the product of such internal forces as sunk costs, vested interests, and habitualized behaviors, (Scott and Davis 252-253). Former New York Times editor, Bill Kovach, wrote in an article for Nieman Reports, “too many journalists, especially of my generation, remain confused about the challenges of this new media environment and remain dangerously passive about the opportunities presented to traditional journalism by the new communications technology.” In other words, the newspaper industry recognized that the industry was changing and that the internet would drastically transform the playing field. Unfortunately, the industry did not do enough at the beginning of the revolution to keep it competitive. Journalists resisted the idea that their relationship with readers needed to change. With the advent of the blogosphere and social media outlets like Facebook and Twitter, (as you are reading this on a blog and spell check even recognizes blogosphere as a word), people are now looking for instant information that is constantly being updated and to also have the ability to comment or participate in the news. Internet users can now post their own news (maybe not with the same generally unbiased integrity) and can cater to their own niche environments. With cell phones and digital cameras and free blog sites, users can even add media to their articles, something that newspapers were the only ones able to do for a very long time.

Monopoly Money

According to authors Shayne Bowman and Chris Willis, “their [newspapers] real Achilles’ heel might be what made media companies a favorite of Wall Street—an ability to consistently garner operating profits double that of your average Fortune 500 company.” Since many large newspapers are publicly owned and were doing so well, they did not invest much of its profits in its future as doing so would have hurt its bottom line. In many cities, only one or two large newspapers existed and had monopolistic control over the local news. They had the ability to raise prices for circulation and advertising rates even as circulation numbers dropped. At the same time, the number of local businesses has decreased while the number of national chains has increased. National chains are less likely to buy print media ads as opposed to television commercials.  Newspapers also cannot charge the same prices for print ads and internet ads; digital ads are significantly cheaper and can be targeted to a specific audience, which is sometimes not found at a major newspaper. As advertising manager at the Bucknellian, the campus newspaper of Bucknell in the small rural town of Lewisburg, Pennsylvania, I do not see local business owners being ahead of the curve and buying internet advertising space. Local papers, which have online editions, may have trouble finding local clients who have the ability to handle or even understand how internet advertising works. Without this core group of clients, I do not know where local papers will be able to make up this lost revenue stream.  

Blame the Big Man

At the same time, it is not necessarily the fault of the journalist himself. According to Paul Farhi, 117 million people read newspapers daily and 66 million read newspaper websites each month. People are still reading the news created by the industry. The blame lies on the decision maker in the upper offices. As a response to the turbulent times, companies are cutting staffs and pages counts to lower costs. This is not the way an industry survives; it’s just a short-term solution to bolster the bottom line. As Standard & Poor’s publishing industry survey states, “during periods of secular change, such as the one that the publishing industry is currently undergoing, companies often need to make significant capital investments in order to remain competitive.” By cutting staffs and pages counts, they are hurting their final product and lessening its changes of competing with other types of media. Newspapers are in desperate need of a turnaround and that requires capital. A cost cutting approach will not be saving grace of the industry.

The industry is also making the same mistake that the railroad companies did in the early part of the 20th century. According to Theordore Levitt in Marketing Myopia, railroad companies were not, in fact, in the railroad business, but in the transportation business. The idea of a newspaper being news on a sheet of paper is becoming obsolete. The industry has to realize that is it is in the news business, not the newspaper business. It has to figure out how to make news profitable again or to seek out other business models. This will be discussed in Part Three.

Other Sources:

Davis, W. Richard Scott and Gerald F. Organizations and Organizing. Upper Saddle River, NJ: Pearson , 2007.

Standard & Poor’s. “Industry Survey: Publishing.” 2008.

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5 Responses

  1. […] Here ends my three part series on the newspaper industry. Feel free to comment below.  Part One.  Part Two. […]

  2. OK, this may be a dumb question, but here goes.

    How can something contribute 40% to revenue but 50% to profit?
    Let’s say that I sell 100 papers for $0.50. Then 100 ads are sold for $50. That is $100. The newspaper has news and classifieds, to keep it simple. The costs of News are $80 and of classifieds are $10. This is mostly different amount s of staff, as you need a lot of journalists and editors to create knowledge, but only a few sales staff to create ads.

    So, revenue is $100. Costs are $90. Profit is $10.

    How much of news contributed to its $50 in revenue? How much of ads? How much of ads?

    I guess the “right” answer is that news ( lost $30 since it cost $80 to run and only $50 is from direct purchases. Ads contribute 50% of revenue ($50) and 100% of profit ($20 profit-$10 cost).

    My problem is this: How many people buy the news paper for ads, not news, meaning that some of the $50 is theirs? On the flip side, how much does news enhance the ability of ads to sell (by creating markets of readers, by indirectly adding legitimacy)?

    Whether news or ads do more for the bottom line strikes me as much of an accounting question as one of business model. AM I missing something?

  3. Wayne Cascio is another scholar who has studied how cuts and non-investment in tough times usually hurts longer term survivability. When the good times come back, those who cut deepest and bled the most are weaker and do not capitalize on improving economic conditions.

  4. […] Decline of the Newspaper 2010 January 27 by cmercado333 I found the second part (here) of this three part series regarding the current state of print media to be interesting because it […]

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