After years of bad headlines the industry finally has some good news
Dec 8th 2012 | from the print edition
IN A recent issue of the beloved comic book, Superman s alter ego, Clark Kent,
quits his job as a journalist at the Daily Planet because the paper has gutted
its news coverage. Is the outlook for newspapers really so dire that even
superheroes have given up on them? Ever since 2006, when The Economist asked on
its cover who had killed the newspaper , the industry s pains have only
intensified. Advertising has plunged. Readers have kept moving online. Revenues
of newspapers continued to fall, dropping to $34 billion last year in America
only about half of what they were in 2000.
Yet things have started to look a bit less grim, particularly in America.
Revenues from advertising are still falling, but those from circulation have at
last started to stabilise. At some papers, such as the New York Times,
circulation revenues this year are forecast to offset the decline in
advertising for the first time in at least five years.
Some newspaper stocks already reflect this good news. Over the past six months
the New York Times Company s share price has risen by 37%. Those of Gannett and
McClatchy, two other big publishers, have climbed by 34% and 24% respectively
(although part of Gannett s gain is attributable to its television unit, which
was boosted by America s election campaign). Hearst, a private company, has
seen profits at its newspaper group rise by 25% this year and is having its
best year since 2007, says Lincoln Millstein, an executive at the firm.
In May Berkshire Hathaway, Warren Buffett s firm, bought a legion of local
papers from Media General. Some may see the celebrated investor s blessing as a
sign of better days ahead. In any event, it is a bet that papers with strong
brands and no competitors in smaller towns will be able to charge for content
and be profitable.
Many papers have been raising the price of their subscriptions and news-stand
copies, which has helped to stem losses. But a more important contributor to
the change of mood in newspapers is what Ken Doctor of Outsell, a consultancy,
terms a revolution in reader revenue . Paywalls , methods of charging readers
for online content, have become popular. The number of American newspapers with
some sort of paywall has at least doubled this year. More than a quarter of
newspapers now have one, and most big groups that do not have plans to charge
for digital access. This is a global trend: newspapers in Brazil, Germany and
elsewhere are fed up with giving away their articles for nothing on the
internet.
Charging for content online used to be the privilege of the lucky few, such as
the Financial Times and Wall Street Journal, offering market-sensitive
information readers would pay for. General newspapers opposed charging because
they feared their traffic would drop and their fragile digital ad revenues
would fall rather than rise.
Several factors have changed their mind. For one, technology has got better and
cheaper. Online pay systems were expensive to build and test, but Press+
changed that. The firm, which was founded in 2010 and was bought last year by
RR Donnelley, a big printing and marketing firm licenses the technology for
newspapers to erect a pay system in return for a cut of digital revenues. So
far 566 (mostly American) papers have signed up, and 400 of them have launched.
Tablets and other mobile devices have also been a boon for news organisations,
because they make paid digital subscriptions more attractive. Many newspapers
have started offering all access editions, bundling print and digital
subscriptions (sometimes at a slightly higher price). Executives say that if
they can train people to pay for digital subscriptions, they will be less
threatened by print s persistent and inevitable decline, since digital editions
bring in fatter margins.
Newspapers have been heartened by evidence that pay systems can work. In the
industry s most closely watched experiment to date the New York Times adopted a
paid-access model in March 2011. It chose a pay meter , which is more porous
than a hard wall , and allows readers to view a certain number of articles
each month before having to pay. The advantage of this is that search engines
and social media can still direct casual readers to a newspaper s site. Traffic
typically drops by only around 20%, according to J.P. Morgan, an investment
bank. This means online advertising revenue can be mostly preserved while
readers are required to open their wallets. In October the New York Times and
International Herald Tribune, its global sister, had nearly 600,000 paid
digital subscribers. During the first nine months of the year circulation
revenue grew by $55m to $695m enough to make up for losses in advertising,
which fell by $47m.
But it has also become clear that digital advertising dollars will never offset
what newspapers are losing in print advertising which is why papers want to be
less dependent on ad revenue. Advertising, which is high-margin, has
historically contributed around 80% of American newspapers revenues, far more
than in most other countries. This is changing, mostly because advertising has
slid so far. In the third quarter the New York Times earned more than 55% of
its revenues from circulation, compared with only 29% in 2001. Newspaper bosses
say they are moving their papers to a model where they get half their revenues
from advertising and half from circulation.
Paywalls may have prompted a mood-change in the industry, but is the worst
really over? There is still plenty to depress newspaper enthusiasts. On
December 3rd News Corporation, a media conglomerate, announced plans to close
the Daily, its tablet-only newspaper. Newspapers in the crisis-plagued euro
zone have been hit particularly hard. El Pa s, Spain s leading newspaper, has
had to lay off a third of its workers. On December 7th the Financial Times
Deutschland, a German newspaper, is due to close (see article).
Life continues to be particularly difficult for newspapers in saturated markets
like Britain. It has not helped that British papers have lately been slower to
innovate and more cautious about charging for online access than American
peers. Many will watch the performance of News Corp s publishing unit, which is
being separated from its entertainment unit. On December 3rd Robert Thomson,
the editor of the Wall Street Journal, was appointed to run the publishing
spin-off.
It is also too early to tell exactly how successful paywalls will be. They may
not work at national newspapers without any real comparative advantage in news,
or at newspapers in competitive districts where other papers are giving away
content free. The Washington Post, which has had a tough time, has opposed a
paywall so far, presumably because it worries it will not woo enough paying
readers.
Most important, a paper s content has to be worth paying for, which is bad news
for papers that have cost-cut themselves into journalistic wraiths. For the
industry to experience a real turnaround, advertising would also have to
stabilise, but that depends on the economy.
Shattered newspaper executives are right to be hesitant to call the bottom. But
Gordon Borrell of Borrell Associates, a consultancy, thinks that newspapers are
in a similar situation to radio in the 1950s. When television became popular,
many advertisers fled, much as they did from print after the internet arrived.
But within several years some returned to radio and ad revenues stabilised at a
lower level (see chart on previous page). By the time this happens to
newspapers, Clark Kent may want his old job back.
from the print edition | Business