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June 21, 2010

Newspapers survive financial fallout by cost-cutting

A recent report issued by the OECD paints a gloomy picture for the future of newspapers. However, according to The Economist, the publisher of Bild and Die Welt “recently recorded the most profitable first quarter in its history”, with a profit margin showing a startling 27%.

Maybe that’s good news for the German publisher but it is an exception as declining readership, especially amongst the young, can be attributed to gathering news from the internet, especially in the US, the UK, Greece, Italy, Canada and Spain.

In the US, after disastrous results, the New York Times reported a first-quarter profit of US$83.3 million, up from US16.4 million year-on-year, but total revenues were down 3.2 percent year-on-year, and job losses in the industry have been especially severe in the US, the UK, the Netherlands and Spain.

The Newspaper Association of America reported that print and online advertising has fallen by 35% since the first quarter of 2008 and that circulation had dropped alarmingly, yet almost all newspapers have survived.

Primarily, newspapers have needed to cut costs so as to find a way out of the financial crisis by reducing payroll costs by up to 25%. There have also been adaptations, such as for example a group of New Jersey newspapers jointly producing features and editorials.

After staff pay, the second-biggest expense is paper, the price of which has plummeted by as much as 40% due to a global commodities slump. And with newspapers printing fewer words on smaller pages, most have survived.

But whilst the cost-cutting has been severe, it doesn’t necessarily follow that their balance sheets are particularly healthy. As The Economist points out: “While the bottom line for most papers appears to be stabilising, the top line is continuing to shrink as newspaper corporations continue their cutbacks.

Some of the key findings in the OECD report are:

* After very profitable years, newspaper publishers in most OECD countries face increased competition (free dailies, internet, multiple TV and radio sources) and often declining advertising revenues, titles and circulation as well as declining readership. The economic crisis has amplified this downward development. About 20 out of 30 OECD countries face declining readership, with significant decreases in some OECD countries.

* The share of advertising going to print newspapers has been declining for the last decade in most OECD countries, and the newspaper advertising market has more recently experienced large falls in offline and online advertising growth. On the cost side, costs unrelated to editorial work such as production, maintenance, administration, promotion and advertising, and distribution dominate newspaper costs. These large fixed costs make newspaper organisations more vulnerable to the downturns and less agile in reacting to the online news environment.

* “Reading news online” is an increasingly important internet activity. In some OECD countries, more than half of the population read newspapers online (up to 77 per cent in Korea) but at the minimum 20 per cent of the population read newspapers online. The willingness to pay for online news is low but increasing. In many OECD countries, TV and newspapers are still the most important sources of news but this is shifting with newspapers losing ground more quickly to the internet than TV. In countries such as Korea, the internet has already overtaken other forms of news.

* In many Western OECD countries the internet web pages of broadcasters and online newspaper sites play a large role in attracting news-related visits. More recently newspaper websites have seen strong growth in their own pages, with large newspapers reporting several million of unique visitors to their pages per month, including increasingly readers from abroad, a radical shift for newspapers.

* The impacts of the changing media landscape on news are pulling in two opposite directions. One extreme is that online and other new forms of more decentralised news will liberate readers from partisan news monopolies which have tended to become more concentrated and to dominate the production and access to news. The other extreme is that the demise of the traditional news media is with us (partially caused by the rise of the Internet), and with it an important foundation for democratic societies is at risk.

Newspaper publishers hope that the emphasis on distinctive content, as recommended last year by the BBC, as the best way forward, whether delivered to smart-phones, tablet computers or the internet.

The Economist thinks: “So far the few that have persuaded readers to pay for news online tend to have a reputation for distinctive coverage. The Financial Times … and the Wall Street Journal have leading positions in business and financial news, and successful pay-walls.

“Newspapers still face big structural obstacles: it remains unclear, for example, whether the young will pay for news in any form. But the recession brought out an impressive and unexpected ability to adapt. If newspapers can keep that up in better times, they may be able to contemplate more than mere survival.”


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