Newspapers aren't doing as badly as you think.

Commentary about business and finance.
Oct. 28 2009 6:58 PM

Paper Hangers

Newspapers aren't doing as badly as you think.

Newspapers.
Newspaper stand

Recent data provided newspaper lovers with fodder for despair and newspaper haters with fodder for glee. As Reuters reported, citing Audit Bureau of Circulations figures, "Average weekday circulation at 379 daily newspapers fell 10.6 percent to about 30.4 million copies for the six months that ended on Sept. 30, 2009 from the same period last year." "Those numbers take my breath away,"said Josh Marshall. "A ten percent decline year over year is the rate of a mode of distribution going out of existence." Kevin Drum of Mother Jones reaffirmed his view that newspapers would be gone by 2025. Megan McArdle of the Atlantic declared, "I think we're witnessing the end of the newspaper business, full stop, not the end of the newspaper business as we know it."

Chillax, people.

At some point in the future, newspapers may disappear. But count me in the later rather than sooner camp. And I can't help but think that many newspaper-doomsayers are conflating hope with analysis. According to many of the digerati, newspapers and other printed matter that people pay for through clunky old distribution systems (the mail, kids on bicycles, vans) can never make money and are bound to fail, while publications distributed online for free are destined to rule the world. (Of course, I could be guilty of the same impulse. I have feet in both worlds and could no more choose between print and the Web than I could choose between my two children.) But I also think this might be a case of making too much of a few numbers and ignoring some important ones.

First of all, there's nothing ipso facto shocking about a decline in patronage of 10 percent in six months. Many political blogs and cable news shows have seen their audiences fall by much more than 10 percent since the feverish fall of 2008. And advertising at plenty of online publications has fallen by a similar amount. In case anybody has forgotten, we've had a deep, long recession, a huge spike in unemployment, and a credit crunch. Consumers have cut back sharply on all sorts of expenditures. There are plenty of members of what I call the 40 percent club: businesses, many tethered to finance and credit, that have seen sales plummet by nearly one-half. These include automobiles, homes, luxury apparel, and diamonds. Many other components of consumer discretionary spending—hotels, restaurants, air travel—have fallen off significantly. Do we draw a line from trends over the last few years and declare that in 15 years there will be only a handful of hotels? I'm not sure why we would expect consumption of a purely discretionary item that costs a few hundred dollars per year not to fall in the type of macroeconomic climate we've had.

Especially when you consider that rather than discounting the product, many newspapers (and magazines) have been jacking up prices aggressively. For the last few years, the most serious problem facing print has been the sharp drop in advertising revenues. (Many chunks of the media world have been initiated into the 40 percent club.) But newspapers aren't continuing to spend money as if it's 2003 and hoping that Craigslist will disappear. No, they're planning for survival by slashing costs sharply, trying to boost online advertising, and, here's the clincher, making people pay more for the product. Print media is now in the process (belated, in my opinion) of finding a second large, potentially more stable, revenue base in addition to ads: subscriptions. The New York Times and many other papers have increased the price of the paper at the newsstand and for home delivery. When you raise the price of a product, you're likely to lose a portion of your customer base. And while no newspaper likes to shed readers, some of the shrinkage in circulation is by design. If raising subscription costs by 11 percent causes 10 percent of customers to flee, a newspaper will find that its circulation revenues are stable while it saves a lot of money by manufacturing a smaller number of newspapers. (The downside: A smaller paper can't charge as much for ads. But in this environment, ads are being heavily discounted anyway.)

So in the past six months, according to ABC, the New York Times'daily circulation fell 7.3 percent, while Sunday circulation was down 2.7 percent. Horreur! And yet, the New York Times Co. reported that in the third quarter, "circulation revenues rose 6.7 percent, mainly because of higher subscription and newsstand prices at The New York Times and The Boston Globe." In the quarter, circulation revenues were larger than advertising revenues for the first time—$175.25 million, compared with $164.5 million.

By the way, you can still make money publishing newspapers—even in a period when advertising has plummeted. Check out Gannett's third-quarter earnings report. Its newspapers pulled in more than $100 million of operating income on revenues of $1.04 billion. In the first three quarters of 2009, advertising revenues were off 31.6 percent, but circulation revenues were off less than 5 percent, even though many of Gannett's flagship papers lost subscribers.

This is the new emerging model—cutting costs, raising prices. It may still fail in the end. But we shouldn't act as if the online-only crowd has it all figured out. Every month, several million Americans pay to have newspapers and magazines delivered to their homes—a trick most online publications have yet to pull off. In fact, in some regards, print-online hybrids like newspapers and magazines have outperformed online-only publications. The Web operations of the New York Times, Washington Post, and Wall Street Journal aren't exactly slouches when it comes to selling online ads. And as poorly as the stock of the New York Times has performed over the past decade, most people would have preferred owning it to the stock of Salon.com, or TheStreet.com.

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