Introduction to a panel held at the Association for Education in Journalism
and Mass Communication convention on Thursday,
August 8 in Hall B of the Sheraton Centre Toronto Hotel
Spoiler alert – it’s very simple. Newspapers are still here because they still make money. Not as much as they used to make. They used to make an obscene amount of money. Now they are having to cut costs as fast as they can just to keep their heads above water. But newspapers are inherently profitable thanks to some economic features such as vertical integration, elasticity of demand, and economies of scale. So while they have slimmed down considerably, they are still publishing profitably despite what you may have heard elsewhere. This is a line of research I have been pursuing for almost a decade, first in this country, then in the U.S., and now in the UK, where I am working frantically to finish a book on the subject.
Meanwhile digital media, which have been widely touted to replace print media, have struggled to find a profitable business model. If they don’t, how can they replace print media, especially if the latter are actually making money? Caught in the middle, of course, is journalism, especially local news coverage, which is what gets cut back most, to the detriment of democracy. It’s a conundrum that policymakers are confronting differently in different countries. Here the apparent solution is to throw money at media, as subsidies worth almost $600 million (about $450 million U.S.) were announced in the last federal budget. This country’s news media are now fighting over how to divvy up the loot, and it looks like most of it will go to old media – newspapers – to prop them up. And in Canada that unfortunately means most of the money will be going to New Jersey hedge funds. It’s a long story.
Of course, 18 months passed and far from 80 percent of American newspapers were gone. None of the nation’s 50 largest daily newspapers had ceased publication. San Francisco, Miami, Minneapolis and Cleveland still had a daily newspaper. They still do. After Denver and Seattle, the contagion was confined to Tucson and Honolulu. The recession gradually eased, but more importantly newspapers proved incredibly resilient, able to cut their costs almost as fast as their revenues fell frighteningly by a third and then by half and now by even more. Unfortunately, they were only able to cut costs so quickly by throwing journalists overboard, so while the outlook may have brightened somewhat for newspapers, it only darkened for journalism. None of what I am saying should be taken to mean that newspaper journalism is thriving. Quite the opposite. I am only saying that newspapers as businesses are hanging in there and should for the foreseeable future.
In the UK, five years passed and only about 100 newspapers had closed instead of the 650 Claire Enders predicted. Most of those were free sheets which had proliferated in the 1980s to soak up all the ad revenue, what we would call “shoppers.” The only paid regional daily to close was the Liverpool Post, which was a second-place newspaper. In this country, only one daily folded during the recession of 2008-09, in Halifax. It was immediately resurrected, incidentally, as a free commuter tabloid, Halifax Metro.
This year also marks the fifth anniversary of my book Greatly Exaggerated: The Myth of the Death of Newspapers, which examined the finances of publicly-traded newspaper companies in the U.S. and Canada going back to 2006, before the recession began. It found that none had suffered an annual loss on an operating basis over an eight-year period and that most were posting double-digit profit margins, with some in the 20-percent range. Of course, they were doing so on greatly reduced revenues as classified advertising mostly disappeared and digital advertising came nowhere near making up the difference. Newspaper profits were a fraction of what they were before the print advertising bubble burst in 2004. At the height of the boom, operating profits were routinely above 20 percent, with some in the 30-percent range, as monopoly newspapers could even approach 40-50 percent return on revenue. That is, they could keep 40-50 cents in profit for every dollar that came in the door as revenue. The dailies that folded had all been second-place afternoon newspapers, which in a declining industry proved to be an endangered species indeed. Newspapers aren’t dying so much as newspaper competition is dying. The monopolies that remain are still mostly profitable.
Unfortunately, much confusion has been caused in the public mind by the multi-million-dollar losses often declared by newspaper chains, which tend to grab the headlines. These are “extraordinary” losses only on paper, as under the accounting rules companies are required to regularly revisit the value of their business. If it goes down, as it invariably did for newspapers due to their declining revenues and earnings, that loss has to come off the books somehow. It did so, under the accounting rules, through the annual profit and loss statement as an extraordinary loss. On an operating basis – money coming in the door minus money going out the door – newspapers still have their heads well above water. That should be true indefinitely, as they have proven to be quite scalable enterprises that can be made larger or smaller as necessary. It is important to remember that newspapers began as small businesses, often one-person operations. On their present trajectory they are at worst on track to return to that status.
Much confusion has also been caused in the public mind by declining circulation, which is often pointed to as a harbinger of newspaper doom. This ignores the counter-intuitive fact that most newspapers lose money on circulation sales. They of course make it back and more from advertising. Cutting back on circulation has thus been a way for newspapers to cut costs, as it is increasingly expensive to truck copies farther and wider to readers of diminishing interest to their advertisers. At the same time, they have asked their readers to pay closer to the actual cost of producing a hard copy of the newspaper, often doubling or even tripling subscription rates, as Iris has found. Given the well-proven elasticity of demand for newspapers, many more readers than not were willing to pay more. Much more. The truth is that newspapers now have more readers than ever thanks to the Internet. It’s just that most are reading it for free, and that has to stop if newspapers are to survive.