Why Are Newspapers Still Here?

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.

Let’s start at the beginning. This year marks the 10th anniversary of the so-called Newspaper Crisis. After the long-publishing Rocky Mountain News folded and the Seattle Post-Intelligencer went online-only in the depths of a global recession in early 2009, predictions ran rampant that dozens, hundreds, or even thousands of newspapers would soon fold. Michael Wolff predicted that: “About 18 months from now, 80 percent of newspapers will be gone.” USA Today predicted that: “At least one city – possibly San Francisco, Miami, Minneapolis or Cleveland – likely will soon lose its last daily newspaper.” Time magazine warned on its website: “It’s possible that eight of the nation’s 50 largest daily newspapers could cease publication in the next 18 months.” In the UK, whose newspaper industry I have been studying most recently, media analyst Claire Enders predicted to a Parliamentary committee in 2009 that up to half of the country’s 1,300 local and regional newspapers would close within five years. “Many titles are already running at losses and are being sustained by the good graces of their owners,” she testified, “and that may not last.”

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.

Greatly Exaggerated in Canada

A paper presented to the Canadian Communication 

Association conference, Vancouver, June 1-5, 2019

Abstract

The newspaper industry in Canada is portrayed as being in “crisis” by research which has exaggerated its financial decline and apparently inflated the extent of publication closures. Publishers have been campaigning for government assistance since the Internet has taken most of their advertising revenues. The two largest newspaper chains are under investigation by the federal Competition Bureau on possible criminal charges of conspiracy and monopoly after trading 41 newspapers between them and closing 37 of them. The country’s largest chain is 98 percent owned by U.S. hedge funds and must send much of its dwindling profits south to pay the interest on the company’s massive debt, most of which the vulture capitalists also hold. Parliamentary hearings on local media recommended government assistance in 2017, after which the newspaper industry bid for a billion-dollar bailout, which was quickly rejected. Over the ensuing year, however, pressure grew on Ottawa to assist the country’s news media financially. Dire warnings have been issued from industry and researchers of the consequences to the country’s news media of government inaction. Inflated estimates were given of the number of newspapers that have already perished. Finally, Ottawa announced in late 2018 a $595 million package of tax credits and other subsidies. Yet the chains are still comfortably profitable, with operating margins of about 10 percent return on revenue. Most of the newspaper closures have resulted from questionable and possibly criminal dealings between their owners that have reduced or eliminated competition. This paper examines the “crisis” in the Canadian newspaper industry and compares the dire warnings of impending doom and the inflated estimates of newspaper closures with publicly available data. It concludes that a campaign for government assistance has been conducted by or on behalf of newspaper chains. Insights into this campaign of disinformation have potentially important public policy implications for the proposed $595 million program of federal government assistance.

Keywords: newspapers, mass media in Canada, media economics

The late U.S. media scholar Ben Bagdikian saw a long-running disinformation campaign he called the “myth of newspaper poverty” obscuring what was instead their considerable profitability. “American publishers have always felt obligated to pretend that they are an auxiliary of the Little Sisters of the Poor,” he wrote in a 1973 article for the Columbia Journalism Review. “This was always amusing, but now that so many papers are owned by publicly traded companies which have to disclose their finances it is taking on the air of slapstick.” Publicly, noted Bagdikian, publishers complained about rising costs. “Privately most have had a different kind of problem: how to get rid of profits.” 

In an almost unprecedented move for newspapers, the Harris papers in Kansas, Iowa, and California actually reduced advertising rates, though their circulation trends didn’t force them to; otherwise their profits would have been beyond [anti-inflation] limits designated by the Government.[1]

A recession in the early 1970s, he noted, prompted publishers to complain of financial hardship in order to justify cutbacks in hiring. “This is mostly hogwash,” claimed Bagdikian. “American daily newspapers are one of the most profitable of all major industries in the United States. And they were during the 1970-71-72 ‘Great Recession.’” Data on newspaper profits were hard to come by, noted Bagdikian, because “of all industries, newspaper publishing is the most obsessed by financial secrecy.” Increased ownership of newspapers by publicly-traded companies, however, had opened a window into the hitherto secretive world of newspaper finances. A typical metropolitan daily with a circulation of 250,000 was very profitable, noted Bagdikian, even in the depths of a recession. “In 1970 such papers showed a pre-tax profit of 23.5 per cent. In 1971 it was 23.2 per cent. The 1972 figures had not been completed at this writing, but authorities agree that 1972 will be better than 1971.”[2]

The poverty myth was used to best advantage by publishers, noted Bagdikian, in campaigning for passage of the Newspaper Preservation Act of 1970, which exempted partnerships between formerly competing dailies from anti-trust laws on the basis that newspapers were a “natural monopoly.” Local newspaper competition was in the midst of an historic extinction, but the survivors would prove more profitable than ever, especially the government-sanctioned duopolies, which had the added benefit of helping to keep any new competitors out. Far from being unprofitable, according to Bagdikian, newspaper owners instead faced the problem of what to do with their overflowing coffers. Reinvesting as much as possible in acquisitions became the preferred method of dealing with excess profits, which according to Bagdikian was “fueling an already frantic race to acquire communications properties.”

Some independent publishers no longer attend the annual ANPA [American Newspaper Publishers Association] meeting because they must spend all their time resisting the embraces of the big chain paper-buyers. One small publisher said he felt “like a virgin stumbling into a stag party.”[3]

Bagdikian’s suspicions had been aroused a few years earlier after a Senate committee in

Canada forced media companies to open their books. The three-volume report of the Senate Sub-committee on Mass Media described what it found as “astonishing.” Media owners were making enormous profits. From 1958 to 1967, before-tax profits at Canadian newspapers ranged from 23.4 percent to 30.5 percent. After taxes, they were 12.3-17.5 percent, compared to 9.2-10.4 percent in other manufacturing and retailing industries. “Owning a newspaper, in other words, can be almost twice as profitable as owning a paper-box factory or a department store,” observed the report.[4] The secrecy surrounding their financial success, the Senate committee declared, was delicious in its hypocrisy. “An industry that is supposed to abhor secrets is sitting on one of the best-kept, least-discussed secrets, one of the hottest scoops, in the entire field of Canadian business – their own balance sheets.”[5] Pointing out that chain ownership of Canada’s daily newspapers had grown to 45 percent in 1970 from 25 percent in 1958, the Senate report urged government action to stem the rising tide of newspaper ownership concentration, but none was taken.

Bagdikian’s landmark 1983 book The Media Monopoly exposed what he called the “best kept secret in American newspapering” – its profitability. [6] The growth of newspaper chains, Bagdikian pointed out, had led to the industry being dominated by only 14 companies. Newspaper chains, broadcasting networks, and other media conglomerates were buying up media outlets at a rapid rate because of the industry’s peculiar economics, which created an almost irresistible urge to merge. By then, the situation was even more dire in Canada, where only three companies published 58 percent of all English-language dailies. The closure in 1980 of the long-publishing Ottawa Journal and Winnipeg Tribune by competing chains, which gave each one another lucrative local monopoly, prompted a Royal Commission on Newspapers which recommended limits on how chain ownership. None were enacted, however, and by 1999 Canada came to have one of the highest levels of press ownership concentration in the world, with the top five chains owning 93.2 percent of the country’s daily newspapers.[7]

From poverty myth to death myth

Fast forward 20 years and the poverty myth has become a death myth. The Canadian newspaper industry of 2019 is in apparent crisis. Publishers have been campaigning hard for government assistance after a disastrous ownership experiment at the millennium left the country’s news media devastated. The two largest newspaper chains are under investigation by the federal Competition Bureau on possible criminal charges of conspiracy and monopoly after trading 41 newspapers between them in 2017 and immediately closing almost all of them. The country’s largest chain is 98 percent owned by U.S. hedge funds and must send the majority of its dwindling profits south to pay the interest on the company’s massive debt, most of which the vulture capitalists also hold. Postmedia Network publishes 15 of the country’s 21 largest dailies after buying most of the second-largest chain in 2014. The takeover was approved by the Competition Bureau after Postmedia promised not to merge the duplicate dailies it thus owned in Calgary, Edmonton, Ottawa, and Vancouver, but it merged their newsrooms nonetheless in late 2015. A newly-elected Liberal government soon convened Parliamentary hearings on local media, which sat for sixteen months and recommended government assistance in mid-2017. The newspaper industry quickly bid for a billion-dollar bailout, which was just as quickly rejected. Over the ensuing year, however, pressure grew on Ottawa to assist the country’s news media financially. Dire warnings were issued from industry and academics of the consequences to the country’s news media of government inaction.

Inflated estimates were given of the number of newspapers that have already perished. Finally, Ottawa announced in late 2018 a $595 million package of tax credits and other subsidies. Yet the chains are still comfortably profitable, with operating margins of about 10 percent return on revenue. Most of the newspaper closures have resulted from questionable and possibly criminal dealings between their owners that have reduced or eliminated competition.