The state of the newspaper industry
Filed in archive Global Economy by tj on March 23, 2006
"In itself, the sale on March 12 of San Jose, Calif.-based knight
Ridder for $4.5 billion in cash and stock and $2 billion in assumed debt fell into the inherently newsworthy category. As the second largest newspaper concern in the United States prior to the sale, the fate of Knight Ridder's 32 properties was important to millions of readers and thousands of employees across the country. Equally newsworthy, and perhaps more stunning, was the immediate announcement by McClatchy, a newspaper chain based in Sacramento, Calif., that it would sell 12 of the papers it had just acquired, notably those located in regions of slow population growth. Among them are The Philadelphia Inquirer, The Philadelphia Daily News, The San Jose Mercury News, and papers in Minnesota, Ohio and Indiana.""To say the newspaper industry is in decline, while true, does not tell the whole story. Circulation has indeed dropped in the aggregate, but most dailies remain quite profitable. Even The Philadelphia Inquirer makes money, just not as much as investors in Knight Ridder had wanted. Indeed, pressure from investors impatient with the profit margins of Knight Ridder papers and the parent company's soft stock price was the reason the chain was put up for auction."
"But profit margins in 2005 were off only slightly compared with 2004, the report notes. Thirteen publicly traded newspaper companies saw their margins drop an average of 1.5 percentage points, to just below 20%. Moreover, the average pre-tax operating margin for these companies "was still higher than the high-flying pharmaceutical or oil industries," according to the report. "That figure, though, clearly did not impress investors, who now put little weight on profitability alone. Big profit margins on flat revenues, for example, suggest a stale industry to Wall Street. The investment community is now more focused on revenue growth (what they call the 'top line') and on the broader question of whether newspaper companies are nimble enough to invent new business models and find a way to grow in the Internet era."
'Perhaps more than anything else, appealing to younger consumers is essential to the future of newspapers, but those readers are more likely to be more attracted by the newspapers' websites than by their traditional print editions. "If you look at data on readership, you can go back 100 years and each generation has read newspapers less than the generation that came before it," according to Gordon. "When I got into the business in the early 1980s, we recognized that younger people read less, but we felt it was a life-stage issue, and that as they got older [and had to pay] mortgages and taxes, they would increase their readership. But that's not the way things occurred. Usage patterns are set by the early 20s and they don't change over time."
Pretty good analysis - you should read it.
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