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America's grim newspaper story

Circulations are falling and some pundits believe that newspapers in the United States will be dead in a generation. But some proprietors actually want to shed readers. By Stephen Foley

Wednesday, 30 April 2008

Extra, extra, read all about it. Newspaper circulations in freefall. Readers desert to the internet. Abandon hope, all ye who enter print journalism.

Newspaper circulation has been dropping steadily in most of the developed world for many years, but the armageddonists are firmly in the ascendancy, particularly in the US, where they have taken to specifying a date on which the last newspaper will be printed in the country. (October 2044 on current trends, according to the American Journalism Review.)

The latest round of grim circulation data, which was published by the Audit Bureau of Circulations this week, showed such a sharp acceleration in the downtrend that the date might have to be brought forward. The ABC survey of 534 of the largest daily newspapers found a 3.6 per cent decline in the six months to 31 March, compared to the same period a year ago. In the previous six-month period, the year-on-year decline was 2.6 per cent. A year ago it was 2.1 per cent. Papers in the biggest metropolitan areas are hurting most; Sunday editions are dropping most steeply of all. The august New York Times, which is distributed across the country, lost 9.3 per cent of its Sunday readership in the last six months. The figures looked bad enough to make newspaper executives choke on their cereals when they appeared in yesterday's editions.

Only here's the real scoop: this is not all bad news for the industry, and in many cases, the figures are exactly what managers wanted and worked towards.

Eh? Rick Edmonds, media business analyst at the Poynter Institute, a Florida school for journalists, explains that - while many former newspaper readers are indeed now satisfied getting their news from the internet – this is only part of the story.

"It is 50-50 between the rise of the internet and what Gary Pruitt, chief executive of [the regional newspaper company] McClatchy described last week as 'managed circulation reduction'. He said that they were no longer sending papers out into the boondocks, where distribution is expensive and it is an area that advertisers do not really care about."

In short, newspaper executives are making a hard-headed judgement that not all readers are created equal, at least not in the eyes of advertisers.

"There is a lot of 'ego circulation', but with newsprint prices going up, with transportation costs going up, anyone looking at the business model will say that there are copies that they don't have to print," says one analyst at a fund management firm. "Paid newsstand sales and home delivery, these are the prized readers. Now companies are thinking about trimming superfluous distribution. Many companies have previously been reluctant to touch circulation, because all it does is throw gasoline on the fire. They are all being accused of being dinosaurs, of having their heads in the sand. Deliberately cutting back on circulation simply generates another story about how bad the business is, but it can in fact be a much more rational business decision."

The New York Times, for example, said its Sunday sales drop was deliberate, since it was not renewing special offers such as giving the paper away to daily subscribers. Throughout the industry, over the past few months, executives have been explaining that saving money – and therefore saving newspapers – requires sacrificing some readers.

No less a person than Rupert Murdoch was persuaded. When he was bidding for The Wall Street Journal, the nation's No 2 paper by circulation, he said he expected to scrap subscription fees for the paper's website (whose paying subscribers are included in the ABC figures), and believed he would make up the lost revenue when advertisers flocked to reach the new, bigger audience. When he finally got his hands on the paper, four months ago, it was clear that more readers would not equal more revenue, and he declared the subscription fees will stay.

Not all industry-watchers are convinced that ditching less profitable readers works in the long run if it means more people fall out of the habit of reading a paper, just as other cost-cutting measures could also prove short-sighted. The New York Times is on the verge of making its first newsroom redundancies; its sister paper The Boston Globe is typical among smaller papers cutting back on overseas reporters. In the past two years, both the Times and the Journal have shaved inches off the size of the paper to reduce newsprint costs.

"The cuts made at so many papers, in the news staff and in the space dedicated to news, may not be good for the business over time," says the Poynter Institute's Mr Edmonds. "This perception about whether the industry is 'hot or not' extends to media buyers, and they are under pressure to move advertising budgets from old media to new media."

Optimists point out that former newspaper readers are not straying very far. In many cases, they are simply browsing the paper on the web for free. That is painful as far as circulation revenues goes, but it also presents an opportunity. "Advertising rates on the internet are, for the most part, up, and newspaper websites are usually the number one or number two most trafficked sites in their region, which bodes well for the economic upturn," says the fund management firm analyst. "It's just that it is harder to identify in a cyclical downturn when it is difficult for your real estate and employment advertising to be up."

Of course, there is the economic downturn to navigate first, and it is already looking brutal for some in the newspaper industry. Sam Zell, the property magnate who took over Tribune Group, publisher of the Chicago Tribune and the Los Angeles Times last year, has found himself in danger of defaulting on his massive debts unless he sells some smaller papers, and he has told staff to brace for cuts. Circulation and advertising revenues are falling faster than he and his backers budgeted for little more than a year ago. Credit rating agencies downgraded the creditworthiness of several other newspaper companies in the past few weeks, and warned that they will likely downgrade still more.

It will take time to see who is right, the armageddonists or the newspaper executives who are claiming "managed reduction". Paul Ginocchio, analyst at Deutsche Bank, says it will take another year of adjustment before the ABC figures show the "true" rate of readership decline, but he urged investors to treat the sector with extreme caution. "We think the industry was expecting an improvement in trend and thus we view this result with some degree of alarm."