NA IMPRENSA INTERNACIONAL >
After years of bad headlines the industry finally has some good news
IN A recent issue of the beloved comic book, Superman’s alter ego, Clark Kent, quits his job as a journalist at the Daily Planet because the paper has gutted its news coverage. Is the outlook for newspapers really so dire that even superheroes have given up on them? Ever since 2006, when The Economist asked on its cover who had “killed the newspaper”, the industry’s pains have only intensified. Advertising has plunged. Readers have kept moving online. Revenues of newspapers continued to fall, dropping to $34 billion last year in America—only about half of what they were in 2000.
Yet things have started to look a bit less grim, particularly in America. Revenues from advertising are still falling, but those from circulation have at last started to stabilise. At some papers, such as the New York Times, circulation revenues this year are forecast to offset the decline in advertising for the first time in at least five years.
Some newspaper stocks already reflect this good news. Over the past six months the New York Times Company’s share price has risen by 37%. Those of Gannett and McClatchy, two other big publishers, have climbed by 34% and 24% respectively (although part of Gannett’s gain is attributable to its television unit, which was boosted by America’s election campaign). Hearst, a private company, has seen profits at its newspaper group rise by 25% this year and is having its best year since 2007, says Lincoln Millstein, an executive at the firm.
In May Berkshire Hathaway, Warren Buffett’s firm, bought a legion of local papers from Media General. Some may see the celebrated investor’s blessing as a sign of better days ahead. In any event, it is a bet that papers with strong brands and no competitors in smaller towns will be able to charge for content and be profitable.
Many papers have been raising the price of their subscriptions and news-stand copies, which has helped to stem losses. But a more important contributor to the change of mood in newspapers is what Ken Doctor of Outsell, a consultancy, terms a “revolution in reader revenue”. “Paywalls”, methods of charging readers for online content, have become popular. The number of American newspapers with some sort of paywall has at least doubled this year. More than a quarter of newspapers now have one, and most big groups that do not have plans to charge for digital access. This is a global trend: newspapers in Brazil, Germany and elsewhere are fed up with giving away their articles for nothing on the internet.
Charging for content online used to be the privilege of the lucky few, such as the Financial Times and Wall Street Journal, offering market-sensitive information readers would pay for. General newspapers opposed charging because they feared their traffic would drop—and their fragile digital ad revenues would fall rather than rise.
Several factors have changed their mind. For one, technology has got better and cheaper. Online pay systems were expensive to build and test, but Press+ changed that. The firm, which was founded in 2010—and was bought last year by RR Donnelley, a big printing and marketing firm—licenses the technology for newspapers to erect a pay system in return for a cut of digital revenues. So far 566 (mostly American) papers have signed up, and 400 of them have launched.
Tablets and other mobile devices have also been a boon for news organisations, because they make paid digital subscriptions more attractive. Many newspapers have started offering “all access” editions, bundling print and digital subscriptions (sometimes at a slightly higher price). Executives say that if they can train people to pay for digital subscriptions, they will be less threatened by print’s persistent and inevitable decline, since digital editions bring in fatter margins.
Newspapers have been heartened by evidence that pay systems can work. In the industry’s most closely watched experiment to date the New York Times adopted a paid-access model in March 2011. It chose a pay “meter”, which is more porous than a hard “wall”, and allows readers to view a certain number of articles each month before having to pay. The advantage of this is that search engines and social media can still direct casual readers to a newspaper’s site. Traffic typically drops by only around 20%, according to J.P. Morgan, an investment bank. This means online advertising revenue can be mostly preserved while readers are required to open their wallets. In October the New York Times and International Herald Tribune, its global sister, had nearly 600,000 paid digital subscribers. During the first nine months of the year circulation revenue grew by $55m to $695m—enough to make up for losses in advertising, which fell by $47m.
But it has also become clear that digital advertising dollars will never offset what newspapers are losing in print advertising—which is why papers want to be less dependent on ad revenue. Advertising, which is high-margin, has historically contributed around 80% of American newspapers’ revenues, far more than in most other countries. This is changing, mostly because advertising has slid so far. In the third quarter the New York Times earned more than 55% of its revenues from circulation, compared with only 29% in 2001. Newspaper bosses say they are moving their papers to a model where they get half their revenues from advertising and half from circulation.
Paywalls may have prompted a mood-change in the industry, but is the worst really over? There is still plenty to depress newspaper enthusiasts. On December 3rd News Corporation, a media conglomerate, announced plans to close the Daily, its tablet-only newspaper. Newspapers in the crisis-plagued euro zone have been hit particularly hard. El País, Spain’s leading newspaper, has had to lay off a third of its workers. On December 7th the Financial Times Deutschland, a German newspaper, is due to close.
Life continues to be particularly difficult for newspapers in saturated markets like Britain. It has not helped that British papers have lately been slower to innovate and more cautious about charging for online access than American peers. Many will watch the performance of News Corp’s publishing unit, which is being separated from its entertainment unit. On December 3rd Robert Thomson, the editor of the Wall Street Journal, was appointed to run the publishing spin-off.
It is also too early to tell exactly how successful paywalls will be. They may not work at national newspapers without any real comparative advantage in news, or at newspapers in competitive districts where other papers are giving away content free. The Washington Post, which has had a tough time, has opposed a paywall so far, presumably because it worries it will not woo enough paying readers.
Most important, a paper’s content has to be worth paying for, which is bad news for papers that have cost-cut themselves into journalistic wraiths. For the industry to experience a real turnaround, advertising would also have to stabilise, but that depends on the economy.
Shattered newspaper executives are right to be hesitant to call the bottom. But Gordon Borrell of Borrell Associates, a consultancy, thinks that newspapers are in a similar situation to radio in the 1950s. When television became popular, many advertisers fled, much as they did from print after the internet arrived. But within several years some returned to radio and ad revenues stabilised at a lower level (see chart on previous page). By the time this happens to newspapers, Clark Kent may want his old job back.