Newspapers Cut To Black

Not too many years ago, one senior newspaper executive said that there was nothing wrong with cutting costs but that, eventually, a company could cut so much that it would disappear up its own arse. The Audit Bureau of Circulations yesterday reported that the average American newspaper lost 10% of its circulation in the six months ending September 30, based on the 379 papers that filed data with the firm. All of the country’s largest newspapers do so. Some of the most well-known newspapers in the industry reduced their circulations much more than 10%. USA Today, the Gannett (NYSE:GCI) flagship, had a drop of over 17% to 1,900,116. The Boston Globe, which is owned by The New York Times Company (NYSE:NYT), had a fall of more than 18% to 264,105.

Newspapers have sent out copies on which they lose money, based on what subscribers would pay them, for years. Some of the copies were sold at sharply discounted prices, and others were sold to people so far from the printing presses that the distribution costs were relatively enormous. The industry believed, and was right in believing, that advertising sold into those copies would make them profitable. That worked until the Internet ruined the industry.

Newspapers are in the midst of a retrenchment that they cannot avoid and part of that retrenchment is cutting back circulation. The problem with the process is that advertisers want to pay less when they have their advertising running in fewer papers. A reduction in circulation means that advertising rates drop down and the road to profit becomes much less certain.

Newspapers had hoped that putting their brands and content online would bring in enough internet advertising revenue so it would make up for the money being lost on their print editions. They found out this year that it is not that easy. Most large online newspapers had falling advertising revenue during the first three quarters of this year. It is rare to find a newspaper where online revenue is 10% of total company sales. This is simply not enough to make much of a difference.

The industry is experimenting with other ways to solve its problem of falling revenue and rising losses. In Detroit, the daily newspaper is not available daily. A subscriber can only get The Detroit News and The Detroit Free Press on Sunday, Tuesday, and Friday. The program saves a lot of money in printing and distribution and undoubtedly allowed the companies to lay off workers. But, advertisers can no longer buy advertising on the four “paper-less” days, which is a lot of money for the newspapers to give up.

Business executives and scientists, unlike theologians and psychologists, believe that every problem has a solution. Unfortunately, that is not true. The best minds in the media industry have been working on the newspaper puzzle for years. Not a single person has come up with a workable solution to the industry’s problems, probably because there isn’t one.

Newspapers can buy time by cutting circulation and people to save costs. An economic recovery may buy the industry even more time. It has been said far too often, but, with the new September 30 circulation figures in hand, it is worth saying again. For the newspaper industry a huge success on the Internet is all that is left. All the other options are gone.

Douglas A. McIntyre