Monday, March 11, 2013

Hallelujah, newspapers are saved, what to buy one now? Publishers and observers look at circulation revenue gains and see real progress in turning around newspaper P&Ls

Maybe it's because I come from the publisher side of the business, as opposed to the journalism side, that I continue to see the media business in a different light than most industry observers. To "the other side" the way forward continues to be paid content, paywalls, aggregation, and more and more conferences (I added that last part to be snarky, but I'm not sure it isn't accurate).

As a revenue (and cost) guy, I tend to go back to the spreadsheets as soon as I hear an argument along the lines of that articulated by Ken Doctor, probably the respected and quoted person when it comes to the newspaper business. Doctor wrote last week on Nieman Lab about paywalls and said, to my astonishment, that the added dollars coming into circulation was "stabilizing the business." Here is the full quote:

It’s money that’s stabilizing the business, really for the first time since 2006. Newspaper revenue trends among those top performers are getting back to that under-appreciated “zero” number (“The newsonomics of zero, and the New York Times”), making up for continuing losses in ad revenue. It also means we’ll see more top-line growth this year — and that’s milestone territory. That’s the reason why the U.S. system of metered paywalls is now being applied around the world.
This is about as full a declaration of victory for paywalls that I've read. But I'm afraid I just don't see it.

Yes, the NYT did report a "meager" 0.3 percent increase in overall revenue in 2012, but then again the paper has just put up The Boston Globe for sale, hardly a sign that the company feels it is in the money now, or that the business is in any way "stabilized".

Things are even worse when you look at another company mentioned in the post, Gannett. That publisher reported a very healthy increase in circulation revenue, one that brought its numbers back up to 2007 levels. But let's look at this from the perspective of how it all would look on the P&L:
 photo Gannett-ads-circ-revenue-sm_zps725bcc67.jpg
Even if Gannett were to add the $100 million that Doctor believes it can, it will at best only be able to get its total revenue back up to 2009 levels, assuming advertising does not fall further – and frankly, I don't think they can do that – nor if they did that it would turn things around.

Another point to make about circulation revenue is that not 100 percent of the new revenue is coming from website paywalls, but simply from paid circulation overall. Paid circulation coming from mobile and tablets are generally considered circulation, and that revenue is would have traditionally been considered coming from new product launches. One could just as easily make the argument that circ gains show the wisdom of digital launches as much as it does paywalls.

To repeat myself again, it is should be said that I am not against paywalls. I've always said that financial newspapers and major national newspaper brands stood the best chance to succeed with a paywall – metered or not. But I've yet to see anything that would convince me that paywalls will work at metro, regional and local newspaper sites. I still think that the verdict is not yet in.

Over at AOL, Patch has not instituted paywalls, as they come from a pure play situation where the concept would feel out of left field. AOL's chief executive seems to feel that Patch is going to be profitable, but 2012 revenue came in 15 to 30 percent below promised, and at $34 million, still seems like a lot of work for little real revenue.

In fact, this seems to be the real issue in the industry: a lot of executives and media consultants chasing so few dollars, while the ad dollars continue to go elsewhere.

According to Kantar Media's latest report, newspaper ad revenue fell 3 percent in 2012. Overall ad spending increased by the same percentage, all going into the pockets of broadcasters. Even Internet spending was said to have fallen 3 percent, though Kantar is only looking at display ads. But I've always found measuring revenue to be difficult. Look at almost any magazine ad report that includes revenue and you'll see that when ad pages fall revenue is said to have fallen by a smaller amount. Real world experience tells you that this is true when in a high inflation setting, like in the nineties and before, but the past decades have found publishers freezing rates or having to discount more, leading to bigger, not smaller declines in their revenue lines.

With the Globe for sale, along with the LA Times, Chicago Tribune and the rest of the Tribune Company's print properties, I think it is fair to say we are in an era of incredible instability. Turn the situation around will take a turnaround in advertising as much as an increase in circulation. Or am I reading the numbers wrong?

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