How I killed newspapers: Part One

Found myself in a lively Twitter exchange today about the future of newspapers, sparked in part by Postmedia�s grisly quarterly report.

Things look bleak for most newspapers. Postmedia is Canada's largest newspaper company. Its report set out the problem. Revenue - ads and circulation and digital - was down 9.4 per cent on the previous year. Expenses were down 9.1 per cent, thanks to a big cost-cutting drive. Based on those numbers alone, next year�s financial performance will be worse, and the next year worse still.

Circulation - the number of newspapers sold - is down by 14 per cent in the quarter. Some of the decline reflects the decision to kill Sunday papers in Ottawa, Edmonton and Calgary, which were judged money-losers. But that�s still a huge loss in readers.

Postmedia newspapers have been losing about five per cent of their subscribers a year. Which means a paper can shed 25 per cent of its customers in a little over four years.

Newspapers once sold themselves as mass media. Buy one ad, in the 1990s, and you had a chance of being seen by more than two-thirds of the adults in a mid-size city. (Numbers were higher in small communities, lower in big ones.) Now an ad might reach 50 per cent of the population in a mid-size city. Advertisers will pay much less - or find a more targeted media.

When everyone read the paper - or it seemed that way - there was pressure to subscribe. Otherwise, you might not be in on the next day�s conversation at coffee break.

And, of course, fewer readers means less circulation revenue.

Paywalls and digital subscriptions were supposed to help address the problem. It�s not a bad short-term strategy to pull in some revenue. But the early evidence is that - for almost all newspapers - the hope that people�s payments for online content will come close to covering the bills is delusional. (Which is the subject for another blog post.)

Postmedia has tested paywalls and introduced them in all its papers. The quarterly reported noted 100,000 people had signed up as digital subscribers. But it didn�t disclose how many were existing print subscribers, who would pay nothing, and how many were real, new, revenue-producing online readers. Which means there were not that many paying customers. Companies like to share successes.

Overall digital revenues - online ads and subscriptions - were up 2.2 per cent for the quarter. 

That�s not good. The corporation lost $21 million in �traditional� revenues, and gained $500,000 in new digital revenues. Postmedia management has been pitching a �digital first� strategy, counting on double-digit revenue growth to help offset print declines. It hasn�t happened.

That�s a fairly bleak look at the industry. 

But we haven�t even got to one of the big problems.

Michael Brown, then the slightly scary head of the Thomson Corporation, talked about the virtuous circle. Newspapers would invest in the product and get more readers and advertisers, and use some of that revenue to make the paper even better, and on and on. (Brown made the decision to sell off Thomson's newspapers in the mid-90s.)

Now, the focus is on cutting costs. And the chosen approach involves reducing the quality of the newspapers, which will mean fewer people will buy them and more cost reductions will be necessary. The opposite of Brown�s virtuous circle is the death spiral. Why start paying for a newspaper as it cuts content?

Doom and disaster aren�t the inevitable outcomes. 

But they aren�t a bad bet. It was hard to see anything in the Postmedia report to shareholders that hinted at a strategy to build a sustainable business based on providing news and information in Canadian cities. 

Many Postmedia papers - like the two in Vancouver - are still operating with crushing cost structures. The  contracts were freely negotiated by both sides in the good old days. But paying a semi-skilled mailroom employee $90,000 a year, as the business crumbles, is folly. 

It�s not a pretty picture. But there is a powerful argument for the importance of newspapers, or at least news organizations that pay competent, trained people to report what�s going on, and offer commentary. That is not a slag on bloggers and citizen journalists. (I am one.) But there is value in having a paper that will stand behind you when you are sued, or come up with a cheque every week while you check out stories and gain understanding of issues. 

But the industry isn�t responding in a way that shows it understands the crisis. That is consistent with at least 30 years of failure in responding to change. 

That�s tomorrow�s blog post. (The post title - How I killed newspapers - is tongue in cheek. But I did work in the biz during the years of decline, for many of them as a manager. It's hard not to feel some blame is in order.)