A Date with the Butcher


Here is a question for the daily newspaper industry:

    When does the bovine brain realize it’s entered the abattoir?

Does it finally realize that something is amiss as it trots up the slaughterhouse ramp? Does it realize only as it receives the fatal blow? Does it ever realize at all? When should the steer have stopped following the herd instinct?

I ask because I don’t think that the American daily newspaper industry realizes that its slaughter has already begun. Slaughter may sound overly dramatic, but I think the evidence makes it an accurate description of the situation at hand. A hand with a cleaver.

I think the industry has started to realize that it’s being bloodied, but it doesn’t yet realizes that its gutting is the reason. Perhaps in a bovine way, the newspaper industry thinks it is the master of its own destiny. The reality, however, is the newspaper industry stopped growing beefy long ago and has been milked beyond the ‘mature business’ phase, so its owners have begun to lead it by the nose to the butcher.

Consider the American daily newspaper industry’s view up the slaughterhouse ramp:

• The industry lost 2,500 local newsroom jobs last year, numbers that have been increasing annually despite the industry mooing that its news coverage must get better and that local news is its core purpose.
• Its circulation and readership has been steadily declining for generations, despite the U.S. population and the number of college-educated Americans steadily growing; yet the industry continues to chew its traditional cud about how it is an absolute necessity for all Americans.
• The industry still claims to be a potent force in America, yet its major stockholders see that as just bull and have devalued the industry’s equity by more than 40 percent during the past five years.
• Knight Ridder, America’s second largest chain of newspapers and a pioneer in the industry’s new-media efforts, provided a rich milk of more than 20 percent profit margins to its stockholders, but they led it to be sold this year.

• Even the largest public shareholders of The New York Times Company have been clamoring for changes in control at that company, despite acknowledging that it publishes the best newspaper in the English-speaking world. Large public shareholders at Tribune Company are similarly upset about that company’s decline value.

But why believe me that this is the situation? For years, I’ve been warning that the end is near for the American daily newspaper industry unless it makes radical changes, but I’m an independent consultant who works for a tiny firm that isn’t associated with any media industry think tank; any university; or any big brand name, multi-industry consulting company. So, I’m easy to ignore by an industry that’s largely in a state of bovine denial. It’s also easys to ignore my warnings that the industry’s new-media efforts won’t save it unless those make the radical changes, too.

So, who will be believed?

I hope Professor Robert G. Picard, perhaps the world’s leading expert on media economics. He is Hamrin Professor of Media Economics and Director of the Media Management and Transformation Centre at J�nk�ping University in Sweden and currently a resident fellow at Harvard University’s Joan Shorenstein Center on the Press, Politics and Public Policy. Picard clearly has better credentials than mine.

In Austin on April 7 during his keynote speech at the 7th International Symposium on Online Journalism at the University of Texas, Picard (pictured above) gave a dire presentation forecasting the end of the newspaper industry and asserting that:

    “the current strategies of publishing companies to gain economies of scale and scope, to move into cross-platform content provision, and to maximize return across a portfolio of content products will be effective only for the short-and mid-term.”

Let me rephrase that in words that perhaps a cow could understand:

Nor is following the herd instinct. (What’s convergence, really? See this this definition for a truthful pointer about it).

But let’s not digress from Picard’s speech.…

Picard’s keynote was entitled Cash Cows or Entrec�te: Publishing Companies and Disruptive Technologies and was a version of his 2003 article (pdf) of that same title in the academic journal Trends in Communications.

He had written in 2003 that, “The need to keep from turning the cash cow into entrec�te before its productive life is over was at the heart of the strategic struggles in AOL Time Warner and Vivendi Universal that have resulted in the departure of leaders this past year because they were seen as trying to take their cow to the butcher far too soon.”

This month in Texas, Picard said that shareholders having forced the sale of Knight Ridder meant that they are now beginning to turn newspaper cash cows into entrec�te.

“There is a proper time to take the cow to the abattoir,” Picard had written during 2003, “but it should not be determined merely by the vision of company managers but rather by rational economic evaluation.” He this month in Texas outlined that starkly rational economic evaluation.

You can read his paper from 2003, see the video of his Texas speech (mp4) or download his accompanying slides (pps stored in zip format) from this month, but I’ll give you the basics here. Plus, I’ll fill in his theoretical calculations with the actual numbers from the newspaper industry:


As a printed publication’s circulation and readership decline, so too do that publication’s revenues. Its publisher cannot simply charge the fewer subscribers more. Nor can he charge his advertisers more for the remaining subscribers. Meanwhile, as circulation and revenues decline, so do the publisher’s costs. However, his costs don’t decline as quickly as his revenues do. Though he will publisher pays less for newsprint, printing, and distribution as circulation declines and he might also cut his newsroom staffing, he still must pay the basic costs of his newsroom and overhead. This means that as his circulation declines, his slowly declining costs sooner or later will exceed his quickly declining revenues — at which time it will no longer be economically feasible for him to continuing printing the publication.

I think that time will occur for the American newspaper industry during the next 20 years — within the lifetimes of most people alive today. (Philip Meyer, professor of journalism & mass communications at the University of North Carolina, author of The Vanishing Newspaper, and former Knight Ridder executive, has predicted that the last the last American daily newspaper reader will stop reading during October 2044. Whatever the actual date, it’s coming during most of our lifetimes.)

The newspapers industry’s new-media efforts hope to stop that disaster, and to save the industry by generating huge numbers of visitors and new advertising revenues.

Many newspapers’ websites have begun to generate large numbers of visitors and appreciable advertising revenues. Nielsen/Netratings reports that 53.6 million Americans visited a newspaper website at least once per month during the last Quarter of 2005. By comparison, the Newspaper Association of America reports that 54.6 million newspapers are circulated every weekday. Though that is a comparison of daily versus monthly numbers, it at least shows that a large plurality of Americans do ocassionally use newspaper websites.

American daily newspaper websites generated at least $2 billion in revenues last year, according to a survey report released this month by Borrell Associates (disclaimer: I’m a senior associate there).


Those revenues mean that most American newspapers’ websites are profitable.

They are profitable mainly because they are subsidiaries of the printed editions. The print operation generated almost all of those Web sites’ news content and most of their classified advertising revenues. Borrell’s recent survey showed that 75 percent of the sites’ revenues come from ‘upsells’ of the traditional ‘Big Three’ printed classified advertising categories of real estate, automotive, and recruitment.

Nevertheless, those revenues are growing and easily exceed most newspapers sites’ costs, if only because most of those sites’ costs of news and classified advertising are borne by the printed newspapers’ operation.

The problem here is that those sites’ revenues are far less than the print editions’ by any measurement — real numbers, per users, and even per unit of print circulation.

For examples, among ten largest U.S. newspaper companies last year, websites generated an average of only about 4 percent of those companies’ overall revenues. A survey three years ago by Borrell found that most newspapers’ Web sites were generating an average of $7.93 annually per site user. And the Borrell survey released this month indicated that the average American newspapers’ website was generating between $8 and $53 annually per unit of print circulation, up from between $0 and $20 during 2003.

Compare that with the printed newspapers’ operations, which generated the other 96 percent of revenues last year, more than $40 billion. Printed newspapers generate between about $250 and $900 annually per unit of print circulation — 20 to 100 times as much revenue per user than the websites earn.

So, the newspaper industry is lucky to have its websites’ revenues. Yet, as print edition circulation declines, the average newspaper will need between 20 to 100 website users to replace the revenues lost from each former print edition user.

Unless ways can be found to increase the per user revenues generated from newspaper websites, newspapers need to gain fantastic numbers of Web site users just to replace the declines in print edition revenues. A 50,000 circulation daily would need to gain a million to 50 million Web site users to postpone the time when it’s no longer economically feasible to produce its printed edition!

Even if newspaper Web sites’ advertising revenues were to continue their current rates of growth (double in three years), which could be possible in the short-term but is very unlikely over the medium-term and highly unlikely over the long-term, new revenues still probably wouldn’t compensate enough for the declines in print operating revenues. The revenues per user would still be too far apart.


So, If over time you do combine the print and new-media operations’ revenues and costs , the result is the chart above. The new-media operation’s growing revenues boosts the declining print revenues, but not enough to prevent the combined costs exceeding the combined revenues — at which time it becomes no longer economically feasible to produce either the printed or the Web editions of that newspaper.


Indeed, the combined operations might have more revenues at that time, but also more combined costs. All that combining operations — the convergence — will do is increase the sheer monetary numbers, not appreciably delay the time, when it becomes no longer economically feasible to produce either the printed or Web editions.

(You might have noticed that my chart of purely new-media revenues and costs had a different scale than the charts of printed media revenues and costs. That was an artifact from the Microsoft Excel spreadsheets that I used to generate the charts from Picard’s theoretical talk. Nonetheless, below is a chart using the same scale for both printed and Web edition revenues and costs. In fact, it factors current new-media revenues as 4 percent of the printed editions’ revenues and increases those revenues by about 15 percent long-term each year. The results are much the same as the previous chart.)


The American newspaper industry will meet its butcher sooner than it expects.

More than 1,250 of the 1,500 daily U.S. newspapers are owned by publicly-traded companies. Their stockholders, particularly the institutional ones, aren’t going to wait until the the day when it becomes no longer economically feasible to produce printed editions. And not until it becomes no longer economically feasible to produce either the printed or Web editions. No, they’ll want to sell their cash cow to a butcher or themselves chop it up into parts long before then (as Thomson Newspapers did years ago).

How much time is left for the American industry unless it can make radical changes? Five, ten, twenty years? I think the answer is between five and ten years because Wall Street is already leading the steers by their noses up the ramp.

What radical changes can save the herd? Shorter stories? More graphics? Having each editor and reporters write a blog? ‘Citizen journalism’? Well, you might think so from all the coverage that this industry’s intellectually bankrupt trade press has given to those subjects.

It is true that most newspapers have lost touch with their readers, and that ‘citizen journalism’ can provide some fractional help. But I think shorter stories, more graphics, having each editor and reporters write a blog, and even ‘citizen journalism’ are purported solutions that merely attempt to either change the spots on the cow’s hide or are occasionally useful but more often distracting ‘cow pies.

The radical changes the newspaper industry needs to implement arise from a more true understanding by that industry of why newspaper readership began declining well before the Internet was opened to the public; about why one billion people worldwide have gone onto the Internet after it was opened to the public (they didn’t do it to read traditional media on computer screens), and about why all that plus the misnamed and illusionary ‘fracturing’ of media audiences requires semantic solutions.

But more about that later. It’s now nearly 2 a.m. where I sit. I’m at the office late and want to go home. — Vin Crosbie.

One thought on “A Date with the Butcher

  1. Vin,

    You and I are probably closer together than disagreeing, but I’d like to hear more about what sort of radical changes are needed.

    I’m not convinced, per se, that the changes needed are all that radical. I think it’s in our DNA to do the things that need to be done — more and better local coverage, being the community not just covering the community, etc.

    However, I’m also not convinced more local coverage alone is the answer. I’m not sure there is an audience for local news in the future. Not a marketable audience.

    Young people haven’t stopped reading local newspapers because it gets ink on their fingers, or because they’re distracted by other media, so much as they just don’t find the content interesting. They’re not all that engaged in their geographic communities.

    At the same time, I’m far from willing to throw in the towel.

    There’s a lot we don’t know yet about the changing business environment.

    For example, we don’t know to what degree a greater market reach for local news sites would increase the value of each daily visitor. Maybe we can get that number up $500 per daily visitor. Maybe not. But I do think growing reach would exponentially increase the value of each user.

    We do know that it’s cheaper to produce a Web site than a printed paper, but we don’t know what expenses will really be associated with that site once the print product dies. We can guess, but there are still unknowns in the equation. That makes it harder (though we can get close, maybe) to predict what stand-alone revenue targets should be.

    I’ve tried to run through these scenarios with Excel and a guess, and the profit outlook is usually bleak, based on current models and traffic projections.

    I’ve come to the conclusion: I think we need to stop looking at monthly market reach. The daily number is what’s important. That is where the revenue is. I believe most local newspaper sites, while dominating their local markets (for locally based sites), they rarely attract more than 4 percent of the wired adults in their markets (there are notable exceptions, of course). Current traffic at these sites is enough to generate handsome additional revenue for the parent organization, but it isn’t enough to sustain substantial, stand-alone revenue.

    Newspaper Web sites need to get serious about audience growth in their local markets.

    I have no complaint about how newspaper sites go about making money now. I think its mostly pretty smart. But to get to real revenue, we need to get to real audiences.

    I think once we do, all the talk about free classfieds will largely disappear.

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