By Victor Thorn
Mainstream newspapers are on a “death watch,” said one expert who dedicates his time to maintaining a massive clearinghouse of information on the Internet that is documenting the decline of the biggest dailies.
One of the foremost thought-leaders on this subject, Paul Gillin, founder of “Newspaper Death Watch,” began his website five years ago by warning of a precipitous decline in mainstream print publications.
After both The Wall Street Journal and The Boston Globe didn’t find it necessary to run an op-ed piece written by Gillin on this topic, he took matters into his own hands by informing people about the changes he saw coming for newspapers.
During a March 15 interview with this writer, Gillin clearly spelled out his views. “I can’t believe anybody would be so thick as to think that there’s a future in print newspapers. There’s no justification for it.”
Sure enough, Gillin’s predictions came true as 2009 saw the collapse of two major dailies—The Rocky Mountain News and The Seattle Post-Intelligencer—in addition to The Boston Globe almost being shutdown.
“I didn’t want to dance on the graves of newspapers, but these closures were a wake-up call for the industry,” Gillin noted. “If newspapers are going to survive, they need to get their costs in line to match revenues.”
When asked what he’d suggest to newspaper publishers, Gillin replied, “They need to shed their assumptions. You don’t have to be in print to still be in the news business. They have to think real hard if print is still a profitable business. Then they have to check their gut. Do they have the stomach to make cuts in staff? That’s the decision. They don’t like to hear what I’m saying, and I don’t blame them. I feel for them.”
Not intending to convey a sense of gloom-and-doom, Gillin does see a rebirth of journalism. “For the first two years on my website, I focused on the death of newspapers. But the past three years I’ve shifted my attention into making the business model practical. Good journalism should never be taken for granted, and we need to preserve it.”
Problems Facing the Industry
Technology has changed the world, and print publications are certainly not immune. Gillin pointed out, “From 1970 to 2006, newspapers were one of the most predictably profitable businesses on the planet. Before the 70s, newspapers relied on a huge circulation stream. But after that, most newspaper revenue came from advertising. They raked in money.”
Ironically, the print industry’s decline also began in the 1970s with the advent of more choices. According to Gillin, “During the 1940s, New York City had approximately a dozen dailies. By the 1980s, that number dropped to three.”
But cable TV and local weeklies were nothing compared to how the PC revolution altered the news landscape. On December 14, 2011 USC’s Annenberg School released a shocking report: in five years, there will only be four major daily U.S. newspapers still in print.
Posed with the possibility of such a scenario, Gillin began, “The Annenberg report isn’t as outrageous as it sounds. Although major dailies are dying the fastest, they won’t completely go out of business. Instead, they’ll discontinue publications on less profitable days such as Monday, Tuesday and Saturday. In fact, these dailies are already quietly cutting back, but they’re doing it with little fanfare.”
When prompted to look into the future, Gillin was a little more hopeful. “I predict that there will only be five major metro dailies left by 2025, maybe a little sooner.”
Regrettably, publishers are finding it difficult to change their frame of reference. The Pew Research Center’s March 5 Project For Excellence in Journalism study revealed that for every dollar gained in new digital revenue, print revenue was losing seven dollars.
Gallin observed, “Most newspapers aren’t doing enough to gain digital revenue. Print as a significant revenue source has less than 10 years. The end is in sight. It’s a death spiral. Newspapers need to reach the point of creating a new media company before they run out of print revenue.”
Without flinching, Gillin addressed the reality of what is happening to newspapers. “In 2011, print revenue at inflation-adjusted rates hit its lowest levels in 50 years, and it is declining 2-10% a year. There is no plausible argument that says print advertising is an effective way to reach people who are in a position to make decisions. There are reams of statistics from Pew and Gallup that show where the trend is going.”
Using his research to paint a picture, Gillin provided an illustration. “Imagine someone is in a buying frame of mind and wants to purchase a wedding dress. What is the shortest distance between two points? Well, today most people go to search engines such as Google, which is an active decision-making process. On the other hand, print advertising is a passive browsing medium where people discover things by serendipity.”
He continued this metaphor. “If you sell wedding gowns and advertise in The Boston Globe, possibly only one percent of the readers want wedding gowns, while 99% don’t. In this regard, it’s completely inefficient. But if ads were placed on Google, active buyers would have immediately found it. That’s why Google is making $40B a year, which is almost the same amount that’s been taken out of the newspaper industry in lost advertising revenue. Print advertising doesn’t provide much value any more for customers.”
Even if publishers are willing to make the leap, Gillin highlighted another quandary they face. “Most sales reps either don’t want to sell digital advertising or they can’t be adequately compensated when doing so. Moreover, it’s hard to retrain salesmen that have spent their entire careers in the print business.”
Another factor enters the equation, as Gillin explained. “Historically, classified advertising has been the biggest cash cow for newspapers. It’s 80% profit. But now, Craigslist is responsible for taking up to 80% of newspaper classifieds. They operate inexpensive websites on shoestring budgets and charge nothing for their ads. As a result, they’ve cannibalized the classifieds, and newspaper revenue streams have disappeared.”
Although Gillin feels that most of the drastic bloodletting for newspapers has already occurred, he did offer, “In the future, newspapers will die of cancer, not a heart attack. They’ll wither away because there’s nowhere to go.”
Only a few years ago, it was still hard to convince newspaper publishers that they were in serious danger. Paul Gillin emphasized, “2006 was the best revenue year that newspapers ever had. So, even then it was difficult for them to imagine the troubles ahead.”
Gillin then proceeded to describe the faulty business model that hinders print publications. “80% of all costs associated with producing a newspaper have nothing to do with the news. Rather, they’re paying for buildings, trucks, presses, ink, rent, staff, and other related expenses. When all of these items are stripped away, the cost of journalism isn’t all that high.”
As noted in last week’s AFP media report, The New York Times suffered dramatic losses in print advertising income and circulation revenue for 2011. However, the resistance to move away from traditional newspapers is understandable for one fundamental reason. “Print is still the primary revenue generator,” Gillin said. “It’s the dominant source of income.”
In this regard, Gillin offered some advice. “Publishers should milk whatever is left from their revenue sources for as long as they can. This means driving up circulation revenue and managing costs.”
This last point is vital, as Gillin described. “Over the last six years, there has been a 40% reduction in newsroom staffs. Because some of the big newspapers were close to being shutdown, they had a wake-up call.”
Since cost reduction seems to be a constant theme, AFP asked Gillin to compare digital to print. “Today, 90% of newspaper revenue still comes from print, while only 10% is derived from digital. But, it only costs 20% to run a digital operation as opposed to print. As such, the business model requires that newspapers move away from the huge costs associated with printing presses, real estate and staff.”
He offered an example of how a publication has effectively made this transition. “Four years ago, PC Magazine quit their print subscriptions and are now completely digital. They endured massive layoffs to cut costs, but today they’re doing all right. The reason why is that digital is the only growth story in this industry.”
Since PC Magazine caters to “techies” that are more digitally oriented, Gillin provided another side of the coin. “60 and 70-year-olds are now willing to pay almost anything to keep getting a print newspaper. Yet, reliance on these customers is short-lived. That’s why it’s so important to develop a diversified business model. 2011 4th quarter digital revenues at The New York Times were about the same as their editorial costs, so they’re now actually able to support themselves without print revenue. That’s a milestone, a turning point.”
When questioned about the perceived generational differences between digital and print, Gillin didn’t see it as a problem. “Generation ‘X’ versus Generation ‘Y’ doesn’t have to be a clash. A case in point is Facebook, which has more users aged over 55 than under 25. It’s a misperception that you must be under 30 to get digital.”
As proof, Gillin cited The Journal Register Company’s CEO. “John Paton is an older man that has been very successful. He’s seen the future and is moving toward it. What he did was adjust his expectations to reality and decide what tools would be used in the future. Older people are becoming leaders in this field, so it can be done. We need to remember that 10 years down the line, almost all people will be accessing information digitally.”
Still, how can newspapers overcome an attitude among youths that the Internet should be “free”? Gillin doesn’t buy into this line of thinking. “Young people need to realize that high quality content demands a price. There’s no reason to believe people won’t pay for something in digital form. But, they do expect to pay less for it than they do for print.”
Regrettably, significant growing pains still exist. Gillin admitted, “Most newspapers aren’t having much success with gated subscriptions or pay-walls (i.e. paying to read online content). They need to figure out new ways to attract readers because traditional sources of advertising revenue are disappearing, and they can’t stop this trend.”
Despite all these traumas, Gillin remains hopeful. “There’s still good journalism out there, but newspapers must discover how to be more efficient. They need to stop wasteful practices that won’t allow money to flow in the door. In this sense, I’m reminded of a quote by Samuel Johnson: There’s nothing like a noose to concentrate the mind.”
Victor Thorn is a hard-hitting researcher, journalist and author of over 50 books.