Has the newspaper advertising market contracted enough and publishers adjusted their business models enough to make subscription revenue a meaningful contributor to the business? Recent financial results indicate that the industry may be at an inflection point that could form the basis for meaningful change.
Ken Doctor has been analyzing the changing shape of the newspaper industry on his Content Bridges blog, which should be on every newspaper executive’s reading list. We shared a panel with Doctor a few months ago when he said that the industry would probably bottom out in the second quarter and enjoy a 12- to 18-month reprieve before business began to slide again. So far, he’s right on the money.
Analyzing the latest round of financial figures emanating from publishers, Doctor sees clear signs of a bottom. Not a soft landing, mind you, but evidence that the gut-wrenching death spiral has begun to flatten out. He notes that the latest results showing continuing year-over-year revenue declines of 25% to 30% would have been cause for panic a year ago, but we’re so used to the bad news now that we can actually see a silver lining in the slowing rate of descent.
The encouraging news, Doctor notes, is that publishers are beginning to speak of light at the end of the tunnel while actually beginning to pay down the debt that has been threatening to crush them. McClatchy trimmed $100 million worth of debt this quarter and the New York Times Co. (NYT) has reduced its debt by nearly 25% this year. If these companies are to have any chance of growing again, they must get out from under this burden, so this progress, while not remarkable, is a start.
Assuming we’re reaching some kind of stability, what happens next? Most likely, we’ll see some experimentation with alternatives to the ad-heavy revenue model. In last week’s earnings call, NYT CEO Janet Robinson all but confirmed that the Gray Lady will set up a pay wall in the near future. Even though Times Select was a short-lived disaster, enough new models for monetizing subscriptions have emerged that the Times may be ready for another go.
Another factor is that circulation revenue is actually showing more stability than advertising revenue during this downturn. Check out the analyses by Ryan Chittum on CJR documenting that last week’s McClatchy results showed 5% growth in circulation revenue. He also makes the remarkable observation that, following a 1.5% increase in circ revenue in the second quarter, NYT Media group now derives almost as much money from circulation as from advertising:
“In the second quarter, the Times brought in $185 million in advertising revenue, while it reaped $166 million from its subscribers. Three years ago, those numbers were $316 million and $156 million respectively. The ad-to-circ revenue ratio at The New York Times has gone from two-to-one to one-to-one. Stunning.”
True that. Part of the reason the ratio has changed, of course, is that advertising revenues have fallen so far. But if, as Ken Doctor points out, publishers are learning to run much tighter operations, then the possibility of a balanced circ/ad revenue model becomes more real.
That doesn’t mean an answer has been found. Writing in The Wall Street Journal, itself a testament to the viability of reader revenues, Brett Arends points out that NYT bonds are currently yielding 11%, which is in junk bond territory. In other words, investors still think there’s a high likelihood that the Times Co. will default on its debt. Like many other observers, Arends sees no hope in online advertising revenue as salvation:
“The Times’ websites had about 52 million online readers in the first quarter. Internet revenues? Just $78 million. That’s 50 cents per reader per month. That’s not even a box of tic tacs. Company operating costs during the same period: $654 million. Payroll alone was $145 million.”
Ugly? Yes. But it’s at least an acknowledgement that online sales won’t solve the problem. Online ad inventory is continually expanding and CPMs have declined steadily for the last five years. There’s no reason to believe that trend will reverse itself, so publishers have to take a more serious look at reader revenues. A number of new models have emerged recently, including Alan Mutter’s ViewPass and Martin Langeveld’s CircLabs. Meanwhile, some half-serious schemes to regulate the proliferation of free content through licensing or legal means have also begun to spring up. Jeffrey Neuburger outlines a few of these on MediaShift; we don’t think any of these proposals holds water on its own, but they are collectively an indication that all is not yet lost in the battle to derive value from intellectual property.
To paraphrase Ken Doctor, publishers may finally be due for a breather. They have a chance to take stock of their new organizations and see if there’s a chance to grow the businesses again, or they can go back to trying to wring historic profits out of their operations. If they choose the latter, they will find themselves once again caught in the death spiral so eloquently described in this recent brief essay by Seth Godin. Let’s hope the past two years has at least taught them the dangers of staying with the status quo.
This entry was posted on Tuesday, July 28th, 2009 at 11:39 pm and is filed under Advertising, BusinessModel, Circulation, NewMedia, Newspapers, OnlineMedia, Solutions. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.