U.S. newspapers are increasing their use of co-opetition practices, that is, cooperating with competitors to reduce costs, create synergies, or reduce risk in new markets. Such activities are permissible if they are not designed to create cartels or control prices for advertising or circulation.
The latest example occurred this week when the Boston Herald announced an agreement with the Boston Globe for its competitor to print and deliver the Herald. The move creates cost savings for the Herald by allow it to cut printing, trucks, and delivery personnel, while simultaneously creating production and distribution economies and an additional revenue stream for the Globe--a win-win for both companies.
Such service agreements do not violate antitrust laws because the papers remain independent, set their own prices, and create their own content. If papers were to engage in such actions they would have to apply for an antitrust exemption under the Newspaper Preservation Act (see John C. Busterna and Robert G. Picard, Joint Operating Agreements: The Newspaper Preservation Act and its Application. Ablex, 1993), but those agreements have not proven successful in the long run.
The Boston agreement comes on the heels of numerous printing agreements, including that of the Chicago Tribune and Chicago Sun-Times, that have been made among publishers in the last couple of years.
Another example of co-opetition is seen in the 59 newspaper and information companies—including New York Times Co., McClatchy Co., Washington Post Co., E.W. Scripps Co., A.H. Belo, and Associated Press—that have now banded together to create NewsRight to track use of digital content and ease its licensing. By cooperating with each other, the companies have brought more than 800 content sites into the operation and created a significant player in the digital industry.
Daily newspaper companies have historically disliked cooperation unless it was absolutely necessary—as in the case of news services. The new types of cooperation emerging show that the preference to go it alone is being eroded by contemporary financial conditions and the difficulties of operating independently in the digital environment.
Showing posts with label McClatchy Co.. Show all posts
Showing posts with label McClatchy Co.. Show all posts
Monday, January 9, 2012
Thursday, July 23, 2009
PROFITS, RECESSION, AND RECOVERY
New York Times Co., Gannett Co., Media General , and McClatchy Co. have all reported profits in the second quarter and the results have led to share prices doubling and tripling.
The developments must come as a surprise to those who saw the poor performance of recent quarters and convinced themselves that the newspaper industry is dead and gone.
Admittedly, the positive results in the past 3 months were achieved through restructuring, reducing news staffs to their 1970s levels, heavy cost cutting everywhere, and postponing reinvestments. But it shows there is still life in the industry and that the industry can be expected to recover in the coming year if economic conditions continue their current rate of improvement. As I have said many times, a industry with $50 billion in revenue is not going to ignore that revenue, close the doors, and disappear overnight.
Many have viewed the poor company performance in the past 2 years and then mistaken the steep concurrent drop in advertising as evidence of a general decline caused by long-term industry trends. In doing so, they have disregarded the impact of the economy on newspaper advertising and mistaken the dramatic drop in advertising as being an indicator of the industry's broader condition rather than the shorter-term results of 4 quarters of negative growth that have affected the economy as a whole. Some have also ignored the effects of corporate debt problems had on the industry's overall condition.
In multiple blogs and articles journalists and editors have pointed out that newspapers have fared worse than other media in the recession and used that the fact as evidence that the industry is a death's door. Two decades of research on newspapers during recessions, however, has shown newspapers typically fare worse because retail and classified advertising on which the industry relies are more affected by downturns than brand advertising (See post “The Credit Crisis, Volatile Markets, and Recession and Media” and the articles below). Obviously a lot of newspaper managers and journalists don't pay attention to research about their own business.
If one looks at the newspaper advertising expenditures over time (see Figure below), one sees that they fall with recessions and then recover. This pattern was especially evident from 1991 to 1993 and 2001-2003 when short downturns pushed newspapers into decline.
If one considers different category of advertising, it is clear that the classified advertising—which was a driver of growth in the 1990s—was significantly troubled after 2000, but recovered and spiked in 2005 (Figure 2). Its relative decline by comparison to retail and national advertising is probably the result of some substitution with the Internet, nevertheless newspaper classifieds produced $10 billion in 2008—3 times that of online classified.
U.S. newspapers are in a mature industry with low growth potential once recovery from the recession occurs. Most companies will performance reasonably well after the recovery, but certainly some companies will have difficulties because of imprudent strategies and choices. Nevertheless, the industry as a whole will still remain in place producing revenue for many years to come.
Picard, R.G. (2001). Effects of Recessions on Advertising Expenditures: An Exploratory Study of Economic Downturns in Nine Developed Nations, Journal of Media Economics, 14(1): 1-14.
The developments must come as a surprise to those who saw the poor performance of recent quarters and convinced themselves that the newspaper industry is dead and gone.
Admittedly, the positive results in the past 3 months were achieved through restructuring, reducing news staffs to their 1970s levels, heavy cost cutting everywhere, and postponing reinvestments. But it shows there is still life in the industry and that the industry can be expected to recover in the coming year if economic conditions continue their current rate of improvement. As I have said many times, a industry with $50 billion in revenue is not going to ignore that revenue, close the doors, and disappear overnight.
Many have viewed the poor company performance in the past 2 years and then mistaken the steep concurrent drop in advertising as evidence of a general decline caused by long-term industry trends. In doing so, they have disregarded the impact of the economy on newspaper advertising and mistaken the dramatic drop in advertising as being an indicator of the industry's broader condition rather than the shorter-term results of 4 quarters of negative growth that have affected the economy as a whole. Some have also ignored the effects of corporate debt problems had on the industry's overall condition.
In multiple blogs and articles journalists and editors have pointed out that newspapers have fared worse than other media in the recession and used that the fact as evidence that the industry is a death's door. Two decades of research on newspapers during recessions, however, has shown newspapers typically fare worse because retail and classified advertising on which the industry relies are more affected by downturns than brand advertising (See post “The Credit Crisis, Volatile Markets, and Recession and Media” and the articles below). Obviously a lot of newspaper managers and journalists don't pay attention to research about their own business.
If one looks at the newspaper advertising expenditures over time (see Figure below), one sees that they fall with recessions and then recover. This pattern was especially evident from 1991 to 1993 and 2001-2003 when short downturns pushed newspapers into decline.
If one considers different category of advertising, it is clear that the classified advertising—which was a driver of growth in the 1990s—was significantly troubled after 2000, but recovered and spiked in 2005 (Figure 2). Its relative decline by comparison to retail and national advertising is probably the result of some substitution with the Internet, nevertheless newspaper classifieds produced $10 billion in 2008—3 times that of online classified.
U.S. newspapers are in a mature industry with low growth potential once recovery from the recession occurs. Most companies will performance reasonably well after the recovery, but certainly some companies will have difficulties because of imprudent strategies and choices. Nevertheless, the industry as a whole will still remain in place producing revenue for many years to come. It will do so because more than 45 million people are still willing to purchase a paper daily and retail advertisers still gain better results from newspaper advertising than from broadcast, Internet, and other forms of advertising.
Related Articles of Interest
Picard, R.G. & Rimmer, T. (1999). Weathering a Recession: Effects of Size and Diversification on Newspaper Companies, Journal of Media Economics, 23(4):21-33.
Picard, R.G. (2001). Effects of Recessions on Advertising Expenditures: An Exploratory Study of Economic Downturns in Nine Developed Nations, Journal of Media Economics, 14(1): 1-14.
Picard, R.G. (2008). “Shifts in Newspaper Advertising Expenditures and their Implications for the Future of Newspapers,” Journalism Studies, 9(5):704-716.
van der Wurff, R., Bakker, P. & Picard, R.G. (2008). Economic Growth and Advertising Expenditures in Different Media in Different Countries, Journal of Media Economics, 21:28-52.
Tuesday, April 22, 2008
THE CAPITAL CRISIS IN THE NEWSPAPER INDUSTRY DEEPENS
Recent weeks have not been kind to newspaper company finances, with lost value and unhappy investors plaguing publicly traded firms.
The Journal Register Co. was delisted from New York Stock Exchange because it share price remained below $1, reducing its market capitalization about $12 million, less than one-fifth the capitalization required to be traded on the big board. The Sun-Times Media Group stock also continued trading below $1 and its market capitalization dropped to $61 million, drawing a delisting warming from the New York Stock Exchange.
Although those firms have hardly been notable as the best managed firms in recent years, their problems in inspiring investors are symptomatic of difficulties facing newspaper firms in the market.
Meanwhile, Moody’s Investors Service lowered the New York Times and McClatchy Co. debt ratings and lowered the Gatehouse Media even further in the junk category.
Other firms are also having problems with capital related issues. Rumors are rampant that the Sulzberger family is seeking new protective mechanisms or partners for the New York Times Co. following its continued battles with shareholders and dissident shareholders gaining seats on the company board. A similar ugly proxy battle is underway at Media General.
About a half dozen public firms have now hired advisors to determine their “strategic options,” the business euphemism for seeing if there is any hope of selling properties, restructuring, or getting out of the business.
All this is happening not because the newspaper industry is untenable—public companies return an average of 17 percent last year—but because most are carrying enormous debt and have no believable plans for future growth and development. As a result, investors are demanding cost cutting, debt reduction, strong returns, and high dividends so they can recoup their investments.
The trouble with this scenario is that it continues stripping newspaper companies of the resources they need to develop new initiatives and businesses should their management gain some vision, become entrepreneurial, and have some inspired ideas that might enthuse investors.
What newspaper companies badly need today are not mere managers, but company leaders with the strength, enthusiasm, and vision to rebuild their companies. If they don’t start soon, they will lose too many resources to be able to do it in the future.
The Journal Register Co. was delisted from New York Stock Exchange because it share price remained below $1, reducing its market capitalization about $12 million, less than one-fifth the capitalization required to be traded on the big board. The Sun-Times Media Group stock also continued trading below $1 and its market capitalization dropped to $61 million, drawing a delisting warming from the New York Stock Exchange.
Although those firms have hardly been notable as the best managed firms in recent years, their problems in inspiring investors are symptomatic of difficulties facing newspaper firms in the market.
Meanwhile, Moody’s Investors Service lowered the New York Times and McClatchy Co. debt ratings and lowered the Gatehouse Media even further in the junk category.
Other firms are also having problems with capital related issues. Rumors are rampant that the Sulzberger family is seeking new protective mechanisms or partners for the New York Times Co. following its continued battles with shareholders and dissident shareholders gaining seats on the company board. A similar ugly proxy battle is underway at Media General.
About a half dozen public firms have now hired advisors to determine their “strategic options,” the business euphemism for seeing if there is any hope of selling properties, restructuring, or getting out of the business.
All this is happening not because the newspaper industry is untenable—public companies return an average of 17 percent last year—but because most are carrying enormous debt and have no believable plans for future growth and development. As a result, investors are demanding cost cutting, debt reduction, strong returns, and high dividends so they can recoup their investments.
The trouble with this scenario is that it continues stripping newspaper companies of the resources they need to develop new initiatives and businesses should their management gain some vision, become entrepreneurial, and have some inspired ideas that might enthuse investors.
What newspaper companies badly need today are not mere managers, but company leaders with the strength, enthusiasm, and vision to rebuild their companies. If they don’t start soon, they will lose too many resources to be able to do it in the future.
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