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Five predictions about US newspapers Pt 2

Posted in: Business Models, Metrics, Newspapers, Revenue, Technology, Trends, by: John Duncan

Mar 12, 2009
02:45 PM

2. The remaining 15% might be able to make a go of it online.

Depending on whether you are a half full or half empty kind of person, the idea that 85% of US newspapers will be dead in two years can be scary (85% is a lot of dead newspapers) or encouraging (15% is a lot more surviving newspapers than many people think will make it).

So who will this 15% be?

(First of all a huge great health warning. There are massive assumptions inherent in this article and some gargantuan generalisations. I’m not making a concrete prediction here, I’m painting what I hope is a plausible picture of what the online newspaper landscape might look like in two years. I welcome challenges to it and I welcome a spotlight on omissions or miscalculations. This is a work in progress.)

I believe that those who survive to run our industry will have five qualities.

1. They’ll have a vision of low-cost pro-am hybrid generator/aggregator news operation that can work.
2. They will be ruthless cheapskates.
3. They will understand the strengths of the old-school news business and how it has to change.
4. They can draw on cash from other businesses, and they will have small or manageable debt burdens.
5. They will have other non-newspaper online business experience. (Careerbuilder doesn’t count)

The 85% number is not randomly selected. It derives from the audience that I think a news website would need to attract to get sufficient revenue to support a newspaper level of content operation. I think there is a page impression count which would allow a news operation to survive. My calculations suggest it is somewhere around the 50m a month mark. Don’t get me wrong I don’t mean that this level of display revenue can support a legacy newspaper staff, but it could throw off enough cash for some titles to restructure and produce deep enough coverage across a broad enough user base to keep a credible regional/metro news operation going.

There are 12 news operations with a monthly view count above or around that 50 million level. They are:

Newspaper	Monthly uniques	Ctrck p/m	Estimated Revenue
Houston Chronicle	3,4m	56,0m	$6.4m
Seattle P-I	3,0m	45,0m	$5.6m
Arizona Republic	2,1m	56,4m	$3.9m
Chicago Sun-Times	1,9m	28,5m	$3,5m
Chicago Tribune	2,5m	37,5m	$4.7m
New York Post	5,8m	66,6m	$10.8m
SF Chronicle	5,9m	88,1m	$11.0m
USA Today	8,1m	121,5m	$15.1m
NY Times	13,9m	208,5m	$26.0m
Washington Post	7,5m	112,5m	$14.0m
LA Times	7,8m	117,0m	$14.6m
Wall Street Journal	4,4m	66,0m	$8.2m
Boston Globe	4,5m	67,5m	$8.4m

Notes:

1. I have assumed 15 impressions per monthly unique because of the Quantcast directly measured sites that was the average multiple. It's likely to be higher for some of the national titles.
2. I have included the Sun-Times and Tribune because combined they hit the magic 50 million mark. In the end there isn’t room for both of them. I assume one will make it.
3. Revenue is very difficult to know for sure. But from interviews I know that the LA Times’s online display revenues are about right, though I believe this multiple underestimates revenues for the NY Times. Some sources suggest that online revenue at the NYT could be as high as $100m annually. Like I said there are some gargantuan assumptions here. If the NYT gets a cpm of $20 and has 26 page views per monthly unique their revenue does indeed get close to $100m a year. Anyone wanting to correct me is welcome.
4. I have assumed a cpm of $10. While many sites will get more than this for directly sold inventory, 50% or more of inventory is sold through networks or remains unsold. Network CPMs are about a tenth of that $10. I think $10cpm is optimistic but I’m open to challenges. The diminished local inventory that the death of most newspaper websites will cause may raise this CPM at least temporarily.
5. The only revenue I have assumed is display revenue. Again this arguably understates real revenue from the classified and search revenues that are available. Again, all help on those numbers welcome.

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This table really only tells half the story. It’s a static picture that suggests that the death of other regional newspapers will have no benefits to rivals. That would be silly. If you assume dead newspapers all over the place you can also assume that some of their audience will go to the survivors. So if Houston becomes Texas’s “national” news website then it can grab audience from the fall of Dallas (1.7m monthly uniques), Austin (425k), San Antonio (773k), Fort Worth (837k). If they can hang on to 50% of this audience with some commitment to local content, it is worth maybe $4m a year in revenue. So the deaths of newspapers brings with it the possibility of consolidation around audiences that might sustain what four individual online-only entities could not.

Let’s put together beermat financials for a borderline survivor newspaper website like Houston. It's still a massive cut from what newspapers expect now but it's workable. I am going to assume 100 staff, 60 of them journalists, at an average salary of $55,000 (with employment costs) and Other Costs (such as buildings, equipment, subscriptions, expenses) of $2 million a year. This is a big news investment and a threadbare support staff, but that’s the way it’s going to have to be.

That leaves the operation needing $7.5 million in annual revenue to survive. At a cpm of $10, they would need about 4.5 million monthly uniques with PageView multiples of 15 to keep going and then would have to try to get the PageView multiple up as best they can. To get a sense of how high the bar will be though, even if Florida’s newspapers all consolidated on the web and ran one central site with local subsites it would barely make the cut in audience terms. Smaller states are going to have to get by with smaller news operations.

On the other hand four news sites on this list could afford to double or triple their investment in journalism if they cut other costs to the bone.

So if there are 12 news “franchises” who can survive the transition and make a play for the audience of the dead 85%, who will own them? I think there are five good candidates.

1. News Corp. They possess two sites that could survive on their own, plus the resources of Fox put them in a good position to consolidate other people’s audiences. And Rupert Murdoch is still a brutal cost-cutting inksniffer at heart. I’d tip Murdoch to come out of the shakedown holding some great news brands. It used to be too expensive to contemplate owning the makpr news brand in most of the top 10 TV markets (NY, LA, Chicago, Philadelphia, Dallas, SF, Boston, Atlanta, Washington, Houston), but it may become affordable in the next 18 months and Murdoch is a past master at buying cheap, attacking cost bases viciously and finding new audiences..
2. New York Times. They control the biggest US news website and additional audience in Boston as well as technical synergies associated with owning About.com which put them in a strong position. A high cost base, debt, and no real cash cow make what should be slam-dunk survival more dubious. They might be big enough to sit out the bloodbath and let the audience come to them. Or they might pick up the LA Times for a song and centralise everything but the journalism.
3. Washington Post. Part of a company with other resources but heavily reliant on a single title, the thirst for inside information might save them in Washington and allow them to charge for what they do once they’ve given up competing for reach with the NYT.
4. Someone else you wouldn’t think of. There are going to be enough distressed newspaper assets floating around, plenty of unemployed journalists and enough regional news vacuums to make some form of low-cost regional news venture viable. A consolidated California operation built around the LA Times might tickle someone’s fancy. Florida could sustain a hub and spoke operation too, San Jose, Oakland and San Francisco in perfect harmony?

As much as anything this list is defined by who will have to quit first. It's clear once you start asking the question who you think has the stomach and the capital for the fight how few players are likely to be left. First to go will be those who have debt from acquisitions that they cannot refinance (Tribune, McClatchy, MediaNews, Gannett), then will come the companies who lose interest in newspapers because they have other businesses in their portfolios which they believe have a better chance of surviving (Hearst, Cablevision, Media General, Advance). And finally will come those companies who would like to stick it out but don’t have enough non-print generated cash to carry on (most independents and mid-size companies). Control of the industry will probably be concentrated in fewer than five hands. Should we be scared? That’s for another thrilling installment.

Part 1: 85% of newspapers will be dead by 2011

Part 3: There will still be profitable print newspapers in 15 years