FIRST IN A SERIES

The Newspaper Death Watch

Tumultuous Week Highlights Industry's Many Challenges

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First in a series.

NEW YORK (AdAge.com) -- By now you know the story: The business of newspapers is in decline.

It's a terminal decline, if you believe experts such as Jeffrey Cole, director of the Center for the Digital Future at the University of Southern California at Annenberg. His research suggests traditional media in general must learn to shrink but newspapers in particular are a special case. "When an offline reader of a paper dies, he or she is not being replaced by a new reader," he said. "How much time do they have? We think they have 20 to 25 years."

Newspaper Death Watch
Photo illustration: John Kuczala

Newspapers' overall ad revenue has been falling, down to $42.2 billion last year from $48.7 billion at the millennium.

From DataCenter:

Newspaper Circulation Ranking Index
Of course, newspaper owners aren't going to just give up and wait -- and that's why Ad Age is launching this series about the 1,437 dailies still working hard in the U.S. It'll look at the thought leaders in the industry, their attempts to leave the past -- and even formats -- behind and their strategies for finding new business models.

But let's start with the industry's travails, because the news last week was full of them.

Tough Times
The New York Times Co. elected its first outside directors since going public in 1967, capitulating to a pair of hedgefund shareholders demanding divestitures and a quicker turn toward digital. The first mass newsroom layoffs for its flagship paper bore down after buyouts found too few takers. And Moody's Investors Service cut its ratings on the company two notches -- to its lowest investment grade.

Meanwhile, Rupert Murdoch neared a deal to buy Long Island's Newsday from Tribune Co., a company that CEO and maybe-savior Sam Zell had said he could at least hold together.

And Mr. Murdoch's New York Post reduced its height by an inch and a half, following the Times and The Wall Street Journal and newspapers across the country in literally shrinking from costs.

These were just the concrete results of trends that are gradually but relentlessly weakening newspapers as we know them. Trends such as the migration of classifieds, worth 40% of newspapers' ad revenue as recently as 2000, to the internet, which better organizes and offers them to consumers.

Last year classifieds mustered $14.2 billion for newspapers -- which sounds like a lot until you see that's 16.5% less than the year before. That's according to statistics from an industry trade group, the Newspaper Association of America.

Revenue down
Newspapers' overall ad revenue has been falling too, of course, to $42.2 billion last year from $48.7 billion at the millennium.

Their paid week-day circulation, which has been beset by 24-hour news on cable and online, has crumbled to 45.4 million in 2006 from a peak of 63.1 million in 1973. That's a 28% plunge.

Newspaper Death Watch chart
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Newspapers' share of ad spending since 1940

Efforts to save newsroom jobs amid the ebbing support have collided with parallel -- but ultimately more powerful -- efforts to protect profits. So the industry has cut at least 3,600 positions this decade, according to the American Society of Newspaper Editors. Many newspapers have shut down entirely.The country has lost 441 dailies since 1940 -- including 43 since 2000.

But don't look for young generations to miss, much less save, what the industry is losing. They're busy reading headlines delivered to their phones and surfing their friends' status updates on Facebook. Newspapers may well be suffering the effects, in the words of the Project for Excellence in Journalism last month, of a "decoupling of news and advertising."

The newest chapter arrives today with the industry's latest circulation report, which insiders expected to show another 2.5% weekday decline in the best case -- and a 3.5% drop in the worst. The story for the beloved Sunday paper? Darker still.

'No solution'
"There is no solution, given the advances of digital marketing and the changes in digital reading, that is going to save the newspaper industry as it is," said Ken Doctor, an industry veteran now serving as a media analyst for OutSell, the research and advisory firm. "There's an acknowledgement that they've been resistant to make," he said. "The industry as it has been is not coming back. It's going to be a radically different industry, especially for content creation and sales."

This process is not reversible, said Lauren Rich Fine, a former Merrill Lynch newspaper analyst now serving as a practitioner in residence at Kent State University's College of Communication and Information. "I wouldn't count on this industry becoming that profitable again," she said. "Anybody who thinks it's going back to the way it was is insane."

The newspaper industry, that is, must say goodbye to the double-digit profit margins that made it the darling of Wall Street, to its old unsurpassed authority, to its central place in American conversation and commerce.

There's already a great deal of innovating under way. Just last week, the eight biggest newspapers in Ohio began sharing articles with each other. The New York Times website introduced yet another ad unit to increase its digital revenue further. The young Lakewood (Ohio) Observer "newspaper" is publishing online every day -- but going to print, where its ad revenue resides, only every two weeks. The Wall Street Journal is introducing a glossy magazine inside its newsprint pages. And one of the new-era owners, Brian Tierney in Philadelphia, has rooted out new business opportunities, such as selling sponsorship of the Inquirer's TV-guide booklet to cable giant Comcast.

Pain to come
"Whether it's that pain is a great motivator or what, I don't know," said John Kimball, senior VP and chief marketing officer at the Newspaper Association of America. "But the point is that there are a lot of things that newspapers are doing -- not only to enhance the new product lines they have in the niche publications and those sorts of things, but also to find new ways to drive revenue into the core product in ways that you know we might not have seen four to five years ago."

But setting priorities will keep getting more painful, because most of these innovations just won't return newsroom budgets to their old sizes. Wringing sponsorship dollars from TV listings is smart, but that only works until TV listings finish following classifieds and stock tables into better digital venues.

Newspaper websites are growing fast, but there's no certainty that online advertising will ever match the rates achieved by newspaper ads in print. Even at The New York Times Co., whose NYTimes.com gets more unique visitors than any other paper's site, print revenue still made up 90% of last year's total. What's more, its online revenue growth slowed to 11.6% in the first quarter from 21.6% in the first quarter of 2007.

"To save a few jobs and to pop up a profit percentage point here or there, there are all kinds of innovations that are helpful," said Mr. Doctor, the analyst. "But they won't turn around the essential problem."

~ ~ ~
Can anyone save newspapers? Not many of the papers your parents knew. But a bunch of players you wouldn't bet against -- from Rupert Murdoch and Sam Zell to Yahoo and Google -- see bright futures of various forms for these institutions. In the next installment of this series, Nat Ives visits Los Angeles Times Publisher David Hiller to learn about positioning his paper for the future -- even as his new boss, Mr. Zell, finds conditions quickly worsening.
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