Newspaper closings raise fears about industry

ByDavid Lieberman, USA TODAY
March 17, 2009, 10:59 PM

NEW YORK -- Sometime soon, millions of people may find themselves unwittingly involved in a test that could profoundly change their daily routines, local economies and civic lives.

They'll have to figure out how to keep up with City Hall, their neighborhoods and their kids' schools — as well as store openings, new products and sales — without a 170-year-old staple of daily life: a local newspaper.

At least one city — possibly San Francisco, Miami, Minneapolis or Cleveland — likely will soon lose its last daily newspaper, analysts say. And it "could be a lot more widespread than people have been predicting," says Mike Simonton, who tracks media debt for Fitch Ratings.

It's hard to ignore that possibility as the pace of newspaper closings accelerates.

Starting Wednesday, Hearst's 146-year-old Seattle Post-Intelligencer survives as a scaled-down online publication offering mostly commentary. That leaves The Seattle Times as the city's only major paper-and-ink daily.

Gannett gci, parent of USA TODAY, may shutter the 140-year-old Tucson Citizen, which competes with the Arizona Daily Star, if a buyer can't be found.

Last month, E.W. Scripps ssp closed the Rocky Mountain News, leaving The Denver Post as the city's sole major daily.

Are these symptoms of a miserable economy that's pulverizing a handful of high-profile papers, including some owned by companies with unusually crushing debt loads? Or have we reached a tipping point where advertisers and readers are flocking so quickly to digital media that most of the nation's 1,400 dailies may end up in the morgue?

Industry watchers aren't sure, although some say it's too early to start hanging crepe. "Publishers and journalists have become their own worst enemy," says Robert Picard, a media economics scholar who edits the Journal of Media Business Studies. "They are running around arguing that the sky is falling. And they're making the situation appear far worse than it is."

About 80% of newspaper revenue comes from advertising, and the Newspaper Association of America expects those sales to drop 9.7% in 2009 to $34.2 billion, after falling 16.5% in 2008.

"Advertising has fallen off a cliff," says Randy Bennett, senior vice president of business development at the NAA. "The question is how much of that will come back when things pick up again. And the expectation is, certainly not all of it."

Business models

Almost everyone agrees that newspapers must reinvent their business models. Experiments include The New York Times' plan to enlist journalism students to help cover some neighborhoods in Brooklyn and New Jersey. The East Valley Tribune in Mesa, Ariz., recently began to offer free home delivery four days a week to neighborhoods with families that appeal to advertisers.

Some experts say that it's time to consider extraordinary measures, including government bailouts, to ensure that no community has its newsrooms go dark.

"We need to view journalism in the same way that we view libraries and public schools, as absolutely essential to any prospering community," says Theodore Glasser, professor of communications at Stanford University. "A lot of good stuff is published by newspapers so that public officials see it and act accordingly. That's the power of the press. And that's the first thing being cut."

Others say not to worry: The Internet and the market will empower professional journalists, bloggers and interest groups to independently provide all the local news anyone could want.

"There's going to be an ecosystem, a network of different players involved in news for different reasons," says Jeff Jarvis, who runs the City University of New York's interactive journalism program.

Traditional newspapers won't be part of the mix, though: They "aren't willing to cannibalize and disrupt themselves," Jarvis says. "It's too late. ... It's going to be a post-Armageddon rebuilding."

Over the past few months:

• The Detroit Free Press and The Detroit News announced plans to cut home delivery to three days a week beginning March 30 and urged readers to go online to follow the news on other days.

• Virtually every major newspaper announced staff cuts. McClatchy mni— which owns The Miami Herald, The Kansas City Star and the Fort Worth Star-Telegram— said in February that it would slash 15% of its workforce, on top of a 10% cut late last year. "By the end of 2009, a quarter of all the newsroom jobs that existed in 2001 will be gone," the Pew Project for Excellence in Journalism said this week in its annual "The State of the News Media" report.

• Those keeping their jobs have seen salaries cut. Gannett required virtually all employees to take a one-week unpaid furlough in the first quarter.

• Publicly traded publishers collectively lost about 39% of their market value since Jan. 1, underperforming the benchmark Standard & Poor's 500 index, which is down 16.5%.

Looked at another way, the $5.4 billion that Rupert Murdoch paid in 2007 for Wall Street Journal parent Dow Jones nwsa could buy Gannett, McClatchy, New York Times Co. nyt, Washington Post Co. wpo, A.H. Belo ahc and E.W. Scripps with about $750 million to spare, based on current values.

• Publishers in Philadelphia and Minneapolis as well as the Journal Register, a chain in the northeast and Michigan, filed for Chapter 11 bankruptcy protection. That followed a similar filing in December by Tribune Co., publisher of Chicago Tribune, Los Angeles Times and TheSun in Baltimore.

Double-digit profit margins

Tough times? You bet. But one has to imagine an epic social and economic transformation to conclude that the newspaper industry is at death's door.

Nearly half of all adults read a newspaper every day and spent $10.5 billion last year to do so. The average newspaper generates about a 10% profit margin.

"It's not the 20% to 30% they were enjoying several years ago," Bennett says. "But it's still an enviable profit margin for many businesses."

That's overlooked with all of the attention on large local papers that are especially vulnerable to the soft economy.

Advertisers in big cities have plenty of options to reach consumers, and newspapers are one of the most expensive. They typically charge about $25 for every 1,000 people who might see an ad covering one-third of a page. That's a lot more than the cost to reach a similar audience via radio, magazines, billboards and websites. Advertisers outside of big cities have far fewer alternatives. As a result, "Smaller-market newspapers are in better financial shape," Bennett says.

Most large publishers also are straining to pay off heavy debt they took on before the economy fell into a tailspin.

Although large local newspapers have the biggest problems, everyone is struggling to keep ad sales and readers. That includes national dailies led by USA TODAY, The Wall Street Journal and The New York Times, although they benefit from economies of scale and strong brand identities.

Nearly 67% of homes have an Internet connection. That opens them to sites offering almost everything found in newspapers, including national and global news, business, opinion, entertainment, sports, comics and horoscopes.

That's why some experts say local newspapers should concentrate on local news and events and become less stuffy.

"This was a much more fun business years ago when people didn't hold themselves to such high standards," says former Merrill Lynch analyst Lauren Rich Fine, now at Kent State University. "There are different ways to (report the news) and not be so hard on yourself if you get it wrong."

It's hard to predict how many people want local news enough to pay a price that, as ad sales shrink, could be much higher than now — or to pay any fee to read stories online, where most papers now offer them free. "If you look at public radio and the troubles their outlets have raising money for public affairs journalism, it might give you pause," says James Hamilton, who runs Duke University's DeWitt Wallace Center for Media and Democracy.

Before about 1840, when the Penny Press turned newspapers into an inexpensive mass medium, 15% of the population spent the equivalent in today's dollars of as much as $4 a day for a newspaper, Picard says.

Digital media evangelists say the future will be much different. About 85% of a newspaper's costs go to things such as presses, paper, ink and trucks. Without those costs, even modest ad sales could support lots of people to provide local news and information without charge.

"There's a market demand for quality journalism and reporting," Jarvis says. What's the evidence? "Based on democracy. Based on the intelligence of the audience. Based on the fact that my son reads more news than ever. Based on the fact that we need it."

Some journalists agree, working with non-profit online publications including, the St. Louis Beacon and Minneapolis' MinnPost.com1'.

Several former Rocky Mountain News employees plan to start in May if they can persuade 50,000 people to pay $4.99 a month for a year.

Glasser doubts that such ventures can compensate for the loss of newspaper newsrooms. "I've seen nothing in the blogosphere that provides the sustained, systematic coverage that a good newsroom provides. Not even close," he says.

If he's right, then the consequences from current trends could be ugly.

"We'll know if things don't work out if there's an increase in corruption," Hamilton says. "When the watchdog goes away, what happens? That's the experiment we're starting to run."

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