Cutting print is a money-loser for Times-Picayune, but cutting staff makes changes slightly profitable

The events of the last two weeks show that Times-Picayune readers and employees are fighting-mad at absentee owner Advance Publications for deciding to eliminate their print newspaper four days a week.

Management’s reply, as articulated by Times-Picayune Editor Jim Amoss, has been, sorry, but “we can’t sustain the old business model in the face of irreversible print advertising and readership trends.” That was echoed by Ricky Mathews, president of NOLA Media Group, who wrote Sunday, “Before we faced economic doomsday, we decided to build a new model, a combination of print and online that gives us a chance to achieve a sustainable business and content model.”

So does that mean the savings clearly outweigh the losses in this transition to digital? My math suggests not necessarily, and not right away.

Cutting back on print will cost revenue, too

Let’s assume that the cost of paper, printing and delivery is about 35 percent of The Times-Picayune’s costs (the industry standard). So figure they save half of that. That cuts expenses by 17.5 percent.

But there will be clear-cut losses as well. Figure that 70 percent of revenue comes from print advertising, 7 percent from digital advertising and 23 percent from circulation (typical for the industry).

In Michigan, where the Detroit News and Free Press home-deliver a print edition only three days a week, executives of the two papers claim they have retained more than 80 percent of print advertising revenues.

Without any print product on four days, I’ll estimate (generously) that The Times-Picayune holds on to 80 percent of that print advertising. That is still a loss of 14 percent of revenue.

Don’t forget circulation. The Picayune will not be able to charge as much for three days as for seven. And if it prices the newspaper more aggressively, circulation will drop even more. Nonetheless, I’m estimating (again, generously) that the paper holds on to 60 percent of circulation revenue. That’s another revenue loss of 9 percent.

Industrywide, digital ad growth has gone flat in recent months. Nonetheless, assume that with heightened emphasis on digital and better traffic, the Picayune can increase that number by 15 percent. That’s a revenue gain of about 1 percent.

Since nola.com has no pay wall and the company has said it has no intention of introducing one, digital circulation revenue is zero before and after.

So the tally is:

  • Production savings: 17.5%
  • Print ad revenue losses: 14%
  • Print circulation revenue loss: 9%
  • Digital ad revenue growth: 1%

That means the changes would be net negative (22 percent revenue losses versus 17.5 percent cost savings), if total expenses and revenues are roughly equal.

How newsroom cuts fit in

On the surface, this does not appear to be a compelling business case. It only becomes so when you view this as an occasion for The Times-Picayune to cut its news investment in half — as it appears to be doing.

Half the staff got pink slips last week. Amoss said in an appearance on “PBS NewsHour” that some of those people will be hired back and that the company will fill additional positions.

Times-Picayune reporter Ramon Vargas, left, pats the back of movie critic Mike Scott as they walk into the newspaper’s offices after learning learning their fate by the company in New Orleans, Tuesday, June 12, 2012. (Gerald Herbert/AP)

I am guessing that the buyouts fell especially heavily on the most experienced, highest paid news staffers. According to the list provided to some employees who were let go, the average age of those laid off was about 50; for those retained, it was about 46.

And I presume that some of those rehired will be bumped down to freelance contributor status, and that many of the new jobs will be filled by young people, more tech-dextrous and a lot cheaper.

That has been the pattern in the waves of industry news staff buyouts over the last decade. The dynamic of cashing in one highly paid star for two or three newbies is well-known, if rarely discussed.

Media economist Robert Picard, in a provocative article a few years ago titled “Why Journalists Deserve Low Pay,” argued that reduced revenues in traditional media (and job options in new media) just don’t support what many top reporters and editors are used to making. And Advance has a reputation of paying especially well.

When the dust settles, I think The Times-Picayune will be able to cut its news staff costs by 50 percent. News is typically 15 percent of total costs, so that is another savings of 7.5 percent.

That makes the immediate financial impact of the move positive, but only a little: 25 percent savings versus 22 percent revenue losses. If the cut in news investment is less draconian than I think, those savings come down.

Betting on future online ad sales

All the rest of the business case is a bet on the future: that readership will continue to move from print to digital, that a digital-first focus will produce a more compelling, more visited site. But the big bet is that there will be a sharp pickup in ad growth for newspaper online ads, and that The Times-Picayune and other Advance titles will be well-positioned to capitalize on the surge when it happens.

Moreover, the company is betting that the sooner news staff, readers and sales reorient from print to digital, the smoother that transition will be, even if the net gain is modest at first.

From this back-of-the-envelope exercise, I have two takeaways:

It is easy to see why Advance, so far, is nearly alone among news organizations in taking this plunge. The business case is not all that strong. The majority of newspaper publishers acknowledge that print revenues will shrink more, but they also think that daily print editions can be viable for a number of years. That is especially true if they are supported by higher circulation prices and the “bundled subscription” version of a digital pay wall, which allows a print subscriber, even a Sunday subscriber, to get digital access free or at a deep discount.

The disgruntled staff and readers of The Times-Picayune are getting it right. The move only makes financial sense as the occasion for dumping many well-paid veterans and drastically slashing news investment.

A note on methodology: My estimates follow industry figures on typical revenue and expense allocation generated by the Inland Press Association and the Newspaper Association of America.

Advance does not make public its corporate or individual papers’ financials. However, Ad Age has reported an estimate by Kantar Media that The Times-Picayune’s 2011 ad revenues were $64.7 million print and $5.7 million digital. The Columbia Journalism Review’s Ryan Chittum has estimated circulation revenue at $25 million to $30 million. That would make The Times-Picayune roughly a $100 million operation, consistent with my model.

I think the calculations above would hold for Advance’s three papers in Alabama that are pursuing the same strategy as in New Orleans, though they could recognize greater newsroom savings by pooling some editing and reporting, in addition to other business services already announced.

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  • http://www.AdvertisingResults.com/ Leigh Ann Kristiansen

    I think a paywall would have been a better first step than eliminating publication days!

  • Anonymous

    You failed to mention that Advance publications also announced similar cutbacks at the Birmingham News and 2 other Alabama papers.  

  • Anonymous

    You failed to mention that Advance publications also announced similar cutbacks at the Birmingham News and 2 other Alabama papers.  

  • Anonymous

    Ca and Nola:

    Thanks for the comments. Not strictly the focus of my post but……yes, a not very appealing site and no good comes from pissing off your customers.

    Rick

  • Anonymous

    You forget to account for the “bad will” being generated. The T-P currently has one of the highest household penetration rates in the nation. People here are pissed, and that rate will plummet (my prediction). I think 60% is low, it will not surprise me if it were half of that when everything settles. Which of course means that the ad rates will need to drop, and so on. The web site was tolerable before, but they launched a new, very unpopular format just before the announcement. I would say that your predictions of online revenues are overly optimistic.

    You are correct when you say: “The business case is not all that strong. … The move only makes financial sense as the occasion for dumping many
    well-paid veterans and drastically slashing news investment.”

    New Orleans is perceived by outsiders as a “party town.” However, residents here have a very strong sense of history and the city’s place in it. They do not forget easily, and forgive even less easily. Having “carpetbaggers” come in and ruin an institution does not set well.

  • Anonymous

    without going on a tirade about why advance is wrong to select the new Orleans market for their experiment, one of the many issues with their model making money is that the digital site is notoriously awful. bad for the readers. bad for the advertisers. if they don’t address this they will fail. to date, not Ricky, not jim and not Steven have had uttered word one about improving the website.