November 13, 2018

Here's a quick quiz: Three of the four large public regional newspaper companies — Tribune Publishing, Gannett and McClatchy — released third quarter financial results late last week. Which one reported:

  • Revenues up 16 percent year-to-year
  • A net profit of 17 percent
  • An even higher cash flow/operating profit of 31 percent?

Trick question. None of the above. 

Those were the results for TEGNA, the broadcasting arm of Gannett, spun off as a separate company three-and-a-half years ago. Finances were equally sunny at Scripps and Tribune Media, also split off from slow- or no-growth newspaper groups several years back.

The reasons local broadcast does so well as a business is a twice-told tale, but it bears repeating. Political advertising is a huge windfall every other year. Each new cycle exceeds the last. And some of the regular advertising squeezed out by those political placements comes roaring back after the votes are counted.

A second reliable source of steady and growing revenue are the retransmission fees cable systems pay to carry local stations. Since these agreements run in staggered fashion over multiple year periods, the going rate kicks up at each renewal. (Also, consolidation has increased the big station groups' bargaining power against big cable companies.)

That leaves TEGNA and the other broadcast companies ample funds to explore other emerging revenue opportunities like serving the growing "over-the-top" market (i.e. cable-cutters).

Meanwhile, newspapers and their digital sites inch forward slowly, if at all. Each of the three companies last week reported year-to-year print advertising losses slightly below or above 20 percent.  (Second quiz question — at that rate, how many years until print advertising declines to zero?)

On a net basis, the three operated near break-even: no profits to be pocketed greedily or otherwise. More cost control, including news rounds of staff reductions, were promised and are in progress this week.

After a dozen years, digital advertising has still not gotten close to making up for the print revenue slide. Audience revenues through paid digital subscriptions are being aggressively pursued but not so much captured. These chains of 12 (Tribune), 30 (McClatchy) and 109 (Gannett) dailies ring up total paid digital subscriptions in the low hundreds of thousands. Circulation revenue, now falling along with print subscription numbers and newsstand sales, have become a net negative.

Gannett, Tribune Publishing, McClatchy (and GateHouse) all have created healthy digital marketing and agency ad placement services, which are picking up momentum. Theoretically that activity could soon underwrite some of the costs of good local journalism. Here too, though, the gains are comparatively modest (and getting going takes seed money and time). 

This leaves the companies offering odd metrics of progress — boasting, for instance, of the growing percentage of revenue no longer coming from print (well, with print falling so abruptly for so many years in a row, how could that not be?).

One indicator of the doldrums I have observed recently is that the category generates little interest anymore from investors and analysts. Each of the three conference calls with analysts last week attracted only a single questioner. Calls with Facebook and even the New York Times Co. run the full, scheduled hour.

A compare-and-contrast to television may be unfair. The splits of newspaper-broadcast combos were meant to let TV stocks float higher without being dragged down by print and its soured reputation as an investment. 

TEGNA broke up with Gannett on generous terms, allowing the group a fresh start with minimum debt. Tribune Media, by contrast, imposed a formula so greedy and unfair that former U.S. Rep. Henry Waxman asked me and some other "experts" to say so in letters (which landed with a thud).

I am less than fully informed but nonetheless skeptical that the well-heeled TV stations are investing their riches in ambitious journalism. They clearly do hold their own with print + digital as a primary and credible source of local news for consumers.

The magazine and alt weekly businesses have experienced shakeouts of their own in 2017 and 2018 — though at the national level, there have been positives like the sale of Fortune for $150 million last week and a similar deal for sister publication, Time, in September., Politico and Quartz all gracefully combine a magazine sensibility with timely digital daily updates.

Not everything is fabulous in the digital-only sector, though. Sites — especially those aiming for high volume — find that the Google-Facebook duopoly eats a piggy portion of their advertising lunch, too. Layoffs, other forms of staff reduction  — even occasional failures — seem to be occurring more frequently.

An old theme I hear gaining new currency is that in the digital arena, vertical often wins and general can be a recipe for failure. Rafat Ali, who built and sold the Paid Content business-of-digital-news site and followed with a successful launch of Skift, a business vertical for the the travel industry,  preaches that gospel regularly.

A few weeks back, thanks to a chuckling young woman in my dentist's waiting room, I made the acquaintance of TheSkimm, which she described as "really the only thing I need to keep up with the news."

TheSkimm's tale is twice-told, too, done especially well by New York Magazine in late October. Two young women (roommates then) think up a good and very well-targeted newsletter idea one evening on their couch — a breezy, succinct but substantive daily news aggregation. Execute expertly, fame and fortune follow. Six years later, it has 7 million readers, the vast majority of them 20-something women.

What's vexing to me as a business analyst, specializing in newspapers, is that I don't see much terribly wrong with current strategies: Press double-hard for digital transformation of newsrooms and everything else (all three of the companies mentioned above, McClatchy emphatically); tailor the news report to topics of great local interest (Gannett is particularly focused with some deep research on potential new audiences); and streamline the top layers of the local organizations (Tribune got an early start and has kept going).

Plus there are vertical opportunities for newspaper sites — college, professional and even high school sports, for example, long since seized. Though newspapers and their sites no longer strive to be everything for everybody, they still have a generalist character hard to shed. And print loyalists tend to be sharply attuned to what has gone missing, suspicious of how much of value is left.

As each new earnings cycle comes around, progress is modest and the clock keeps ticking.

Brilliant breakthrough ideas welcome, but those seem in short supply.

My version of a partial silver lining: the 22,000 professional journalists left at newspaper organizations (even after 33,000 such jobs have vanished) continue to find ways to do outstanding work. And will in 2019, too.

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Rick Edmonds is media business analyst for the Poynter Institute where he has done research and writing for the last fifteen years. His commentary on…
Rick Edmonds

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