The Future of the Newspaper Industry

Just days after we learn that the publisher of the New York Times expects not to be publishing a print edition -- perhaps in as short as 5 years -- BusinessWeek runs an interesting story about a private equity firm buying up hundreds of small local newspapers.  Fortress Investment Group began rolling up these guys into GateHouse Media and presently controls over 400 publications.

GateHouse went public in October, raising $248 million, before Fortress, which still holds a 60% stake, resumed gobbling up local papers.

Given the parlous state of the newspaper industry, sinking money into print may seem contrarian, crazy even. But as national chains are broken up and young readers and advertisers flee to the Web, Fortress has spotted an anomaly: There's good money to be made publishing newspapers in small towns and exurbs.

For those not familiar with private equity (or "PE") firms, these guys don't get involved if it isn't going to make a buck for them.  Usually in short order, although in this case the article notes "Fortress seems less likely than its private equity counterparts to cash out quickly."  (I should note the author provides no basis for this contention.) 

The article touts the consolidation of back office operations and economies of scale that can be achieved by having all the publications under one roof.  Web sites are being run on the same platform and being improved to take advantage of expanded audiences for content.  And they're even using the Creative Commons license for much of their content to encourage bloggers and other web sites to reuse it.

The key lesson to take from this is that when it comes to "hyperlocal," there is still a vibrant market for classified and display advertising.  And it is still an area that Google really doesn't excel in from an online perspective; they have begun working on the local angle but there are so many factors to consider that it isn't an easy cure. 

I found it especially intriguing that the rollup allows regional local advertising in such a way that it can potentially compete with major metro dailies.  The example cited is in Massachusetts where GateHouse owns 125 publications around Boston and will seek to leverage that to get major retailers to advertise with them just as they do today with the Boston Globe and Boston Herald.

Of course, this news also comes at a time when we're reading in the New York Times that the McClatchy purchase of Knight Ridder isn't going well.  McClatchy is performing poorly as a stock and has seen revenues off sharply at a number of its papers.  The same article notes that other newspaper companies -- including the New York Times Co. itself -- have been forced to take significant cost-cutting measures of their own.

So what does this mean for the future of the newspaper industry?  These stories would suggest that the hyperlocal market might continue to survive, but that the future of major metro dailies is in question. 

It would be imprudent to imagine that newsprint will go away any time soon, even at the level of major papers.  Though many who read this and other blogs may have made the leap to reading most, if not all, news online, we must remember that we are in a distinct minority. 

The threat to newspapers goes beyond the transition from print to online by readers.  Portions of their business are being threatened by non-media competitors.  The key example is classified advertising which increasingly seems to be headed down a path where little of it will be tied to content in the future.  The likes of eBay, Craig's List, Monster, Jobster, and their ilk will continue to pick away at the revenue once controlled by newspapers.

Fundamentally, newspapers must continue to innovate or face extinction.  It's not something that the publishers and owners alone can solve.  Editors, reporters, and readers must all be part of the mix to help find a path to success in the future.  Print media will be around for a good long time -- likely until e-paper solutions become ubiquitous -- but the shape of it will be determined by the changing marketplace and likely a few innovative thinkers.  Watching to see what they come up with and where those thinkers come from will be interesting.

Technorati tags: newspapers, New York Times, BusinessWeek, McClatchy, Knight Ridder, classified ads, GateHouse, Fortress, private equity

Comments

[Chris Haddad]

One aspect of "localized" advertising that I've always liked was how WFNX works with businesses. WFNX is owned by the free Boston newspaper The Phoenix, and operates on two frequencies out here in New England. One covers Boston and the 495 loop, the other is for Southern NH and Maine. They've got towers all over the place, and it allows them to offer advertisers packages on where commercials will play. It doesn't make sense for a business in Cambridge to advertise in the Portland, ME area, and vice versa. And this setup is certainly something that a ClearChannel-owned station is never going to get into, from the sheer amount of changes to infrastructure that would have to occur (and the "if it ain't broke, don't fix it" mentality). What it all boils down to is smaller businesses are able to get on the air to get their message out, actually see some ROI, and renew their contracts.

[Javier Marti]

Hi Chip. I am the founder of Trendirama.com, a community of online amateur writers. We write about the future of everything. I would like to invite you to write an article on our website, perhaps based on what you are mentioning here. Maybe you can write "The future of the Nespaper Industry"?
You can even re-use some of what you've written here, in the last part of the article, "your view and comments". That would save you time and still be interesting for readers.
Look forward to hearing from you

Best regards
Javier Marti
http://www.trendirama.com

[Brian]

For me the biggest reason I desire we always have a paper option for our news is the simple pleasure of the feel of newspaper while reading it on a Sunday morning at the coffee shop. The sound it makes as you turn the pages, the smell of a "fresh" newspaper, even the black ink that permeates your fingers from flipping the pages. There will always be a percentage of people who want to "feel" the paper option instead of reading a screen/digital image. Will this customer base be enough to save the paper option?

The fact is both sets of options have their advantages....

Have you ever left a diskette in your car, in July, alongside your newspaper? Which one could you access an hour later?

Ever spilled coffee on a stack of papers and a CD-ROM? Which one could be read afterwards? Ever tried to lift and carry the complete set of paper tech manuals for a navy fighter aircraft? Now try lifting the CD-ROM set. (The latter is perhaps still hard, but the former requires a forklift!)

At the end of the day, I believe it might be a simple matter of the publics preference to paper or digital options of viewing/reading their news that will ultimately determine which medium becomes dominant.

After all, this was the "year of YOU" ... so the user determines the content, but does the user determine the "vehicle" with which we receive that content?

Personally, I believe before my time is over, we will all be reading our news/books/comics/classified etc etc on a screen as paper resources dwindle and the speed at which media companies can bring the news to people via the Internet is so much faster than delivering a newspaper.

I still prefer to read it on paper though for the most part....

Here is an interesting artcile by Eric Zorn of the Chicago Tribune on "the Future of Newspapers"

http://www.chicagotribune.com/news/columnists/ericzorn/weblog/archives/2005/04/for_your_refere_6.html