Monday Note

How about a contrarian view of 2009? After a while (say, five years) we might come to view this year as highly beneficial to the information industry. Why? Three reasons:
-    It will force news organizations to stop procrastinating and implement life-saving  decisions.
-    It will accelerate radical change.  What was supposed to take several years will happen in one.
-    For the surviving players, 2009 might yield a bigger piece of the pie.

This is all very speculative and, unfortunately, will entail casualties, drama, human misery and a dramatically thinner journalistic herd.

Let’s have a closer look.

A few news organizations will escape 2008 less damaged than previously thought. Good for them. Look at the chart below to see what’s looming.
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(click-to enlarge if needed)

This is just a summary of a detailed table from Alan Mutter’s always excellent blog Newsosaur.
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Bottom line: by the end of 2009, print revenue will shrink by a third of its level two years ago — and there is no guarantee for a recovery in 2010.
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These predictions are buttressed by early 2009 advertising bookings, which seem slow, even by the usual January standards. For many newspapers, this will accelerate cash depletion. In a story published in The Atlantic, Michael Hirschorn predicts that the New York Times will go bankrupt as early as May 2009. “Earnings reports released by the New York Times Company in October indicate that drastic measures will have to be taken over the next five months or the paper will default on some $400million in debt”. The Times is loaded with $1bn in debt and had only $46m in cash last October. Top tier newspapers will only be the most visible part of the crisis. Friday for instance, the Hearst Corporation said its Seattle Post Intelligencer will simply stop printing unless it finds a buyer within the next two months. Quite a symbol. The P-I was owned by Hearst since 1921. But it has been losing money since 2000, $14m just for 2008.
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Europe won’t be spared. In Spain, the drop in advertising is even larger than in the US. In France, Le Monde is expected to find itself in a cash bind before this coming Spring (but its management remains highly confident that “Le Journal de référence” can’t die and will be bailed out. Cheer up guys).
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The 2009 situation dictates unarguable cost cutting initiatives. Of course, the first temptation is a new round of staff reductions. Publishers should think twice: many newspapers are still reeling from recent and severe layoffs (in the US alone, the number of journalists who lost their jobs last year reached 15.600, seven times the level of 2007). Deeper cuts will continue to lower morale in the newsrooms as well as cripple their ability to do their jobs. A much better solution is across the board salary cuts (as long as no one escapes). Plus the impact on the expense line is much swifter. But this demands decisive leadership, that will, for instance, spread the pain to all layers in the organization, including top management and sales people.
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It will also be the right moment to initiate deep changes in the news products. The numbers of pages and sections, as well as distribution in the costliest areas are to be reconsidered. So does the number of days a newspaper is published. These plans are already on the shelf. In a way, this is now or never. Truth is many newspapers won’t survive 2009 unless they take drastic, burn your boats measures.
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The hottest question is the switch from print to online. Papers such as the Christian Science Monitor have already made the transition: they became an exclusively online publication in December. Many daily papers have been considering a more gradual approach. Now the question has become: Should they jump? There are three arguments when considering the ultimate shift:
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-    First, the momentum this crisis is about to create. Spreadsheet execs will be inclined to perform linear, across the board staff cuts. But true managers will use the crisis as an incentive for drastic restructuring such as transferring people to online operations. In those instances, older newsrooms are likely to face generational problems as younger ones will implement faster, more efficient staff reassignments. This is much more complicated and requires more skills and imagination that merely summoning the HR person.
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-    Second, the pure players’ foray. There might be an economy out there for much smaller, agile news organizations. It could turn the old paradigm on its head: now it’s time to think — urgently — in terms of a paper product becoming secondary to the online product, not the other way around. Many media execs I spoke with in the last few months see their own future exactly that way. All of them thought they had four to five years to move in that direction. This is no longer the case. (And I also think foot soldiers in the newsroom are more likely to understand the urgency than just six months ago).

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-    Third, the “cannibalization equation”. To risk an oversimplification, take a publication’s online ad revenue and compare it to the expenses minus all the costs related to the physical paper operations (pages and sections editing, pre-press, printing, newsprint, and distribution costs). Of course, there are as many models as publications, but one thing is sure: at this time, online ad revenues are only covering a fraction of the news production costs. At this time. Hence the equation.  Assume a news organization suddenly removes its print product — or reduces it to daily published in a few major cities, or even a weekly.  If they do this, how many regular paper readers are likely to go online and stick with their “trusted news source”?
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Let me conclude with a couple of fact-based observations here.
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Fact #1: When the online edition of the Wall Street Journal decided to go from a completely free  model to a paid one ten years ago or so, the expected rate of transformation was set to 10%. It turned out to be right. Now, the WSJ.com has more than a million online paid subscribers and it is a cash machine.
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Fact #2: Many newspapers have now a bigger reach than ever thanks to their online operation. In 1997, Verdeans Gang (VG), the #1 Norwegian newspaper had an audience of 1.4m people (not bad for a 4.5m country). Now, even if the physical paper’s reach is down by 50%, the VG’s total daily audience is higher than 2m thanks to its ambitious and thorough online deployment. The brand and its news content reach more people than ever.
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Fact #3: In the classified business, the difference between the losers and winners can be summarized as follow: the losers stood by the print product regardless of the market’s evolution — they just ignored it. The winners did not hesitate to cannibalize themselves by shutting down print operations in order to give oxygen to the emerging online classified business; in doing so, they quickly built a strong user base without the diversion of a dying paper product.
In the first case, the old players left the game to the benefit of the online pure players. In the second case, the traditional players kept control of their business by undertaking a radical and risky transformation.
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Shouldn’t our dying news outlets meditate this?  —FF
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