US newspapers: Worst drop in ad revenue in 57 years

2007 was the worst year in terms of print ad revenue for American newspapers since record keeping began in 1950. Here are the main facts & figures to bear in mind from the Newspaper Association of America’s last report (tables here )
- Print advertising plunged 9.4% to $42.2bn from $46.6bn in 2006
- Losses are greater in the classified (-16.5%) than in any other area
- Internet revenue are jumping by 19% to $3.17bn
- In advertising dollars, the online gain (+$0.5bn) is peanuts compared to the total loss in print (-$4.4bn), classified loss (-$2.8bn) or the combination of national + retail ad (-$1.6bn).
- Cost cutting initiatives (in newsroom for example) won’t offset the ad and classified erosion.

Overall : for all indicators, the decline is worst than expected 18 months ago.Deterioration will continue this year (Bloomberg is mentioning a 20% drop in ads for McClatchy’s two biggest markets, California and Florida). Even if we remove the effect of the looming recession, transfers to the Internet are nothing compared to the deterioration of print. This is mostly due to poor per-reader monetization. The S&P Publishing Index reflects the situation: it lost 44% from its peak in June 2007 . And debt figures won’t help. Publishing-related bonds are falling sharply as explains Alan Mutter on his blog.

> read also David Carr’s column in the New York Times on the displeasure of newspapers owners.

Lagardère acquiring Doctissimo

Groupe Lagardère is acquiring the majority of the health specialized website Doctissimo. Lagardère Active Digital will get 53% of the capital and 58% of the voting rights of Doctissimo for about E70m that valued the company at E138m. By paying a 7.4% premium over the share price, and a multiple of 12 times the 2007 sales, the transaction seems way more reasonable than a year ago when Springer coughed up 21 times the sales for the French portal AuFeminin.com. Lagardère and Doctissimo agreed for a valuation in the low end of the E130m-E165m range set by analysts.
> story in Bloomberg
> and in Le Figaro

Murdoch’s competitive metabolism

On the same subject, Howell Raines, former editor of the New York Times, reminds us of the true drive of the new owner of the Wall Street Journal: competition. In 2002, in a discussion about how to compete against the WSJ, Murdoch gave Raines a piece of advice : “You ought to hit them where they live,” he said of the Journal. “Go after hard business news and beat them on their strength.” Times people know what to expect from someone who reportedly send a handwritten note to Arthur Sulzberger after the acquisition saying : “let the war begin”.
> story in Portfolio

Truce at the NY Times

The New York Times Company has reached a deal with Harbinger Firebrand, the hedge fund that was knocking (hard) on its door. For the first time since it became public in 1967, the Times will open its board to outsiders. The two new directors will advocate asset sales (the Boston Globe for instance) as well as aggressive investments in the Internet. The Sulzberger family retains the supervoting shares, but board meetings won’t be as comfy as they used to be when “we all were family”.
> story in the New York Times and as seen by the rival, The Wall Street Journal

Infrastructure — Oil price vs. Moore’s Law

The Internet runs on a simple equation: bandwidth and computer power are growing exponentially as their price keeps falling. Which is fine, since the demand is also surging the same way. There is one glitch though. More Internet traffic means more data centers across the globe and more electricity to power and to cool millions of overheated processors. Problem is : energy supply can’t follow the same trend. The cost of electricity consumed by data centers doubled between 2000 and 2006 and could double again by 2011, as mentioned in this Business Week article. This trend is about to become the main problem of the Internet sector. Especially with oil at $110 a barrel (one analyst even sees spikes at $150 ).

To address the question, two simultaneous races have begun. One is to use new technologies to lower the energy consumption of data centers. The other is to find the best locations, regardless of where the traffic demand resides, since the expense of transmitting data is small compared to the processing cost. A worldwide scouting operation is underway: Iceland or Siberia are on the radar-screen of data-hungry companies such as Google or Microsoft. Over there, energy is abundant, and cooling is natural. Political problems can be natural as well… No one wants a Putin-like dictator cutting the supply of bits coming from Northern data centers the way he does with Ukrainian pipeline.

It will be years before research for energy efficiency or Siberian computer farm will yield any result. In the meantime, content could take the heat. YouTube is said to account for 10% of the entire Internet traffic. This raises questions about YouTube economics : a free service, consuming so much bandwidth/energy, yielding very little ad revenue ? Can’t go for ever. In the media business, we were used to think that digital costs of distribution were negligible. That might be true compared to a newspaper, but certainly not in absolute, future terms.

Social networks — Possible and fatal flaws

How long for the social network bubble to burst? Market forces are working on it. First, last year’s fiasco of Beacon — Facebook’s behavioral advertising system, massively rejected as soon as introduced. Then, audience numbers reach a plateau, at least for MySpace, still the leader of the pack. Now, uncertainties about the business model are looming, with the increasing suspicion of a triple flaw.

One is the tendency to replicate ill-fated online models: Compuserve, early AOL, Prodigy. They were walled gardens, not interconnected systems. They simply died of it, as recalls this opinion piece in The Economist (the business magazine is not exactly embracing the social network frenzy). That’s why platforms like Open Social, the setup conceived by Google poses a threat for current social network players that won’t adopt it. An example: Facebook applications must be written specifically for the platform, using its own markup language, its own query language (see here a demo on how Open Social works ).

The second question addresses the notions of network / applications / features. See what Charlene Li from Forrester Research says in the Economist: The destiny of most services embedded in social networks is to become simply web-based and no longer be tied to a specific network. “We will look back to 2008 and think it archaic and quaint that we had to go to a destination like Facebook or LinkedIn to be social. [Future social networks] will be anywhere and everywhere we need and want them to be.”

The third flaw is simply time allocation. It is a fact that the use of a social network tends to drop fairly quickly after the discovery phase. Only the flow of newcomers helps to sustain growth in pageviews. But as the web is becoming deeper and richer, who wants to spend hours a month to have a virtual beer with a pal? How long will last the novelty effect?

That leads to the business model questions: if the users, in a flash of common sense, reject the behavioral-powered ads; if the applications tend to work outside the proprietary platform; if the click-through rates keep falling… How sustainable is the bizmodel?