Newspaper restructuring — think steel, cars and airlines
#SuryaRay #Surya If there is a poster child for the “digital first” newspaper movement, it is probably Journal Register Co., which manages a chain of dailies and weeklies in the eastern U.S. John Paton took the helm as CEO after it emerged from bankruptcy in 2009, and implemented a wide range of digital-first moves — and yet parent company Digital First Media just announced that Journal Register Co. is filing for bankruptcy for a second time. The not-so-hidden message in all this is that despite all the pain of the last few years, the restructuring of newspapers isn’t even close to being over: as we’ve seen with the large structural changes in the steel industry, car makers and the airline market, transforming an industry with massive legacy costs is a long and bloody process. What emerges at the end remains to be seen.
The picture that emerges from Paton’s discussion of the news on his blog, and from reports by Reuters and others, is of a newspaper business that has desperately been trying to bail the boat with digital-first initiatives aimed at boosting online advertising revenue and/or cutting costs, but is still taking on water at a furious pace. According to Paton, the chain emerged from bankruptcy in 2009 with $225 million in debt — down from about $700 million before the filing — and while digital revenue has grown by more than 200 percent since that date, it has not been nearly enough to compensate for the decline in print revenue and the chain’s legacy cost structure. As Paton describes it in his blog post:
“The Company exited the 2009 restructuring with approximately $225 million in debt and with a legacy cost structure, which includes leases, defined benefit pensions and other liabilities that are now unsustainable and threaten the Company’s efforts for a successful digital transformation.”
Legacy costs from a former business model
Despite its attempts to push a digital-first agenda, which includes opening community newsrooms and cutting back on printing plants and other embedded costs, the Journal Register Co. is in the same boat that many other newspapers in the U.S. are: print advertising, which still represents over half the company’s revenue (a ratio that is much higher at some other papers) has fallen by almost 20 percent over the past few years, and circulation revenue has also fallen. And meanwhile, the chain is carrying not just debt but leases for buildings and pension plans that were designed for a much healthier industry: according to Paton, the chain’s projected revenue for 2012 is half what it was in 2005.
As _Financial Times_ columnist John Gapper has noted, one of the obvious legacy costs that many newspapers are struggling with is the burden of carrying pension obligations for the thousands of employees they maintain, many of whom have jobs that are either being phased out or no longer exist — something Rick Edmonds at Poynter says is commonplace throughout the industry.
It may be cruel to think of using bankruptcy to shed those kinds of obligations (Alden Global, the financial entity that is a controlling shareholder of both Journal Register Co. and its parent company Digital First Media, apparently plans to buy back the remaining assets after the bankruptcy is finalized). But is it really that different from the upheaval that other industries have been through over the past few decades? To take just one example, the steel business was disrupted by the arrival of cheap mini-mills — in some ways, the steel equivalent of the Huffington Post or BuzzFeed — and it took years for that to work its way through the system, with an entire generation of workers laid off.
The automotive industry and the airline business have both gone through similar painful transformations, not to mention companies like Kodak and others who have seen their industry disrupted by digital forces. While the upheaval in cars and airlines may not have been caused by the web the way the disruption in newspapers has been, the reality is that all of those businesses were stuck with massive legacy costs as a result of a prior business model that stopped working for a variety of reasons. Moving from print to digital for newspapers isn’t just a matter of shutting down the presses or selling a few buildings — there is much more involved.
Digital first is not a magic wand
Journal Register Co. may be a more extreme version of what is happening elsewhere in the newspaper industry, but it is hardly unusual (other companies that have already gone bankrupt once, like Canada’s national Postmedia chain, are also still struggling). Everyone pays attention to what the _New York Times_ is doing, and how its paywall seems to be generating substantial amounts of revenue — but even that has not come close to making up for the ongoing decline in print revenue, and the high embedded costs of a business that is still based around print. That’s why chains like Advance are shutting down printing altogether, and trying to make the jump to digital sooner rather than later.
Critics are calling foul on Paton’s talk of a digital-first turnaround, and saying the bankruptcy of Journal Register Co. means his vision is questionable — but this is like complaining that a giant steel company hasn’t been able to make its tiny new mini-mill compensate for the billions in traditional revenues it is suddenly missing. And in many ways, the transformation that is required for the newspaper industry is much harder than what the steel or auto markets went through: it’s not just that readers want something different, it’s that advertisers are also fleeing. That’s a double whammy.
So yes, newspapers have to try new things, put digital first — and try at the same time to change the culture within their newsrooms, which is even harder than tangible moves like selling off buildings. And even paywalls might help for some, but they are still ultimately just a line of sandbags against the rising tide. And the reality is that the tide is rising faster, not slower, and the upheaval it is going to cause won’t be measured in months or years, but in decades.