Newspaper Economics

By the Project for Excellence in Journalism and Rick Edmonds of The Poynter Institute

A year ago we reported that newspapers were still highly profitable, managing reasonable ad-revenue and earnings growth but beginning to feel pressure on fundamentals of their business model.

That was then. In 2005:

*As circulation numbers declined sharply, print ad revenue grew only minimally — in many places just 1% to 2%. Newspaper companies turned to growth in their smaller online ventures and niche publications to achieve a total ad-revenue gain of less than 3%.1

*Stock prices were hammered, typically falling 20%. As the year ended, some careful analysts said the industry might still be over-valued given what they saw as sour business fundamentals. If so, stock price could be expected to decline further in 2006. Profit margins were off only a little .

*Companies were scrambling to beef up their multi-platform presence. That included a number of acquisitions of non-news businesses, some with odd-sounding names like About.com, Shopzilla, Topix.net and Point Roll. Online newspaper sites, which were of little business consequence and lightly staffed at the start of the decade, are now the focus of editorial and business expansion.

Certainly one of the most noted events of the year occurred in November, when several dissatisfied institutional investors in Knight Ridder demanded that the company be sold. Knight Ridder capitulated, agreeing “to explore strategic options.” By the year’s end, it had a number of preliminary bids.

Heading into 2006, the possible sale of Knight Ridder appeared to be shaping up as a lose-lose proposition for the industry. Analysts expected that a buyer (a private equity firm or other media company) would most likely make even deeper cuts than those Knight Ridder imposed in 2005. Knight Ridder reportedly explained how that might be done in talks with potential buyers. Conversely, if no buyer or group of buyers is willing to pay a premium for the stock, that outcome will be read as a ringing no-confidence vote in the industry.2