Margin Pressure All Around

Newspapers are in turmoil and cutting costs to save their lives. A headline in MediaPost says (and then explains) it all: Into the Red, Newspapers Face Collapse. Here’s a depressing and representative tidbit from the piece, discussing the highly debt-laden state of newspaper companies and how these companies are carving themselves up to service that debt:

This year, the company has raised $121 million with the sale of a Hollywood studio and $650 million with the sale of Newsday to Cablevision; the Chicago Cubs baseball team and historic Tribune Tower in downtown Chicago are also on the block. On the cost-cutting side, management announced a new 50-50 policy, whereby its newspapers will contain no more than 50% editorial content, allowing significant staff reductions.

And here’s an eloquent lament on the state of newspapers from the NY Times. (I agree, newspapers aren’t just another business sector.)

Yellow pages companies are challenged by similar pressures and market forces. Lowered guidance amid a recession, high levels of debt and declining share value has already claimed top YP execs and Yell’s CEO looks to be the next in line, speculates Forbes.

Putting aside servicing debt payments, which is a major issue in some cases, historical margins are a problem for both YP and newspaper publishers. Forty to 50%+ margins are probably no longer sustainable amid a fragmenting marketplace and increasing competition from lower priced ad products online. But public companies are in a bind in trying to manage through this because investors simply don’t want to hear such sober talk. They’ll likely punish the shares of these companies further.

I’m not picking on YP or newspapers, similar pressures exist for TV, magazines and almost the whole of “traditional media.” It’s not limited to any individual sector.

If you were running a public YP publisher or print newspaper company, what would you do?

About these ads

7 Responses to “Margin Pressure All Around”

  1. Dave Oremland Says:

    The NYT op ed piece generated about 150 comments. They expressed every type of concern, as can be imagined. I was interested in the comments from one person who had experience on the business side of the Newspaper industry. He described how newspapers no longer have the ability to price advertising at monopoly rates that dominated in the past. The 10% of ad revenues that newspapers generate falls far short of making up for the incredible loss of advertising on the print side both in quantity of ads and in the pricing structure.

    I suppose I’d look for other ways to monetize localness. I’m not sure where it is….but I’d search under every corner.

    As for YP….ugh.

    Dave

  2. Mike Says:

    They’ve been cutting incrementally for a while now, trying to “rightsize” the operations… they’re still not down to where they need to be to sustain. It’s not just a size issue, though, which is why these gradual cuts are the reasonable but wrong approach (innovator’s dilemma). It’s not the size but the structure that’s the problem.

    The main restructuring plan from a sales org POV has to be to move toward creating a unified sales agency that can sell and fulfill all ad products efficiently, getting away from the traditional, fragmented sales force structures. There are misalignments and inefficiencies abound in theses org structures, and that has to be radically slashed.

  3. Greg Sterling Says:

    I think there are real questions about the proper structure of the sales organization and whether print reps can be trained to sell online/digital or whether you need a separate sales force for digital and whether that group can sell print.

  4. Mike Says:

    Indeed. And the content side of course has similar structural issues. Not only do they have to find a new model for what kind of information they aggregate and distribute, but there has to be an economic model to support it and finally, coming full circle, they need a sales org that can execute on that revenue model.

    I know I’m just stating the obvious here, and that the devil is in the details, but it just feels like we close to the point of no return, where these new structures are going to be pieced together from the ashes of the old orgs rather than being reached through a smooth transition. Many web 2.0 companies are struggling to find revenue models, and they even don’t have the baggage of a legacy revenue/org structure to content with; the difficulty newspapers have ahead of themselves in creating new revenue models is only compounded by the need to maintain core revenue models.

    There are some daunting debt/financing situations looming out there, and the credit markets are not very friendly right now…

  5. Greg Sterling Says:

    Agree. You’ve hit all the issues. There are no easy answers. As I just told someone at an IYP, it’s easier to be in my position (movie critic) than to be responsible for execution.

  6. Stan Gauss Says:

    The sales channel issue is pretty complicated and each time a newspaper creates a new print special section or a new addition to the paper it gets worse. Hopefully, we are getting to the point where we understand a new product isn’t going to solve the problem.

    For the most part, print reps have a tough time getting past the product sale. For the last hundred years they have sold the latest special section or the newest flight package but haven’t been asked to prove results or discuss audience or reach.

    If the majority of online revenue at the newspaper level remains hidden in other purchases we will have a tough time proving the value. Bundled sales that focus on the reach of the advertiser are very good but bundled sales just to say you have online advertising is not going to cut it.

    I think we have finally marched onto the island to fight a war we aren’t quite sure about but there is no turning back because the Captain burned the ship.

    It may be time to rid ourselves of sales teams that can’t get us to the next level, define ourselves by reach and our ability to target demos, geo, contextual, develop solid packages that may or may not include print and keep pushing.

    I realize that some are already doing this. That’s great. We need to document and share results allowing other papers in similar situations to learn from it and either use it or develop a plan based on it.

  7. Greg Sterling Says:

    Several years ago I suggested a “best practices” conference to the NAA so that companies could all share their successes and others could adopt them. But they claimed they did that already in their various shows. Not really.

Comments are closed.


Follow

Get every new post delivered to your Inbox.

Join 120 other followers

%d bloggers like this: