The Guru of Newspaper Analysts Is Quitting His Newsletter – John Morton Complains He’s Tired Of Issuing “Painful Forecasts” – And His Quitting Is Yet Another Negative Newspaper Story

Fortunately, most newspapers are far from making a similar decision for similar reasons, but the passing of Morton’s newsletter is just one more small example of the industry’s downslide. The final newsletter says that today’s newspaper environment has changed forever. “Instead of an industry cycle with advertising recovering as the economic recovers, we have a secular shift induced by demographic shifts, technology derived alternatives, intensity of data-driven Internet sourced competition, challenges of our local advertisers, and the influence from our changing ownership model. These factors do not impact all markets equally, but with time, these factors impact all markets.”

So Morton also is not a fan of the “cyclical” argument. ftm ran several pieces last week decrying that same argument, too, and although we have never always agreed with Morton’s views, on this one we are as one.

ftm background

The Key For A Newspaper’s Survival Is For It To Decide What News IT Owns – Its Franchise -- And Then Devote All The Resources Necessary To Doing Exactly That On All Its Platforms.
The reason so many print newspapers are losing circulation is that they have lost touch with their mission statement -- their reason for being. To just exactly what precise audience is the newspaper targeting itself – the audience it considers its own – and is it willing to dedicate all the necessary resources on various platforms to protect that core journalistic and advertising platform?

Large US Newspapers Had An Awful February -- Can Publishers Still Maintain Their “Cyclical” Argument Or Is The Reality That Advertising and Circulation Revenues Are In Perpetual Decline With No Signs Of Recovery?
Advertisers gave most large US newspapers a financial thrashing in February, bringing shivers and chills to many boardrooms and on Wall Street. Publishers can’t do much more than pray that February is just part of the “cyclical” argument and everything will eventually get better. But what if February’s slump is not cyclical, but much worse – the formation of a new, much smaller, newspaper advertising landscape.

Newspaper Web Sites Had A Banner 2006, Increasing Revenue 31.5%, But Their Print Revenue Was Down 1.7% And There’s The Problem -- That 1.7% Drop Is More Money Than That 31.5% Gain
US newspaper advertising figures for 2006 tell the tale better than words. Print advertising was down by some $800,000 which is 1.7% less than the year before, and Online continues fantastic growth with 31.5%, about $637,000 more than the year before, but the end of the day the Internet’s gains failed to surpass print’s losses.

Two Trends For Magazines, -- Show Any Weakness And The Publication Is Consigned To The Internet Only Or Worse, And The New Buzz Word is Video
With all the bad news about magazines closing, or being consigned just to the Internet, the surprising news from the Magazine Publishers of America is that in 2006 some 262 magazines were actually launched – that’s a 2% increase over the year before. But what the figures don’t say is how really tough it is out there these days.

Is A Newspaper An “Essential Service?”
News is important to our daily lives. But does it really matter where we get that news – radio, television, the Internet, or even a newspaper? A Wall Street Journal op-ed piece suggested that government-raised funds might be made available for serious journalism or should it be, as Slate slated that article, “If dailies can’t make it on their own, they deserve death.”

Morton has been analyzing the media industry since 1971 – almost as long as this writer has been in the media business. During the 1980s when United Press International was dumped by E.W. Scripps who gave a couple of businessmen from Nashville millions of dollars to take it off its hands, this writer, a UPI executive, used to read Morton’s words almost daily about why the industry would not support two news agencies when such ownership was murky. He was mostly right in what he said then, and although he may have come to the table late that the problems hitting newspapers today are as serious as they are, he at least finally came to the table.

Just because he has quit the newsletter doesn’t mean we won’t be hearing from him further. Journalists know his phone number and email address and no doubt when the next newspaper disaster strikes he’ll be commenting plus he still has his monthly column in the American Journalism Review.

The newsletter’s good news, based on full year earnings by the publicly traded US newspaper groups, is that the newspaper business is still a very good profitable business – something people tend to forget with all of the doom and gloom stories. But, and it is an important but, the profit margins are declining. A couple of years ago the margin was 22%; in 2005 it was 19.3% and for 2006 it only reached 17.8% because there was an extra week over 2005. There are a lot of businesses out there that would love to boast those types of percentages, but to the financial analysts on Wall Street that’s a trend line they don’t like, especially if there are no signs of recovery ahead, and at the moment there are no such signs.

But the last issue of the Morton-Groves Newsletter (Economist Miles Groves joined in 2002 when the newsletter went digital) is also noteworthy for its lead story, “Passing the Inflection Point.” Groves, the economist, lays out bare, how the industry has contracted:

And as for the future, “We do not see an upturn in advertising growth in 2007, and our assessment of another tough year for media remains unchanged….Overall, print advertising is forecast to decline 2.0% and online advertising will grow 25%, yielding newspapers another year of advertising decline.”

Thus it wasn’t too much of a surprise that Groves told Forbes Magazine, “I’m getting tired of producing painful forecasts. Recently, as down as they get to be, they never seem to be down enough.”

And in another ominous sign of what is going on in the industry, “Our (subscriber) base is eroding. As those corporate jobs disappear, our subscriber base disappears.”

With the announcement of dismal newspaper advertising and revenue numbers for February, Wall Street analysts, let alone newspaper analysts, are having a hard time finding anything positive to say. One of the biggest shocks was McClatchy’s revenue down 5.2% year-on-year. When it bought Knight-Ridder last year most people thought McClatchy had done okay, but the conventional wisdom today asks whether it is smart to be buying newspapers at all (something Warren Buffet has been saying for some time!). Craig Huber of Lehman Brothers wrote in a note to clients, “We continue to believe investment and operational risk - both advertising and circulation - at McClatchy has significantly increased with the Knight Ridder acquisition and the resulting higher debt levels which need to be paid off in the coming years."

And Goldman Sachs is worried about the challenges ahead. “Despite Herculean efforts by publishers, virtually no amount of cost cutting or newsprint price decreases could yield earnings growth given this level of decline. We remain cautious on the newspaper industry.

So maybe Morton and Groves have found the right time to depart. But ftm will be continuing its newspaper watch. It may be a bit depressing, but as that great American philosopher Yogi Berra once said, “It ain’t over ‘till it’s over”!