Here’s Plan B For Newspaper Publishers: Pray That The U.S. Government’s Bailout of Fannie Mae and Freddy Mac Reinvigorates the Real Estate Market, And Fast

Philip M. Stone September 9, 2008

Ten days back we wrote that that the nightmare scenario for newspapers was drawing ever closer – that not only is print revenue down but online growth was slowing to trickle. Well, now the Newspaper Association of America (NAA) has just dropped the other shoe, reporting newspaper online revenue in Q2 actually fell 2.3% from the year before. We are now living the nightmare.

It’s news that must have every newspaper publisher scrambling for Business Plan B, except that for most there is no Plan B. Everything had been piled into Plan A -- reduce costs dramatically, improve the web product as much as possible, and be prepared to storm it out for the few years it will take for the double digit percentage online growth to become an integral part of the bottom line – near 50% of total revenues. At the moment for the vast majority of newspapers online revenue is less than 10% of the total.

But the rude awakening is that print revenues are continually getting much worse with every passing month -- the NAA reported classified revenues for the first half of the year down all of 35%.  And although online revenues for the first half of the year are  still 2.3% ahead compared to last year, in Q2 the growth fell into negative territory and there is nothing out there to give any reason that fall won’t continue for the rest of the year and beyond.

So what to do for Plan B? Well, maybe one part is to put one’s faith in the might of the US Treasury and pray that its bailout of the Fannie Mae and Freddie Mac mortgage business finally puts the real estate market back on its feet, rekindling property advertising. Mortgage rates already fell Monday but no one is willing to take a bet on how long it will take for the housing market to recover and thus spur a recovery in real estate classifieds.  A little prayer before going to bed each night won’t hurt.

But for those who aren’t a whole lot into such prayer and who believe rather that God tends to help those who help themselves then publishers probably could do worse than re-examine their online sales set-up. Statistics indicate that much of a newspaper’s online sales are made as “up-sells” -- that is print makes its sale and, by the way, Mr. and Mrs. Advertiser, for a bit more money you can also be on the online site, too. But what seems to be happening is that if a print campaign gets canceled, so goes the whole digital package, too.

In an environment of continually declining print advertising it doesn’t take a rocket scientist to figure out that’s a sales scenario on the long road to nowhere. What newspapers have to understand that online growth is not going to come from a declining advertiser base; it has to come from new advertisers. And if the ad sales department insists its time is 100% taken up by the declining print advertising market then that needs fixing so there are dedicated online sales people, too, or for those sales departments with less sales people than there are fingers on a hand, then have at least one retrained to do online sales only – print and online sales really are very different!)

For every dollar lost in print advertising, online is said to recapture only around 12-14 cents, a figure that needs to rise appreciably. Online ads are not thought by advertisers to attract the reader’s attention span as much as print since once people have left an online page they probably won’t be back to find that ad, whereas with print that page remains static. So to capture more online ad money it really boils down to perceived value for that spend (what local news copy can newspapers provide better online than can print to attract higher paying ads?)

Of course there’s always Business Plan C – that giving the news away via an advertising–supported Internet model is not a viable proposition and that policies need to be reinstituted to safeguard the bulk of print’s news copy, just as the Philadelphia Inquirer recently announced.  

It does not take a born genius to figure out there is a fundamental change going on in the print advertising world, and it is not just because of a falling economy. More and more advertising spend is going online, and not necessarily to newspaper web sites, yet advertising budgets are not growing. Here’s a figure that should scare anyone in the US print business. The total newspaper advertising spend in the first half of the year was the lowest that it has been in 12 years, according to NAA statistics.

Hard to believe that back in just 2005 newspapers were pushing at the $50 billion mark ($49.435 billion) and yet based on the 2008 first half performance of just $18.8 billion in sales (including online) it looks like newspaper revenue for the year could fall below the psychologically important $40 billion mark, and it hasn’t been that low since 1996. Doubtful that even a great Christmas can save this year.

Q1 saw a 14.4% fall from the year ago; Q2 was down 16%, and looking at just about every major newspaper groups’ July numbers then it really looks like Q3 is more of the same except worse. Job classifieds are down on the year by 36% (40% in Q2); real estate by 35.5% (36% in Q2).

The big chains are trying to fight back, joining together in advertising consortiums – Yahoo started it with job ads and Zillow announced Monday an online real estate network with 11 chains representing 282 newspapers – but whether these will bring in the really big bucks is questionable no matter how good the idea sounds on paper and how much advertisers like the idea of placing an ad just once instead of having to do it for each individual site.

At least the stock market Monday gave some indication there is life left in newspapers although it could be that the short-sellers had to jump in no matter the cost to cover their positions. With the New York Stock Exchange up 2.58% Monday on the Fannie Mae/Freddie Mac news, shares in Gannett, for instance, ended up 6.5%, Gatehouse was up 8.4% and The New York Times Company was up 5%. On the other hand McClatchy  rose less than 1% which might well indicate not too many shorts there --  at a price of $3.69,  90% less than when it bought Knight Ridder a couple of years back -- the market seems to think it’s priced about right.