The newspaper industry is in deep trouble. How so? It costs a lot to write, print, and deliver a newspaper, and with more people getting their news for free online and a plunge in advertising, costs are higher than revenues. The New York Times (NYSE: NYT) bought my local newspaper, The Boston Globe, in 1993 for $1.1 billion and is now threatening to shut it down unless its unions agree to $20 million in cost cuts. I don't think this is a viable plan -- instead The Boston Globe should stop producing its paper version and charge for access to its online content.
The Boston Globe is suffering from drops in circulation and advertising, and it has 13 unions propping up its costs. How bad is the pain? Its average weekday circulation fell 10% to 323,983 for the six months ending September 2008. Advertising revenues across the industry declined 16% in 2008. And the Boston Newspaper Guild -- whose members include 700 editorial, advertising, and business employees -- is being asked to take pay cuts and put an end to company pension contributions and lifetime job guarantees.
With advertising revenues down, the most likely way to get profitable is to cut costs -- but not just from union give-backs. The good news for the Boston Globe is that its online audience is up -- in 2008 the number of average unique visitors in the United States to its Boston.com site reached 5.2 million per month, up 21% from the 4.3 million per month in 2007.
The bad news is that operating costs for the New York Times Co. (The Boston Globe's financial statements are not broken out separately) account for 95% of revenues. By closing down the dead-tree version of the The Boston Globe, I estimate that operating costs could drop to 75% of revenues.
How so? Getting rid of the newsprint version would cut operating costs as a share of revenue by at least 20 percentage points -- eliminating raw materials, which would cut eight percent of revenues, and my rough guess is that an additional 12 percent of revenues (I welcome better estimates) would come from cutting the costs of people who would no longer be paid to print and deliver the dead-tree version of the paper..
For the New York Times's New England Media Group, which is mostly The Boston Globe -- that would mean about $105 million in cost savings on its $524 million in 2008 revenue -- far more than the $20 million that the New York Times Co. is trying to get from union give-backs.
Of course, this estimate assumes that all print advertising will go to the online version and that the online version remains free. Although this is an overly optimistic assumption, internet advertising does have a big advantage over print -- which is that advertisers can track whether people who view their ads actually make a purchase.
As a result, in order to make up the lost revenue The Boston Globe will need to charge users for access to its online content as the Wall Street Journal does. This might not be as difficult as it would first appear. If it stopped producing a dead-tree version, The Boston Globe could roll the unfulfilled portion of its print subscriptions into online ones. Then it would face the challenge of getting others to pay for a previously-free online subscription.
Would cutting the costs of the dead-tree Boston Globe and paying for online subscriptions make it profitable? I don't know. But if the New York Times files for bankruptcy -- which it still could do since it owes $99 million from its long-term debt in 2009 and only generated $5 million in cash last year -- all its contracts will be subject to renegotiation.
It may be using its tough negotiation tactics with the Boston Globe as a way to experiment with an out-of-court rethinking of its business model -- as a long-time fan of the Boston Globe I hope some good ideas emerge from this effort.
Peter Cohan is president of Peter S. Cohan & Associates. He also teaches management at Babson College. His eighth book is You Can't Order Change: Lessons from Jim McNerney's Turnaround at Boeing. He has no financial interest in the securities mentioned.











Reader Comments (Page 1 of 6)
4-05-2009 @ 10:33AM
Mrs.B said...
Do you think everyone will pay for online content? I do not. I think that most will go to those that provide content for free, whether or not that content is entirely accurate- and that is a scary thought.
4-05-2009 @ 10:53AM
mtlamoy said...
A major impetus in the decline of many big-city newspapers is their blatantly leftist politics and agenda, which have taken the place of real news reporting in recent years. Not all of us like to be told what to think!
4-05-2009 @ 11:03AM
buckyaroo said...
In the mind of the public they are not getting their news for free on-line. They pay a monthly fee to their internet provider; and one of the reasons they are willing to pay this fee is to read the news. They are also likely to use a news mining website, such as yahoo news or google news, which automatically provides several options for reading the same story. Invariably, the Boston Globe reader will be struck by how poor the lion's share of the Globe's writing is, when compared to the competition.
4-05-2009 @ 11:07AM
bi -- IJI said...
mtlamoy: Speak for yourself.
4-05-2009 @ 11:17AM
Harvey Wharfield said...
Of course serious readers will pay for content as long as the price is right. I'd pay $7.99 a month for access to a world class newspaper/information service like the Globe. If you go elsewhere to find "free" news you'll get what you pay for !
4-07-2009 @ 1:23AM
corporate_exec said...
I think you meant "expense" where you used "revenues" in the below:
"Getting rid of the newsprint version would save at least 20% of revenues -- eliminating raw materials, which would cut 8% of revenues, and my rough guess is that an additional 12% of revenues (I welcome better estimates) would come from cutting the costs of people who would no longer be paid to print and deliver the dead-tree version of the paper."
The fundamental flaw here is you don't speak too audience, specifically local audience. Typical newspapers reach 70% of adults in a given market over a 7-day period. Typical newspaper websites reach 10-15% of local audiences over a 30-day period. Cutting the newspaper will greatly reduce the percentage readership and thus, advertising opportunities.
Another point to consider - Why would you eliminate a product that's paid for by more than 40% of the households in a typical market. Clearly consumers want the product in its current form. The problem isn't the product or distribution channel, it's the business model (primarily the cost side).
When you think about killing the print version, don't forget to think about preprints - yes, those nasty little inserts found in abundance on Sundays and throughout the week. These represent a very large revenue stream that will be lost. Advertisers continue to put them in the paper because they get results. Better results than any other medium. In short, people use the preprints to shop.
Finally, a fundamental difference between newspapers and newspaper websites is they address two different markets - one passive, the other active. When you sit down to your Sunday newspaper you have no idea what you're going to get from a news and advertising perspective. You read, get educated and, in some cases, actively pursue advertising opportunities. The web? Well in most cases serendipity isn't there. You know what you want before you get there.
In short, I think you'e jumping the gun in assuming the web is the answer to newspaper's woes. It's not. It's leveraging technology against an industrial age business model to trim costs to a point where there is once again a sustainable business model.
Newspapers have had it too good for too long and now must become lean and mean business machines fighting every day to survive instead of relying on a quasi-monopoly that is eroding quickly.
4-05-2009 @ 11:20AM
meTro said...
In one article, you managed to turn the phrase "dead-tree version" into a dead horse.
4-05-2009 @ 11:23AM
stanch said...
I'm with Mrs. B on this. I know I would draw the line at paying for general news via the Globe site if I can get NYTimes, WashPo, etc. for free. Uniquely, the Globe does a very good job of investigative reporting on the local and NE scene, which is vitally important for good government and our cultural environment. Although I get a most of my news online still, having the Globe in my hands during breakfast, is a 60-year habit I'd be very disappointed to give up. I understand that the future of 'dead-tree' newspapers is dismal, but I'm guessing that most current Globe readers are not yet on board with internet news. Some serious market study will need to be done to see whether the time has come for the 'pay for view' plan to be successful. As I said, I don't think we're there yet. One thing Mr. Cohan didn't mention is the impact of subway freebies, such as Metro and Phoenix, on paid newspaper subscriptions. Pretty big, I would imagine. Another is the cost to the economy of dumping the people who are dependent on the Globe print version (including our hardworking delivery guy) into the unemployment pot.
4-05-2009 @ 11:23AM
BRC said...
As for paying for online content, Boston.com was paid access and only became free about a year or so ago. I assumed that was because people won't pay for online news access unless there is no other choice. And there are other choices, including blogs, not, I think, a comparable choice but others think so.
4-05-2009 @ 11:24AM
letter.from.santa.claus said...
The NY Times already tried a paid-for-digital-content model, with QPass and later TimesSelect, both of which failed.
Clay Shirky wrote a fantastic piece on why newspapers are doomed to fail (both in print and online). Journalism is crucial, but newspapers are not. We're in the midst of a content revolution, and our old systems are being torn down before new ones are implemented.
Check it:
www (dot) shirky (dot) com/weblog/2009/03/newspapers-and-thinking-the-unthinkable/
4-05-2009 @ 11:23AM
Victoid said...
Brilliant. Way to tread the most trodden ground in op-ed writing over the past six months. Inadvertently, you have expertly made the point of how blogs can easily take over the role of delivering recycled pseudo-intellectual drivel to the populace. Your tired old strategy to save newspapers by killing print and charging for online access is an excellent way to phase a publication into thorough irrelevance. The market won't bear the cost of access at the consumer level, and the loss of print makes the paper's existence virtually invisible. It's quite easy to read up on how this "strategy" has been a proven failure over and over again. I can't believe you teach management. Face it: no one has the solution yet. If you come up with a genuinely new idea, we'll be all ears.
4-05-2009 @ 6:10PM
agaric85933 said...
Let the record show that bi -- IJI would, in fact, like to be told what to think. Dufus!
To quote Mark Levin - "GET OFF THE PHONE YA BIG DOPE!!"
The Globe needs to be bought by Ruport Murdoch, come back to center from its far left leanings, and find a way to make the online version pay. I don't think it should be at the expense of the dead tree version though. They go hand in hand, and an online-only version will write off many of the over 40 readers for good.
Go Sox!
4-05-2009 @ 12:07PM
Steve said...
Online is the only way forward, but there will be many, more targeted and higher quality sources of local information available.
Like Xconomy (www.xconomy.com/boston) which covers only the news in technology, life sciences and energy in Boston.
4-05-2009 @ 6:29PM
Ken said...
1) What content? Most of any newspaper is AP feeds and syndication. The local news already has online coverage from TV stations. The remaining content is minimal at best, regardless of where you live.
2) As for accuracy of "free", it's not like we're getting accuracy when we pay. When every newspaper runs the same photoshopped image of Iran's missile tests, it's clear that we're not paying for accuracy. The days of newspapers being trustworthy are long gone. There are even sites dedicated to tracking the proliferation of faked news.
3) So, all-in-all, I have to ask myself what we're trying to save? Memories of a different time? At some point we have to accept that horse drawn buggies are gone and there's this new thing called cars and there isn't a lot of point to being a big large buggy whip maker anymore.
4-05-2009 @ 12:15PM
Amused said...
5.2 million a month is, being generous with the math, 200,000 unique visitors a day.
I'm quite familiar with a newspaper website that gets 20,000 unique visitors a day and managed, somehow, to bring in $700,000 last year in online revenue. A switch to paid online would drop the paid subscribers to online to probably 7,500, with a corresponding drop in online ad revenue to, generously, $250,000 a year. If those 7,500 paid subscribers each contributed $2 a week, it would be $780,000. We're up to about $1 million for this hypothetical switchover of a small paper with which I am familiar. That would just about pay for the newsroom salaries & benefits at this small paper, leaving nothing left for business costs, sales force, electricity, telephone, building, etc. And did we mention the stockholders?
Since this small paper is just about one tenth the size in online of Globe.com, ask yourself if the operation possible for $10 million a year will generate enough news gathering and processing critical mass to be viable for that market.
Lots of problems with this crude analysis, but it should be clear to everyone that we are dealing with an order of magnitude that is much reduced in terms of delivering content whenever you try to match online revenue and real-world information production capacity.
Let's not even talk about bloggers, flacks, politicians and other folks as viable sources of news. I'll let you know when I find a blogger at the scene taking notes of a fire, a war, or a police hostage situation.
I echo the previously mentioned idea, also, that those who read newspapers and those who read online are two distinct demographics that only partially overlap. It's not like everyone who gets a paper is going to go online. Probably only those who already use both tools will make the switch.
4-05-2009 @ 12:29PM
dmc said...
Just a quick reaction to your recommendation that the Globe charge for online access. Completely agree. I live in France but am a Bostonian born and bred which means: Red Sox, Patriots, Celtics, and Bruins (don't know about Revolution - we're better off over here for that sport). There's hardly a day when I don't take a quick look at the sports page. The pleasure I derive and the loss I would feel if access were not available indicates that a fee for access would make sense and be sustainable. How much? Ah, that is the question. But well worth a market study which has already been done, I am sure.
4-05-2009 @ 12:43PM
Daniel said...
Newspapers don't get it. They are a business that HAVE to operate on sound business principles AND deliver the news.
Too many have taken the stance, "We are going to educate our readers to our viewpoint and business be damed."
4-05-2009 @ 12:53PM
sparrowdancer1 said...
The newspapers are falling apart because the public has learned they are giving us "news" that is at the very least, slanted and biased. News on the internet is more reliable. In addition, speaking of "dead trees," if the new bill to allow farmers to grow industrial hemp were passed, then we could have a source of paper that is far less costly (and more renewable) than cutting forests down.
4-06-2009 @ 5:05AM
fwbrombergjr said...
Print newspapers are in trouble for many reasons, but in this case, as all cases there are two things to attack. They have to reduce expense and raise revenue.
Moving to online may reduce production and distribution expenses, but it would be sort of like GM saying, "We can substantially reduce our expense by making pictures of cars instead of acutal automobiles." The revenue would evaporate in an instant.
The Globe must focus on the operating expense side during this recession. Reducing expenses always has a direct impact on people. At the end of the day, when expenses are cut, someone loses their job.
The people who are targets are those who are not able to provide a value that is greater than the sum of their direct and indirect wages. This may or may not be their fault, but in the end, that's what happens.
If the Globe is to survive, they will have to reduce their expenses through personnel cuts until the economy turns around.
4-05-2009 @ 1:38PM
Robert R. said...
I lived in Boston for 2 years, and I agree entirely that the Boston Globe was a doctrinaire liberal rag. I'm a moderate, and found it highly offensive that their stories were consistently slanted far left. They could have saved a lot of paper and ink during election editorial recommendations day. A simple, "Vote the straight Democratic ticket" would have sufficed, rather than bothering to list actual names.
The only alternative to "The Globe" when we were there was a tabloid, so one was faced with the choice of a hopelessly biased newspaper or none at all. It seems that these days, many are choosing the "none of the above" option. I would shed no tears if I heard that the Boston Globe had ceased to exist.