Crash to paywall, p.15
Crash to Paywall, page 15
Morton has been proved right. We have begun to see the effects of those decisions, and they were not beneficial. “Thirty per cent return on investment is fine when you don’t have any debt,” says Raymond Brassard, the recently retired executive editor of the Montreal Gazette. “But when you have debt, it’s nothing. It all goes to servicing the debt. So you’re not really making a lot of money. And that happened across most of the newspaper companies – even the New York Times. They paid over a billion dollars for the Boston Globe and then just sold it for $70 million. It’s ridiculous. But that was the way the business ran in the ’80s and ’90s and early 2000s … The whole industry is a prisoner of what happened in the past thirty years on the business side.”
It’s not as if there were no early warnings that things were changing for newspapers’ print and online operations. Right on the heels of the dot-com bust of 2000 – which coincided with what was, at that time, newspapers’ most profitable year on record (Tofel 2012, 9) – there was a steady drop in newspaper advertising. Media-economics specialist Robert Picard explains that advertising revenues “typically rose higher than GDP growth in good times and fell further than GDP declines during recessions and downturns.” However, “advertising did not recover after the 2001 recession, as it had in the past.” When the short slump from 2001 (following the attacks on the World Trade Center) to 2003 ended, advertisers didn’t follow their usual pattern of returning to their old spending habits. For example, from 1950 to 1990, newspaper-advertising growth in the United States showed a constant rise, from $2 billion to approximately $30 billion, then a short drop in 1990, followed by another constant rise, to $47.4 billion in 2000, then another drop, to approximately $40 billion. This time, however, instead of an incline, the chart shows a plateau to 2005, the year advertising revenues began a slump from which they have not recovered (Picard, 2008, 708).
Then, with the crash of 2008, an economic sinkhole opened up. Online advertising revenue stopped rising, and then began to fall, too. The new income stream upon which newspaper publishers and owners had been banking was drying up with the old one, and economic recovery was doing little, if anything, to help. “Even though advertising has recovered in magazines, on radio, and on TV – where it had weakened during the recession – it never came back for newspapers. In fact, it keeps going down” (Mutter 2011).
Strangely, much of the reporting and commentary, especially in the popular press, reacted to these statistics as if they were the result of some sudden, unforeseen natural catastrophe. However, the business conditions that created this situation were neither unforeseen nor natural, except to newspaper companies locked into a downward spiral of cost cutting and debt management. In most cases, these were companies that flipped newspapers like condominiums and had never given much thought to the relationship between quality and profit. A few years after the takeover of Sun Media by Quebecor, I asked former Toronto Sun publisher and newsroom legend Hartley Steward what he thought of the way the parent companies were doing business: “Suddenly there’s a lot of money distributed to a few people, and nothing really has changed. No one went out and created another paper. Nobody created an asset of value, or created any wealth … A lot of money gets paid out and nothing is created. What’s created is savings, and those are skimmed off … You cut the shit out of the place. It’s a vicious kind of a thing.”
As we have seen, in the 1990s a considerable amount of advertising had begun to look for new outlets: “Procter and Gamble, McDonald’s, Seagram’s, Ford Motor Company, Coca-Cola, Nissan, Kodak and Campbell’s Soup … are saying … ‘You’re not worth our money’” (Miller 1998, 11). With the Internet, advertisers were being offered alternatives – sometimes for the first time. For that reason, classified advertising has all but disappeared, in a little more than a decade. For example, US daily newspapers made $20 billion from classified ads in 2000. By 2011, that had dropped to $5 billion (McChesney 2013, 172). Big-city dailies that once printed entire sections of classifieds now run two or three pages of the announcements that once contributed much of their profits, and about half of those are often – prophetically, perhaps – death notices. Their online ventures are also-rans to Kijiji and Craigslist.
Leonard Downie Jr and Michael Schudson (2009) point out that, as television began to drain away display advertising from newspapers through the 1960s and ’70s, newspapers became more dependent on classifieds, which the electronic medium couldn’t do. However, the Internet can do classifieds – much better, in fact, than print. Classified ads truly are a community talking to itself and, as such, are more efficient and attractive when they are searchable, can be updated by the minute, and when the viewer can achieve instant gratification from clicking on a link or sending an email. For example, the way Craigslist and Kijiji display the time an ad was posted – a day, an hour, or a minute ago – gives the viewer a sense of being actively involved in the hunt, much the way eBay does with its bidding system. In comparison, by the time a reader gets to a newspaper classified ad, it isn’t just dead; it’s decomposing. And someone with something to sell can place an ad for free online, while they have to pay for newspaper space.
The newspapers never took the upstarts seriously, Postmedia CEO Paul Godfrey says. “I just think they got caught with their pants down. It was one of these rare things. Everybody slammed the door on Craigslist and Kijiji, and, before they knew it, classifieds were gone and they weren’t getting them back.” Godfrey’s comments echo the online mythology of Craig Newmark pitching his idea for online classifieds to his hometown newspaper, the San Francisco Chronicle. “Only after being summarily rejected did he go on to found Craigslist and singlehandedly decimate the primary revenue source of newspapers everywhere” (Rubenstein et al. 2012). Some might say there’s a poetic symmetry to the fact that, in 2009, the Chronicle came close to being the first big American daily in a single-paper city to fold. Its owner, the Hearst Corp., threatened to close it if it couldn’t be sold, only to give the paper a reprieve and relaunch it with glossy cover pages a few months later.
So the “received wisdom is that newspapers succumbed to a stealth attack from Craigslist” (Tofel 2012, 71–2). In reality, however, newspapers across North America were experimenting with online classifieds at around the same time Newmark founded his email notice board, which evolved into what we know today. In Canada, Sun Media, the Globe and Mail, and the Toronto Star had successful automobile-sales and career sites running long before Craigslist became a household word. And in the United States, a consortium of six newspapers, including the Chicago Tribune, also beat Newmark to the Web, “but failed to compete effectively with a single geek working out of his apartment” (72).
The problem, Postmedia’s Wayne Parrish says, is that newspapers kept making the same mistake of trying to adapt what they were already doing to the Internet, rather than inventing a new online form. They thought they could continue selling classifieds and throw in the Internet as a bonus:
The American papers dealt with it differently and better than we did in Canada, because they recognized the power of the Craigslist kind of approach and Kijiji approach – in other words, free classifieds. And they began to invest in cars.com and classified ventures, and so on, entities that would seek their own place in the market not tethered to the newspaper franchise, and not where you sell a classified ad and then up-sell a digital ad. In Canada we took a more conservative approach … We tended to tether our digital ads in classified to our print ads, and that turned out to be a recipe for disaster.
In Britain the situation was not much different. In 2007, before the full effects of the recession hit, executives from the Guardian told the House of Lords Select Committee on Communications that classifieds were slipping away at a rate of 10 per cent per year. Representatives from the Times of London told the committee, “the most dramatic difference for the business model over the past 10 years had been the ‘decline of classified advertising’” (2008, 16). Back in the United States, in one decade starting in 1999, classifieds fell from 40 per cent to 20 per cent of all newspaper advertising (McChesney and Nichols 2010, 27), dropping 42 per cent in 2009 alone.
Traditionally, ad revenue has, on average, accounted for 80 per cent of a daily newspaper’s earnings (Krashinsky 2010). However, advertising losses have been so severe that money earned through circulation – which in some newspapers is rising, partly thanks to paywalls – has passed advertising as a percentage of revenues. For example, by mid-2009, the New York Times reported that its advertising-to-circulation ratio of profits had gone from two-to-one to one-to-one in just three years (Chittum 2009b).
As the bad news persisted, the mood in the industry quickly went from nervous to panicky, and the panic led to an unprecedented gutting of newsrooms. Poynter’s Rick Edmonds estimates that between 2007 and 2009 the US newspaper business reduced its spending on journalism by $1.6 billion annually. When it comes to replacing that investment, it “would take roughly 1,600 [non-profit news sites] MinnPosts or Voice of San Diegos to replace the spending on journalism that newspapers have cut” (2009). In 2012, the American Society of News Editors announced that the level of staffing in US newspapers was at its lowest point since the group began taking an annual census in 1978. That is, US dailies employed 40,600 editors and reporters, compared to a peak of 56,900 in 1990. That is a decline of 28.6 per cent (Mutter 2012).
In Canada over all, the income-to-debt situation (aside from Postmedia) is not as dire as it is at many of the large US chains, and, as we have seen, the drop in profits has not been as steep. However, the drop in classified advertising is comparable, as is the shrinkage in display advertising. Circulation remains problematic in most cases – although even rising circulation has done little to lure back advertisers. Between 2009 and 2012, average daily circulation at the Globe and Mail slipped by 4.2 per cent, from 315,272 to 302,190. Meanwhile the Toronto Star lost 12.6 per cent of its average weekday circulation, dropping from 409,340 in 2009 to 357,612 in 2012. Its cross-town rival, the Toronto Sun, dropped 10.4 per cent, from 188,863 to 169,219.
Across the country, the situation is strangely variable. The Vancouver Sun had a circulation of 175,572 in 2009, which dropped to 164,507 in 2012, for a loss of 6.3 per cent. Its rival, the tabloid Province, dropped 12.6 per cent, from 162,765 to 142,300. In Edmonton, the Sun lost 23 per cent of its average weekday circulation, and the Journal dropped 14 per cent. But papers in southern Alberta showed gains, with the Calgary Herald rising 2.0 per cent, from 124,607 in 2009 to 127,147 in 2012, and the Sun growing by 25 per cent, from 51,757 to 64,654. These numbers are mitigated by the fact that Calgary was the fastest growing city in the country, with a rate of population increase of 3.3 per cent in 2013 alone (CBC.ca 2014). So, the Herald’s growth lags behind that of its potential audience.
In the east, the Ottawa Citizen lost 11.2 per cent, from 123,856 in 2009 to 110,019 in 2012. And the Montreal Gazette plunged 30 per cent, from 163,501 to 113,888. Yet Le Journal de Montréal gained 6.8 per cent, going from 269,391 to 287,799, and La Presse gained 5.6 per cent, growing its circulation from 215,142 to 227,206 (all figures, Newspapers Canada 2012a). This could be at least partly explained by the fact that the French-language newspapers face softer competition – no Guardian, New York Times, National Post, or Globe and Mail to siphon off readers.
The circulation figures are reported by different audit agencies, and include paid and unpaid circulation, so it is extremely difficult to impose any strict logic on them. The reason I chose the years 2009 and 2012 is that 2012 was the most recent year for which there were records, and before 2009 only paid circulation was counted, so there’s no basis for comparing, say, 2008 with 2012. It would take a major study to explain why circulation is rising in Calgary and French Montreal and plunging in Edmonton, Ottawa, and English Montreal, and why the slippage is so much less dramatic at the Vancouver Sun and the Globe and Mail. Rather, the usefulness of these statistics lies in the fact that they show there is no overall pattern to circulation growth or shrinkage, unless a page-by-page and reader-by-reader comparison could prove empirically that better papers draw a larger audience. At the same time, the statistics imply that readership is no more a factor in newspaper losses now than it was in profits before the recession.
“The disruption is also on the advertising model,” Montreal Gazette editor-in-chief Lucinda Chodan says. “There’s a lot of discussion online in publications whose business is advertising and whose audience is advertisers, and agencies and marketers. It’s not just the information-delivery model that is broken. It’s the advertising model that is broken, and people are talking about the death of advertising. It’s a complex situation and I think it has been a very underreported part of the big disruption.” Actually, it’s not so much that the advertising model has broken, but that advertisers have discovered that you don’t need content to sell goods, and you don’t need to go through the newspaper to reach its readers. In fact, it’s cheaper and more efficient if you don’t. The main impact of the disruption has been on retail advertising, where you can add up the effectiveness of your campaign at the cash register. For institutional advertising, where the aim is brand awareness, the impact has been less severe. But it’s mainly the big national advertisers who do institutional campaigns, and the bulk of them go to television, big national or international dailies such as the New York Times, and glossy, high-end magazines like Vogue or Vanity Fair – where slick advertising is an integral part of the package, and another reason readers buy them. Perhaps most important, if a video campaign is interesting enough, it goes viral on social media – which is the twenty-first-century equivalent of what used to be called a water-cooler commercial, one everyone is talking about at work the next day.
Newspapers rely on retail, and targeted advertising and online sales have made the traditional retail ad all but obsolete. There has been massive growth in search advertising, social-media promotions, and online marketing. Tied to this is a persistence of ad prices set according to the number of people who click through (CPM) and search engine optimization (SEO) driving in junk readers, who scan one story and move on. It’s not so much that newspapers need to move advertisers online but that they need to realize that they’re moving from an advertising medium to one where advertising and publishing have become uncoupled – probably permanently. As Columbia Journalism Review’s Ryan Chittum says, the changes in the environment are so great that advertising may never again play a large role in the newspaper’s financial structure:
I’ve been arguing for paywalls, and the argument was that most of your page views come from the core readership. And engineering all your content to go after the marginal click is insane. You want to do everything you can to keep your core readers there, and if you start dumbing your stuff down and SEO-ing it down, and going after these marginal readers, who are going to click you once and leave, it’s stupid. People have talked about the tyranny of the CPM, and it’s unfortunate. But I just don’t know what you can do about it. The cat’s out of the bag. Unless you completely close yourself off to the Internet. And the way it’s gone, I don’t see how you’re going to say, If you want to be here, I’m going to charge this amount. I guess if you had a certain audience, advertisers really wanted to reach, maybe you could do that. But the way everything is set up now, they can go somewhere else. They have metrics on where else New York Times readers go on the Web. If you really need to get New York Times readers, you can go to NPR or whatever.
Online editions have picked up a large readership but this has failed to translate into sufficient revenue to make up for the losses in the print editions. Though online advertising revenues in Canada for 2012 were $3.1 billion (Ernst and Young 2013), only $242 million went to newspapers – less than 10 per cent of the total, and roughly 10 per cent of the newspaper-industry advertising income for the year (Newspapers Canada 2012b). In the fall of 2012, Quebecor reported that advertising revenue for the quarter had dropped by 3 per cent at urban papers and 6 per cent at community papers. As the Edmonton Journal’s Karen Unland says, display advertising just doesn’t get through, and the advertisers know it. “All that kind of advertising is based on interruption. You came here to read this story about what’s going on in the LRT yesterday that stopped everything, but instead I’m showing you a really great ad for Shaw Cable. I don’t care about Shaw Cable. I care about why the LRT stopped. It shows a basic disrespect for the viewers, and people who read their news online are much less tolerant of interruption advertising. We are very good at tuning out all that stuff. So it’s not effective. Display advertising is not effective any more. You need some other way to do it now.”
The response to dwindling advertising revenue has been a steady stream of layoff and buyout announcements from Canadian dailies. For example, the fifteen-year history of Quebecor’s Sun Media ownership was a constant trickle of layoffs and buyouts, rising to 600 job cuts in 2008. Four hundred positions were eliminated in early 2012, followed by the slashing of another 500 in November, in a reorganization that included the shutting of two Ontario production facilities and the restructuring of management so that the entire chain of hundreds of dailies and community newspapers would report to three executives. This, in turn, had followed the mass firing of senior editors and publishers across the country in October. A week after the job cuts, the paper closed two Niagara Peninsula dailies. Then, in 2013, the company closed eleven of its newspapers and eliminated 360 jobs in July and cut another 200 jobs in December. “It is very tough to announce job cuts,” Sun Media CEO Julie Tremblay said in a news release in December. “But as distressing as they are for the employees involved, these restructuring initiatives are necessary to maintain our leading position and ensure the corporation’s sustainability” (CBC.ca 2013a).
