Why American Newspapers Are Still Profitable

March 17, 2015 • Business Models, Recent • by

Much attention has been given to the newspaper industry’s plight as advertising plummets and circulation steadily declines. But largely missed among all the dire predictions is a surprising finding: metro dailies in the United States and Canada are remarkably adaptable, viable and profitable.

“The business model for newspapers is robust and should permit the venerable daily to survive in print form for the foreseeable future,” concludes Marc Edge  in a peer-reviewed study published in the Newspaper Research Journal.

This unusually upbeat assessment is based on annual reports filed over an eight-year period from 2006 through 2013 by eleven major publicly traded companies in the United States (including Gannett, the New York Times, and Washington Post) and five in Canada (including Postmedia Network and Quebecor Media).

Edge, a journalism educator and media critic based in Vancouver, Canada, reports similar findings in his new book, Greatly Exaggerated: The Myth of the Death of Newspapers.

Edge acknowledges the steep challenges that newspapers have endured as the recession deepened their financial turmoil, leading to widespread layoffs and other cost-cutting to make up for plunging revenues.

While newspapers in Europe and elsewhere did not suffer nearly as badly from the recession, Edge says, North American metropolitan dailies were especially hard hit, with revenues for some companies plunging by half during the period studied. In response, media companies revamped their business models by cutting distribution, raising subscription rates, seeking digital advertising and erecting paywalls to online news.

In this period of economic turmoil, some newspaper companies reported large losses on paper in an accounting “write-down” reflecting the diminished value of their businesses, Edge notes.

Though revenues, earnings and profit levels were widely lower among the newspaper companies studied, Edge found that none suffered an annual operating loss for its newspaper division.

In fact, according to Edge’s calculations, the Washington Post was the only US newspaper publisher reporting a newspaper profit margin lower than the Fortune 500 historical average of 4.7 percent. The majority of the US newspapers studied emerged from the recession with double-digit profits, Edge says. The Canadian companies studied fared even better.

“As the recession slowly eased, some who had foretold the death of newspapers had to admit they had at least been premature,” Edge contends.

In his analysis, Edge says “considerable calculations” were made to separate newspaper earnings and revenues from other parts of the conglomerate and to provide standardized accounting across companies. For example, Edge reports that profit margins were calculated on a “return on revenue” formula intended to show how much a company keeps in profit for each dollar earned.

By focusing on “operating earnings,” Edge sought to distinguish between the revenues needed to handle day-to-day expenses and those required to cover interest payments on overwhelming debt, much of which was accrued in media acquisitions. “Those companies were being restructured or sold, but not because their newspapers were unprofitable,” Edge says. “It was instead because the companies were imprudent in taking on so much debt to finance their expansion.”

Edge urges caution in extrapolating his findings beyond the focus on newspaper companies publicly traded on the stock market, though he notes privately held newspaper companies compete in “largely identical markets with largely identical products.” He also notes that in the United States, newspapers are more reliant on advertising revenue than perhaps in any other country, which made them especially vulnerable to the recession.

But these caveats didn’t stop Edge from declaring that “the pundits were wrong” in predicting print media’s demise.

“It appears that the newspaper business model is hardly broken,” Edge concludes. “In fact, it may be more robust than anyone suspected because in computer terms it seems to be ‘scalable’ or easily resized. A downturn in revenues can be countered quickly with a paring of expenses, albeit at the loss of jobs and journalism.”

The study, “Newspapers’ Annual Reports Show Chains Profitable,” was published in Newspaper Research Journal, Vol. 35, No. 4.


Picture credit: Flickr Creative Commons, Sam Chills

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