Alan points his substantial intellectual capacity to an issue that most of us miss, which is that despite a gutting of classifieds and other forms of advertising the newspaper business is very profitable when it is profitable. Newspaper sustain their profitability by cutting into the meat of their business, payroll and physical inventory (i.e. number of printed pages) and their operating margins are really quite enviable.
As proof of the industry’s amazing power to produce profits, you need look no further than its performance in the first three months of this year. Despite a 14.4% drop in industry-wide print advertising revenues in the first quarter, the average operating profits of the seven largest publicly held newspaper companies fell only two percentage points to 17.6% from 19.5% in the same period, according to Fresearch.Com.
However, they are sustaining their margins by cutting meat as there simply isn’t a lot of fat left, and the lack of investment in disruptive strategy will certainly result in more pain later. I wrote about this a couple of days ago, I fail to see how reducing their coverage is going to make for a better newspaper experience, and a while back I wrote about how display ad models are failing local and regional newspapers yet despite this obvious conclusion it is not evident that newspapers are doing anything transformational on the advertising front.
It’s not often talked about, but broadcast networks are not that far behind newspapers as their audience declines with each reporting period and the forced shift to digital this upcoming February is certain to accelerate that trend as the big networks rely on about 15% of their primetime audience watching via over the air signals.