Media Predictions - TMT Trends 2009
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20 Ianuarie 2009 |
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DELOITTE AUDIT S.R.L. |
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Putting print out of peril may require stopping the presses
The newspaper and consumer magazine industry is set for continued challenges in 2009, with developed country markets likely to be most affected.
The developing world market should grow along with increasing literacy, improving distribution infrastructure and rising incomes, but the spread of the economic downturn into developing economies in 2009 could slow or reverse print’s growth even in these markets.
The challenged state of the print industry in developed world markets does not signal the demise of the sector. Rather, 2009 is likely to mark the emergence of a range of new business models, including shared backroom infrastructure and online-only delivery.
The need for new business approaches has become increasingly apparent. While publishers have reacted, this has not always been at a sufficient pace. Given this context, up to one out of every ten print publications could be obliged either to reduce print frequency, cease physical printing or, in some cases, shut down entirely in 20091.
The impetus for a change to the underlying business model for publishing has been gathering pace for some time. The rise of online advertising and falling readership across most demographic groups had already weakened the newspaper and magazine industries in North America and Europe prior to the financial crises of 20082.
The economic downturn of 2008 precipitated falls in advertising rates and volumes, as well a further decline in circulation, particularly among weaker titles and the local press. This exacerbated an already difficult industry outlook in developed countries3.
The outlook in 2009 for some print titles in developed markets is likely to be uncomfortable. Some analysts have forecast an advertising decline as steep as 20 percent4. Classified advertising, historically one of the most lucrative elements of a newspaper, could be particularly badly hit, with a 30 percent fall in revenue possible. Circulation could decline a further 10 percent5. And costs, including newsprint, may rise too, albeit temporarily6.
The publishing industry has been building an online presence to balance falling print revenues. But only a few online newspaper and magazine sites have managed to generate sufficient profit to offset declining margins from print versions.
Even in late 2008 the online contribution was at most a few percent of a title’s revenues and most of these were tied to the print version in various ways.7
The drop in revenues and earnings could accelerate further in early 2009 if consumers retrench. Mid-market and free newspapers are all vulnerable, and entirely advertising-funded newspapers may be most exposed8. Even a few industry titans might have to take radical steps9, such as undertaking asset sales in order to meet debt payments10.
The global publishing sector is likely to have a painful 2009. But newspapers and magazines will retain their unique role in informing, entertaining and commemorating11.
Bottom line
Print media companies need to accelerate steps to re-establish profitable business models again in 2009. The potentially parlous state of the global economy is likely to make change especially pressing.
While restructuring their business models, publishers should always remember that the public has a fundamental need for quality editorial, particularly during turbulent times12. While paper may be getting tattered, the desire for news remains as strong as ever.
Publishers should be aware that single measures, such as staff cuts, may not alone deliver salvation. Titles that have already shed more than half their employees may still struggle13.
The array of money-saving approaches that publishing companies could consider ranges from reducing print frequency, to asking suppliers to reduce their costs. News titles could print half as often, only at weekends or even go online only14.
The many titles that have gone online, but whose Internet revenues are not balancing falls from print, should evaluate why this is the case15. Publishers should understand how print and online customers vary. In many cases the readership for each version will differ. The variety in online readership is also typically far greater than for print, ranging from casual readers, directed to a site via a search engine, to in-depth readers, absorbing the day’s news and scouring the archives. Different monetization approaches may be required for each segment: publishers should be ready to be as bold at raising prices, as in cutting them.
The sales force’s incentive structure is also worthy of review: does it actively encourage all salespeople to promote online, in conjunction with print? While the most recent tendency for publishers has been to favor advertising, not subscription, for online content, they may need to reconsider. The advertising supported model, in its current form, does not appear to be working.
If ‘online only’ cannot be made to work from a financial perspective, a paper’s online presence may need to be reduced significantly to encourage people back to the physical product. Japan’s newspapers have always restricted their online presence, and its titles have suffered a lower decline in readership and advertising than its North American and European peers16 17. It could be several years, however, before readers are prepared to pay for content that was previously free – putting the genie back in the bottle could be a challenge.
Industry consolidation should be considered a possible solution but only a partial one. It is unlikely to restore historical levels of profitability. Shareholders and lenders will need to be educated about more reasonable return expectations. Publishers should not expect mergers and acquisitions (M&A) to be a major source of capital or liquidity in 2009, as credit is likely to remain constrained.
If local markets cannot be grown, diversification overseas could be a solution. Newspaper titles were still growing in number in mid 200818.
Finally governments could be asked for support, for example in the form of more favorable regulatory regimes19. Unions may also offer greater flexibility and wage concessions to keep a title running.
