As the new head of the Newspaper Publishers’ Association, Tim Pank-hurst copped some black comments when he told friends and colleagues about his new role. “Somebody said, ‘I hope there will be a newspaper industry left for you to save,’” says Pank-hurst, formerly editor of the Dominion Post.
He has taken on the job of champ-ioning newspapers just as inter-national soul-searching about their future is turning to high anxiety.
In the US, a series of bankruptcies and closures has sent a wave of fear through the industry. The deepening recession, combined with a credit squeeze, has delivered a lethal blow to newspapers already threatened by the rise of the internet. And owners of newspapers such as the Los Angeles Times, Philadelphia Inquirer and Chicago Tribune have filed for bankruptcy.
The knock-on effect has been a shaking of belief in the future of the industry, irrespective of local differences. The refrain in the blogosphere is the newspaper business model is broken. Investors smell the whiff of decline.
But New Zealand newspaper chiefs say they are trailing world trends – for the good. Never mind that Fairfax New -Zealand has just announced another 70 jobs to be cut in pre-production. “They’re bloody challenging times, but we’ve still got a fair bit going for us,” says Pankhurst.
“Being further removed and in a smaller market, we get warning of what’s coming. We have the luxury of seeing what might be two or three years out. I think a lot of those factors [influencing events in the US] are not replicated here. I don’t accept that the model is broken here.”
He is right in one sense – the full force of the internet revolution that is sinking some US papers has not hit here yet. Broadband subscriptions are equivalent to 20% of the population, whereas in the US it’s 25%.
So, how are our newspapers doing? The share of the population reading a daily newspaper is shrinking. In 1993, two-thirds of the 15+ population read a daily paper on an average day; by 2008, it was only half.
Investors are bailing out of old media. The share values of our two biggest newspaper chains – Australasian companies APN and Fairfax – have plunged. And after accounting write-downs in the valuations of their mastheads, both companies have reported losses in recent months.
However, on a brighter note, even though a smaller share of the population is reading a daily paper, readership is up strongly for several papers. New Zealand newspapers have also been hugely profitable until very recently, with ad revenue growing 27% since 2000, according to analysis of advertising figures by the Listener. In the US, revenue fell 22% over the same period. Newspapers here are also more dominant in their local markets. Although many US cities are downsizing from two news-papers to one, that shake-up happened here long ago. New Zealand papers have high readership shares in their hometowns compared with papers in Australia and the US, making them attractive to advertisers. And that readership tends to be increasingly concentrated among higher-income readers.
The future of New Zealand newspapers, with few exceptions, is in the hands of two competing giants. Fairfax owns nine dailies in New Zealand, including the Press, the Dominion Post and the Waikato Times, as well as the Sunday Star-Times, Sunday News, Trade Me and a string of suburbans and magazines. The Fairfax empire, worth A$2.7 billion, includes Australian heavyweights like the Sydney Morning Herald, the Age and the Australian Financial Review.
Its rival is APN News & Media, which publishes the New Zealand Herald, the Herald on Sunday, seven regional dailies and magazines, including the Listener and the Woman’s Weekly. It also has 120 commercial radio stations. The biggest shareholder in the A$800 million company is Independent News & Media, of which Irish media mogul Sir Anthony O’Reilly is CEO and board member, and which recently tried unsuccessfully to sell its 39.1% stake in APN.
To reduce costs, both newspaper chains have cut subediting jobs, with Fairfax now moving to cut jobs in pre-production, too. Fairfax CEO Joan Withers said the latest cost-cutting would allow the company to position itself for growth in digital technology and new media.
“While this pre-press project would have been initiated regardless of the prevailing recessionary conditions, the current economic climate and challenges media companies are facing -globally underscore the need for companies such as ours to have a competitive cost structure,” she said when the cuts were announced.
Martin Simons, group publishing chief executive of APN, says the company cannot rule out further job cuts this year. “These are unprecedented times and one has to be prudent.”
Cost-cutting at Fairfax and APN to date has avoided wholesale cuts to the ranks of reporters, instead reducing the number of subeditors by centralising or outsourcing that work.
Fairfax NZ group executive editor Paul Thompson says, “I do strongly feel we need to make sure we’re working in ways where the number of reporters, photographers, feature writers and columnists is maintained and grows over time because that’s the magic that we do.”
Both Simons and Thompson claim there is no comparison between US and local papers. They say the US newspapers going under are not primarily victims of a failed business model, but have been hit by “bust capital structures” that loaded on too much debt. “You look at our papers and we’re weathering the storm really well. It’s a really tough time for all businesses in New Zealand, but we are still profitable and, in terms of readership and circulation, pretty stable,” says Thompson.
“I think really good regional newspapers, really good city newspapers are still a fantastic, successful business model. It’s the big city metropolitan papers in the US that are finding it very hard, even papers like the New York Times. That model is coming under strain, where you have 1000 journalists in a newsroom and very expensive distribution.”
Thompson says Fairfax has just invested in a $30 million printing press for Christchurch’s Press, hardly likely if the company had no faith in the future of newspapers.
Simons is irritated by commentators who presume the industry is doomed. “People are jumping on the US bandwagon,” he says. “Newspapers have a very bright future, certainly in New Zealand and Australia. Circulations are holding up, our readership is very, very strong, and our connection to our readers and our advertisers is very close. Margins are still very healthy. Perhaps in years to come those margins will be more challenged and you’ll have to invest even more material into attracting niche audiences, but I don’t see newspaper profitability being eroded to the point where it is not a viable business.”
There may be some Kiwi exceptionalism at work. In many cases, overseas newspaper websites have put print editions at risk by sucking away readers, whereas the NZ Herald appears to be having it both ways. Readership of both the newspaper and the website have been rising, with the website in the top 10 in the country.
“It’s quite a big audience that we can do more with,” says Simons. “At the same time it’s not stopping us from growing our newspaper audience. So there’s a case study in progress there of success.”
Newspapers have always been good at making readership numbers look favourable. So, readership can be going up and down, depending how it’s measured. Taken nationally, daily newspaper readership has drifted down. The number of people reading an average issue of a daily newspaper fell from 1.7 million to 1.6 million over the 15 years to 2008, although part of that loss included about 100,000 readers affected by the 2002 merger of Wellington’s Evening Post and Dominion.
Three of the metropolitan dailies have grown strongly, with the Waikato Times up 18% between 1999 and 2008, the NZ Herald up 11%, and the Press up 10%. The big success story is Sunday newspaper readership, up 43% between 1999 and 2008, to a total of 1.4 million. That was largely due to the launch of the Herald on Sunday in 2004, which by 2008 had an average readership of 382,000.
But the other side of the readership coin is that these figures don’t take account of a strongly growing population. When set against population figures, daily news-paper readership is down significantly. For advertisers, the share of the population reading a paper is vital. Readership by under-40s fell fastest, with just 35% of that age group reading a newspaper on an average day by 2008. But less well known is that readership is falling almost as fast in the 40-64 age group.
Should we care about the future of newspapers? Some readers are celebrating the shake-up of this 400-year-old industry. Said one visitor to the Guardian website last month: “Dear British Newspapers, Sorry it has come to this. But it’s about time you died down. … You are forever scaring us from one issue to the next to sell your papers, and we don’t have to do this anymore. A thing called the internet has come. You see, we don’t have to listen to your opinionated drivel anymore. We can choose and find information we want and need.”
Wellington news junkie Linda Clark, a consultant and political commentator, says she cancelled her daily newspaper subscription three years ago and hasn’t missed it. Instead, she gets a free online fix, and supplements it with blogs, overseas newspapers and magazines.
“The only thing about having a news-paper that I miss is there’s nothing to wrap my rubbish in. The quality of what’s in newspapers has declined. I think the range of subjects run in the media has contracted,” says Clark, referring to content driven by celebrities and “news you can use”.
If too many readers stop reading print editions, New Zealand newspapers would not make enough money to play the role they have in scrutinising society and politics. Newspapers provide a breadth of coverage that television and radio cannot match, and which internet-only publications have yet to emulate. It is hard to imagine a well-functioning democracy without newspapers.
They often lay the groundwork for what ultimately become bulletin-leading TV stories. For example, the Dominion Post broke the story on the Louise Nicholas rape allegations, with all its consequences for police, and the NZ Herald and the Dominion Post revealed critical aspects of the complex funding relationship between billionaire Owen Glenn, the Labour Party and Winston Peters, and documented the obfuscation that surrounded it.
A March 2009 paper by Princeton University economists found the closure of one of two papers in Cincinnati in 2007 had an immediate effect on political engagement in local elections. Voter turnout fell, incumbents became more likely to be re-elected, and fewer candidates ran for office. The authors, Sam Schulhofer-Wohl and Miguel Garrido, said, “If voter turnout, a broad choice of candidates and accountability for incumbents are important to democracy, we side with those who lament newspapers’ decline.
“Our findings suggest that even a small newspaper – the Post sold about 27,000 copies daily in 2007, compared with the Enquirer’s 200,000 – can make local politics more vibrant. Although competing publications or other media such as TV, radio and blogs may take up some slack when a newspaper closes, none of these appears so far to have fully filled the Post’s role in municipal politics in northern Kentucky.”
But aren’t newspapers profiting from the new media age, with their websites and the dissemination of newspaper content by bloggers and news aggregator sites? Some industry leaders believe it was a huge miscalculation to put free news content on the web in the hope internet ads would cover the cost of newsgathering.
In the US, after initial hopes that internet ad revenue would plug holes in declining print revenue, newspaper internet ad revenue fell last year for the first time. “Nobody is making money with free content on the web except search,” News Corp chief executive Rupert Murdoch griped recently.
News bosses have begun scrapping with Google in recent weeks, as they desperately look for ways to regain control of their news content. The scenes echo the earlier unsuccessful fight by music companies against free downloading of music on the web.
Wall Street Journal editor Robert Thomson told the Australian in April that companies like Google were profiting from the “mistaken perception” that content should be free. “There is a collective consciousness among content creators that they are bearing the costs and that others are reaping some of the revenues – inevitably, that profound contradiction will be a catalyst for action and the moment is nigh,” he said. “There is no doubt that certain websites are best described as parasites or tech tapeworms in the intestines of the internet.”
And he went on to describe media blog and comment sites as “basically, editorial echo chambers rather than centres of creation”, exploiting the quality of traditional media at the same time as they were criticising it.
Even the New York Times made only 12% of its revenue online in 2007. Fairfax Media made 9% of its revenue from online sources the same year, according to a special report by Deutsche Bank on the Australian newspaper industry. However, a large part of that was from Trade Me, an auction house rather than a newspaper website. Online revenue for APN stood at only 1.7% of total company -revenue, according to the report.
APN’s Simons says the NZ Herald news website “makes substantial money”, but commercial sensitivity prevents him revealing the figures. Thompson says Fairfax’s stuff.co.nz is also a money-spinner. However, he acknowledges Stuff doesn’t pay Fairfax newspapers for the cost of generating the news they provide to the site.
Overseas precedents suggest as yet no internet-funded model can bankroll the expensive, labour-intensive work that newspapers do – and which is primarily funded by newspaper advertising.
The cold winds of recession have made speculation about print’s future a more urgent obsession. Historically the bedrock of newspaper finances in New Zealand, print ads make up some 70% of a newspaper’s revenues, and the cover price the rest. Newspapers here have had some good years recently, and they are still the most widely used advertising medium. But with the economy in retreat, advertisers are slashing budgets. According to Advertising Standards Authority figures, ad revenue fell 8% to $760 million in 2008 – much less than the 17% fall in the US, but still a big drop. Advertisers spent $66 million less on newspaper ads in 2008, but $58 million more on internet advertising.
Ad agencies say newspapers are discounting heavily in an attempt to sell ads. “There have been very big deals and the sort of deals that would never have been put in play in past years,” says Nigel Keats, managing director of media agency OMD, saying he has seen two-for-one deals offered.
Meanwhile, newspapers are getting a good share of the $193 million earned in online advertising in 2008. That is because Fairfax and Herald websites are prominent as “portal” sites that pull in large numbers of visitors. However, Interactive Advertising Bureau chief executive Greig Buckley says the trend is for portal sites to play a diminishing role as the audience fragments and finds niche areas of interest on the web.
Instead, search engines like Google are expected to be the fastest growers in internet ad revenue. Google is offering a new internet advertising tool that no newspaper can match, linked to key search words. Type in “mobile phone” and a string of mobile phone ads pop up on the right-hand side of the screen.
Keats says, “I’m getting people who are looking for mobile phones, I’m getting them when they are looking for a mobile phone, and I’m only paying when they go through to my site and become a warm prospect to buy one.”
It isn’t widely known that Google has already cornered a huge share of internet ad revenue in New Zealand. Buckley puts Google’s current share at roughly a third of interactive revenue here.
Thompson says print advertising is still paying the bills for newspapers. “No one actually knows what model is going to eventually emerge to replace the advertising-funded big newsrooms, investigative journalism, foreign correspondents and massive wire services,” he says.
“It’s a time of revolution. Something quite different, something we haven’t thought of will emerge. It will grow over time. And new publishing models will emerge, new ways of paying for journalism will emerge. These things could take decades.”
The immediate question is whether the downturn in ad revenue for the New Zealand newspaper industry is short-term or a tipping point. Simons is optimistic. “I’ve no reason to believe that advertising won’t come back better and stronger than it was prior to the recession,” he says. “The main difference between the advertising figures this year and last year is the drop-off in recruitment advertising. It’s quite explainable because people are freezing or cutting head counts.”
But some analysts see bigger forces at work. In the Deutsche Bank report, analysts recommended investors avoid the sector. The January report, titled “Nowhere to Hide”, said although the Australian publishing industry had outperformed its overseas peers in recent times, it could not escape the impact of major shifts now under way.
“Over the past few years, the overseas newspaper publishers have experienced a rapid deterioration in earnings accom-panied by dramatic falls in market capitalisation,” the report said.
“Given similar industry dynamics we believe the current outperformance of the Australian publishers is unsustainable and expect the operating earnings of the Australian publishers to follow a similar downward trend as the US and UK publishers over the next few years, although perhaps not to the same extent.”
The report said Fairfax was in a stronger position than APN because of its greater investment in digital media, such as Trade Me.
Between July 2007 and January this year, the value of APN News & Media shares fell 65%. The company posted a $30 million loss for 2008 after writing down the value of its New Zealand assets and other one-offs. Chief executive Brendan Hopkins said the year had “produced the most challenging trading conditions that APN has faced as a listed company”.
And INM’s unsuccessful attempt to sell its APN stake caused more instability.
At Fairfax, share prices fell 71% between July 2007 and January this year. Fairfax reported a $462 million loss for the second half of 2008 after writing down asset valuations. Its New Zealand publishing division was its worst-performing, with revenue down 26%.
For now, New Zealand newspaper chiefs are hoping strong readership and high penetration in their local markets will buy them valuable breathing space as they adjust to changes in global media. And they will have to wait and see whether wary advertisers will come back to them in strength once good times return.
Pankhurst thinks there is still time. “I’m not putting my head in the sand. You can see the trends. But it’s not all just going to flood out of papers overnight. If we’re smart about it, we’ll capture both and still prosper.”