Last week Sequoia Capital, the venture capital firm that funded Apple, Oracle, Cisco and Google, among others held a meeting and made a presentation to its portfolio companies about how to try to survive an economic downturn. The attached presentation is quite in-depth and technical however it does a good job of highlighting the implications on future spending habits.
The implications from the presentation for newspaper publishers are troublesome. We already know the print advertising model has been rapidly failing since the second quarter of 2006. Now, the increased exposure and reliance of newspapers on internet advertising and internet advertising growth can become a deadly problem.
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By relying on internet advertising for revenue, newspapers have aligned their business model with direct marketing / direct mailing companies and ultimately blogs. Those companies are built to operate on thinner profit margins. For newspapers, though this a huge problem. Why? Online ads have tangible, analytical, metrics associated with them and advertisers use those metrics to decide how effective – COST EFFECTIVE - their presence is on newspaper sites. Newspapers will be running those ads at MUCH thinner profit margins than what they are used to with their print counterparts.
Here’s Yahoo’s take: Why Online Ad Revenues Are Falling for Newspapers
Lets put this into context. The number one ranked news site in Sessions per Person is DrudgeReport.com whose payroll is just ONE GUY linking out to news sites and generating $56million a year. The 1st newspaper to appear on the list is Gannett at 13th place whose payroll is 46,000 employees generating $7.4billion annual revenue or $161,000 per employee. Gannett also has negative $1.7billion on their balance sheet.
Newspapers’ Web Revenue Is Stalling The New York Times reporting supports my assumptions about ad revenue decline. The article focuses on the problems associated with ad network performance however and does not address an unsustainable business model.
Expect a few, if not many, newspaper bankruptcies in the next 12 months. My first prediction is JRCO, Journal Register Company which is already in a forbearance agreement with its banks. My second pick is MNI, McClatchy. Here’s why.
Keep that in mind when watching this presentation and pay particular attention to slide 32 labeled “advertising markets are cracking”:
So how do newspapers compete? By offering a product or service that no pure play internet company can also provide OR STEAL. Are newspapers doing this? No. They are instead focusing their efforts on catching up to internet companies and multimedia broadcast companies who had embraced the internet. long ago. This cannot last.
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I ‘ve been on your site a couple times in the last day or so. WOW, I think
your trying to scare me. What is the future for young guys like us in this
industry?
There is always a future for smart young guys like you and I… somewhere. The problem is that no one is getting print newspaper subscriptions any more. It really blows my mind that the some newspapers are spending $millions to consolidate when they won’t need the capacity in 1-2 years. That overcapacity could have been out-sourced to local printers cheaply and the money saved reinvested into new products. You have to keep in mind that there is a minimum number of subscribers a publisher can maintain before reaching the “tipping point”. Below that, the business model is untenable.
Keep going to school and don’t rule out the possibility of a career change some time down the road. Be wary of the number of printed newspapers laying in people’s driveways. Don’t see any? That’s a good indication of bad things to come. Go on careers.com or monster.com or craigslist and look for newspaper jobs. Don’t see many? That’s a good indication of bad things to come. Even if there is a printed newspaper 10 years out, the work atmosphere may be so defeatist, that you’d rather be doing something else.
All of the above assumes newspapers DO NOT innovate their print newspaper offering. If they do something unique and draw readers back to that model, then my above assumptions are invalid and we can all go on working. I’m trying to ignite a career with a diversified premier publisher, but the reality is that I’m looking for jobs outside of newspapers as well.
Stay in school,
Robert