…Diller, Brill, and Murdoch seem be stating a simple fact—we will have to pay them—but this fact is not in fact a fact. Instead, it is a choice, one its proponents often decline to spell out in full, because, spelled out in full, it would read something like this:

“Web users will have to pay for what they watch and use, or else we will have to stop making content in the costly and complex way we have grown accustomed to making it. And we don’t know how to do that.”

-CShirky read the entire post on Shirky’s blog.

Total ad spending in the U.S. fell 12.3% to $125.3 billion in 2009, according to a report from Kantar Media (formerly TNS Media Intelligence).

Internet display advertising was up 7.3%, and free-standing inserts, up 3.0%.

While the economy had an impact in the numbers, clearly, the business model is not working.

Forbes is calling it “Meter Madness At The Times” and goes on to report-

Greg Mitchell, E&P’s former editor, termed the plan “vague.” Content Bridges’ Ken Doctor called it “a big bet.” Social media critic Mathew Ingram, blogger at GigaOm, wrote, “Why is the NYT waiting until 2011? This isn’t exactly rocket science to implement.” Reuters’ media blogger Felix Salmon minced no words, calling it “a sad day for online journalism.”

I confirmed it by doing a Google News search and then reading an article about it from the Free site Paidcontent.org where they also published the entire NYT memo to the staff.

I wish NYTimes.com all best I’m curious to see how this grand experiment (Round 2) works out. Remember Times Select was a failure, I’ve said it before and I’ll say it again, you can’t charge for general interest news in the internet paradigm.

Found via @ehelm on Twitter

“Sen. Ben Cardin (D-Md.) has introduced S. 673, the so-called “Newspaper Revitalization Act,” that would give outlets tax deals if they were to restructure as 501(c)(3) corporations.” 9/20/2009 -TheHill.com

So if going out of business and/or seeking a bailout from the Federal Government is not the bottom then hey, the Buggy Whip industry hasn’t hit bottom either.  The Buggy Whip makers have seen a stabilization and even increase in sales in the last few years… yep, things are fine.

Normally I like Dilbert comics.  They are witty and fun and relevant and I imagine the creator of those comics sometimes has a window into my world.  When I read Scott Adams blog post about saving newspaper though I couldn’t help but think that Bottleneck Bill or some other minor character wrote the piece.  Adams solution for a failing newspaper industry is called “super-local news” and relies on volunteers submitting content to newspapers… “the super-local news has to have lots of content about classrooms, Cub Scout meetings, local movies listings rated less then R, and that sort of thing.” Sounds like the internet only useless.

Adams states that this new newspaper will of course feature Dilbert comics.  *sigh* I’ll just pretend I didn’t read this Scott.

Steven Colbert is an influencer watched by millions and he just pronounced the floundering newspaper industry dead.  It’s impossible for Strum to come up with a single retort to “why buy the cow when you can get the milk for free?” and “if you’re serious about competing on the internet, why don’t newspapers have a huge porn section?”

A Change in Media Economics and Some Valuation Math

In last year’s report, I stated my opinion that the decline in
the profitability of media companies reflected secular as well as
cyclical factors. The events of 1991 have fortified that case: The
economic strength of once-mighty media enterprises continues to
erode as retailing patterns change and advertising and
entertainment choices proliferate. In the business world,
unfortunately, the rear-view mirror is always clearer than the
windshield: A few years back no one linked to the media business -
neither lenders, owners nor financial analysts – saw the economic
deterioration that was in store for the industry. (But give me a
few years and I’ll probably convince myself that I did.)

The fact is that newspaper, television, and magazine
properties have begun to resemble businesses more than franchises
in their economic behavior. Let’s take a quick look at the
characteristics separating these two classes of enterprise, keeping
in mind, however, that many operations fall in some middle ground
and can best be described as weak franchises or strong businesses.

An economic franchise arises from a product or service that:
(1) is needed or desired; (2) is thought by its customers to have
no close substitute and; (3) is not subject to price regulation.
The existence of all three conditions will be demonstrated by a
company’s ability to regularly price its product or service
aggressively and thereby to earn high rates of return on capital.
Moreover, franchises can tolerate mis-management. Inept managers
may diminish a franchise’s profitability, but they cannot inflict
mortal damage.

In contrast, “a business” earns exceptional profits only if it
is the low-cost operator or if supply of its product or service is
tight. Tightness in supply usually does not last long. With
superior management, a company may maintain its status as a low-
cost operator for a much longer time, but even then unceasingly
faces the possibility of competitive attack. And a business, unlike
a franchise, can be killed by poor management.

Until recently, media properties possessed the three
characteristics of a franchise and consequently could both price
aggressively and be managed loosely. Now, however, consumers
looking for information and entertainment (their primary interest
being the latter) enjoy greatly broadened choices as to where to
find them. Unfortunately, demand can’t expand in response to this
new supply: 500 million American eyeballs and a 24-hour day are all
that’s available. The result is that competition has intensified,
markets have fragmented, and the media industry has lost some -
though far from all – of its franchise strength.

* * * * * * * * * * * *

The industry’s weakened franchise has an impact on its value
that goes far beyond the immediate effect on earnings. For an
understanding of this phenomenon, let’s look at some much over-
simplified, but relevant, math.

A few years ago the conventional wisdom held that a newspaper,
television or magazine property would forever increase its earnings
at 6% or so annually and would do so without the employment of
additional capital, for the reason that depreciation charges would
roughly match capital expenditures and working capital requirements
would be minor. Therefore, reported earnings (before amortization
of intangibles) were also freely-distributable earnings, which
meant that ownership of a media property could be construed as akin
to owning a perpetual annuity set to grow at 6% a year. Say, next,
that a discount rate of 10% was used to determine the present value
of that earnings stream. One could then calculate that it was
appropriate to pay a whopping $25 million for a property with
current after-tax earnings of $1 million. (This after-tax multiplier
of 25 translates to a multiplier on pre-tax earnings of about 16.)

Now change the assumption and posit that the $1 million
represents “normal earning power” and that earnings will bob around
this figure cyclically. A “bob-around” pattern is indeed the lot of
most businesses, whose income stream grows only if their owners are
willing to commit more capital (usually in the form of retained
earnings). Under our revised assumption, $1 million of earnings,
discounted by the same 10%, translates to a $10 million valuation.
Thus a seemingly modest shift in assumptions reduces the property’s
valuation to 10 times after-tax earnings (or about 6 1/2 times
pre-tax earnings).

Dollars are dollars whether they are derived from the
operation of media properties or of steel mills. What in the past
caused buyers to value a dollar of earnings from media far higher
than a dollar from steel was that the earnings of a media property
were expected to constantly grow (without the business requiring
much additional capital), whereas steel earnings clearly fell in
the bob-around category. Now, however, expectations for media have
moved toward the bob-around model. And, as our simplified example
illustrates, valuations must change dramatically when expectations
are revised.

We have a significant investment in media – both through our
direct ownership of Buffalo News and our shareholdings in The
Washington Post Company and Capital Cities/ABC – and the intrinsic
value of this investment has declined materially because of the
secular transformation that the industry is experiencing. (Cyclical
factors have also hurt our current look-through earnings, but these
factors do not reduce intrinsic value.) However, as our Business
Principles on page 2-3 note, one of the rules by which we run
Berkshire is that we do not sell businesses – or investee holdings
that we have classified as permanent – simply because we see ways
to use the money more advantageously elsewhere. (We did sell
certain other media holdings sometime back, but these were
relatively small.)

The intrinsic value losses that we have suffered have been
moderated because the Buffalo News, under Stan Lipsey’s leadership,
has done far better than most newspapers and because both Cap
Cities and Washington Post are exceptionally well-managed. In
particular, these companies stayed on the sidelines during the late
1980′s period in which purchasers of media properties regularly
paid irrational prices. Also, the debt of both Cap Cities and
Washington Post is small and roughly offset by cash that they hold.
As a result, the shrinkage in the value of their assets has not
been accentuated by the effects of leverage. Among publicly-owned
media companies, our two investees are about the only ones
essentially free of debt. Most of the other companies, through a
combination of the aggressive acquisition policies they pursued and
shrinking earnings, find themselves with debt equal to five or more
times their current net income.

The strong balance sheets and strong managements of Cap Cities
and Washington Post leave us more comfortable with these
investments than we would be with holdings in any other media
companies. Moreover, most media properties continue to have far
better economic characteristics than those possessed by the average
American business. But gone are the days of bullet-proof franchises
and cornucopian economics.

http://www.berkshirehathaway.com/letters/1991.html

* Cablevision plans to charge for Newsday website

* Writes down Newsday value by $402 mln

Analyst Ken Doctor on his blog wonders what someone would be willing to pay for 4.5 minutes a month (the average site usage for unique visitors) for access.

Rocky Mountain News to close, publish final edition Friday -from RMN

The Rocky Mountain News publishes its last paper tomorrow.  “Denver can’t support two newspapers any longer,” Scripps CEO Boehne told staffers, some of whom cried at the news. “It’s certainly not good news for you, and it’s certainly not good news for Denver.”

What a crazy day in newspaper land.  No one expected the Newsday news.  I half jokingly tweeted that the NY Post and NY Daily News sites are expecting a bounce in visitors.  I’m curious to see what happens at Newsday, I suppose the alternative of them going bankrupt was unacceptable.

]]> http://blog.metaprinter.com/2009/02/newsday-ending-free-online-content-and-other-newspaper-news/feed/ 0