Oh, what an ugly difference a dozen years can make.
At the beginning of the 21st century, the newspaper business was a happy one, fed by fat profit margins and a lack of competition in most cities. Philadelphia was no different: Yes, it had two major daily papers, but they shared an owner, reached different audiences — and maximized revenue.
What’s happened since then has been brutal. Everybody knows about the bankruptcy, revolving door ownership, and multiple rounds of layoffs that the Inquirer and Daily News — along with their digital cousin, Philly.com — have experienced in recent years. But a new document obtained by Philadelphia magazine shows just how deep the pain went.
The document is called “Interstate General Media: EBITDA Trend – 2000-2012.” (EBITDA stands for “earnings before interest, taxes, depreciation, and amortization” and is one way to measure a company’s profitability.) And it reveals how the finances of Philadelphia’s leading newspapers imploded during that time — a period covering four owners: Knight Ridder, McClatchy, Brian Tierney, and finally the hedge fund owners who brought the newspapers out of bankruptcy. The last two years — that include two different sets of local ownership, one headed by George Norcross, the more recent one by Gerry Lenfest — are not included.
The document reveals:
- That total advertising revenue — the financial backbone of the papers — dropped by three-fourths over a dozen years, plunging from $465.5 million in 2000 to just under $113 million in 2012.
- That circulation revenue — the money contributed by the audience in the form of subscriptions and single-copy sales — fluctuated a bit, but ultimately fell precipitously from $118 million in 2000 to $81 million. (The Inquirer’s actual circulation fell even more quickly — from 373,892 copies a day in 2002 to 166,104 during the most recent audit in May)
- All of that had an effect on the final product: Labor expenses — including journalists — dropped from $243 million in 2000 to $135 million a dozen years later.
- Even with such cuts, the papers thus went from a $145.8 million profit in 2000 to losing more than $5 million in 2012.
“Nothing surprises me when it comes to our numbers being down,” said Howard Gensler, the Daily News gossip columnist and president of the Newspaper Guild, which represents the journalists of IGM. “The value of the company shrank immeasurably from 2005 to 2012. My guess is the numbers prove that.”
In some ways the story is no different than what happened nationwide: Advertising revenues plunged in the mid-aughts, driven by both the recession and free competition from websites like Craigslist. Audiences moved online — where the newspaper industry still hasn’t quite figured out to make a profit — leaving many newspapers with diminished print circulation even as they reached more people than ever before through the web. (Indeed, as the New York Times’ David Carr notes in his latest column, Gannett, Tribune, and Scripps — three of the biggest media companies around — have recently decided to rid themselves of their newspaper properties.)
“It’s across the board in the newspaper industry,” said Jim Conaghan, vice president of research for the Newspaper Association of America. “A fairly substantial change in a short period of time.”
Still, there are reasons to believe that Philly’s newspapers suffered more than the industry as a whole during the time period.
- Both Philadelphia and the national industry started seeing double-digit percentage drops in total advertising revenue starting in 2008 — when the recession set in — and continued that trend for several years. In 2010, 2011, and 2012, though, the industry’s losses became somewhat shallower, averaging in the single digits, while Philly posted losses of 12, 20, and 16 percent of total advertising during those years.
- While circulation revenue has trended somewhat downward in recent years, industrywide, its decline has been nowhere near as fast as the drop in Philly: The industry as a whole reported $10.4 billion in circulation revenue in 2012 — down just about 1 percent from its $11.2 billion peak in 2003. As noted earlier, Philly’s circulation revenue declined much more dramatically — by nearly a third — since the report began.
Joe Natoli, who was chairman and publisher of the newspapers under the Knight Ridder regime that owned them through 2006, said The Inquirer may have taken a tougher blow than other papers because it had more competition in the suburbs than, say, the Minneapolis Star-Tribune, a similarly situated publication.
“It did OK in the city, but it was sharing market in the suburbs,” Natoli said. “That sort of weakened the enterprise.”
And Joshua Benton, director of the Nieman Journalism Lab, noted that mid-sized “metro” papers like the Inquirer and Daily News have been hurt the most by the industry’s recent travails — without the national clout of bigger papers (like the New York Times) and the audience loyalty of smaller, more local papers, the metros simply suffered.
“Nobody’s figured a way out,” Benton said, “because there probably isn’t a way out.”
Interstate General Media declined, through a spokesman, to make any executive available for this story. Philadelphia magazine attempted to contact some key figures from the different ownership groups that oversaw the dozen-year decline — including former publishers Brian Tierney and Greg Osberg, as well as Richard Thayer, the former vice president of finance under Tierney. None of them returned calls.
“Part of the problem has been not just a lack of quality management, but a lack of consistent management. From 2005 to 2012, we had, what was it, five owners?” Gensler said. “Everybody comes in and tries to undo what the previous person did. There hasn’t been any stability in any of the decision making — whether any of the decision making was good or bad. I could say it’s bad, but you don’t know how bad it is because two years later, there’s a whole new team enacting a new strategy. While the universe was tanking, we couldn’t figure out what to do about it.”
Natoli was a Knight Ridder veteran: His company sold its newspapers to McClatchy — including those in Philadelphia — just before the plunge began.
“I think the changes in ownership have certainly not been helpful, they’ve been a distraction,” Natoli said. “But the macro changes are not that different from what you’d find elsewhere.”
The problem — in Philly and elsewhere — is that print advertising has declined radically, but also remains the revenue backbone of the papers. In 2012, for example, circulation revenue in Philadelphia exceeded print advertising for the first time — $81 million to $78 million — but that $78 million still represented a third of the company’s revenues. (Digital advertising wasn’t even tracked by the company in 2000; in 2012, the $15.3 million earned from online advertising amounted to little more than 12 percent of the company’s ad revenues.)
“The challenge is that no advertiser is moving market share into print advertising,” said Natoli, now the chief financial officer at the University of Miami. “That’s a challenge if where most of your money comes from is losing share. That’s probably not going to change. Technology has passed the printing press by.”
Which leads some to suggest radical change is needed if the newsrooms are to survive. Neil Oxman is a Philadelphia political consultant and ally to former IGM co-owner George Norcross. Oxman’s firm did some marketing for the papers during Norcross’s reign, and Oxman was privy to some audience research commissioned for the papers during that time.
He particularly decried the “evolution not revolution” approach reportedly favored by Inquirer editor William Marimow.
“The Inquirer is still one of the 10 best daily newspapers in the country, period. The Daily News is one of the top three or four tabloids, period,” Oxman said. But he pointed to reports that Marimow had resisted using Norcross’s audience research to make sweeping changes to the Inquirer. “I think that’s incredibly arrogant,” Oxman said.
Marimow would not talk to Philadelphia magazine for this story. Daniel Rubin, the Inquirer’s deputy metro editor for enterprise, said Marimow had spent the revenue decline years defending the integrity and aggressiveness of the paper’s journalism.
“He insulated us from the ticking of the clock in a way that lets us do the best version of the story,” Rubin said. Under Lenfest’s ownership, he said, “we have the opportunity to figure out how to get the most out of what we’ve done, instead of fighting among ourselves. And that’s what we’re going to do.”
Of Oxman and his relationship to Norcross, Rubin added: “I think Neil Oxman is still fighting the last war. Which his side lost, by the way.”
A Way Forward?
Reinvention will probably be difficult. Benton, at Nieman Journalism Lab, didn’t speak directly about the Philadelphia experience. But he suggested that newspaper executives should change their approach to meet the changing expectations of both the audience and advertisers. That could mean delivering quick content for some readers; in-depth content for others, something else entirely for other readers.
“Quality means a lot of different things to different people,” Benton said, but added: “Speaking broadly, I don’t think building a really good version of a 20th century newspaper” will work.
Conaghan of the Newspaper Association of America offered a slightly optimistic outlook. The web, he pointed out, had grown the audiences of newspapers dramatically, even if many of those audience members aren’t paying print customers. Indeed, IGM routinely boasts that its print and web publications reach 1.7 million audience members in an eight-county area surrounding Philadelphia.
“Our financial picture is dramatically different,” Conaghan said of the newspaper industry. “The audience picture is better, has improved.”
The difficulty, he said, will be to align new, smaller revenue streams with the cost of producing the news.
“I think it’s really difficult for all media, including the online-only platforms,” Conaghan said. “Some of the biggest online-only names out there aren’t necessarily boasting profits. They haven’t settled their own financial situation.”
Benton sounded a similarly grim note.
“There are plenty of ways to make money online,” he said. “They just tend not to be at the scale a metro like the Inquirer is accustomed to.”
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