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Are Newspapers Really Screwed?

Alley Insider claims newspapers are screwed, and provides a financial model to explain why. Using the New York Times as a case study, their conclusion is that newspapers are making a loss on content generation.

They make the extreme assumptions that print will disappear and that online profits will grow modestly. The other areas of the business are adjusted to compensate for the removal of print production.

The result? Losses. Massive losses. Revenue plummets from $789 to $285 million and profit is in the red by $64 million. This makes a fairly good case for their argument that the cost of content generation is too high.

However, the model omits some of the possible savings from removing newsprint.

Newspapers typically include the following business units:

To cut out the print side of the business means much more substantial savings in costs and staff than outlined by the article. In a web only newspaper, the Circulation and Production departments can go. The supporting staff can also be reduced, as the overall staffing will be lower.

The Editorial team can shrink, both in size and cost per employee. For examples, photographers don’t need high resolution cameras as print resolution isn’t required. The imaging department can be simplified or replaced by automated tools, as colour matching and image quality are simpler for the web. Layout of stories is not required, so layout staff can go. Web pages are uniquely designed, so the design staff can go.

The Advertising team can be significantly reduced. For a web only publication, online ad booking would be the norm, so the call centre can be mostly eliminated. The paginators (layout staff) aren’t required for web publishing, and the imaging and design departments can also be shrunk or removed.

This leads to a much bigger cost cutting than proposed by the article. I’d argue the the wages and salary cost, after staff reduction, is slashed by 50-75%. The Selling, General and Admin costs could be slashed by a similar amount.

Rather than the estimated losses of $64 million, the bigger staff reductions by the move to web-only provides a profit somewhere between $33 and $158 million. In other terms a profit of margin between 11% and 55%.

The amount of work involved in putting out a newspaper to print each day is underestimated when compared to online publication. I do not see newsprint dying off in the near future, and I will be surprised to see it go in my lifetime. However, if newsprint were to disappear, newspaper publishers could still be profitable content generators.