Friday, April 25, 2008

Investing in the news media ain't for sissies

The news business ain’t for sissies.

‘It was always so,’ I can hear the hacks (and former hacks) mutter. Indeed. But these days it doesn’t only take guts to make it in the newsroom, it also takes nerve to be in the boardroom – and on the trading floor.

Technological changes and challenges that have been rocking the newspaper industry and reshaping its culture for a decade and more have combined with increasingly dire financial prognoses. In the United States, an industry whose health has been declining for years got sicker still in 2007, with circulation, advertising revenues, and profit margins all falling – and, in a spreading number of markets, taking staff size down with them; one newsroom executive ordered to plan another round of cuts described the situation as “past bleeding – we’re into amputation now”.

In Britain, the picture hasn’t been that gloomy – until recently. Consider, for example, that in 2006 profits still flowed like ink at regional newspaper giant Johnston Press, long considered the best performing amongst its peers. The picture looked rather different in 2007 and, given the general economic gloom, the forecast for 2008 isn’t any better.

Perhaps it’s not surprising that analysts at Deutche Bank and elsewhere are yelling ‘sell’ and the share prices for news media companies seem to have gone into freefall. Share prices for Johnston ( JPR ), Trinity Mirror (TNI ) and Daily Mail & General Trust, which includes Northcliffe Media ( DMGT ), have more-or-less halved over the past year. And things aren’t much better for the largest regional news group in the UK, Newsquest, owned by US-based Gannett, whose share price (GCI) closed at $27,.93 yesterday (24/04/08), down from $56.73 exactly a year ago.

So, what’s going wrong? And, perhaps more critically, what can we do about it?

That’s the focus of the 9th Journalism Leaders Forum on 29 April and a theme I’ll continue to explore this summer, thanks to some funding from the Centre for Research-Informed Teaching at the University of Central Lancashire where I work.

The issue is complex and answers aren’t likely to be simple (and comments, suggestions would be very much appreciated). Yes, the much-discussed trio of changes in technology, economy and demographics have indeed played a part. But I’d suggest that, as the folks at AA will tell you, the first step to recovery is looking in the mirror and ‘fessing up.

Sam Zell, the US real estate magnate who bought the Tribune Company and took it private late last year, thinks that too.

Speaking at an Inland Press Association meeting (reported by Martha Stone in the Shaping the Future of the Newspaper report 7.3), Zell said, “I think the newspaper industry has stood there and watched while other media enterprises have taken our bacon and run with it...It’s too much complacency… [The industry has been] standing there and letting this happen while Rome is burning.”

Of course, that’s not entirely true. Some folks have fiddled a bit (see Mark Andressen’s NYT ‘Deathwatch’ ), but others (most notably companies outside of the US, such as Nordjyke Medier in Denmark) got cracking and are coining it.

Deutche Bank senior analyst Paul Ginnocchio suggests that is't not only about what media executives are doing that is a problem - there's also things they should STOP doing. When Martha Stone asked him, "What are some of the most common mistakes publishers make that diminish their business in the eyes of analysts?," he replied:

"It's focus more on margins than revenue growth.

For a long time they thought Wall Street was focussed on margins. But Wall Street cares about profit growth, not margin expansion. I think the market know now that you can't cut your way to profitability. It's not a cost issue, it's a revenue issue.

Growth takes investment. [emphasis added]"

Investing in the news media during a downturn! Now that certainly aint' a job for sissies.