WALL STREET JOURNAL.
In News Industry, a Stark Divide
Between Haves and Have-Nots
Local newspapers are failing to make the digital transition larger
players did — and are in danger of vanishing
Keach Hagey, Lukas
I. Alpert and Yaryna
Published May 4, 2019 at 12:00 a.m. ET
After suffering a historic meltdown a decade ago in the financial
crisis, American newspapers began racing to transform into digital
businesses, hoping that strategy would save them from the accelerating
decline of print.
are in: A stark divide has emerged between a handful of national players that
have managed to stabilize their businesses and local outlets for which time is
running out, according to a Wall Street Journal analysis of circulation,
advertising, financial and employment data.
have suffered sharper declines in circulation than national outlets and greater
incursions into their online advertising businesses from tech giants such as
Alphabet Inc.’s Google and Facebook Inc. The data also shows that they are
having a much more difficult time converting readers into paying digital
The result has
been a parade of newspaper closures and large-scale layoffs. Nearly 1,800
newspapers closed between 2004 and 2018, leaving 200 counties with no newspaper
and roughly half the counties in the country with only one, according to a
University of North Carolina study.
about 400 online-only local news sites have sprung up to fill the void,
disproportionately clustered in big cities and affluent areas, the UNC study
of the local news landscape is leaving Americans with less information about
what's happening close to them, a fact Facebook recently acknowledged as it
struggled to expand its local-news product but couldn’t find enough stories.
Local TV news is still a major, if declining, source of news for Americans, but
local newspapers are vanishing.
“It’s hard to
see a future where newspapers persist,” said Nicco Mele, director of the
Harvard’s Shorenstein Center on Media, Politics and Public Policy, who predicts
that half of the surviving newspapers will be gone by 2021.
in print circulation intensified markedly after the recession, hitting
just about every industry player.
almost 300 newspapers tracked by the Alliance for Audited Media for which
complete data is available, circulation fell for all but a handful between
2012 and 2018, a Wall Street Journal analysis of the data showed.
pace of the declines varied. At three national papers, The Wall Street
Journal, the New York Times and the Washington Post, circulation dropped
an average of 29%. By comparison, the median drop at major metro papers
with circulation of more than 200,000, like Hearst’s Houston Chronicle and
Tribune Publishing Co.’s Chicago Tribune, was a steeper 41% over that time
was even more pronounced among mid-sized papers with circulations between
100,000 and 200,000 —papers like Advance Publications Inc.’s Oregonian and
A.H. Belo Corp.’s Dallas Morning News, where circulation dropped some 45%
between 2012 and 2018. As print ads disappeared, the publishing cost of
maintaining a bigger circulation became untenable for many papers. Smaller
papers with circulation under 20,000 were actually somewhat better off,
with a median circulation drop of only 41%.
THE ADVERTISING BLOODBATH
advertising revenue hammered, online ad sales had seemed like the answer. But
online ads fetch a mere fraction of the price of print ads.
result, digital ad sales didn’t come close to offsetting what was being lost
Few people in
the industry understood just how potent Google and Facebook would become in
online advertising. By 2017, they accounted for 86% of all growth in the
industry that year, according to Brian Wieser, a former analyst at Pivotal
Google and Facebook have siphoned ad dollars away from all publishers, local
news publishers have been the hardest hit. The tech giants suck up 77% of
the digital advertising revenue in local markets, compared to 58% on a
national level, according to estimates from Borrell Associates and eMarketer.
When you look at what’s evolved, and the amount of
revenue that’s going to the Googles and Facebooks of the world, we are
getting the crumbs off the table.
Alan Fisco, the
president of the Seattle Times
newspaper companies tried to team up with the tech companies, creating “local
marketing services” units that heavily resell Google and Facebook ads. The
profit margins, however, are slim.
former publisher of the Omaha World-Herald and former CEO of its parent company,
Berkshire Hathaway’s media group, believes one solution is to allow publishers
to collectively negotiate with the tech platforms. He backs legislation that
would make that possible. A similar bill didn’t advance far in the last Congress
but Democrats are hopeful that the latest version, which has a Republican
co-sponsor, will gain momentum in the Democratic-controlled House.
help but admire Google’s business model,” Mr. Kroeger said. “They have close to
zero content-creation cost, but are able to turn around and sell the lion’s
share of the advertising.”
A LIFELINE IN DIGITAL SUBSCRIPTIONS?
Putting up a
digital-subscription paywall has so far only worked for a few.
large national papers have had some success, attracting more subscribers to
their digital product than their print paper.
years, News Corp’s Wall Street Journal was alone among major newspapers in
requiring readers to pay for articles online, a decision it made in 1996. In
2011, New York Times Co. followed suit.
Times boasts 3.4 million digital subscribers—2.7 million of whom are paying for
the news product, with the rest springing for crosswords and cooking extras—and
a newsroom of 1,550 journalists, the largest in its history. The Journal has 1.7
million digital subscribers and a newsroom of nearly 1,300.
Post, which launched a paywall in 2013, has transformed under the ownership of
Jeff Bezos into a national digital enterprise, amassing 1.5 million digital
subscribers, according to people familiar with its operations.
newspapers have their own challenges and are far from out of the woods. But they
have all managed to increase revenue with the help of digital subscriptions,
bucking the trend at their local counterparts. The Times charges $15 for a basic
monthly subscription, the Post, $10, and the Journal, $39.
bigger outlets have been much more efficient at converting online readers
into paying digital subscribers than local publishers. The Times converts
3.6% of its readers and the Journal 4.5%, while Gannett, which has a big
audience across its local papers, is especially inefficient, converting
just 0.4% of its digital audience into paying subscribers, according to
the Journal’s analysis of digital audience and subscription data. Many
paywalled sites allow casual users to sample some content for free.
Gannett says that excluding USA Today, its largest source
of web traffic, and other papers that do not have paywalls, its conversion
rate would be 1.4%.
The Dallas Morning News in 2011 became the first major
regional U.S. outlet to make readers pay for news online. The paper, which
relaunched its paywall in mid-2016 after two previous attempts, now counts
around 30,000 digital subscribers, according to people familiar with the
matter, but that contributed only 5.6% of its total circulation revenue in
2018. In the past 15 months, the paper has cut more than 170 employees. A
major investor is now urging the company to consider a sale.
Minneapolis Star Tribune, owned by billionaire Glen Taylor, has signed up
60,000 digital-only subscribers, and takes in around $200 million in
revenue annually, which has allowed it to maintain a newsroom of around
250 for the better part of a decade. “We have stayed profitable, but it
gets tighter every year,” said Michael Klingensmith, the paper’s publisher
and chief executive. The Star Tribune will need to surpass 150,000 digital
subscribers to be sustainable in the longer term, he said.
notable outlier is the Boston Globe, which has amassed 111,000
digital-only subscribers at the robust price of $1 a day, allowing it to
support its newsroom of 200 journalists on digital subscription revenue
alone. Globe President Vinay Mehra says the paper’s focus on investigative
reporting and sports under Boston Red Sox owner John Henry, who bought the
paper in 2013, has propelled its success. Some 35% of those digital
subscribers are from beyond New England, a testament to the popularity of
the Red Sox and New England Patriots—a luxury few papers have.
Seattle Times, which has been locally owned for 122 years, has racked up
42,000 digital-only subscribers since launching its paywall in 2013, the
company's president, Alan Fisco, said. But, he added, it is still far from
the 100,000 digital-only subscribers it needs to be able to fund its
newsroom of 150.
publisher of the Reading Eagle, thought he did everything right according to the
industry’s digital growth playbook. When the heir to the multibillion dollar
fortune behind brands like The North Face and Timberland took over his family’s
Pennsylvania newspaper in 2011, he quickly put up an online subscription paywall.
He also grew web traffic, embraced social media to promote stories and built up
a digital ad sales team — all now considered vital components of any newspaper’s
digital turnaround strategy. All the while he built up a high-quality newsroom
that won awards.
enough. The Reading Eagle signed up only 3,000 subscribers, not enough to make a
difference with online ad sales hitting the Google-Facebook wall and print
revenue falling roughly 25% in just the past two years.
In March, the
paper Mr. Barbey's family has owned since 1868 filed for bankruptcy. "It’s like
we were in a canoe paddling upstream and there was a waterfall behind us," Mr.
Buffett’s U-turn on newspapers is an indicator of the industry’s predicament.
The legendary investor began buying up local papers in 2011, betting they could
overcome the horrible economics of the print business by making a transition to
Last year the “Oracle of Omaha” turned over management of his papers to another
company, Lee Enterprises. He recently told Yahoo Finance that newspapers were
"toast," adding that, with the exception of the three biggest national papers,
"they are going to disappear."
some outlets, such as the Omaha World-Herald, talked about paywalls for years,
but didn’t truly get serious about them until recently, by which point staff
cutbacks had made it hard to put out a product people would pay for. Mr.
Buffett, whose company purchased the paper, told the Journal that the
World-Herald’s digital product had “grown significantly in the past year,” but
“remains well short of where it needs to be.”
A SHRINKING INDUSTRY
many in the news industry believed that even if newspapers vanished, journalism
would flourish in a lower-cost, digitally native form. But those hopes proved
jobs declined by 60% from 465,000 employees to 183,000 employees between
1990 and 2016, according to the Bureau of Labor Statistics. Since January,
more than 1,000 newspaper jobs have disappeared through layoffs and buyouts.
Jobs in the
Bureau of Labor Statistics’s internet publishing and broadcasting category, the
best measure of online news employment available, rose from 29,000 to 197,800
during the same period. Those jobs have been highly concentrated in New York and
California, according to a Journal analysis of Bureau of Labor Statistics data.
leave large swaths of America with radically diminished access to local news. A
future without newspapers, Mr. Mele of the Shorenstein Center, says, is
“actually a crisis for democracy.”
outlets, no amount of job cuts could save them. Openings of online-only news
sites haven’t made up for flood of newspaper closures. The result is that rural
areas and poor neighborhoods are fast becoming news deserts.
Newspapers’ financial woes have spurred consolidation. Financial investors
such as hedge fund Alden Capital, backer of MNG Enterprises, and private
equity firm Fortress Investment Group, operator of Gatehouse Media, are
now formidable players and are pushing for ever-deeper cost cuts. MNG,
which was formerly known as Digital First Media, is pursuing a hostile
takeover of Gannett Co., the largest newspaper chain by circulation. MNG
is skeptical of newspapers investing heavily in digital strategies,
pointing to Gannett’s $350 million in digital acquisitions as a strategic
owns the Denver Post and San Jose Mercury News, says “the newspaper business is
in secular decline,” arguing the better strategy is to focus on profits now.
“What Alden is
doing is liquidating,” said Dean Singleton, who founded the company that now
forms the crux of MNG Enterprises and pioneered several newspaper cost-cutting
measures, but who is no longer associated with the company. “They are taking the
cash out as quickly as they can and reinvesting in businesses they think have
more promise. It may be a very good business strategy, but it is not a good
MNG says its
aim is to make newspapers sustainable, not close them.
PROPPING UP NEWS
journalism’s business model foundered, many in the industry began to believe
that it could only be rescued through charity or outside support.
Facebook have each announced $300 million commitments to help strengthen
journalism, including funds earmarked for local news, and Craigslist founder
Craig Newmark has given more than $85 million to journalistic causes.
2010 and 2015, foundations gave $80.1 million in grants to local and state
nonprofit news organizations, according to a study by the Shorenstein Center
and Northeastern University. That amounts to just 5% of the total that
foundations gave to media, and less than one one-hundredth of the $8.3
billion in revenue that newspapers lost during that time, according to the
study and a Journal analysis of Pew data.
At the moment,
national institutions like the Knight Foundation are the largest source of
funding for local nonprofit journalism.
There has been a very significant outpouring of
national support for local journalism, philanthropically, in the last
year or two, but there has been very little local support for local
Richard Tofel, president of the nonprofit journalism outlet ProPublica
In part that
may be because local journalism’s financial woes are not widely known. A recent
Pew study found that 71% of Americans believed local news outlets were doing
well financially, though only 14% actually paid for local news.
the chief executive of the Lenfest Institute for Journalism, which owns the
Philadelphia Inquirer and supports local journalism initiatives, said the
nonprofit organization has worked hard to attract financial backing beyond gifts
from local billionaire H.F. “Gerry” Lenfest.
has raised more than $20 million more from other donors by positioning news as a
“There is no
reason why other communities can’t follow suit,” Mr. Friedlich said. “Indeed,
Illustration by Doug