McClatchy to give pay wall a pass

One of the largest newspaper chains in the U.S., McCatchy Co., is giving a big thumbs-down to the idea of charging for online content. McClatchy, which publishes such major dailies as the Miami Herald and Kansas City Star says it plans to keep access to its news sites free. CEO Gary Pruitt said Tuesday the company is "comfortable" with an ad-supported model without pay walls. "We are very comfortable with free content supported by advertising," Pruitt said. "We don't view it as fatally flawed. That said, if we could make ad revenue with paid products we would." Pruitt added in a speech to an online advertising conference in New York that McClatchy has no plans to block search engines such as Yahoo and Google because they drive 20 percent of traffic to McClatchy Web sites. "To disengage is to risk marginalization," he said. According to industy magazine Editor & Publisher, Pruitt said McClatchy has found the advertising-support search model profitable.

In fact, McClatchy credits its success in building online revenue to its alignments with several different Internet players including Yahoo, Cars.com and CareerBuilder. Pruitt told the Borrell conference that online revenue in 2009 accounted for 16% of total revenue -- up from 11% in 2008.

This kind of thinking is countintuitve amid the panic that has gripped other publishers lately in a declining economy. The New York Times recently announced it will erect a paywall in an attempt to boost revenues to make up for lost advertising revenue.

The Future of Newspapers and New Business Models for Growth

The intensive debate about the future of newspapers and print media is focused almost exclusively on news reporting and journalism. My focus is on commerce and the primary importance of establishing local newspaper sites, first and foremost, as the primary source for their communities' commerce needs and interests. The ongoing debates often miss the key point that consumers once relied on newspapers as their exclusive source for information on everything local for sale: to find houses, cars, jobs, restaurants, events, entertainment, products and services. As much as business concerns and issues may appear to be at the forefront in the corner offices at most major newspaper companies, it is the editorial product that management perceives as the core deliverable to consumers. Ads are the "fill" packaged to fit into and around the editorial content. But it should not be lost on the newspaper industry that those papers that continue to do well – pennysavers and local weeklies – design their content with advertising at the forefront and editorial content packaged around it. The debate today should revolve around the shifting relationship between editorial and advertising – and where the industry's priorities should be.
In today's full report available to subscribers, I share my recommendations for rebuilding the newspaper business and why I believe many newspaper and magazine publishers should be replaced in their jobs. I share an innovative new model for incorporating advertising into Kindle content and smart phone applications. I suggest that universities develop a new business curriculum focused on newspaper and media management, and argue for refocusing the fundamental discussions taking place in the corporate offices of leading newspaper and magazine publishers. I also include a new recommendation for generating $100 million in incremental subscription revenues for The Wall Street Journal.
If newspapers re-engineer their business models as I outline in this week's report, they will have an opportunity to regain their economic footing, enabling them to once again invest in journalism that is unfettered by economic concerns. In the long run, foundations are also likely to step up to underwrite journalistic enterprise. National news and investigative units will be underwritten by multiple newspaper organizations. Once local newspaper sites re-establish themselves as the primary source for their communities' commerce needs and interests, their news reporting and journalistic components will once again be allowed to thrive.
To communicate with or to be contacted by the executives and/or companies mentioned in this column, please email your information and the column headline to Jack directly at jm@jackmyers.com.

Gannett profit falls to 20%!!!

Another sure sign of the apocalypse for newspapers came this week when the country's largest newspaper chain reported its annual earnings. Despite the rotten economy, Gannett Inc. posted operating earnings of $219.1 million on revenues of $1.1 billion. That’s a profit margin of practically 20 percent. In its extensive broadcasting division, Gannett raked it in even faster in 2009, with operating income of $79.2 million on revenue of $183.2 million, which is a whopping 43 percent rate of return. So this is good news, right? Well, not according to investors, who punished Gannett’s stock with a one-day drop of almost 9 percent following release of its earnings. As one blogger noted, it’s all about expectations, realistic or not.

Gannett reaped $31 in EBITDA for every $100 sales in 2005 but its operating profits were only $20 for every $100 in revenues in 2009. Most companies would be tickled to have EBITDA of 20%, but that number looks fairly anemic when a business is accustomed to getting 31%.

Keep in mind that we’re talking about operating income, which shows that Gannett’s media businesses are still very profitable. However, if you take into account extraordinary, one-time charges against income, the picture becomes a bit bleaker. The company incurred restructuring costs in its recent downsizing that led it to an overall loss of $4.71 billion last year, but those cuts will help make the company more profitable in the future. Also, keep in mind that the profit measure we are using is return on revenue, which topped out at $8 billion in 2006 and have plunged 30.1 percent to $5.6 billion in 2009.