Last week’s news that Democrat and Chronicle owner Gannett had signed a definitive agreement to be acquired by New Media Investment Group was not a surprise to anyone who’s been paying attention. Yet there were questions aplenty in the wake of the announcement. Among them:
■ Is this deal a sign of more mergers to come in the beleaguered U.S. newspaper industry?
■ Where might the ax fall as the merged companies work to pay off the $1.8 billion in debt taken on to finance the deal (at an 11.5 percent interest rate).
■ For Rochester, what will it mean for one company to own the lion’s share of local papers? (The Beacon’s Alex Zapesochny asked this one even before announcement of the deal, which will bring the D&C, the Rochester Business Journal, the Daily Record, the Greece Post, the Brighton-Pittsford Post and more than a dozen other local publications under one corporate roof.)
To me, perhaps most interesting is the question that few have asked in the days since the definitive agreement was disclosed: Why are nearly all newspapers still struggling to find a digital news model that works? After all, it has been almost a quarter-century since newspapers first ventured online. Most claim to have adopted a “digital first” strategy years ago. Yet few papers today could cover the cost of their existing operations—let alone make a profit—with current revenues from their digital efforts.
H. Iris Chyi, an associate professor and new media researcher in the School of Journalism at the University of Texas at Austin, has called this “the inconvenient truth of the newspaper industry.”
In her 2015 monograph “Trial and Error: U.S. Newspapers’ Digital Struggles toward Inferiority,” she wrote: “The vast majority of U.S. newspapers have found no viable business models for any of their digital offerings.” In the four years since the book appeared, not much has changed—for the better, anyway.
State of the media
Each year, the Pew Research Center publishes a State of the News Media report. The 2019 edition observed that the “(newspaper) industry’s financial fortunes and subscriber base have been in decline since the mid-2000s, and website audience traffic, after some years of growth, has leveled off.”
The estimated total U.S. daily newspaper circulation—print and digital combined—in 2018 was down 8 percent weekdays and 9 percent for Sunday compared with the previous year. The number of unique visitors to newspaper websites has been flat for the last couple of years and average minutes per visit has fallen.
Helped greatly by substantial increases at elite newspapers like the Wall Street Journal, the New York Times and the Washington Post, circulation revenue industrywide has risen modestly, but money from advertising—traditionally the biggest source of revenues by a large margin—has plummeted. Digital ads account for a growing share of total newspaper ad revenue—reaching 35 percent in 2018, compared with 20 percent five years earlier—but not nearly enough to replace the lost print advertising.
What about the ‘new’ Gannett? New Media, which will retain the Gannett name for the merged operations, wrote in its press release about the acquisition that the two companies “believe that a digital transformation of the newspaper industry is vital to the preservation of journalism, and the merger will accelerate the combined company’s digital transformation.” But Ken Doctor, who writes the Newsonomics column for Harvard’s NiemanLab and is one of the most astute industry analysts, noted that “for a company whose revenue is only about 25 percent digital, the massive heavy lifting of ‘digital transformation’ lies ahead. … The new Gannett is much closer to the beginning of the digital transformation process than the end.”
That reality is not lost on investors. New Media’s stock price plummeted nearly 35 percent in the two days following the announcement, before recovery a bit of its lost ground; Gannett’s shares also fell and remain nearly 10 percent off their pre-announcement value.
An elusive model
From 1987 to 2017, I was editor of the Rochester Business Journal, owned since October 2016 by New Media’s operating entity, GateHouse Media. Over that three-decade period we considered the D&C our primary business-news rival—and we were quick to embrace the emerging digital news model as a possible competitive edge. In 1994, we unveiled NewsLink, an electronic version of the weekly paper. We marketed NewsLink as “The Future of Local Business News. Now.” Editor & Publisher, the newspaper industry’s top trade magazine, covered it as a first-of-its-kind product. In June 1996, we launched a daily edition online; at the time, the Wall Street Journal online was only 2 months old and the New York Times website had barely reached the six-month mark.
Those were heady days. If you’d asked me at that time to predict how much longer print newspapers would exist, I would have said 10 years. I was way wrong, of course. But so were many other newspaper industry insiders and observers.
Yet to be born were Google and Facebook (Mark Zuckerberg was 10 years old). Only a seer could have predicted their impact on newspaper ad revenues.
Nonetheless, the path to the future for newspapers seemed clear. So, what happened?
When the RBJ daily edition reached the 20-year mark, I wrote a piece about why the digital model for newspapers had proven to be so elusive. My answer had five parts, all of which Chyi explored in her monograph. After the New Media-Gannett deal was announced, I took another look at that 2016 article; my answer to the question would be the same today:
First, there’s an oversupply of digital news. With minimal delivery costs, news providers can produce an unprecedented flood of online material. Add to that the explosion of user-generated content through social media. Together, they have driven down the value of news content.
Second, many people are unwilling to pay for news content online. The Reuters Institute for the Study of Journalism at the University of Oxford in 2015 released a study of digital news trends in a dozen countries worldwide that found most people would not pay for online news—whatever the cost. In the U.S., the figure was 67 percent. A 2019 Pew study of local news dynamics is hardly more encouraging. It found that only 14 percent of Americans said they had paid for local news—online or print—in the last year. In Rochester, the figure was 13 percent. Total circulation—digital and print—from 2015 to 2018 fell 35 percent daily and 24 percent on Sunday, SEC filings show.
A similar problem exists on the digital advertising side. With the pricing collapse brought on by Google, Facebook and other online aggregators, most newspapers can get advertisers to pay only a fraction of print rates.
Third, newspapers’ competition has broadened as online media options have multiplied exponentially. Every minute devoted to social media—which averages roughly one hour 15 minutes daily in the U.S.—or binge-watching on Netflix or YouTube diminishes the time for reading news.
Fourth, many (or most) newspaper websites at best are mediocre, with poor design and functionality. Too many readers—especially digital natives—are frustrated by their experience on these sites. As Chyi puts it: “Even among those who are interested in the content, many perceive the digital format as inferior, like fast food or ramen noodles.”
Finally, though digital-first newspaper operations are loath to admit it, many readers continue to prefer to read news in print. Chyi cites a 2012 Pew study that showed “preference toward print holds up across all age groups.” Yes, even millennials. More recent research found that Americans age 18 to 34 are equally likely to pay for print or digital (if they pay at all). Chyi’s view is that “the ‘dead-tree’ format is what most newspaper readers use, prefer, and are willing to pay (for).” If she’s right, the relentless decline in newspapers’ print circulation may be in large measure a result of drastic reductions in editorial quality—in short, a self-fulfilling prophesy.
I remained at RBJ for five months after its sale to GateHouse. I know a number of the people there and at the D&C; quite a few are former colleagues. There’s talent and experience at both operations, and I wish them well. But the digital business model required to allow the new Gannett to thrive and grow has yet to emerge—and the amount of time left to find it may be limited.
Paul Ericson is Rochester Beacon executive editor.