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Summary:

Newspapers are still profitable! In a seasonally small third quarter, McClatchy Co. (NYSE: MNI), against all odds, still reported positive n…

Newspapers are still profitable! In a seasonally small third quarter, McClatchy Co. (NYSE: MNI), against all odds, still reported positive net income. Ad revenues down 19 percent, enormous interest expense on $2.1 billion of debt, but STILL PROFITABLE. Admittedly, I am a little more removed than I used to be from the newspaper business but I was surprised. As Alan Mutter recently noted on his blog, newspaper margins are coming down, fast. However, despite the decline, newspapers still enjoy respectable margins. Maybe the industry is overreacting and should just get used to lower margins.

Unfortunately, continued ad revenue declines will further erode margins to the point that profitability isn’t assured. Yet, if Gary Pruitt, CEO of McClatchy, is as confident as he sounds that newspapers aren’t going out of business and really believes that the majority of the ad declines are cyclical, why isn’t he investing rather than cutting? Presumably, even when there is some form of cyclical recovery, margins for the industry will be dramatically lower than they were during the heyday. I, for one, just hope they are positive, as that is good enough for an industry that matters quite a bit beyond just its economics. For an industry that well understands it serves the greater good, come to terms with lower margins. And then go private!

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  1. Brandon Mendelson Thursday, October 23, 2008

    Thank you. I've been harping on this for weeks, but why are all the so-called marketing experts on the web silent? In all honesty, maybe we're looking in the wrong direction about how to fix the paper. I agree private control is great, but why are we silent about the lack of marketing for newspapers?

  2. This has been the reality for the past ten years and yet all we seem to hear are the cacophonous screams of ultimate obliteration. So thank you for highlighting this, but I don't thank you for still harping on the theme of eventual extinction.

    The principal issue at this stage shouldn't be about diminishing returns and a hope for an eventual turn around, but rather what you alluded to: what is being done with these profits. My experience in dealing with about 99% of newspaper executives is that they feel the most pressing issue is to plug holes, so many holes, rather than build a new boat. For two years I've been looking for the team or group that really sees the rainbow at the end of this thunder storm (local digital edition delivery opening up flood gates to digital delivery of so many other printed content)…..and who are preparing for it. To my mind the folks at the NYTimes are working smarter and smarter. But most are working from a position of fear.

    The solution: spend more time outside of the industry. Bring in more strategic, global thinkers vs. practitioners with experience specific to the newspaper industry. And as Sulzberger stated yesterday, cherish the opportunity to fail through experimentation but make sure that these experiments are new and not just recycled concepts from your legacy operations. And perhaps most importantly: think huge! Club Penguin, after being in business only a few years, was acquired by Disney for 700m. Why shouldn't newspaper companies shoot for the moon at this point, what have they got to lose?

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