Buffeted

Buffeted
Newspapers are paying the price for shortsighted thinking.

By John Morton
John Morton ([email protected]), a former newspaper reporter, is president of a consulting firm that analyzes newspapers and other media properties.



When an acclaimed investor like Warren E. Buffett questions the current state and likely future of the newspaper business, it's time to take a hard look at just how newspapers are faring and what this portends.

The picture is not encouraging. Through the first half of 2007, using results of publicly reporting newspaper companies as a proxy for the industry, total revenue was down nearly 5 percent and operating profit was off more than 14 percent.

Newspapers' performance hasn't been this bad since the 2001 recession, when revenue slipped nearly 6 percent and profit was down more than 26 percent. And this year the nation is not in a recession. But the newspaper industry surely is, and it is worthwhile examining why.

Advertising currently contributes 75 percent to 80 percent of most newspaper companies' revenue. Retail advertising from department stores and other merchants accounts for about half of this, and this category has been flat to down a bit in recent years. The real pain for newspapers is classified, about 35 percent of total advertising, which has declined this year in the double-digits.

It's not hard to figure out why: Automotive, employment and real estate--the three principal categories of classified--have plunged, reflecting the woes of the underlying industries. There will be no hope for improvement until auto sales, job creation and housing sales rebound.

Even then, the question remains whether newspapers will recapture their usual ...
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