Newspapers Need a New Business Model

ANOTHER ONE BITES THE DUST

There are tremendous changes underway in the journalism industry of epic importance that effect your personal liberty and finances. I do mention some of my competitors so obviously this article is biased. Newspapers are like blogs except expensive, dirty and a less efficient form of information manufacturing. It is difficult for them to ‘go viral’ and annoyingly hard to access while traveling through the backwoods of South America.

The Associated Press reported that the 146-year-old Seattle Post-Intelligencer will end its physical newspaper circulation on Tuesday 17 March 2009 and transition to a web only operation. In February the P-I website had about 1.8M unique visitors and the print circulation was about 117,000. Managing Editor David McCumber thinks the P-I will need to trim down from 181 employees to 40 with 20 in the newsroom and 20 selling ads.

OUT WITH THE OLD

Old media such as magazines, book publishers and especially newspapers are facing tremendous financial headwinds. The New York Times (NYT) has been borrowing to pay the dividend while gross and net incomes decline, resulting in their share price falling 80% in the last year. In the last year stockholder equity has been cut in half and net tangible assets have imploded from $166M to ($209M). The New York Times intend to implement 5% wage cuts for most employees.

Gannett (GCI), which offers 85 newspapers including USA Today, has fared worse with both revenue and net income falling for the past three years and the share price evaporating from $30 to about $2.50. They have likewise seen their net tangible assets decline from ($1.75B) to ($2.4B). But their net income performance is even more dire going from $1.1B in 2007 to ($6.6B). The Indianapolis Newspaper Guild reports that Gannett is considering 15% wage cuts.

McGraw-Hill (MHP), which adopted digital platforms and products earlier, has fared slightly better with their stock falling only 50%. Nevertheless, they face intense pressure on their revenues and net income. In 2008 the stock of publicly traded newspaper companies declined 83%. At least McGraw-Hill had positive net income but their net tangible assets are declining.

The formerly venerable magazine Newsweek, owned by the Washington Post Co. (WPO), has a rapidly evaporating subscriber base. As the International Herald Tribune reported,

“Thirteen months ago, Newsweek lowered its rate base, the circulation promised to advertisers, to 2.6 million from 3.1 million, and Tom Ascheim, Newsweek CEO, said that would drop to 1.9 million in July, and to 1.5 million in January 2010.”

While the Washington Post Co. has been increasing revenues its net income has fallen by 75% since 2006 and the stock has plunged from 800 to 350.

Even book publishing companies like Pearson PLC (PSO), which owns the Financial Times and Penguin Books, is facing steadily declining net income. Rupert Murdoch’s venerable media behemoth, News Corporation (NWS), which owns MySpace and Fox, is down over the last year from $20 to about $7.

IN WITH THE NEW

News is a good or service and those both consuming and producing it must derive utility or it will cease. The Internet is full; not the hard drives but people’s attention. Information has two costs for the consumer: time and money. I take no-one’s time or attention for granted. RunToGold occupies at least thousands of hours per day of people’s attention. The articles are written with precision, conciseness, and produced when there is actionable information instead of a deadline. Unlike television, with commercials that interrupt, annoy and disrespect the consumer’s time and attention, the advertising on RunToGold does not interrupt your ability to consume the valuable free information and most importantly is done with your permission.

Sites such as Seeking Alpha or Citizen Economists are more economical than either magazines or newspapers. Creative destruction is taking place in the journalism industry at a rapid pace. It baffles me that people are no longer willing to pay money to learn about Anna Nicole Smith only to have it interrupted by some totally irrelevant and often times inappropriate commercial about treating certain bodily functions with a pill when they could read for free about the problematic ETFs GLD and SLV or Silver In Backwardation for Five Weeks (now nine weeks but climbed out for the first time on March 27). I guess people are passionate about different topics.

As Minyanville recalled,

“One thing we’ve learned while trying to build a financial media platform at Minyanville: Advertisers don’t like it when you say negative things about them. Several months ago, Washington Mutual pulled an advertising campaign from us after we published a story saying the former banking giant was dangerously close to tipping over the edge and collapsing. Then, they tipped over the edge and collapsed.”

Tom Ascheim said, “If you can’t get people to pay for what they love, we’re all out of business.” I and millions of other bloggers disagree. Many, if not most, bloggers generate news and content in unlimited niches as a hobby or for fun. Generally, blog enterprises operate at a loss or are barely profitable. Without an editor to silence or at least muffle the criticisms when one launches repeated volleys, like the Single Digit Midgets, Problems with the GLD and SLV ETFs, Financial Professionals Infected With Financial Insanity Virus, etc. at potential mainstream advertisers it does not bode well for gross revenue.

While many blogs lack formal editors it may be only grammar and not content that is found lacking as editors censor material issues along with dangling participles. Why has GATA been almost completely ignored for over a decade by the financial press, newspapers and other heavily censored media? Consequently, why believe or trust them?

I think a significant portion of the rise in gold’s price over the last decade has been a direct consequence of the rise in the amount of truth in the public zeitgeist. With real gold there is no way to lie; gold is either in physical possession or not. Consequently, gold loves truth and fiat currency loves lies.

FREEDOM OF SPEECH

In Kazakhstan Currency Goes Poof I reported even Putin’s amazement with the degree of censorship.

”I was in Beijing at the time. I looked through the world electronic media. Complete silence. As if absolutely nothing is going on. It was as if somebody ordered everyone to keep their mouth shut. To those who organized all this; I can only say congratulations. Congratulations. You did an excellent job. The only problem: your results were poor and this will always be the case because the work you do is unfair and immoral. In the long run immoral policies always lose.”

But this type of censorship behavior is not new. Decades ago President John F. Kennedy expressed outrage regarding this topic. Now the truth is coming to light at a rapid pace causing the evaporation of the derivative illusion and everyone seems to be either upset or completely stunned.

The press is one of the few businesses given specific absolute protection under the First Amendment of the United States Constitution.

”Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof, or abridging the freedom of speech, or of the press; or of the right of people peaceable to assemble, and to petition the Government for the redress of grievances.”

When those petitions for redress of grievances are met with further violations then another business given specific absolute protection becomes important.

”A well regulated Militia, being necessary to the security of a free State, the right of the people to keep and bear arms shall not be infringed.”

It is common for government officials to perpetuate lies. For example, Section 132 of the Emergency Economic Stabilization Act of 2008 is titled “Authority to Suspend Mark-To-Market Accounting” and restates the SEC’s authority to suspend the application of FAS 157. But make no mistake about it: Both gold and truth will cleave their own way with indivisible justice.

CONCLUSION

The Great Credit Contraction is grinding down the top lines of almost all businesses. There is no bottom line without a top line. While the costs with operating a website are generally lower than manufacturing a newspaper I think the Intelligencer will have a difficult time operating profitably with 40 employees. I wonder if these rapidly evaporating state organs will likewise receive bailout funds?

Do not be like the Intelligencer employees and wait for either a pink slip or bailout. The newspapers need a more profitable business model or risk complete evaporation.

You can hasten this transition and support the vitally important free press. For example, begin ignoring the old media with its disrespectful advertising by canceling your newspaper subscriptions and redirecting those funds to your trusted friendly neighborhood bloggers or by purchasing some firearms and lots of ammunition. After all, if you do not know what The Great Credit Contraction is and how it will affect your lifestyle or wealth then you may want to find out as the institutions and organizations, including governments, continue evaporating.

Disclosures: Long physical gold and silver with no position in the old media companies and is a direct competitor of NYT, WPO, PSO, GCI, MHP, NWS, for advertising dollars.

Comments

[Conan the Barbarian]

Freedom of speech does not include "yelling fire in a crowded enclosure" nor does it include a multiple of other things, oh, like printing fiction and portraying it as fact.

The difference between Freedom of speech in the USA and Russia/China, for instance, is that writers continue to write instead of disappearing.

If you are in agreement with Putin, why do you even bother to quote the Constitution?

"It is common for government officials to perpetuate lies." your statement from the above article. You then go on to point to a Printed section (132)... Its in print, you found it. Why is it a lie?

You omitted the "Why" in your "for example".

Whats the difference between what you write and what government officials do?

2009 Mar 31 11:26 AM

[jbofen]

this seeking alpha article was a total waste of time. I'm going to keep enjoying my "watchdog" newspaper (the best value around) - what it all does for my community cannot be matched. I

2009 Mar 31 12:34 PM

[Mad Hedge Fund Trader]

The San Francisco Chronicle may be next. The industry rag, Editor and Publisher, says that the privately owned Hearst Corporation has given the venerable paper an ultimatum to cut costs or close. The 150 year old Chronicle lost $50 million last year. Of course, this may all be a ploy just to beat up one of the last surviving unions, but they have made a similar threat to their paper in Seattle. Ironically, Hearst acquired the Chronicle and dumped the San Francisco Examiner in 2,000, which was then put on a crash diet and made profitable by its new owners. If the Chronicle goes it will join the Philadelphia Enquirer which went under last week, and the soon to be shut Christian Science Monitor. Google has been eating their lunch for years, and classified ads have migrated to Craig's List. It is tough to chop down a forest to make paper, get a union to print it, and manually distribute your product, and then compete against a one man email blast on costs. If the Chronicle goes it will be survived by a much smaller SFGate.com, one of the most successful web based newspaper portals out there. There could be a ninth earning save by a surprise buyer. But moguls willing to hemorrhage money just to promote a political view are a dying breed. Rupert Murdoch has been the only recent buyer of newspapers, and something tells me that a match with the Chronicle would not exactly be one made in Heaven. In five years there will probably be only two mass circulation papers left, The New York Times and the Wall Street Journal, with the Washington Post as an outlyer. Thousands of small, local, niche publications will take up the slack. As a long time print journalist dating back to the typewriter days myself, I am sad to see newspapers go. But you can’t exactly sit like Denmark’s old King Canute and order the tide to stop rising. Journalism is degrading into an army of guys banging away at the computers at 3:00 AM in their boxer shorts. Trust, accuracy, objectivity, style, and taste will be the victims.

2009 Mar 31 12:50 PM

[Conan the Barbarian]

Madhedge: Chicago Sun Times is still operational but parent is officially in Bankruptcy as of 3/31, at least that's I think I saw scroll by this AM.

In his previous Article, Trace printed what I will call an error as if it were true. When called on his mistaken entry, he did not respond, change or retract the error. So his outrage above is feigned, since he doesn't practice journalistic integrity to begin with.

No wonder the world's people have a problem with what's in print. IMHO

2009 Mar 31 02:14 PM

[Bobby Rifle]

>You can hasten this transition and support the vitally important free press. For example, begin ignoring the old media with its disrespectful advertising by canceling your newspaper subscriptions and redirecting those funds to your trusted friendly neighborhood bloggers

Panhandling is not a business plan.

2009 Mar 31 06:17 PM