Profits Are Down, But Many Newspapers Still Make Money

Thursday July 9, 2009

So are newspapers still profitable or not?

That’s the question lingering in the air after the Inland Press Association this week released a report that seemed to suggest the newspaper business was doing better than expected.

But some readers questioned the math and methodology used in the study, which surveyed 120 papers from 2004 to 2008, and a revised version was quickly issued.

So what’s the upshot?

Newspapers are hurting. Declining circulation, advertising and classified revenue has drained profits at U.S. dailies over the past five years. On that point, all agree.

And yet, according to the IPA, many papers are still profitable, though less so than a few years ago.

So what happened to all the dire predictions of just a few months ago that said the newspaper business was on the verge of going belly up?

“The doom and gloom stuff was somewhat overdone,” Rick Edmonds, media business analyst for the Poynter Institute, said in a phone interview.

The doomsayers overlooked two things, Edmonds said.

First, “A lot of the declines in ad revenues are related to a large extent to the recession, and it’s not likely that things will continue to deteriorate at this rate.”

Second, big newspaper companies that found themselves saddled with massive debt – like the Tribune Co. – got a lot of media attention, but much of the coverage ignored an important fact:

“Most individual papers are still making a reasonable profit margin – just not as much as they used to,” Edmonds said.

That’s not to say newspapers don’t have a tough road ahead. “The trends are negative and the requirements for cutting expenses have been tough on papers,” Edmonds said.

But the cost-cutting, while painful, should make newspaper companies more viable when the recession recedes, he added.

“At the end of the day, these companies are operating more leanly now,” Edmonds said. “The business will be smaller and there may be more reductions, but there should enough profit there to make a viable business for some years to come.”

And while some pundits still proclaim that the future of news is on the web and only on the web, online ad revenue – which has also waned with the recession – just isn’t enough to support most news companies.

“Display advertising to websites is there, but it’s been kind of disappointing,” Edmonds said. “The very biggest websites have big enough numbers that they get a certain amount of advertising, but with the smaller sites, there’s just not traffic to interest certain advertisers.”

The moral of the story? Online news still needs a money-making business model. And until one is developed, don’t count newspapers out just yet.