Here’s a dirty little secret about your hometown daily newspaper: Chances are, it’s profitable.
Why then does the traditional print/digital news industry continue to shed journalists by the thousands each year?
That profit margin the news organizations still enjoy isn’t going to grow without cutting expenses, and that’s why the chains — some backed by huge investment groups that have no historical interest in newspapers — see green as they swing the ax.
It’s a simple formula: Buy a single newspaper or newspaper group and absorb it into an existing corporate structure. That means most customer service, national sales, marketing and IT support as well as national and international news content are delegated to a centralized, corporate-managed location.
Once that process is complete, a significant number of locally-based jobs are eliminated, so costs go down and margins go up. Content development is replaced with assembly-line-produced national news and advertising content, augmented by an ever-shrinking local news report.
With fewer feet on the beat, editors reach for reader-submitted content and use social media to drive traffic to websites where depth has been replaced with fragments of news and information produced at a central location that is far removed — physically and in spirit — from the communities they’re supposed to be covering.
The new business model for the big newspaper media chains is to aggregate as much cheap content as possible, across multiple platforms, to build audience and drive advertising.
What about investment in the product? That’s not happening.
Instead, investment goes toward buying the properties that will increase margins over a roughly 3- to 5-year period. That makes sure and quick profits for the investor group. What happens after that is anyone’s guess. Absent an investment in content development, the only visible trend line is more consolidation, streamlining and maximizing the delivery of existing content to the largest print/digital audience possible, while it lasts.
This trend line gave Gannett Co. employees the jitters when the media giant announced, earlier this month, it would spin off its publishing assets, including USA TODAY, to create one company that would focus on broadcasting and digital content and one to focus on publishing. With this move, Gannett was following News Corp., Time Warner Inc. and Tribune Media Co. in separating its struggling newspaper business from its digital, broadcast and other assets.
Shareholders loved it. The publishing assets, read that as newspapers, can either meet earnings expectations or be sold to other media giants that would assimilate the individual properties into their corporate structure, harshly cutting expenses to improve margins.
Perhaps the best example of this strategy is Gatehouse Media, the publisher of hundreds of community daily and weekly newspapers across the US that emerged from bankruptcy less than a year ago. Now operating under a newly created, investment group-funded parent company, New Media Investment Group, Gatehouse is in a buying mode. In fact, it is now finalizing purchase of its newest acquisition, the once-venerable Providence Journal, which will soon become the company’s flagship.
Gatehouse fits the model nicely, acquiring publications that are “under-managed” — a term that means they haven’t been cut deeply enough — and drastically reducing costs by cutting newsroom jobs and consolidating some traditional editing functions at a corporate center. In Gatehouse’s case, that’s a design center the company just opened in low-wage Austin, Texas.
This strengthening trend runs contrary to the many examples of successful family newspaper operations around the country, where a 20-percent profit margin is regarded as just fine and provides enough resources to reinvest in the product to bolster and expand coverage.
As the business model many big chains are now using implodes, as it has in the past (Gatehouse 1.0, Digital First, etc.), some good buys in family-run publications may still be out there.
Reuters News Services contributed to this story.