Some good friends of mine are saying goodbye to their jobs at The Dallas Morning News, either on their own terms, or via layoffs that were announced yesterday throughout the day.  today, they also received this letter from their big boss:

"This
time will be recorded as the most transformational period of time in the modern
history of U.S. newspapers.  No one knows for certain how this will
ultimately play out.  That’s why no one, nor any newspaper company, can
say for certain what this business will look like in 2010, much less 2014.

“Are
the reductions in force over?  Can we now get back to doing our jobs
without fear that we might not have a job in the future?”  How much I wish
I could answer “yes” to both of these questions.  How much everyone in our
company wants this peace of mind.

There
is one certainty:  Demand for news and information has never been
greater.  As long as populations increase, news and information
consumption will continue to increase.  It’s part of human nature. 
People want to be informed about what is happening and they want it anytime,
anywhere and on any easy to use device.  This “on-demand demand” for news
and information may be maturing on the desktop, but is set to explode on smart
wireless devices everywhere.  It’s no coincidence that the current
“manual” that accompanies a new iPhone has a page that shows a screen shot of The
New York Times
.

So
this should be good for us.  We’re in the news and information
business.  Demand for what we produce is at an all time high.  In
fact, more people read what we publish today than at any time in the 124 year
history of The Dallas Morning News.  According to the latest
Scarborough report, 1,735,200 adults each week read some part of what we publish,
either in the paper or online.  And that only includes people living in
Dallas, Collin, Denton and Rockwall counties.  It doesn’t include 78% of
the roughly 5.5 million unique visitors who come to the site monthly from
outside of the four county area.

So
why is a business with such strong demand suffering through the most extreme
financial pressures it has ever encountered?  Frankly, it’s pretty
straightforward:  The consumers who read or watch what we publish are
paying only a small part of the cost of the production of the content they
consume.

For
decades, the cost of the printed newspaper has been subsidized for readers by
advertising.  The best way to illustrate this is to consider the Sunday
after 9/11.  On that Sunday, The Dallas Morning News sold more
newspapers than on any other day in its history; however, many advertisers
understandably did not want to be in the paper on that day.  Since
advertising accounted for roughly 80% of the paper’s revenue, from the
point-of-view of profitability, the day was a bust.  How many businesses
would have their highest sales volume day simultaneously be their least
profitable day?  Sales of the newspaper have helped cover the cost of
distribution; however, in the present newspaper model it is the advertising that
creates the profit margin, not those who use the product.  Perhaps this is
going to have to change.

As
I mentioned in a series of employee meetings earlier in the year, the average
decline in advertising revenue for metropolitan newspapers has been close to
25% over the past two years.  If present trends persist through ’09, the
cumulative decline could be 45% or more over a three year period of time. 
Certainly some part of the current conditions is cyclical; however, there were
powerful secular forces at work on our business prior to Q4, ’08 and they have
not substantially abated.

So
it begs this fundamental question:  Can newspaper companies continue to
depend on advertising as the source of 80% of their revenue?  Put another
way, can newspaper companies count on advertising to cover the costs of
publishing and distributing a daily newspaper and provide sustainable
profitability?

As
many of you know, this uncertainty around advertising revenues has led us to aggressively
raise the price of home delivery and single copy.  In essence, at least in
the short run, we’re saying that those who want a printed newspaper will need
to bear a greater portion of the costs of publishing and distributing it. 

This
in turn raises the issue as to whether it is wise to make all of our content
available online or wirelessly to everyone free of charge?  The
inclination to make some content unavailable to those who don’t pay to obtain
it has more to do with supporting the higher price of the printed newspaper
than it does with the notion that a lot of money is going to be made by asking
those who don’t purchase the printed product to pay for access to certain
content.

This
logic seems pretty compelling:  For every consumer who pays for our
printed newspaper there is a price at which free access to the same information
via a digital device becomes more attractive.  The unanswered question is
what is the optimal price for our newspaper and how much higher would it be if
all of our content was not available for free?  We will be exploring this
issue over the next few months and constructing an action plan based on the
point-of-view we develop.  It may be that a lower volume of circulated
newspapers at a higher cover price is a more dependably profitable business
model.

“Why
not just go all digital?”  is the question I often hear.  “You could
get rid of all of your newsprint and distribution costs.  Just let the
newspaper go the way of the eight-track.  It’s an anachronism.”  Here
is the problem—presently—with this line of thinking:  When we tossed out
our eight tracks, then our cassettes and now our CD’s, we didn’t toss out the
Beatles, U2 and Coldplay.  Each successive format continued to provide
considerable revenues and royalties to those who created the music.  And
while digital downloads have upset the business of music, a musician can still
make a very good living if they are talented enough to become commercially
successful.  Today, if you toss out the newspaper, and go “all digital,”
you’re not going to be able to afford to pay for most of your talented
reporters, photographers and editors. 

Presently,
there is no business model available for the digital distribution of our news
and information that will generate sufficient revenue to support the newsroom
we employ today.  And if you believe like I do that our business’ most
critical competitive advantage is the scale of the newsroom we dedicate each
day to originating local news and information, then a business model, albeit one
that is profitable on paper, that supports a small newsroom in a market the
size of Dallas/Fort Worth, is a business without a sustainable competitive
advantage.  And last time I reviewed what smart people wrote about
business strategy, if you don’t have a sustainable competitive advantage, you’d
better find one or get out of the business before someone else runs you out of
the business.  

So
we’re in need of a business model that will permit us to sustain over the long
term sufficient scale in our newsroom so that we can compete successfully in
the business of local news and information.  And it should be a good
business to be in because the demand for local news and information will only
continue to increase over time as the D/FW and North Texas markets continue to
grow.  Also, and most importantly, if we’re successful in creating a
sustainably profitable business model for the origination and distribution of
local news and information, then we can continue to fulfill our mission as a
free and robust press, monitoring the activities of all those who work in the
public sector and thereby ensuring the health of our democracy and the
protection of our liberties we enjoy because of it.

I
would ask you to stay focused on the important work that we are doing every
day, continue to understand that difficult and complex times require adaption
by all of us and know that we are taking important strategic steps to support
this business through this time of change and we are exploring additional
strategic steps that can take us into the future.

 

Jim Moroney




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