Newspapers Adapting to Survive

Tony is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Can newspapers survive the digital age? Conditions perhaps have never looked so bleak for print media. Even the Council of Economic Advisors said recently that the press is “America's fastest-shrinking industry” as measured by jobs lost. 

The facts seems to back up that assertion. The Newspaper Association of America has reported that advertising sales have been cut in half since 2005, down to the level last seen in 1984. Data also shows that the newspaper industry has been slow to adapt to the digital age. For every digital ad dollar earned, newspapers have lost $7 in print ads, according to the Pew Research Center. 

Yet, it is the current very intense pressure on the newspaper industry which may turn out to be its salvation. Conditions are forcing print media to rapidly adapt, after 15 years of pretty much ignoring online media, to the digital age or become extinct. 

Some in the print media, such as those to the financial markets, have already adapted well to the new realities. The Wall Street Journal and the Financial Times, owned by News Corporation (NASDAQ: NWS) and Pearson PLC (NYSE: PSO) respectively, are enjoying a strong and steady business. This is partially due to the strength of financial markets, but is also due in large part to the fact that both companies charge a fee that customers are willing to pay for their online editions. The FT has about a quarter million digital subscribers. 

Finally, others in the print media are following the lead of these two companies. The Los Angeles Times, part of the bankrupt Tribune Company, just this month began offering a paid membership program for its online content. This follows the announcement last month by Gannett Company (NYSE: GCI) that all 80 of its local newspapers are introducing digital editions. In Gannett's case, industry analysts expect the move will add $100 million to its operating profit. 

Perhaps foremost among the print media companies making the adjustment to the new realities of the digital age is the New York Times Company (NYSE: NYT). It began charging for online content about a year ago and today it has nearly half a million digital subscribers. Industry observers believe that digital subscriptions could add at least $100 million to the company revenues, more than offsetting the expected $50-$60 million decline this year in print advertising. 

Some newspapers have even begun to charge for content on mobile devices after many years of just giving away this content for free. As Warren Buffett, an investor into several newspaper companies, said last month to CNBC, “You shouldn't be giving away a product that you're trying to sell.” Not to mention that you shouldn't compete against yourself (free vs paid). It is interesting to note though that the Washington Post Company (NYSE: WPO), a long-time Buffett investment, does NOT charge for online content. 

A USC Annenberg School study reached the conclusion that most daily US newspapers would cease publishing within five years. That is probably an exaggeration. Many newspapers remain profitable, not just as profitable as the good old days when newspapers dominated print advertising for items like cars. In many cases, newspapers' profit margins compare favorably to a company like Amazon.com for instance. But the trend of declining revenues for the past 15 years must be reversed and adaptation to the digital age must occur or someday newspapers will go the way of the dodo bird.


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