The Future of the Newspaper Industry

Just days after we learn that the publisher of the New York Times expects not to be publishing a print edition — perhaps in as short as 5 years — BusinessWeek runs an interesting story about a private equity firm buying up hundreds of small local newspapers.  Fortress Investment Group began rolling up these guys into GateHouse Media and presently controls over 400 publications.

GateHouse went public in October, raising $248 million, before Fortress, which still holds a 60% stake, resumed gobbling up local papers.

Given the parlous state of the newspaper industry, sinking money into print may seem contrarian, crazy even. But as national chains are broken up and young readers and advertisers flee to the Web, Fortress has spotted an anomaly: There’s good money to be made publishing newspapers in small towns and exurbs.

For those not familiar with private equity (or “PE”) firms, these guys don’t get involved if it isn’t going to make a buck for them.  Usually in short order, although in this case the article notes “Fortress seems less likely than its private equity counterparts to cash out quickly.”  (I should note the author provides no basis for this contention.) 

The article touts the consolidation of back office operations and economies of scale that can be achieved by having all the publications under one roof.  Web sites are being run on the same platform and being improved to take advantage of expanded audiences for content.  And they’re even using the Creative Commons license for much of their content to encourage bloggers and other web sites to reuse it.

The key lesson to take from this is that when it comes to “hyperlocal,” there is still a vibrant market for classified and display advertising.  And it is still an area that Google really doesn’t excel in from an online perspective; they have begun working on the local angle but there are so many factors to consider that it isn’t an easy cure. 

I found it especially intriguing that the rollup allows regional local advertising in such a way that it can potentially compete with major metro dailies.  The example cited is in Massachusetts where GateHouse owns 125 publications around Boston and will seek to leverage that to get major retailers to advertise with them just as they do today with the Boston Globe and Boston Herald.

Of course, this news also comes at a time when we’re reading in the New York Times that the McClatchy purchase of Knight Ridder isn’t going well.  McClatchy is performing poorly as a stock and has seen revenues off sharply at a number of its papers.  The same article notes that other newspaper companies — including the New York Times Co. itself — have been forced to take significant cost-cutting measures of their own.

So what does this mean for the future of the newspaper industry?  These stories would suggest that the hyperlocal market might continue to survive, but that the future of major metro dailies is in question. 

It would be imprudent to imagine that newsprint will go away any time soon, even at the level of major papers.  Though many who read this and other blogs may have made the leap to reading most, if not all, news online, we must remember that we are in a distinct minority. 

The threat to newspapers goes beyond the transition from print to online by readers.  Portions of their business are being threatened by non-media competitors.  The key example is classified advertising which increasingly seems to be headed down a path where little of it will be tied to content in the future.  The likes of eBay, Craig’s List, Monster, Jobster, and their ilk will continue to pick away at the revenue once controlled by newspapers.

Fundamentally, newspapers must continue to innovate or face extinction.  It’s not something that the publishers and owners alone can solve.  Editors, reporters, and readers must all be part of the mix to help find a path to success in the future.  Print media will be around for a good long time — likely until e-paper solutions become ubiquitous — but the shape of it will be determined by the changing marketplace and likely a few innovative thinkers.  Watching to see what they come up with and where those thinkers come from will be interesting.