One paper towns?

2 July 2009

Written by: Christopher Scanlon

For residents of Australia’s two biggest cities, Sydney and Melbourne, the newspaper they read can be as personally defining as the suburb in which they live or the football team they support. Whether it’s a Fairfax broadsheet or a News Limited tabloid, loyalty to a daily newspaper is a part of who they are and how they want to be seen by the world.

If overseas trends are repeated in Australia readers may no longer have a choice. Both cities may soon be reduced to one-paper towns. Which will survive, the broadsheet or the tabloid, and what are the implications for journalism in Australia?

While reports of the difficulties being faced by overseas newspapers, especially those in the United States and the United Kingdom, have been gloomy for some time, the pace of change has increased significantly in recent months. In the face of declining advertising revenue, newspapers have resorted to online-only editions, or closed down completely in cities such as Denver, Seattle and Tucson. The publisher of the Los Angeles Times has filed for bankruptcy and the once mighty New York Times has reported significant losses.

Australian commentators, including former editor of The Age, Michael Gawenda, are warning that the Australian market does not have long until it’s in a similar situation.

‘The pace of change has quickened everywhere and the main reason is the economic downturn. I always did believe that those people who were sanguine about how quickly the threat would emerge, how quickly newspapers would be in trouble, had it wrong’, says Gawenda.

‘The idea that Australian newspapers don’t face the same sort of challenges as newspapers all around the world — that somehow we are immune to those challenges — is nonsense. We are faced with the same threats.’The newspaper industry has existed for centuries and survived numerous economic crises, so why is there such turmoil now? The answer lies in the business model that has been the cornerstone of the newspaper industry’s success; a business model that many analysts believe to be irrevocably broken.

Traditionally the bulk of the income generated by newspapers has been through the sale of advertising, with only a small percentage coming from its cover price. The most profitable forms of advertising were the classifieds. Rupert Murdoch famously referred to the income generated by the classified sections at the Fairfax papers, especially The Age and The Sydney Morning Herald, as ‘rivers of gold’. The revenues generated from this advertising were used to fund journalism and also provided significant returns to the papers’ owners.

The internet changed all of this. Online entrepreneurs realised they could provide a similar service as the classifieds but for less cost and in a form that was easier for users to access. Sites such as realestate.com and carsales.com began attracting advertising dollars that once would have gone to newspapers. The newspaper companies attempted to tap into these revenue streams by creating their own classified websites but they have been unable to match their previous revenue levels.

Simultaneously, the circulations of the hard-copy editions of papers have been dropping with many readers content to read the online editions for free. Lower circulation figures meant that it has been harder to attract display advertising and this led to further cuts in revenue. While visits to newspaper websites have increased, the revenue from online advertising is approximately a tenth of what had been the norm in print. When advertising spending across the world was slashed due to the global financial crises, some newspapers reached a tipping point. Few were able to build a new business model that would see them make a profit in uncertain times.

In Australia the consensus among pundits is that the main Fairfax mastheads are the most vulnerable. Owner of online publications such as Crikey and Business Spectator, and former editor of The Sydney Morning Herald, Eric Beecher says that the Fairfax papers are facing more than a temporary problem in profitability.

The Age and The Sydney Morning Herald are confronting the biggest dilemmas because all of their profits are derived, and historically have been derived, from the profits they make from classified print advertising. That’s just the history of it, that’s the heritage and so that advertising is migrating quickly to the internet,’ says Beecher.

‘Their hope is that one once the economy recovers then that advertising will return but if the migration is structural as well as cyclical, as many people including myself believe it is, then a large chunk of it won’t return and the erosion will continue.’

Gawenda and Beecher both note that The Sydney Morning Herald and The Age are now barely making a profit when only a couple of years ago they were making a profit of around $100 million each per annum. Fairfax’s trading figures for the half-year up until December 2007 show that the earnings for their Sydney and Melbourne metropolitan papers were down 23 per cent on the previous six months.

Beecher has also criticized Fairfax’s management’s response to the crisis. Writing in Crikey in 2008 in response to Fairfax’s decision to shed editorial staff, Beecher likened to cuts to the equivalent of raising ‘the white flag on their commitment to continued high-level funding of quality journalism’.

The Fairfax mastheads now seem to be in what Paul Farhi, writing in the American Journalism Review, termed ‘the self-fulfilling prophecy stage’. Farhi writes that ‘each cut in editorial staffing and newshole makes the newspaper less useful and attractive, which makes the next round of cuts inevitable, and so on’.

While the main focus may be on the Fairfax newspapers, News Limited’s titles have also suffered. Terry Flew, an academic at the Queensland University of Technology, says ‘I can’t see how a crisis that engulfed Fairfax wouldn’t also hit News. It is harder to gauge how individual News titles are going because News Corporation is such a huge entity, with so many dubious accounting practices, but it is fair to say that institutional investors in the US wonder whether Rupert [Murdoch, News Limited’s chairman and major shareholder] is too sentimentally attached to newspapers.’

That attachment may be waning though. Murdoch was quoted in Crikey as saying that ‘there is no doubt the traditional newspaper business model has to change, even though the present situation I think has been greatly exaggerated by the current recession … classified revenues are undoubtedly migrating to the web, probably not to return.’

Are these the end days for newspapers in Australia? Alan Kohler, a former newspaper editor and now a partner with Beecher in online publications Business Spectator and The Eureka Report, hopes so. In an article for Crikey, Kohler writes, ‘newspapers are just vehicles to disseminate journalism and the advertising needed to pay for that journalism, they are not the journalism itself’. He argues that newspapers are an inefficient medium for disseminating news because of their environmental impact and limited scope and size and told an ABC audience that in his view ‘the internet is by far the best way to deliver journalism’.

Kohler’s views make for what can only be described as an Odd Couple-style business relationship with Beecher, who is a passionate advocate for the future of newspapers in the printed form. In Crikey Beecher has outlined his vision of a successful publication as being ‘a leaner, bespoke newspaper that bristled with ideas and curiosity because it no longer had the requirement to appeal to a broad market’. He sees the important aspect of any such newspaper as ‘operating on a much lower revenue base, with far less dependence on classified advertising’ and argues that it could be achieved with half the staff of The Age.

Michael Gawenda also says that there is a role for high quality, small circulation papers in the Australian media landscape. His concern is that it ‘is a very difficult thing for public companies, public media companies, to undertake because to do that, to sign onto that, means accepting that the company is not going to deliver the sort of profits in the future that it has delivered in the past. I just don’t think that it is a model that is going to deliver the sorts of profits that newspapers companies and the boards of newspaper companies have come too expect.’

Many of those crusading for the future of print journalism do so because they fear for what is sometimes referred to as ‘public interest journalism’: overseeing the activities of state governments, local councils, the courts and many other areas that may not be seen as exciting but whose activities are essential to the functioning of a healthy democracy. The question is who will perform this public interest journalism if newspapers shut up shop or are forced to further cut costs and concentrate on more lucrative areas of journalism such as lifestyle and sport? Two models have gained popularity.

The first, already being trialled in some parts of the United States, relies on philanthropic contributions and is exemplified by ProPublica. The self-styled ‘largest, best-led and best-funded investigative journalism operation in the United States’ is funded principally through a grant from The Sandler Foundation, a philanthropic foundation set up by a family who owes its wealth to banking. ProPublica’s mission is to produce pieces of investigative journalism that it then offers to various news organisations free of charge.

A second model would involve funding from government. In countries such as The Netherlands and France the national governments have already been directly involved in the funding of newspapers that are struggling but this is not the model being advocated by people such as Beecher or Gawenda. They feel that the government should not become involved in commercial enterprises such as newspapers but instead should fund organisations similar to ProPublica, which would produce the journalistic investigations but then pass them on to others for publication or broadcast. Although many American commentators argue that governments should have no involvement in funding journalism, the important role played by public broadcasters in public trust journalism in countries such as the UK, Australia and Canada shouldn’t be discounted.

As to whether Australia will ever have to explore these options is an open question.

‘I think that the urgency in this country will relate to whether some of the bigger newspapers continue, or even increase the level of cost cutting to journalism’ says Crikey’s Eric Beecher.

‘If, for example, the Fairfax newspapers were to up the ante and dramatically cut the number of journalists and the investment that they make in journalism, I think that kind of action would precipitate a strong reaction and at that point the whole debate turns from concerned rhetoric, and that is where it is at now, to concerned reality. At the moment the discussion and the argument is still in the realms of theory.’

Chris McNamara is a Melbourne journalist