Lesson 4

How Metro Papers are Different

Key Objective: 

Lesson 4 is to understand why the business challenges facing some of the country’s largest newspapers are harder to solve than those facing community news organizations.

The newspapers serving large metropolitan areas were the first to feel the effects of the dramatic downturn in print advertising that occurred in the first decade of this century.  Even as strategies for renewal and profitability emerge for papers serving small and midsized markets, the country’s largest papers continue to struggle.  As a result, many of these papers have had multiple owners – each one attempting to find that magic sauce that will sustain a news operation spread over a far-flung geographic region with a diverse population.

Like the community newspapers profiled in Saving Community Journalism, the metros must come up with a three-pronged strategy that addresses the attacks from the Internet on their cost structure, customer base and revenue.  But they face higher hurdles.

As publisher of the Santa Rosa Press Democrat in California’s wine country from 2005 to 2013, Bruce Kyse competed against one of those metro papers, the San Francisco Chronicle.  In this lesson, he considers some of the unique challenges facing the country’s largest papers as they attempt to shed legacy costs associated with the print edition, replace declining ad revenue, and create content that readers will buy.  He has also written a case study on the two-decade long competition between the Chronicle and the Press Democrat.

 Kyse has extensive experience leading community newspapers, serving as executive editor of the Press Democrat for nine years, before becoming cofounder and publisher of Winetoday.com, a start-up website, in 1999.  From 2000 to 2005, he was a Vice President for News and Digital for the 14 community newspapers in the New York  Times Regional Newspaper Group, headquartered in Tampa, Florida.  (click here for his biography.)

His innovative efforts to reinvent the business model of the Press Democrat are highlighted throughout Saving Community Journalism.  In Digging Deeper, you can see examples of how he has built communities of readers on multiple platforms and probe his reasoning on how community newspapers can shed legacy costs.

Here is his analysis of the situation metro papers face.

Metro Papers: A Path to Profitability?

“The paper should focus on delivering important, compelling stories to its readers. If they do, advertisers will come.”
~ Jeff Bezos, Amazon founder, owner of the Washington Post

It’s hard to argue with the most successful online merchant in the world. But, at least, we should ask the follow up question.

Is it really that easy?

Fortunately, Bezos bought a newspaper with a unique national brand and knack for covering the U.S. Capitol.  His task might be easier than owners of other large city newspapers. That’s because metro papers, particularly those in the most populace regions of the country, are experiencing significant business and readership declines faster than most regional and local dailies.

As a result, the hard reality is that the larger the newspaper, the more disruptive the new business model needs to be.

In Saving Community Journalism, the newspaper ecosystem is broken down in three parts, 1) Community and mid-sized newspapers serving a defined local community, 2) Metros, generally the biggest 100 newspapers in the country, and 3) National brands (The New York Times, Wall Street Journal and USA Today). Arguably, the Washington Post, although distributed primary in the D.C. market area, is on the cusp of “national” because of its deep coverage of the nation’s Capitol.

Each category presents a different set of economic challenges.  But, more critically, each category also presents different challenges related to consumer demand and content. Here’s why.

Most of the newspapers that rank between 25 and 100 in circulation actually dominate their market. Papers like the Albuquerque Journal, Des Moines Register, Buffalo News, and Louisville Courier-Journal have lost little market penetration in recent years. They sit on top of the local news hierarchy, with limited competition from small dailies and weeklies.

These mid-to-small metros and large regional papers have lost circulation, cut staff and raised subscription prices in the same way as the large metros. But they benefit from concentrated penetration, strong relationships with local advertisers, lower per capita production costs and more localized coverage.

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They also have less formidable digital and print competition. Large metros overlap suburban dailies and the larger the DMA, the greater the duplication. Local dailies in metropolitan areas have long ago established boundaries to avoid competing with other local dailies.

Most of the newspapers in the 25 largest metropolitan areas face fierce competition not only from regional and suburban dailies and weeklies, but from a host of nontraditional and online competitors that gravitate to larger markets.

Each market, of course, is unique. For that reason, let’s not include the New York Metropolitan region in this discussion.  With 20 million people in the DMA, it’s the home base of the two most influential national newspapers and three large dailies that also appear on the top 25 list.

That leaves newspapers in large metropolitan areas such as Los Angeles, Chicago, Philadelphia, Dallas, Houston, Washington D.C., San Francisco, Boston, Atlanta, Miami, Phoenix, Minneapolis, Detroit, Denver, San Diego and Seattle.

These large city newspapers thrived over the years by providing a comprehensive bundle of news, sports, entertainment and marquee columnists – a little of something for everyone. But that heavy bundle of newsprint, ink and original content came with a high cost, and that cost is increasingly carried on the shoulders of consumers.

In Media Ownership and Concentration in America, economist Eli Noam aptly points out, “no single news organization” can realistically produce all the important news and information that adequately informs citizens and public officials in a diverse, sprawling metropolitan area. Yet that was the foundation of a metro newspaper.

Let’s look at the business challenges facing dailies in large metropolitan areas.

How Do Metros Reduce Legacy Costs?

In an era when large presses and inserting machines have switched from being assets to expensive overhead, the cost of production has become an unwanted legacy expense for newspapers. Most publishers will tell you they want to get out of the printing business. It makes sense since you can’t shrink the presses, equipment, and buildings as you shrink the size and pressrun for your newspaper.

This is compounded by labor contracts and higher-paying production and distribution jobs in larger cities. Most large metros also have unionized newsroom and advertising departments, which limits the flexibility to outsource, lower the cost of sale and experiment with new content.

Finally, metros have to cover a lot of cities, towns and regions to support a business model that requires large gross circulation numbers. That requires a thicker newspaper, which means more newsprint and wider selection of content.  On the positive side, most metros have been able shed some distribution costs by outsourcing distribution to suburban competitors. This lowers the cost to the metro and provides a new revenue source for local dailies.

How Can They Replace Declining Ad Revenue?

Since the disappearance of classified and recruitment advertising, large city metros have relied more heavily on major accounts and national advertisers. But the national and major advertising categories are declining faster than local retail advertising, especially with the high-cost of sale and sparse suburban penetration.  As one publisher said, “The majors have entire departments devoted to finding ways to get out of newspapers.”

To replace major advertisers, metros are expanding advertising services by creating digital agencies. These agencies help clients with search engine optimization, social media, mobile native apps, web design, search engine marketing and ad retargeting. This is a solid strategy, but the competition is fierce and fast moving for those services as well.

With the decline of highly profitable national and major ad subsidies, many major newspapers have filled the revenue gap with subscription and single copy revenue. At $500 or more for an annual subscription, many metro papers have become too expensive for some consumers.

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To increase the value of subscriptions and protect print readers, most small metros and midsize dailies now require subscribers to have unlimited access to digital content. With more papers moving to paywalls every year, the digital subscription model holds the promise of being a success story for these papers. But for metros, the digital subscription is going through growing pains. The San Francisco Chronicle and Dallas Morning News both dropped their paywall in 2013. In March 2014, new owner John Henry announced that the Boston Globe would drop its hard paywall and in favor of a more porous firewall.

If the paywall model appears to work for most local daily newspapers, the challenges at the large metro papers could be directly related to consumer demand for the content – which brings us to the last category of challenges for large metros.

Can They Create Content that Consumers Will Buy?

Metros once benefited from scale, attracting highly profitable national, major and recruitment advertising. It allowed large papers to hire top-flight reporters and writers and distribute fat newspapers to vast expanses.

Consumers also went to metros to get movie reviews they couldn’t get anywhere else, insider pro and college sports coverage, sports columnists with attitudes, restaurant and theater reviews, and state and national news from the newspaper’s own news bureaus. Mixed into the bundle of high-end content was a smattering of select news from the suburbs.

But newsroom cuts reduced sections, commentators, columnists, bureaus and most of the local suburban coverage.  Meanwhile, digital pure plays and other emerging media players established themselves as free, authoritative sources of information, replacing the once-held distribution monopoly of the metro newspaper. Many top sports columnists actually defected to regional cable sports networks, where they could write and also make appearances on TV.

These are the challenges facing large daily newspapers. They have tremendous brands and generations of loyal but diminishing readers. They have high overhead and fast-growing competition from highly capitalized digital players like Google, Facebook, Twitter and Yahoo. It’s unlikely they can stem the print circulation declines and, even if they did, it’s unlikely the advertising would be around to subsidize distribution.

So, finally, if you’re running a large metro brand, do you have to reboot the business model? And how disruptive do these publishers have to be in building a new plan?

In 2009, Gannett disrupted the traditional metro business model by reducing home delivery of the Detroit Star-Free Press to three days –Thursday, Friday and Sunday. In the past two years, Advance Publications followed suit by cutting days of print publication in numerous locations, including large city markets of New Orleans, Cleveland and Portland, Ore.

You can’t get more disruptive than voluntarily taking printed newspapers out of the hands of your subscribers. But most publishers will tell you they only turn a profit on their newspaper two to three days a week. So why print a paper every day?

Too disruptive? Most media people will admit the day will come when the printing presses stop rolling out newspapers. Most believe, or at least hope, it is years away.

But is it?

A Case Study: The Press Democrat Versus the Chronicle

In the mid-80s, the New York Times purchased the Santa Rosa Press Democrat, a 60,000-circulation paper on the outer edge of the San Francisco metropolitan area. The San Francisco Chronicle distributed 28,000 papers in the same market, so it didn’t take long for the Times set its competitive sights on the Chronicle.

A readership study showed numerous reasons the San Franciso metro was such a strong second newspaper buy in the Press Democrat’s NDM.

In approximately this order, those differentiators were: 1) pro sports news and columnists, 2) national and state news, 3) Friday (movie reviews) and Sunday (Pink Section) entertainment, 4) Columnist Herb Caen, 5) business coverage and full stock listings, and 6) commentary.

The Times proceeded to invested in the Press Democrat, adding Bay Area sports reporters and columnist, entertainment writers, a Sunday regional entertainment section, a stand-alone business section with 2-pages of stocks, two new local columns, a daily op-ed page with national columnists, and a stand-alone local news section that, in turn, opened up the A section for national news.

By the early 90s, the Press Democrat’s circulation had increase 60% and the Chronicle’s circulation had been reduced 50%.  The strategy worked.

But the point is not a 28-year-old, head-to-head combat newspaper strategy. The subject is readership. The strength of metros has always been the ability to provide highly valued content based on scale. Subsidized by national and major advertising and classified, metros like the Chronicle could afford highly paid writers, team coverage of sports and news, national and state bureaus, full-fledged entertainment coverage that included their own bylined movie reviewers, and marquee columnists. This is the content that metros leveraged to reach a mass market.

They also managed to provide at least adequate coverage of the suburbs to compete with local dailies and weeklies. For the most part, the metros couldn’t “own” local news. They could only cherry pick the higher profile stories as part of the “bundle” as an alternative to the local, suburban papers.

And thanks to lucrative national and major retail advertising, they could compete with community newspapers on subscription prices. It wasn’t unusual for a large metro to offer discounts in highly competitive suburbs that put them on an even price point as local papers.

Jump forward a quarter century. A subscription to a metro newspaper can run $500 to $800 a year. But these days, consumers are also paying $100 to $150 a month for cable, $75 to $100 a month for a cell phone and $10 to $40 a month for subscriptions to Netflix, HBO, satellite radio and other subscription entertainment.

The competition for subscriptions is fierce. And newspapers are upping the ante by asking subscribers to cover more of the cost for distribution, production and big-city compensation. In 1990, subscription and single copy sales provided about 13 percent of the newspaper’s revenue. Today that percentage is as high as 40 percent in some markets.

Meanwhile, as suburban distribution has decreased for metros, so has hyper local news coverage. Regional bureaus and news sections have largely disappeared.  State and national bureaus have closed.

Sports coverage is now ubiquitous, timely and searchable via mobile, tablet and desktop. In the San Francisco Bay Area, many of the best columnists (including former Chronicle and Press Democrat columnists) now work for Comcast Sports, Yahoo and ESPN. There is no charge for access to the stories, and you can have your favorite columnists emailed to you every morning.

When was the last time you bought a newspaper to read a movie review? Yahoo, IMBD and Flixster (Rotten Tomatoes) are the 1,2,3 sources of movie information in the country.

Yelp is the top source for restaurant reviews. Bloomberg, Yahoo, Market Watch and numerous other “pure plays” are the top sources of business news. When you look up your stock listings every day (no longer in any newspaper), you also get market news, news about your holdings and update your personal net worth in real time.

All for no charge to the consumer.

In Saving Community Journalism, Rick Edmonds of the Poynter Institute says he believes metros will ultimately “establish some method of getting readers to value and pay for content.” But economist Eli Noam is less optimistic. “Realistically, no single news organization can produce all the news and information – both geographic and special-interest information – that their readers and advertisers want and expect in a digital age.”

What do you think?

Click here for an exercise that lets you be publisher of metro newspaper.

Key Insights

In contrast to community newspapers, metros must contend with far-flung print circulation routes, a diverse population of readers with disparate interests, and a very competitive advertising market.  This complicates the strategic decisions that owners and publishers must make.

In the past, large city newspapers thrived financially by providing readers with a comprehensive bundle of news, sports, entertainment and marquee columnists. But today, readers can find much of the content they want – such as restaurant and movie reviews – online for free.

As a result, many metro papers are having difficulty getting readers to pay for subscriptions to either their print or online editions.  With readership down, advertising is also down.

Many newspapers in the country are profitable only two or three days a week.  This raises the question of whether most daily newspapers – including metros – can continue to publish a print edition every day of the week.

Is it possible that the metro paper of the future will survive as a digital-only edition?  Given all the challenges that metros face, perhaps the better question is not “if”, but “when”?