The Biz Blog

Back from this week's mid-year media conference in New York for investors and analysts, I'm looking at the distressed newspaper business in a broader context. There is a little misery-loves-company when you look at troubles particular to magazines, yellow pages publishers or even private investors.

 

But while others may be experiencing their own version of the Internet challenge and finding things not going especially well, newspapers, with ad revenues tracking down 10 percent or more, are a worst case.

 

In the magazine business, for instance, print is a tough sell and news magazines are an especially tough sell. Time Warner CEO Jeffrey Bewkes commented in passing that new lifestyle titles like Real Simple and In Style have boomed in recent years, but news magazines like Time and Fortune are problem children. A response -- at Time Warner and its competitors --  has been to move very quickly to a Web alternative, perhaps an easier transition than for newspapers since the mother publication is weekly or bi-weekly rather than daily.

 

Meredith Corporation has, depending on your viewpoint, some of the most revered or most tired titles around, like Better Homes and Gardens, Parents and Ladies' Home Journal. With growth there limited, the company has moved quickly the last several years into online, custom publishing and so-called "integrated marketing" (planning old media/new media strategies for top clients like Kraft). To that end, it has bought five specialized digital marketing companies and built those business lines to about 15 percent of revenue. Meredith also has cut advertising's share of revenue to 60/40.

 

Though news content is not a factor, a business with some parallels to the newspaper industry's advertising problems is yellow pages and local search. I have touted search a time or two as a potential new revenue stream. For competitive advantage, newspapers would be drawing on existing client relationships, a local sales force, and an entryway into search from their well-trafficked Web sites. 

 

There may be opportunity there, as a panel discussion on the business made clear, but it is hardly an open field. The existing directory companies, though slow off the mark in adapting to the digital era, will not give up their position without a fight. 

 

Furthermore, there are a host of small start-ups focused exclusively on the digital opportunity. Typically they offer services like keyword management and tracking yield that a small business would not have time for or the needed expertise. A little company called Yodle targets businesses with one to 10 employees -- like dentists and plumbers -- and aims to attract new business leads from maximizing their place in listings on Google and other search engines.

 

Scott Pomeroy, CEO of Local Insight Media, also noted that small companies are not going to be "betting their livelihood on a change (in media strategy)." Instead they will stick with a prominent yellow pages listing if that has worked well through the years and "look at the margins" at digital options. 

 

So the hard question for newspapers is whether they are really positioned to win a big piece of the action as the listings business tips slowly to digital.

 

The final panel at the two-day conference, sponsored by Deutsche Bank, featured representatives  of two of the largest private equity groups, Thomas H. Lee Partners and Blackstone. That business too has slowed drastically in 2008 as they find most Internet companies small and overpriced and little else that is attractive and growing.

 

David Tolley of Blackstone closed with an observation on the newspaper business that was hardly a benediction. "I still invest in the newspaper business," he said, though it has not been especially rewarding lately. The industry's dilemma, in his view, is that you could aim "for return (for some years) and then get out, but to stay in business you have to invest in new things," and it is not obvious which new things.

 

Tolley continued that newspapers have logically "tried to do it around deeply local content." But he is beginning to question, "Do people still think of themselves that way?" You used to assume that someone in Peoria was highly interested in what goes on in Peoria, but now some of those people may instead be "into ESPN and Nike as a social network."  

 

Coincidentally, my colleague Amy Gahran raises the same audience question, in the context of community news sites, in her current post on E-Media Tidbits. Surely newspapers are going to have an even tougher road, if Tolley is right, and the importance of local news to potential readers is on a subtle slide.