Showing posts with label McClatchy. Show all posts
Showing posts with label McClatchy. Show all posts

Friday, December 21, 2007

What Disruption Looks Like: Newspapers



So what would disruption of the global telecom industry by IP communications look like? It's a hypothetical question, for a couple of reasons. The newspaper industry, for examnple, has been in a lingering decline in readership and ad revenue for decades. Nothing spectacular, year over year: just a steady, decades-long decline.

The telecom industry has seen something like that only in the twin areas of rates per minute charged for long distance and number of wired access lines in service. The long distance data is different from what one sees in the newspaper business in that volumes have skyrocketed even as prices have dropped. There is no such elasticity in the newspaper market.

The parallel between newspaper and telco fortunes is most similar in the area of access lines, where there might even be something like negative elasticity developing: "drop the price and people buy less." But the analogy doesn't fit very well precisely because, unlike the newspaper industry, the global telecom business has developed a huge replacement business for wirelines, namedly wireless services.

In fact, global telco revenue has been climbing steadily almost without a break for more than a century.

At the same time, telcos have discovered data services in addition to voice, broadband Internet access, entertainment video, ringtones, music and game downloads and other smallish businesses. The point isn't "smallishness." The seeds of tomorrow's business already are planted.

Newspapers have done nothing of the kind.

Last year, McClatchy, a U.S. newspaper chain, acquired Knight Ridder. To help pay down debt, McClatchy sold the Star-Tribune of Minneapolis in March for $530 million. Even with an added tax benefit of $160 million, the sale price amounted to only about half of what the company paid for the paper in 1998.

And then in November, the company took a $1.37 billion after-tax non-cash impairment charge, partly to reflect a further decline in the value of its newspapers.

The company's share price recently was $12.75, down more than 80% from the 2005 peak. The decline leaves McClatchy, the nation's third-largest newspaper publisher by daily circulation, with a market capitalization of barely $1 billion.

There is one sliver of hope: McClatchy has a position in the online classified advertising market, though newspapers collectively have lost their hoped-for lead to the likes of Craig's List.

McClatchy acquired a 14.4 percent share of CareerBuilder.com, as well as a 25.6 percent stake in Classified Ventures, the parent of Cars.com and Apartments.com.

The issue is how much success McClatchy and other major newspaper chains are going to have in the local online advertising business. Compared to the telecom industry, the newspaper industry is well behind the curve in cultivating new businesses, even if small.

One is tempted to say it is a shift of consumption to the Web that is responsible for the newspaper decline, but that's not entirely correct. Newspaper consumption began its decline long before the Web existed, so one has to blame television-based news. A shift of information consumption to the Web simply is accelerating a trend already in place.

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