Friday, October 24, 2008

The media bloodletting continues

I've mentioned several times (probably to the point that readers are tired of hearing it) that, bad as the economy is, it's just an excuse for many poorly-run companies that are facing problems. For the most part, businesses that were healthy going into the storm will (with cutbacks, belt-tightening, and much pain) survive. Most of those that die will be those that were already in trouble when times were good. In the retail sector, for example, Steve & Barry's was playing accounting games, while Boscov's made an expensive and unwise expansion.

The same is true in media, although there the problem is more widespread and not entirely the result of mismanagement or poor business decisions. The media business was in trouble going into the downturn because of media fragmentation: a business model had developed over time that was based on assumptions about how people got their information and entertainment, assumptions that are no longer true. Under the conditions that now exist, even when the economy is healthy, the income generated by advertising and/or subscriptions is not sufficient to support the cost structures of most media companies. After limping through the past few years and (too) slowly trying to make the needed adjustments, some media companies are now hitting the wall.

The New York Times Company has reported a 18% drop in print advertising revenue and says it's looking to cut its debt load. The problem is that the best bet for cutting debt would probably be to sell The Boston Globe. But that raises the question of who would want to buy it.

The newspaper said it expects to write down the value of its New England assets, including The Boston Globe, by up to $150 million, illustrating the dismal state of print advertising. [...]

"We plan to continue to explore opportunities to reduce our debt levels," Chief Executive Janet Robinson said in a statement earlier in the day.

Benchmark Co analyst Edward Atorino interpreted her remarks as a sign the newspaper would consider selling properties. "The word 'opportunities' you could put in quote marks," he said. "I'm not sure they can sell The Boston Globe anymore."

Media experts repeatedly have said the New York Times could sell the Globe, but Robinson told analysts on a conference call it is a difficult time for publishers to sell. Many newspapers now are worth far less than they were just a few years ago.

Standard & Poors dropped the company's rating to junk.

The Newark Star-Ledger, one of the biggest papers in the country, today gave buyouts to almost half its newsroom. That, however, is comparatively good news, since a couple months ago there was a possibility it might shut down completely.
Jim Willse, the Star-Ledger's editor, said Friday that the newspaper accepted 151 buyout offers from its news staff, or about 45 percent of its 334 editorial employees. He said 17 buyout applications were rejected. [...]

The Star-Ledger, with daily circulation of about 350,000, has posted losses for at least three straight years and was on pace to lose between $30 million and $40 million in 2008.
Television isn't doing much better. All the networks (except Univision) are showing serious ratings declines:
... the top 5 English networks are down 9% in average viewers and between 10% and 12% in adult demo group viewers.
Local TV, which is heavily dependent on retailers and car dealers, is hurting as well. Radio hasn't figured out how to deal with satellite competition and digital music:

In one study for a CHR-formatted station in a top 20 market, 84% of 14- to 17-year-olds reported listening to music on a computer, iPod or MP3 player every day. 78% listen to AM or FM radio.

In a separate study, when asked the question, "Where is the first place you go to hear music?" 41% of 15- to 17-year-olds said iPods or other MP3 players, 27% said their computers and 22% said FM radio.

It's not limited to traditional media. Yahoo has just announced a slew of layoffs, and Wall Street is wondering where the company is headed.
This will be Yahoo's second significant round of layoffs in nine months. The battered Internet portal fired 1,000 workers in late January, but the cutbacks have done little to boost investor confidence. Analysts hope Yang will address a new strategy to boost Yahoo's share price in a severe economic downturn.
And it's best not to even think about what will happen to many of the "new media" companies (virtual worlds, mobile messaging, etc).
Experimental marketing, still in its infancy, may be in for a rude awakening in 2009. Last year, out of the $21.1 billion spent on online advertising in general, about $878 million was allocated to mobile, while a much more diminutive $15 million was spent on widgets and apps. With budgets being slashed left and right, that’s a lot less capital to go around in an increasingly crowded field of players.
The difference between the problems faced by retail and media is that the strong, healthy retailers will come out of the current downturn stronger and healthier than ever. Individual companies will suffer, but the sector itself is fundamentally solid. For media, the problems stretch throughout the entire sector. Media companies, even the best of them, are going to face a long, hard fight, and fundamental restructurings, before things turn around.


Anonymous said...

While fragmented media is partly the root of the issue with declines in revenue, it is mostly due to the advertising revenues that have declined- largely due to the housing bust. Readership of newspapers and their websites has remained strong but without the revenue from ads, the bloodletting will continue.

Bob Houk said...

I agree, up to a point. The financial problems are caused partially by the circulation decline, but mostly by the ad decline. But the ad decline is caused, in large part, by the circ decline.

Yes, the ad situation is made worse by the rotten economy, but it would be bad even if the economy were OK, because of the circulation problems.

The new circulation figures are out today, and they're worse than ever.