Dear newspapers: Please innovate while you still have money

by Jason Preston on April 25, 2008

NewspaperWhen you look at how many layoffs are happening in newsrooms around the country, and you listen to so many people in the news industry talking about how screwed newspapers are, it’s easy to think that newspapers are hemorrhaging money left and right.

That is not the case. Take, for example, this snippet from a recent article in Fortune magazine:

So far this year, News Corp (NWS, Fortune 500). shares are down 25% against a 6% decline in the S&P 500, although it’s probably unfair to hang that entirely on newspapers, which accounted for just 17% of the company’s US$15.7 billion in revenues in the six months ended December 31, and 12% of its operating profits of US$2.5 billion. Operating margins for what the company calls its newspaper and information division were 11% during the six months, better than many rivals but down from 14% in the year-earlier period.

Yep, the newspaper division of News Corp has an 11% profit margin.

I know this is not unique to Newscorp, because I remember watching a special on TV almost a year ago that detailed how many newspapers enjoyed the nearly unheard of 10% profit margin.

But I haven’t been able to find any of that video online, and I didn’t want to stick my hand in the fire without at least one or two marsh mellows. Here’s a 2006 article citing Knight-Ridder’s profit margin at 20%.

Part of me—the economist in me—wants to say “welcome to free market competition, newspapers. The monopoly is over, get used to realistic margins, stop crying, get over it, hire some reporters and compete.”

And I do think that hiring people is the right thing to be doing right now. Now is the time to be investing in new things and establishing yourself in a new market, which doesn’t happen by sticking your head in the sand.

In other words, if your profit margins are shrinking (and they undoubtedly are), you’d better use that cash surplus while you’ve got it, and invest in some new people and some new technology. This is business. You need to spend money to make money.

But of course there’s Wall Street.

Which is one reason why Blethen probably has a good point: private newspaper ownership would allow newspaper owners to get fat and happy on 3-5% profit margins like the rest of the civilized business world, instead of crying like babies because someone took their monopoly away.

Enjoy my diatribes? Subscribe to my RSS feed or sign up for e-mail updates to keep up with new posts.

{ 1 trackback }

Scoble confirms: The New York Times is getting its content everywhere : Eat Sleep Publish
05.23.08 at 3:13 pm

{ 2 comments }

1 Allen Taylor 04.25.08 at 7:34 pm

Nice writing. You are on my RSS reader now so I can read more from you down the road.

Allen Taylor

2 Blake 04.30.08 at 9:01 am

I’ve been subscribing to your various feeds for awhile: great ideas and great posts. I would suggest consolidating your various contributions to the web and the industry. I think what you’ve done with this blog is fantastic.

Preface: I’m probably not the typical reader/viewer:
I like how you’ve expanded the real estate of your blog, but the amount of white accentuates the activity (which there seems to be a lot of).

The continued direction of the web: concise, creative & content-driven, clean.

http://blakeneven.blogspot.com

Comments on this entry are closed.