US newspapers put the woes of Scotsman and Herald in context

US newspapers put the woes of Scotsman and Herald in context

by Alex Massie
article from Tuesday 6, August, 2013

I DOUBT you have ever had cause to think of the Worcester Telegram & Gazette far less read it. Nevertheless, the history of this Massachusetts paper has, as we shall see, a surprising relevance. It was bought by the New York Times Company in 1999 for $295 million. The purchase expanded the Times's "footprint" in New England and now looks like the last act of a media age now so extinct it merits some comparison with the age of the dinosaurs. Six years previously the Times had paid $1.1 billion to buy the Boston Globe.

Last week the Boston Globe was sold for $70m. The sale, to John Henry whose sporting interests include the Boston Red Sox and Liverpool football club, suggests the Globe's buildings are worth as much as its actual newspaper business. The Worcester Telegram & Gazette was included in the sale of the Time's New England holdings, thrown in as a "why not?" present to the new owners. In 20 years New York's finest took a 95% loss on their Massachusetts papers.

The Globe was not the only media property in the news last week. Newsweek, sold two years ago for $1 - yes, one - and $40m in liabilities - was sold again. The once-proud weekly ceased print publication last year and "merged" with Tina Brown's popular website "The Daily Beast". It didn't work. Losses continued. Unsupportable losses, in the view of billionaire benefactor Barry Diller.

And then last night came the most remarkable news of all. Amazon founder Jeff Bezos has bought the Washington Post. The Graham family, who have owned the paper for more than 80 years, was selling! Who guessed that? The paper of Bradlee and Woodward and Bernstein, of Watergate and the Pentagon Papers (that latter honour shared with the NYT) was on the market!

The sale of the Post means that the Washington Post company will henceforth concentrate on its profitable businesses. The Grahams, doubtless with some reluctance, have sunk their own flagship the better to save the rest of the fleet. The newspaper division proved too distracting, too much a drain on profits to be sustained.

Bezos, who is believed to be worth something more than $20 billion, says he has no plans to overhaul the Post. At least not yet. The current management will stay in place. His enthusiasm for sustaining losses seems likely to be just as limited as anyone else's but let's just say he could endure heavy losses for many years without suffering too much pain.

And let's pause to consider the price Bezos paid for the Post: $250m. In other words, one of the greatest "brands" in American journalism is worth less in 2013 than the Worcester Telegram & Gazette was in 1999. That's more than just a collapse in value, it's a calamity.

Because Bezos has made his money "on the internet" it will be assumed he has some shiny new plan that might, somehow, rescue the newspaper industry. If only this was so. He has promised to experiment while for their part the Grahams think Bezos gives the Post a better chance of long-term profitability than they could deliver themselves. Perhaps this is true. The Post is not quite what once it was. The last decade has seen the paper slash its payroll, reduce staff numbers and prune its ambitions. The Post yielded to the New York Times, retreating from the national battlefield and settling instead for being a regional paper. Years of cost-cutting and redundancies followed in a desperate attempt to cut costs faster than profits were falling. None of it worked. Post revenues have fallen by 44% in the past six years.

Cutting costs is a dangerous game. It requires a paper to run faster and faster just to remain in the same place. But if cutting costs is dangerous - not least because doing so weakens the product and, consequently, further loosens customer loyalty - so is not cutting costs. "Investing" in journalism may be virtuous but it offers no assurance of profitability.

The business model is broken. It has ceased to exist. Younger readers may find this hard to believe but once upon a time if you wanted to rent a flat or buy a car you pretty much had to buy a newspaper first. The death of classified advertising is being followed by a collapse in display advertising too. Total revenues for the American newspaper industry have halved in recent years. Newspapers once sold journalism to their readers and readers to advertisers. The collapse of the latter market is ruining their ability to perform in the former.

Bezos offers the Washington Post some hope for a better future but this sale paradoxically also confirms the death of an industry. Owning newspapers has often been a question of vanity; now it's also a matter of philanthropy. And how many billionaires are there prepared to risk at least a portion of their wealth on such adventures? If you need a Bezos to survive these days then there will be few survivors.

Which brings me to Scotland. In 2005 the Johnston Press paid £160m for Scotsman Publications. That's roughly what Jeff Bezos has paid for the Washington Post this week. To put matters in even starker terms, if the Boston Globe, which sells nearly three times as many papers each day as the combined sales of the Scotsman and the Herald, is worth $70m what is the combined value of the Scotsman and Herald groups? A sobering thought.

Newsquest purchased the Herald titles for £216m a decade ago. So earlier this century the Glasgow and Edinburgh newspaper groups were sold for nearly £400m. These valuations, it is reasonable to say, looked optimistic at the time. They seem mad, quite mad, now. The Scotsman group had turned a profit of some £7m the year before Johnston Press bought the company. Margins, once generous, were already squeezed then. Now they are to all intents non-existent.

And so the cuts continue. It is remarkable that the Scotsman and Herald remain as good as they do given the financial and staffing pressures they face. They have lost a lot of blood in recent years; it is amazing they still remain alive.

Nor is there any obvious way out of their present predicament. A merger, as once suggested by Andrew Neil, might have worked once. It seems likely to be too late for that now. And besides, who is going to buy the papers? Especially since neither Newsquest nor the Johnston Press seem willing to listen to realistic offers. In any case, any new owner will struggle to cope with existing pension liabilities. The days of 10% margins, let alone the happy 30% return of bygone years, have gone forever.
Are there alternatives? Perhaps. An optimist would say there is a future for big media brands and for small, local, outlets. It is the middle guys in between who face oblivion. They lack the scale to be a traditional newspaper department store but they are also too expensive to run to be the local corner shop. In this respect, the newspaper business is not so different from retail businesses on the high street.

But the British newspaper industry is complicated by another factor that is too rarely addressed. In the digital era when news is available on laptops, tablets and phones the BBC enjoys a significant - and privileged - position. Paid for by what is essentially a poll tax the BBC enjoys guaranteed revenue streams that play a part in threatening the media diversity - at a national and local level alike - everyone claims to desire.

Is this fair or sustainable? Online revenues, for most newspapers, are struggling to make up for collapsing print revenues. Advertising is no longer the future. Some paywalls look as though they can work: the New York Times earned $150m from its paywall last year but, again, this merely demonstrates the advantages of branding. The NYT is arguably the best English-language paper in the world. If it is struggling to make the numbers work, what hope is there for other, less blessed, parts of the industry? (And there are persistent rumours that another billionaire, Mike Bloomberg, might be interested in buying the NYT.)

Again, Jeff Bezos may offer the Washington Post a way out of the mire but few papers can hope for a Bezos-rescue. Which also means that, for consumers, the era of the free lunch is coming to an end. Someone has to pay for journalism and if advertisers won't that means consumers - readers - must. At some point, however, someone needs to ask questions about the BBC's poll-tax-driven advantage.

As for Scotland, those people complaining about the supposed decline of the Scottish press might care to expand their horizons. The owners of the Scotsman and Herald groups may have made mistakes but their predicaments are hardly unique. Indeed they are just the same as those endured by the owners of newspapers in other cities in other countries. The problems are systemic, not particular.

"Investing" in journalism is an expensive business with no guarantee of reward in an era of frayed customer loyalty. It is something for which it is easy to call when it isn't your money being risked but rather harder to deliver when it is. And so the industry hunkers down, trying to do "more with less" while hoping for a miracle. That is, for some deep-pocketed benefactor. But how many such philanthropists are there and why would any of them be interested in rescuing the Scottish newspaper industry? Those questions have answers that are as obvious as they are bleak.

 

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