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Mediacheck

Sun, Province Dip to 1957 Level

Combined circulation sliding, but is profit margin?

By Marc Edge 6 Nov 2006 | TheTyee.ca

Marc Edge is the author of Pacific Press: The Unauthorized Story of Vancouver's Newspaper Monopoly. His third book, Asper Nation: Canada's Most Dangerous Media Company, will be published in 2007 by New Star Books. Visit him online at www.marcedge.com.

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Yesterday's news?

For the third straight year, release of the semi-annual Audit Bureau of Circulations count of newspaper sales across North America has seen combined circulation of the Vancouver Sun and The Province drop about 4.5 per cent. Circulation at the local dailies has thus fallen by more than one eighth since 2003 and is now lower than in 1957, when their Pacific Press profit-sharing partnership was formed, despite a tripling of Greater Vancouver's population.

But is that necessarily bad for business?

Despite their faltering vital signs, newspapers stubbornly cling to life long past the date predicted for their passing. Could it be they are healthier than we know and are merely playing this latest expectation of their extinction for all it's worth?

Follow the money...to advertisers

The reality of newspaper economics is that nobody ever made money selling them, because they cost several times more to produce than they sell for. The increased cost of circulating copies to ever-further-flung suburbs can cut into the bottom line, while higher-income readers living closer to the city are more attractive to advertisers, so shedding circulation strategically can actually be good for business.

"Vanity" circulation, such as discounted and giveaway copies, is another variable that is easily manipulated when and as necessary.

Most newspapers make 75 to 80 per cent of their revenue by selling advertising, and while ad rates have historically been based on circulation, increasingly dailies rely instead on readership figures instead in pitching their product to media buyers. Those numbers, which are derived from simply estimating how many people read each copy sold, are "soft" data, unlike the "hard" circulation sales count conducted by the ABC auditors. Perhaps not surprising, they tell quite a different story when used selectively.

Maybe something else is going on here.

Save us from the Net!

Internet enthusiasts predict an inevitable "convergence" of print and broadcast media, with news, entertainment and advertising content eventually all being delivered digitally online. Publications such as this one are said to be the way of the future, with daily newspapers withering on the vine as a result.

Newspaper owners in the U.S. are currently imploring broadcasting regulators -- for the second time in three years -- to lift a 1975 prohibition on them also owning television stations in the same city. In Canada, the ban on cross-ownership of newspapers and television was lifted by then-prime minister Brian Mulroney in 1985. That paved the way for CanWest Global Communications to move from being the country's third television network to becoming its largest news media company by acquiring the Southam newspaper chain from Conrad Black in 2000.

Some argue the cross-media ownership ban should be re-imposed in Canada to slow the growth of Big Media, but newspaper owners claim that cross-media "synergies" with television are needed to keep the dailies alive. For evidence, they point to their continued decline in circulation, and the semi-annual numbers issued recently by the ABC were conveniently even more dire than usual. The biggest losers included the National Post (10 per cent), the Miami Herald (8.8 per cent), the Los Angeles Times (8 per cent), the Philadelphia Inquirer (7.5 per cent), and the Boston Globe (6.7 per cent).

'Economic necessity'

Is the newspaper business in dire straits, or is it simply using this latest challenge to its media supremacy to strategic advantage?

It has happened before, first when the new medium of radio came along, then television. Radio was predicted to spell the end of newsprint. After all, who would want to read a newspaper when they could listen to someone read it to them on the radio?

Well, it didn't quite work out that way. Newspapers survived that challenge quite nicely due to their advantages in browsability, not to mention their portability and familiar, tactile nature. But the advent of radio did bring a radical change to the newspaper business, as it began an era of consolidation and takeovers. From multitudinous thin sheets competing in every town, newspapers began to dwindle in number but grew fat in size and profits as publishers partnered up or bought out one another until usually only one survivor remained. Competition laws were largely ignored by pointing to the dire prognosis supposedly facing newspapers. The resulting economies of scale benefited their bottom lines considerably, especially in monopoly markets where publishers could now name their price for advertising.

The next challenge, from television, changed the newspaper business even more drastically. Circulation plummeted as readers increasingly became viewers and many publishers panicked, attempting gimmicky "disco" journalism in a vain attempt to emulate the tube. The industry travails were used to full advantage by publishers, however, and in the U.S. they prevailed upon newly-elected president Richard Nixon in 1969 to pass the Newspaper Preservation Act that allowed them to go into business together. Joint operating agreements created local duopolies to effectively block new competitors from entering the market and boost shared profits even further.

Similar arrangements in Canada were already off the hook, like the Pacific Press partnership between the Vancouver Sun and The Province that was recently re-christened the Pacific Newspaper Group under the new ownership of CanWest Global. It was ruled an illegal merger between competitors in 1960 by the old Restrictive Trade Practices Commission, but it was allowed to continue nonetheless after The Province pleaded "economic necessity."

Fat profit margins

A Senate committee recently held hearings into the Canadian news media, including the key questions of convergence and cross-media ownership, and it issued a report with some mild recommendations for reform this past summer. The senators might have shed some light on the question of media profitability had they done what a previous Senate inquiry into the mass media did in 1969 -- force the media companies to open their books -- but they didn't. Back then, the hearings chaired by Senator Keith Davey found media profits "astonishing" at 12 to 17 per cent in newspapers, 21 to 26 per cent in radio, and 36 to 64 per cent in television, compared to 9 to 10 percent in other businesses.

"An industry that is supposed to abhor secrets is sitting on one of the best-kept, least-discussed secrets, one of the hottest scoops, in the entire field of Canadian business -- their own balance sheets," declared the 1970 Senate report.

That disclosure proved a revelation not only in Canada, but elsewhere as well. According to U.S. media critic Ben Bagdikian in his landmark 1984 book The Media Monopoly, it helped expose what he called the "best kept secret" about the media -- their profitability.

In 2005, publicly-traded U.S. newspaper publishers reported operating profit margins of 19.2 per cent, according to the Wall Street Journal, down from 21 per cent a year earlier. According to Russell Mills, the former publisher of the Ottawa Citizen, some CanWest newspapers boast profit margins of more than 30 per cent. That doesn't sound like a business that's about to go down the drain anytime soon.

But by fostering the image that it is, newspapers can justify not only increased political influence through cross-media ownership, but staff cuts and reduced coverage as well in order to increase profits even more, and nobody will be any the wiser.

In the newspaper business, 'twas ever thus.

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