Newspapers and Indianapolis Star and Media & Marketing

Star, other daily newspapers adapting to digital world

April 14, 2008

The Indianapolis Star has launched an armada of initiatives to bolster revenue as it reacts to seismic industry changes, many driven by advertiser and reader flight to digital media.

Daily newspapers--once one of the nation's most stable, profitable businesses--now face a rapidly changing marketplace that would make the most innovative business operator quiver.

To bolster their business, Star managers have enlarged the newspaper's type size and shrunk the newspaper; revamped their Web site; and invested in 13 community newspapers, four magazines and a litany of interactive online specialty publications and databases. They also have reallocated staff to deal with changing priorities.

Star officials are naturally eager to tout the positives of their business. And on several fronts, the state's largest daily has outperformed many of its big-city print brethren in recent years.

"In many ways, we think the Star has a remarkable story to tell," said John Kridelbaugh, the newspaper's vice president of market development. "Our goal is to hold onto the daily newspaper reader and grow overall readership by adding new products. And we've been successful in doing that."

But the wrenching changes are only beginning, said Jim Brown, associate dean for the journalism school at IUPUI.

"This is an industry that is used to operating local monopolies, and now people simply have more options for what they do with their time," Brown said. "Young people today are increasingly choosing different ways to get their information, and newspaper companies have to respond to that."

That audience shift, said media buyers, is causing advertisers to look at alternatives such as the Web and direct-to-cell-phone text messages that weren't viable options a decade ago.

Such shifts, along with a decline in department store advertising--once a cash cow for the Star and other large-city dailies--are pinching revenue. The financial hit has come at the same time newspapers are wrestling with how to staff their rapidly expanding Internet news operations.

The competing pressures can hamper newspapers' ability to produce investigative journalism that helps make their communities a better place to live, Brown said.

"The watchdog role is still important for newspapers, but there's often a lack of resources to cover the important issues," he said.

Star editors have acknowledged the strain. After Managing Editor Pam Fine resigned last month to accept a post at the University of Kansas, she told Editor & Publisher, "It is hard and it has gotten harder to do the kind of work here we want to do. The demands have grown and the staff hasn't."

Survey says: readership up

All media companies are experiencing tumultuous times. Radio station operators, for instance, have lost advertisers to the Internet as well as listeners to satellite radio and the iPod. Newsweek and Time have seen ad pages tumble.

IBJ hasn't experienced declining circulation, but is wrestling with an aging readership base and with staffing its expanding Internet operations.

The irony is that many publications never have had so many readers. But many of those readers are going online, where content is usually free. In the new world order, companies are scrambling to draw eyeballs to their Web sites, or ancillary Web sites, driving up page views in order to entice advertisers.

In that battle for media dominance, the Star says it's faring well.

A survey designed by the Star's Virginia-based parent, Gannett Co., and conducted by New York-based Scarborough Research shows the Star and its ancillary print and Web publications reach 115,000 more people each week than they did 18 months ago. That means Star products now reach 82 percent of people 18 and older in Marion and the surrounding counties each week, compared with 75 percent 18 months earlier, according to the survey.

The study shows the Star's print products reach 72 percent of central Indiana readers 18 and older 4.2 times per week. That's up from 64 percent 18 months ago. This comes in the face of massive newspaper circulation declines nationwide.

"Indianapolis is doing great; they're bucking the trend in the industry," said Lauren Fine, a longtime media analyst who recently retired from Merrill Lynch & Co.

Kridelbaugh credits the growth to the relative economic strength of central Indiana and the myriad community newspapers and magazines the Star now delivers each week-including the 2-year-old Carmel Star and other publications it has acquired, such as the south side's The Spotlight.

"Our strategy is to look at all audiences and reach those audiences the way they want to get news and information," Kridelbaugh said.

The Star has been a leader among Gannett publications in attracting readers through its Web site. The Scarborough survey shows that Indystar.com reaches one-third of central Indiana adults 18 and older at least once a week, a figure Kridelbaugh said is the highest among Gannett's 85 daily papers. Indystar.com readership in the much-sought-after 25-to-34 age range, is 50 percent, Kridelbaugh said.

Tara Connell, Gannett's vice president of corporate communications, wouldn't discuss how the Star stacks up to other papers in her chain.

"We never pit one of our papers against another," she said.

But she did say the Star has been a trailblazer, launching products other newspapers in the chain later adopted.

"The Star has done some really incredible stuff, including launching IndyMoms.comand IndyPaws.com," Connell said.

Interactive specialty Web sites for niche audiences have been a key tool to making the Star's Web site the No. 1 media site in Indiana, with more than 40 million page views a month, Publisher Barbara Henry wrote in a column in February.

While the numbers appear strong, longtime local media buyer Bill Perkins said advertisers are bound to look at them skeptically.

"There's an old joke, 'Figures don't lie, but liars sure figure,'" Perkins said.

"I'd have to know a lot more about that survey. Surveys often have qualifying questions that modify figures. How you pick your sample for a survey affects the numbers, and ... you have to be careful that these numbers don't include duplicate readers--counting the same reader twice."

Circulation trends down

There's another set of numbers to consider.

While the Star's daily circulation has held up relatively well--it's now 250,000, off just 1,400 since 2003--its Sunday circulation has taken a precipitous slide. Since 2003, it has fallen nearly 28,000, to 340,000. Sunday circulation topped 400,000 as recently as the mid-1990s.

"They have to be concerned about that kind of erosion," said Frank Folwell, who recently retired as deputy managing editor at Gannett-owned USA Today. "They have to find a way to make up for those losses, but it's not easy in this changing environment."

Newspapers industrywide are feeling the pain. In just four years, the nation's top 25 newspapers collectively have seen daily circulation decline 1.4 million, or 10 percent, according to the Audit Bureau of Circulation.

The size of declines varies widely. Since 2003, The New York Times' circulation is down 81,000, about 7 percent, while The Los Angeles Times' has fallen a whopping 201,000, or 20 percent. Two of the largest Gannett papers, The Detroit Free Press and The Arizona Republic, each has seen more than a 10-percent circulation decline.

"You have to look at these situations market by market," said John Morton, a Maryland-based newspaper industry analyst and president of Morton Research Inc.

"Indianapolis' corporate climate is pretty stable compared to Detroit, which has been hit hard by problems in the automotive sector. Phoenix is more robust, but the population is also more transient. You could also conclude that Indianapolis is simply a strong newspaper market."

Kridelbaugh credits the Star's relative circulation strength to strong marketing by the newspaper and even to such factors as the Indianapolis Colts' 2006 run to the Super Bowl.

Industry experts have questioned whether some newspaper companies are counting bulk distribution--such as bundles of free papers dropped off at college campuses. But Lauren Fine, the former Merrill Lynch analyst, said ABC has strict guidelines that assure all papers counted in circulation figures are paid. It does, however, allow deeply discounted sales to be counted, she said.

Financial pressures

Circulation, however, is far less significant than advertising to a company's revenue stream.

On that front, the Star clearly has taken a hit. Its classified advertising section is dramatically smaller than it was five years ago, Brown said, and the disappearance of large retail advertising accounts such as L.S. Ayres also has done damage. Most papers, Brown said, are struggling with big declines in automotive, retail and job-recruitment advertising.

"Some of that money, especially when a store chain goes away, is never coming back," Lauren Fine said.

Gannett does not divulge financial information for its individual papers. But overall, Wall Street is underwhelmed with its performance. The company's stock has lost half its value in the past 12 months and two-thirds of its value since April 2004. The shares now trade for around $28.50 a share.

While the company's revenue has been steady in the $7.4 billion range since 2004, its profits have dropped from $1.3 billion that year to $1.1billion in 2007.

"Despite all the doom and gloom, newspapers have remained profitable," Morton said. "The era of exceptional profit margins in this industry is over, and newspaper publishers need to adjust their expectations for that reality."

The average annual profit margin for newspapers owned by publicly traded companies dropped from 22 percent in 2003 to 17 percent in 2007.

It could have been much worse, Morton said, had companies not sliced expenses.

"Unfortunately, part of the profitability was maintained through cost-cutting," Morton said. "Continual cutting will diminish the product and brand name over time. These papers can still maintain profit margins between 10 to 12 percent."

The Star has undertaken its own cost-cutting. Though Editor Dennis Ryerson said the Star's news department has 240 full-time staffers, several newsroom insiders said staff has been reduced 10 percent to 15 percent over the last five years. Ryerson noted that the Star has boosted staffing in outlying bureaus to bulk up the community newspapers it launched or bought. He said many staffers also have been added over the years to take on burgeoning Web initiatives.

The Star also has shrunk the height and width of each page about an inch. The type size also was increased, shrinking the news hole. While Ryerson said readers enjoy the portability and readability of the smaller paper, and that the type size was bumped up for aging baby boomers, industry experts said the smaller news hole means less news coverage. That cuts costs for the Star two ways--fewer reporters and photographers needed and a reduction in newsprint costs.

"You can see that there are things that used to be covered and written about that simply go uncovered now," IUPUI's Brown said. "That's a direct effect of cost-cutting."

Industry insiders speculate that if the Star hears few complaints about the smaller print edition, Gannett eventually will make the paper a tabloid. Ryerson maintains that's not the plan, and Gannett's Connel refused to comment on the possibility.

Ryerson said the new format requires staffers to be more selective about stories they put in the paper, choosing only "stories that have impact." He added that the Star constantly listens to reader feedback to tweak the publication. Because of the feedback, it has added information on page two and more in-depth stories on page three and is considering putting more national and international stories in the front section.

Web income critical

Meanwhile, the Star is trying to maximize Web revenue. Because Web advertising is cheaper to produce than print advertising, industry analysts estimate that for every dollar lost in print advertising, a newspaper needs to make up only 40 cents of it through Web advertising.

Still, it won't be easy.

"Most newspapers do a good job online, but they have a lot of competition that they didn't when it was a print-only world," Lauren Fine said. "So they don' have the same market share."

The Star has aggressively developed its Web site, most recently training reporters and photographers to produce video for IndyStar.com and rearranging the layout.

"With present trends with new media, I think the Web sites could well become more important than the print media," IUPUI's Brown said.

But the newspaper industry isn't there yet. National studies show that while Web advertising is growing 20 percent annually for newspapers, it still makes up 7 percent of total ad revenue. Morton expects Web ad revenue for financially healthy newspapers to be equal to print ad revenue within 10 years.

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