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The state of the newspaper industry is no joke; Star parent making money, but paper far from secure

May 18, 2009

Imaging Indianapolis without The Indianapolis Star used to be unthinkable. The city's daily newspaper has been landing on front porches for 106 years, telling readers how their government is performing or whether to expect rain or snow.

Today, life without a daily  newspaper isn't so farfetched.

Many people, especially young readers, abandoned it long ago and get their news online, if at all. And now even loyal print readers are more frequently asking "What if?" as the drumbeat of bad news for newspapers grows louder.

Daily papers in Philadelphia and Minneapolis are in bankruptcy. Financial pressures shut down the 146-year-old Seattle Post-Intelligencer in March, with the publication moving completely online. The Rocky Mountain News is history, The Detroit Free Press—a sister paper of the Star's owned by Virginia-based Gannett Co.—has cut home delivery to three days a week.

"What we're in the midst of is historic, watershed, tectonic change," said Tim Franklin, former managing editor of the Star, the Orlando Sentinel and Baltimore Sun. "The financial pillars that have held up newspapers for centuries are crumbling.

"I couldn't have imagine the scenario we are facing one or two years ago," said Franklin, now head of Indiana University's new sports journalism center. "But the gale-force winds of change have never been stronger in this industry."

Trouble—with a silver lining

Star parent Gannett, which has 85 daily newspapers nationwide, including USA Today, has seen its operating income decline steadily, from $1.3 billion in 2004 to $747 million in 2008. The company doesn't detail revenue for individual newspapers, but industry analysts believe the Star has seen a double-digit percentage decline in recent years.

The Star's circulation is another troubling sign. Figures for the period ended March 31 show weekday circulation declined 9 percent, to 232,361, from a year ago. Saturday circulation fell 7 percent, to 201,798, and Sunday circulation declined 4 percent, to 311,322, according to the Audit Bureau of Circulation.

But there is a silver lining. Though analysts think the Star's profit margin has declined fairly dramatically in the last five years, they believe it's still above 15 percent.

And readership hasn't really fallen, Star executives say. It's merely shifted to the Web.

John Kridelbaugh, the Star's vice president of market development, said the Star's Web site is profitable and revenue for it is growing at a double-digit percentage clip.

"We're reaching more people than ever if you look at our entire suite of products," he said.

The problem is, those people aren't paying for the content. And the online advertising model has yet to be perfected. Advertising is the biggest source of revenue for newspapers, but ads that appear online typically cost only a fraction of what newspapers charge for print ads. Newspapers still bring in about 85 cents of every advertising dollar through print, while Internet ads make up the rest, according to industry experts including Abe Peck, director of business-to-business journalism at Northwestern University.

"They don't want to cannibalize their sacred cash cow," said Peck, of the print product.

He said newspapers face a difficult dilemma: When to abandon print for digital? "The tipping point comes when print newspapers can no longer cover their expenses," said Edward Atorino, an analyst covering Gannett for Benchmark Co. LLC in New York. So how close is the Star to its tipping point? "I think our print product will be around a long, long time," said Star Editor Dennis Ryerson. "A lot longer than people think." Franklin isn't so sure.

"If anybody professes to tell you what the situation will be with certainty, they don't know what they're talking about," Franklin said. "There's only one thing you can say with certainty. In just a few years, the industry won't look like it does now."

Jim Brown, associate dean for the journalism school at IUPUI, also wonders how many more years the print version of the Star will be viable.

"We don't think the print model is going to hold up," said Brown, who noted the ad revenue for the school's newspaper is down from almost $300,000 to $200,000 this year.

Brown is putting together a panel of 15 students this summer to help identify how the school can transition its paper from print to digital.

"I don't think it's a matter of, if the print edition is going away; it's, when," Brown said. "I think the Star could be gone as we know it within 10 years."

The world after print

There's more than nostalgia at stake when print goes by the wayside. Access to news can suffer. And resources—starved by the loss of print revenue—can cause quality to decline.

The saga at the Seattle Post-Intelligencer gives an idea of how resources can suffer in the switch to online only.

When it discontinued its print product, the P-I let most of its 167 editorial employees go, retaining 20, including reporters, photographers and Web designers, and adding 20 salespeople who were more savvy in dealing with the Web and more eager to work with smaller margins.

IUPUI's Brown feels as readers and advertisers flock to the Internet in ever-greater numbers, staff sizes will be bolstered.

John Morton, a Maryland-based newspaper industry analyst and president of Morton Research Inc., is less confident.

"The online newspaper model doesn't support a good deal of journalism," he said. "There simply isn't the revenue generation there to pay for the necessary resources to do things like investigative journalism."

David McCumber, former P-I managing editor, told National Public Radio in March that his former employer won't be the last to fall, and he warned that the slimmed-down resources of a Web-only news-gathering organization put at risk the vital role of watchdog newspapers have proudly played since the advent of the printing press.

"It's not just us," McCumber told NPR. "It's that the industry can't seem to find a way to make journalism work, and people need it—democracy needs it."

There's also the issue of the masses who aren't online and therefore still rely on newspapers for vital information. The growth in Internet use is staggering to be sure. A study by the Pew Research Center found about 40 percent of Americans go online regularly to get news—about a 20-percent increase from a year ago—and that 70 percent of the U.S. population has Internet access. But if the Star were to go Web only, those figures suggest 450,000 people in Marion and surrounding counties would be cut off from the local information the daily news-gathering operation provides.

Generational shift

The solution to the access problem likely lies with new technology. Tristan Harris, a 24-year old Stanford University graduate, sheds some startling light on the debate.

"No one I know in my generation, no one who has graduated from Stanford in the last seven years, reads a print newspaper," Harris said. "No one."

Harris' insights carry more weight than most 20-somethings. Harris, who studied computer science, has worked closely with Stanford's journalism department over the last few years to study news consumption. He is co-founder and CEO of Apture, a California-based tech company that has recently signed deals with The New York Times, Washington Post, Reuters news service and the British Broadcasting Corp.

Apture developed software designed to allow Web sites to embed maps, videos, charts, photos, documents and other features directly into their site instead of hyperlinking to other Web addresses.

Harris said the technology has the potential to make "flat" single dimension Web sites a thing of the past. Industry analysts said it makes a newspaper look like a piece of ancient history.

Harris added that the proliferation of hand-held electronic readers like the Kindle, a device books and newspapers can be downloaded to, may hasten the death of print products.

"One of the big selling points of newspapers has been portability," Morton said. "That strength is getting seriously eroded as digital technology evolves."

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