Sunday, February 10, 2013

Why does a digital-first strategy for newspaper companies always mean fewer staff?

This article is under construction!  I am trying to marshal my thoughts on the subject, but thought I'd put them out there in the hope of attracting constructive ideas and responses.  Please feel free to leave comments.

The FT is the latest in a number of newspaper companies to announce a digital-first strategy, shifting its focus from the traditional print product to 'a more dynamic and inter-active form of journalism.'

In an email to staff, FT editor Lionel Barber said the move would mean the loss of about 35 editorial jobs, although this would be offset by the employment of 10 more digital jobs. "We need to do less in certain areas and more in others, we need to be much more nimble, and we need to reshape our teams," he said.

This followed a trend that has been going on for some time now and comes fast on the heels of similar announcements by both Trinity Mirror and Local World, the new-formed company which recently bought Northcliffe from  DMGT and Iliffe from Yattendon, giving it control of titles such as the Leicester Mercury, Nottingham Post, Derby Telegraph and Bristol Post.

The issue facing regional and local newspapers has been more pressing than that faced by national newspapers because of the different make-up of their main revenue streams.

Most people tend to think the biggest issue facing local papers is the fall in readership.  That may be the case now, but it was not what plunged the industry into crisis in the first place.  Regional papers have been losing readers for several decades now and yet their most prosperous era was in the early 90s when advertising was plentiful and costs had come down through a combination of new technologies and smaller print runs because of the falling audience.

No, on the face of it, what threatened the very existence of local newspapers was not falling readership, but the sudden and complete migration of certain parts of their advertising revenues to the internet.

Traditionally, local papers have received a far greater proportion of their income from advertising than circulation revenue (perhaps as much as 60:40) as opposed to the situation in the national press where the position is reversed (possibly 40:60).

The threat to local papers has been exacerbated by the fact that the majority of their most-profitable advertising came from the main classified verticals: jobs, property and motors, the very advertising that works best online. As a result, this has been the advertising that has moved most quickly, and most completely, to the web, leaving the local papers with a massive hole in their budgets.  In the late 90s, some of the bigger regional titles were making anything up to £15m profit a year, but this was underpinned by recruitment advertising of a similar level.

Over the past decade, almost all of that recruitment advertising has disappeared.  I doubt now that any regional paper is attracting even £1m from jobs advertising.  Property and motors advertising has suffered in a similar way.

Not only has the advertising disappeared online - mostly to competitors - but that which the newspapers have managed to attract on to their own digital offerings, has been sold at a far lower rate than anything in the papers.  See my post on the Pew research into this.

With a limited appetite for pushing up the cover price of their newspapers, regional publishers have reacted by slashing costs to keep their newspapers in profit.

The most obvious place this has shown is in the number of redundancies in local papers.  These have come in all areas of the business, but the journalists have not been immune.  Newspapers like the Derby Telegraph would have had more than 110 journalists 15 years ago.  Larger papers - the Nottingham Post, the Leicester Mercury - would have had even more.  Now, they operate with perhaps half or even a third of that number.

Costs have also been cut by reducing the number of editions.  Almost all regional papers used to publish multiple editions, some based on geography (allowing greater coverage of each area), others based on time.  The first newspaper I worked on, the Grimsby Evening Telegraph, had a late edition that went to press at about 4pm.  Now, the geographic editions have (almost) all disappeared and most regional dailies print a single edition in the middle of the night so that it can be distributed with the national papers first thing in the morning.

With fewer journalists producing fewer pages in fewer editions, newspaper sales have collapsed.  According to HoldtheFrontPage, audited circulation figures for major regional papers looked like this in 1999: 

Wolverhampton Express and Star  183,759       
Manchester Evening News            173,179
Liverpool Echo                            155,920
Newcastle Chronicle                     107,511
Leicester Mercury                         102,640

By the middle of last year, those same titles were selling:

Wolverhampton Express and Star  100,244       
Manchester Evening News            78,984
Liverpool Echo                            80,762
Newcastle Chronicle                    49,199
Leicester Mercury                        45,465

That represents a fall of more than 50%.

The regional newspapers now find themselves caught in the perfect storm - key advertising streams have disappeared, they've responded by cutting the quality of their products and their readers have fled to the internet.

The affect on national newspapers has not been as pronounced simply because they did not have the same reliance on classified advertising as the regional papers.  But the latest circulation figures for national papers do not make good reading.

The Independent is down 34% in a single year - perhaps partly explained by the growth in its sister title, the i, which is up 20%.  Everything else is down: the FT by 13%, the Daily Star by 14%, the Sun 12%, the Guardian 11% and the Daily Mail by 7%.

So, although the nationals do not have the same reliance on classified advertising as the regionals, they are finding their key revenue stream - circulation income - under attack.

Which brings us to the FT announcement and why all newspapers are not only looking to digital for their future, but are having to do it with fewer staff.

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