Forward Focus 2014
Posted: 11/8/2013  |  By: Nu Yang
As an industry professional, imagine if you could see into 2014. What would you want to know? The biggest trends?  How much revenue you’re going to make?  Unfortunately, being able to see into the future is a power we don’t possess, but that hasn’t stopped news organizations from looking toward next year. E&P asked the chief financial officers at Gannett, Scripps, McClatchy and Belo for their insights and perspectives on what’s working in 2013, how they’re preparing for 2014 and what they expect to see in the future.  

* Elaine Linetecum’s answers reflect the end of McClatchy’s second quarter. Due to the company’s “quiet period” at press time, she could not comment on 2014.

What are some key factors driving profitability for your business?

  
Victoria Harker, Gannett Co. Inc.: Eighteen months ago, we kicked off a series of cost reduction projects to centralize our printing and distribution across all our local newspapers. We’ve taken off about 25 to 30 percent of our cost structure just by leveraging more centralized hubs (Gannett Publishing Services). As we expand into digital, we are able to leverage a very large customer base because many of our print customers are now taking these (mobile) applications whenever they want to view their content. From an advertising standpoint, we’re able to leverage a national sales force. Whether it’s with USA Today or our local newspapers, we have digital marketing services that are now being sold.  

Tim Wesolowski, E.W. Scripps Co.:
We’re very excited about our digital bundle that we rolled out in 2013. Our focus is expanding our reach and reaching our readers on four platforms: print, the desktop, tablet and phone. It’s essential to let our readers access us the way they want.  

Elaine Lintecum, McClatchy Co.:
We’ve launched several diverse new initiatives, such as our Plus Program (digital subscription packages). We also put in metered paywalls on our websites and as a result, our digital-only subscriptions have increased by 25,000 subscribers. In addition, we want to focus on providing new systems in circulation and editorial in order to be efficient with our print and digital products.  

Alison Engel, A.H. Belo Corp.: Diversifying revenue streams away from core print advertising, stabilizing core print advertising and continuing to maximize circulation revenue.  

Newspapers have been experimenting with new revenue streams (paywalls, marketing services, etc.). What changes to your pricing/business model have improved sales and profits? Where have you seen the most growth and why?  

Harker: In addition to our digital marketing services, we rolled out our all access content subscription model in February 2012 which allows us to appeal to customers depending on when they want to take on news or entertainment. We also have complimentary investments in CareerBuilder.com, Apartments.com and Cars.com. They’re not only good investments for us, but they provide additional revenue streams as a result of their businesses as well. We’ve seen the most growth in our digital marketing services, which started from zero. Also, our all access content model has been a way of leveraging the local content in a way that we hadn’t done previously and that has been showing very nice returns year over year.  

Wesolowski: The digital bundle has been an opportunity for us to look at our pricing across our entire spectrum of products for subscription revenue. There are several subscription packages we offer with our digital bundle. We’re also every excited about our digital-only products, which we’re offering in some of our markets for about $10 a month. We see a nice opportunity for people who are not connected with us, such as non-subscribers and non-readers.  

Lintecum: We continue to pursue new digital and marketing services. For example, our daily deal sites (which launched in 2011) allow us to extend digital to our audience and sales force.  

Engel:
We’re very focused on our marketing services (508 Digital and Speakeasy). We will continue to grow those in 2014. We’ve had a good first year learning with those products under our belt. We’re really excited about moving into the second year with both of those and continuing to maximize those opportunities. We are changing our digital strategy on circulation, shifting to a premium experience as opposed to having a paywall (The Dallas Morning News dropped their paywall last month in favor of a premium website). All of our research indicates that this is more of what consumers are looking for rather than having a paywall. Our premium site is image-intensive, has more graphics, less ads, some personalization and a rewards/loyalty program.  

What products are the most profitable?  


Harker: Our classified ventures have been very profitable for us. In addition, our all access content subscription model because of its digital enhancement allows us to charge for that and that has been expanding our margins as opposed to going the opposite direction.  

Wesolowski: As we look at our different revenue streams going forward, at the moment we’re not ready to call the bottom to the advertising revenue decline that we’ve seen. With the roll out of the digital bundle, we’d be disappointed if we didn’t start to see some growth over time.  

Lintecum: Our focus is to continue to grow our digital revenue. We can do this through marketing our creative new products and our commitment to producing quality journalism.  

Engel: Core print advertising for all newspapers is still the most profitable product. We are working on new products and new revenue streams which will become profitable over time. For example, with 508 Digital, we said it had some period to become cash flow positive and some period of time to pay back the investment we made. So clearly in 2013, we’re not expecting to make a lot of money under that, but we’re focusing more on the long-term. That’s the challenge of the business in general, that nothing we sell right now is as profitable as core print advertising revenue.  

What are your most successful distribution channels?  

Harker: Our all access content subscription model is distributed by both calls centers and our marketing and sales agents. As a product, I think it’s been very successful from a growth standpoint.   

Wesolowski:
They’ve not changed a lot in the past several years, but digital is where our focus is. We think our digital-only subscription is something really exciting for both our readers that are in-market as well as readers who are interested in our markets but live elsewhere.  

Lintecum: Our distribution channels remain our highly successful print distribution and our electronic distribution channels, including our websites and new mobile platforms such as offerings on smartphones and new tablet apps.   

Engel: I think all our distribution channels are successful. We have more readership now than we’ve ever had due to the combination of print, digital and our niche products—all of those together bring us more readers.  

What kind of budget allocations are you seeing with print and digital products? Do you see more funds being used for digital and less for print? 

Harker: From an investment standpoint, we’re seeing a growing percentage in our capital. We’re spending between 110 and 120 million on capital each year now and it’s largely 65 to 80 percent digital development as opposed to 10 years ago where that was largely used on your printing presses and machinery. That’s where we’ve seen the most distinct change. In terms of our operating investment, they’ve been more around the channels of distribution.  

Wesolowski: We’ve invested in our digital group in 2013 and we spent some of that time building out a consistent platform. Now, people on the local properties can spend more time developing great content, putting that content in the platforms and having our local people sell so that they can help our advertisers connect with our readers. We’ve also made investments in our digital-only sales force to increase the training of the people we have in the field, and we’ve invested in helping our journalists write for the four platforms.  

Engel:
The most profitable revenue stream still comes from print on paper. We’re allocating more of our investment resources like marketing and development-type portions of our budget to that next generation of products, such as our marketing services and digital subscriptions.  

Several newspapers around the country have cut print frequency to three times a week. Is this a sustainable model for the industry?  

Harker: I think it varies by the market. There are markets that want a daily and there are some who want the print in addition to what they have online. Some of it is distributed by age and based on the marketplace.  

Wesolowski:
We’ll see. I think potentially there will be different solutions in different markets. We’re optimistic about what we’re doing now with our digital bundle in 2013 and what that can mean in 2014. I think those companies are making these decisions on a market-by-market basis. We currently have no plans to do that.  

Lintecum: At McClatchy, we have no plans to cut frequency. Our readers still want their daily papers so we don’t plan to make that move.  

Engel: I don’t know if that’s a sustainable model because we’ve never studied it deeply—it’s not our strategy. We’ve been very clear that our printed edition is very important.  

Newsroom and print room staffs are being downsized. Do you see this trend continuing? Also, what about the trend of newspapers moving to smaller, less expensive offices?
 

Harker: While we have had some consolidation to our hubs, what really matters is making sure we have the right people as our core. More people are working online now, so it’s been less about needing to physically take the space down due to size, but more about where to locate it. We have to make sure reporters have the right resources and access to them, such as video production. It’s more of a matter of where reporters can do their work best, so we’ve equipped them with iPads and other technology so they can go whenever and wherever their stories take them.  

Wesolowski: I think we’ve done a good job on preserving the high content that we’ve got in our markets. There’s a situation that’s happening in the industry that I call the “debt spiral.” When the great recession hit in 2008, revenue went down, so newspapers cut the newsrooms, and then you ended up with a product that’s not very good. It’s not easy to sell a product like that. We really have to maintain the high-quality journalism we have in our communities. I think we’re in a great position with the digital bundle. We make great journalism and we think people will pay for it.  

Engel: If people can save money by moving to smaller, less expensive space, I think that’s a great move. That’s not in our plans for us in Dallas right now. We maintain a very strong investment in our newsrooms and we want to continue doing that. It’s a constant balance between where the revenue comes out and what we can spend on the expense side. We want to try and preserve the newsroom as much as possible because producing quality local content is an integral part of our long-term success.  

What are the greatest risks for 2014 and what actions could be taken to reduce that risk?
 

Harker: From a printing standpoint, we have to continue to focus on cost and paper supply. We constantly keep an eye on that as a big piece of our cost structure and it requires ongoing care with our suppliers, so we don’t hold a lot of inventory. The flipside to that is the opportunity to expand our all access content subscription model, and we recently launched a similar approach with a pilot in four markets (the Indianapolis Star, New York’s Rochester Democrat and Chronicle, Florida’s Fort Myers News-Press and Wisconsin’s Appleton Post-Crescent), where the local paper contains an edition of USA Today. We’re looking at launching that pilot in the rest of the markets early next year.  

Wesolowski: I think the threat is, “What’s going on with the economy?” I’ve got Bloomberg on my TV in my office all day and I see what’s going on in Washington. Markets don’t like uncertainty, communities don’t like uncertainty and our advertisers don’t like uncertainty. I think if we can get people in Washington to work together and help get the economy growing at a good rate that will be great for advertisers and our readers.  

Engel: Our revenue decline in the core areas, whether or not they meet our expectations or are worse than what we expect or plan for. The best way to mitigate the risk is to have a realistic plan.  

Are there any specific goals or projects planned for 2014 that will improve your bottom line?  

Harker: We’re working on centralizing and consolidating by creating a neuro-network which allows us to figure out the best time and the best route for distribution. We’re using computer-aided algorithms that actually help distributors in the market to figure out where they fit in order to be more efficient.  

Wesolowski: Continuing the things we set on course in 2013. We completed our digital bundle roll-out and we’ll be tweaking that throughout the year and optimizing our investments there. We continue to have efficiency programs in order to help reduce costs, such as consolidation and centralizing services.  

Engel:  Our big priorities for 2014 are continuing our focus on the marketing services and what we’re doing on the digital side.  

If you can sum up your financial outlook for 2014 in a few words, what would they be?  

Harker: We’ve had the benefit of using both our digital as well as our publishing footprint and now we’ve got broadcast, which is what we’re integrating our Belo Corp. acquisition into (Gannett announced in June it will acquire the Dallas-based broadcast company), so as we expand the base, it gives us a greater footprint in our investments. I’m pretty optimistic about our financial trajectory for the upcoming year.  

Wesolowski:
We’re optimistic in everything we’ve been doing and the investments we’ve made on our digital side in terms of rolling out the bundle.  

Engel: We’re excited and optimistic for 2014. We think we’re doing all the right things and focusing on diversifying our revenue and continuing to find the right solutions for the digital side of our business.