LAST week’s string of dismal headlines about the newspaper business eventually began to resemble a multivehicle pileup on the freeway. There was so much carnage it was difficult for even the most determined rubbernecker to know where to look.
On Wednesday, Bob Woodward, the man who built his career on protecting a single Watergate source, became impaled by his efforts to protect another. Who would have thought that one of the journalists responsible for the ubiquitous “gate” suffix denoting scandal would end up with it being attached to his name?
On the same day, Walter Pincus, one of Mr. Woodward’s colleagues at The Washington Post, found himself held in contempt of court for his refusal to identify his sources in a lawsuit brought by Wen Ho Lee, a scientist who formerly worked at a government nuclear weapons lab.
And while other reporters may not face jail time or fines, their future seemed grim as well. The Los Angeles Times announced cuts of 85 newsroom employees, while The Chicago Tribune said it was cutting 100 jobs across all departments. Earlier in the week, Knight Ridder got shoved onto the auction block by investors who had tired of the company’s dawdling share value.
And the worst of it? Those were not the worst of it.
The scariest development for the newspaper industry was the announcement (on that same Wednesday) that Google, the search engine company that wants to be the wallpaper of the future, was going live with Google Base, a user-generated database in which people can upload any old thing they feel like. Could be a poem about their cat, or their aunt’s recipe for cod fritters with corn relish.
Or, more ominously for the newspaper industry, people could start uploading advertisements to sell their ’97 Toyota Corolla. Craigslist kicked off the trend, giving readers a free alternative to the local classified section. If Google Base accelerates the process, the journalism-school debates over anonymous sourcing and declining audience may end up seeming quaint.
Google Base reverses the polarity on the company’s consumer model. Instead of simply sending automated crawlers out across the Web in search of relevant answers to search queries, Google has invited its huge constituency of users to send and tag information that will be organized and displayed in relevant categories, all of which sounds like a large toe into the water of the classified advertising business, estimated to be worth about $100 billion a year.
This could be a fine thing for consumers, but for newspapers, which owe about a third of their revenues to classified advertising, it could be more a spike to the heart than just another nail in the coffin.
LARGE national newspapers like USA Today, The Wall Street Journal and The New York Times have already absorbed a big hit as advertising categories like travel and automobiles have moved online. According to estimates cited by The Associated Press, newspaper advertising revenues will grow less than 3 percent in the current year while online revenue, much of it coming from search advertising, will jump by more than 25 percent.
Google Base could take a bigger toll on local and regional newspapers. So far, those papers have managed to maintain their connection between their readers and the goods and services in the same market. By allowing its audience to customize content and post it for free (all the while selling ads against the audience that information aggregates), Google could all but wipe out the middle man, which could be your friendly neighborhood daily paper.
“Many newspapers have had historic monopolies in their respective markets when it comes to classified ads,” said Christa Quarles, an analyst at Thomas Weisel Partners, a merchant bank in San Francisco. “The local papers have been fairly insulated from major attack, and this could be the next big shoe to drop.”
The growing competition will certainly be evident if and when Knight Ridder, with its host of regional and local newspapers, goes up for sale. Historically, newspapers are valued at 10 to 12 times earnings, which theoretically would make the company worth as much as $9 billion dollars. Given Knight Ridder’s current market capitalization of $4.18 billion, Bruce S. Sherman, who heads Private Capital Management and who owns 19 percent of the company, thinks it might be time to sell.
But how liquid are newspapers? Even though they deliver profit margins of more than 20 percent on an industrywide average, they are viewed as bad bets for the future and may not bring the dear premium they have in the past.
Across the board, newspaper stocks are down approximately 20 percent, in part because the industry, accustomed to cyclical change in its 400-year history, is now confronted by secular change: audiences are moving online and taking advertising dollars with them. And they aren’t coming back.
Happily, newspapers have been there to great them with Web sites of their own, but owning consumers online is not quite the same as dropping a product they pay for on their doorstep. Those eyeballs are worth less, at least so far, and will not support big local news staffs, let alone far-flung bureaus.
John Morton, an analyst who has been watching the newspaper industry since 1971, had a hard time remembering a worse period for the business.
“It was a very discouraging week by any measure in a year that has been discouraging as well,” he said. He pointed out that the week before, the Audit Bureau of Circulations announced that the combined circulation for newspapers dropped 2.6 percent in the six months ending in September. If that trend continues, dailies could lose as many as 2.5 million subscribers next year.
A reader outside the newspaper business might be tempted to say, so what? New technologies are, by their nature, disruptive and the benefits generally accrue to consumers. Who can complain about reaching millions – or perhaps the one person you really need, a buyer – through placing a free ad?
But if you consider newspapers to be a social and civic good, then some things are at risk. Google gives consumers e-mail, maps and, in some locations, wireless service for free. But for Google’s news aggregator to function, somebody has to do the reporting, to make the calls, to ensure that what we call news is more than a press release hung on the Web.
News robots can’t meet with a secret source in an underground garage or pull back the blankets on a third-rate burglary to reveal a conspiracy at the highest reaches of government. Tactical and ethical blunders aside, actual journalists come in handy on occasion.
“Up to this point, the deck chairs have been rearranged,” said Jane E. Kirtley, a professor of journalism at the University of Minnesota. “But the technology companies have been hustling and innovating in search of ad revenues. And all of the cutbacks in newspapers are bound to have an impact on the free flow of information.”
