A Media Strategy Gone Wrong

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postmediaHere’s what I can tell you about newspapers and the Internet from the perspective of a person who has worked in both for many years.

By the way, it’s a sickening story for someone who spent a lifetime in the business.

Newspapers garner almost all their revenue from print advertising which continues to decline … sometimes precipitously. So when newspaper chains report their online revenue has increased by, say, 10 per cent, it doesn’t matter. The amount of money being made from online is very small.

The strategy for newspapers is to move from paper to pixels. But that’s a flawed formula. Print revenue will eventually disappear. But moving to the Internet is highly problematic as well. Not enough revenue is available on the Internet to support the infrastructure of the typical newspaper operation.

One reason is that advertisers are reluctant to move to the Internet because they don’t know if their product will sell online. And if they do go online, advertisers often use the remarkably inexpensive Google Ads so they can move to the Internet at little cost. However Google Ads might not be the best option for advertising because they are not targeted to markets in the way traditional ads are. That said, they’re very popular.

So here is how newspaper strategy is wrong. Print ads are disappearing and online does not provide enough revenue to meet the costs of newspapers.

It will be little operations with big reach, something like The Bulldog, that will survive.

On top of this, newspapers are in a death spiral. Not enough revenue is being earned to support paying many journalists. So newspaper companies, such as Postmedia, are cutting back staff in a way that is diminishing the product markedly. Then fewer people buy it. Then less revenue is earned. Then there are more layoffs and buyouts. Then the product quality diminishes …. it goes on and on.

So with less quality, diminishing print revenue and an Internet that won’t support the journalists necessary to create a valuable product, only one option remains for newspaper companies.

You already know what that is.

It’s sickening for a person like myself who spent a lifetime in newspapers. But sometimes you just have to move on.

Recently The Toronto Star had an interesting story on how Postmedia precariously survives. Postmedia owns most of the major newspapers outside of Toronto … and a couple inside the Big Smoke.

The story seems appropriate given that another round of buyouts and layoffs are occurring at the troubled newspaper chain:

Between 2010 and 2019, Postmedia’s outflow of interest payments will appear to total $650 million. That sum exceeds the Postmedia debt held by the U.S. investors, funds they of course obtained for themselves at lower rates than they are charging Postmedia. And that calculation is based on Postmedia’s current annual $62 million interest-payment “burn,” not the still higher debt-servicing payments Postmedia will make after the Sun deal closes.

So the profit for the U.S. tycoons is basically locked in, provided Godfrey can keep making those interest payments. And the key to that is cutting Postmedia’s costs beyond the bone. In the looking-glass world of financial engineering, you can profit handsomely from an asset of steadily declining value. That is, from picking the carcass clean.

Does anyone have a problem with that?

To read the full Toronto Star story, click here.

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