Why newspapers have little to cheer

London: There has been something of an assumption in the United States over the past year that newspapers would soon enjoy a resurgence.

Even though I could detect the positive effect of cost-cutting on publishers' bottom lines, I remained sceptical.

After all, cost-cutting tends to have negative effects on the product itself.

Now media business analyst Rick Edmonds has posted a piece on Poynter Online, Seven reasons newspapers are not rebounding financially, that exposes the underlying reasons why there is so little for US publishers to celebrate despite — in most cases — returning to profit.

Here, in brief, is his argument:

1. Advertising revenues are still falling. The declines are no longer 20 per cent year-to-year as in 2009. But the progression toward slower losses stalled in the third quarter, with advertising falling about 5 to 6 per cent at most public companies.

Revenue growth

2. Online growth doesn't take up the slack. Even double-digit digital revenue growth is too small a share of the whole to carry a turnaround.

3. Newsprint prices are rising again. That's just what a cost-conscious industry doesn't need.

4. Other favoured cost savings last year, such as mandatory holidays, are cycling through. So labour costs are flat or slightly increasing Fresh rounds of newsroom and cuts are likely.

5. Circulation revenues have gone flat. Price rises resulted in modest sales revenue gains, but that phase is over.

6. The "death spiral" cycle continues. Lower circulation depresses advertising rates. Companies have been telling analysts the current losses are about half volume, half lower prices. Smaller papers produced by fewer reporters and editors lose readers at the margin. And so on.

7. Debt continues to be problematic. Some companies are meeting interest obligations and gradually reducing debt.

But others are still carrying a big debt load. Edmonds asks: "Does all this mean that the next stop for the ailing newspaper industry is the hospice?"

He thinks not, arguing that "an accelerating economic recovery could boost print and digital revenues into positive territory in 2011".

Research

He also has some faith in the mix of digital offerings and niche print publications: "mobile and/or tablets just might be big, especially for the largest newspapers with the scale to invest in research and development".

He concludes: "For now, however, newspapers remain, like David Copperfield's feckless friend, Micawber, rich with ‘prospects' but thin on current results or a clear path to prosperity."