The future of newspapers

What now for New Zealand newspapers after the High Court rejected the StuffMe merger? David Williams asks industry insiders and watchers how long the dailies, in particular, can survive.

In 2001, I told my editor I was jumping from newspapers to this new-fangled thing called 'the internet'. You’re being foolish, I was told. Then he actually said these words: “This internet thing is a flash in the pan.”

Fast-forward to today, when, after years of people being essentially trained not to pay for news, newspapers are shrinking – in size and the number of editions per week. Newsrooms have been gutted of staff, as more and more people get news online and, especially in recent years, their smartphones. These days, people are more likely to reach into their pockets to pay for coffee than news.

(NZME managing editor Shayne Currie told a conference on the news media last year: “We made a big mistake when we made content available free. But there’s no going back.”)

The blood-letting in newspapers since the global financial crisis has been immense. At one of my former papers, the number of general reporters halved in 12 months, as management grappled for survival when advertising fell off a cliff. I couldn’t find figures for New Zealand journalism layoffs but, across the Tasman, it’s estimated a quarter of all journalism jobs, some 2000 positions, were cut between 2011 and last year.

(According to World Press Trends 2017, newspapers around the world now earn more from print and digital circulation than from advertising, which might sound good but reflects the precipitous decline in advertising, as well as some smart moves to snare online subscribers.)

Quality’s also dropped – and we’re not talking, here, just about celebrity gossip and the use of sensational headlines by free news sites to get more clicks. With the sub-editing ranks being decimated, digital news is recycled into print editions with many of the original mistakes and typos.

So, not only are newspaper readers in many parts of the country being served cold food, as such, with a sprinkling of bitter-tasting errors, but much of the menu is now made in other parts of the country. Previously, readers were treated, in the main, to piping-hot, home-grown fare.

The commercial realities of newspapers are so bad that the two biggest companies, NZME and Fairfax, tried their hardest to merge – not to find economic stability, but to buy time so the new entity could find a way of syphoning some digital advertising dollars from Google and Facebook. Half of online advertising in New Zealand, it’s estimated, is being sucked up by the titanic tech duo.

That proposed NZME-Fairfax merger, which would have controlled almost 90 percent of the country’s daily papers, was rejected by the Commerce Commission. Just before Christmas, the High Court dismissed NZME’s appeal – backing the Commission’s concerns over matters such as media plurality and the reduced quality of 'the products'.

(Fairfax Media’s latest annual report says “the regulator failed to grasp the commercial realities of modern media”.)

Now, like 10 years ago when the GFC started to bite, the future of newspapers is unclear. The debate, assuming the appeal is behind us, has moved to how newspapers can survive and for how long, helped by the prospect of a new news agency. But also, quite frankly, should we mourn the loss of newspapers if they disappear forever?

Bold signals

The merger conversation has contained some apocalyptic messages. Fairfax Media chief executive Greg Hywood talked of an 'endgame' if it didn’t go through, while Fairfax New Zealand supremo Sinead Boucher warned it would very rapidly be forced to close and pull back from smaller centres. So, journalists are jumping before they’re potentially pushed. Just look at the intake of press secretaries in the Labour-NZ First-Green Party Government.

A surprising 'jumper' last year was the editor of Christchurch's The Press, Joanna Norris. She quit as Fairfax Media’s South Island editor-in-chief last September, to enter the non-media corporate world. During her five years, she oversaw huge changes at Fairfax, including its move to 'digital-first', the resulting restructuring of newsrooms, and, more recently, dropping publication days at the Marlborough Express and Nelson Mail.

(After she left, in October, Fairfax axed its regional sports and racing reporters. Former New Zealand Herald editor-in-chief Gavin Ellis says that’s pretty much “cutting their lifeblood” as, outside metropolitan areas, sport is often the most significant form of identification.)

Norris, now chief executive of ChristchurchNZ, the city’s promotion and economic development agency, was happy to talk on-the-record about the future of newspapers.

At a bustling central Christchurch café, a short walk from where The Press’s Cathedral Square earthquake-hit building once stood, I put to her that daily newspapers are on life support and on a downward spiral to disappearing.

“Some are,” she admits. “Some are less sustainable than others.” But, she adds: “Many daily newspapers in New Zealand are incredibly profitable and have a long future.”

The decision to cut publishing days in Nelson and Marlborough was the right one for those communities, Norris maintains, “to maintain sustainable journalism”. She views print – “and I love print” – as the best stories of the day, curated by people who love news. She uses The Press as a “Bible” each morning.

Former Fairfax Media’s South Island editor-in-chief Joanna Norris left the company in September last year. 

So how long will daily papers last?

“More than a decade” in the case of The Press, she says. Dunedin’s a different market, but she still thinks the Otago Daily Times will be printed in a decade’s time.

Inevitably, the conversation turns back to digital. Norris reflects that, in the newsrooms she’s been in charge of, print is only a small part of their operation. Fairfax in the South Island is almost entirely focused on digital.

“And at the end of the day we also produce a print newspaper.”

Her argument decouples from that of others when she says the media company model “doesn’t rely on people buying a printed newspaper”. Why not do away with it, then?

“Because there are still people who love it. More than 100,000 people read it and rely on its content.” She adds it also offers “good print advertising solutions”.

The platform is irrelevant, she declares – what matters is the maintenance of strong, authentic journalism.

Drive to diversify

Fairfax and NZME are scrambling to find creative ways to increase non-newspaper revenue.

(NZME chief executive Michael Boggs and Fairfax’s Boucher didn’t respond to a request asking for comment on this story.)

Late last year, NZME, which already has significant radio assets, announced it was launching a new property website, OneRoof. That comes hot-on-the-heels of its new careers platform, YUDU.

In recent years, Fairfax has entered the broadband market with Stuff Fibre, movie streaming with Stuff Pix, electricity retailing through Energyclubnz and health insurance through the Done brand. Last October, it bought the shares of social media network Neighbourly it didn’t own.

But newspaper revenues remain important.

Ex-Herald editor Ellis, now a senior lecturer in media and communications at the University of Auckland, has written extensively about the ownership of newspapers. He’s quick to contradict Norris’s observations and predictions.

He tells Newsroom the audience of today’s media companies may not rely on newspapers, but their revenue certainly does.

“Editorially they may wish to focus on a digital future but from a business model point of view the bulk of their revenue continues to come from their print operations and there are no signs that the payback from digital is going to improve anytime soon because of the stranglehold – the utter stranglehold – that Facebook and Google have on online advertising here and everywhere else.”

Ellis is also darker about the prospects of daily papers over the next decade. He prefaces his comments by saying 10 years is a long time. But he thinks if things continue on the current trajectory then even some metro papers will reduce publication days within the decade – with Fairfax papers more likely to cut down than NZME papers.

(From mid-year, Fairfax’s metros will be printed in a tabloid format on weekdays.)

One caveat is the unforeseen. Ellis points to a resurgence of what he calls “significant” US newspapers, like the New York Times and Washington Post, as a bulwark against the “excesses” of US president Donald Trump's administration.

“That was unforeseen but it’s established the principle that newspapers serve a vital democratic purpose and people in America are starting to recognise that.”

From a business point of view, media companies just can’t compete with the returns being generated by other listed entities. Other problems, Ellis says, include debt levels, which result in high overheads – overheads not directly related to producing news.

Issues such as these point to a move away from public ownership, Ellis suggests, at least into private ownership.

“When I see a death notice in the paper, from a classified revenue point of view it’s good, but you can bet your bottom dollar that it’s probably a subscriber.” – Andrew Denholm

Optimistic discussions about the future of newspapers in New Zealand often turn to Masterton’s Wairarapa Times-Age, bought off NZME in a management buyout in 2016. (Another is the Te Puke Times.) The thinking goes: if only more newspapers were in local hands, instead of being owned by publicly-listed companies, the future would be brighter.

Times-Age owner Andrew Denholm, the paper’s previous general manager, warms to that theme. Rather than job cuts, he’s added editorial staff. The local buyout has resonated with the local community, he says. He adds that the paper won’t cut its own throat – it’ll walk away when discussions reach unprofitable advertising rates.

Official circulation figures show an eight percent drop on 12 months ago (to an average net circulation, including freebies, of 5217 copies). But Denholm says the paper has employed a telemarketer and the next audit will be flat, at worst, and might even grow.

“My biggest investment has been in editorial, because you get good reporters and a good editor, more people are going to want to buy the paper.”

Denholm explains that inside a corporate, some newspaper costs are “not real”, they’re charges to fund a “bigger beast”.

(In The Listener, last June, Fairfax’s Boucher counters that utopian view, saying that locally-owned papers can be vulnerable to the influence of local advertisers.)

Newspapers in smaller places – like Timaru or Invercargill – probably make money, he says, it’s just the degree of profitability that’s the problem for corporate owners.

“I have no doubt that a paper in local ownership, or in independent ownership, would be significantly more profitable than inside a corporate.”

He adds: “I think the printed format will last significantly longer than these doomsayers predict.”

Denholm’s exuberance extends to the idea that, post-merger, some newspapers might come onto the market.

“I hope so,” he says. “Watch this space. There’s no secret I want to grow my business – and I have spoken to both companies.”

However, scratch below the glossy surface and the media narrative in Masterton isn’t too different to other newspaper businesses. Circulation is difficult, Denholm says. Like most newspapers, the demographic of Times-Age readers is older.

“Our subscribers are literally dying. When I see a death notice in the paper, from a classified revenue point of view it’s good, but you can bet your bottom dollar that it’s probably a subscriber.”

The Times-Age is “unashamedly digital last”, but what is he doing to replace his “literally dying” subscribers in an age where younger people only get news from their phone?

“Mmm. Yeah, no. Yeah. Yeah, that is the $64 million question. We haven’t got a strategy in place to replicate our current subscriber base. I wouldn’t know how to do it. You’ve hit the nail on the head, the youngsters probably don’t even know what a newspaper is.”

He explains the problem away, saying it won’t really bite until he’s got a lot of grey hair, “a very long time away”. But it’s clear that, right now, the long-term strategy is a slow decline under the status quo.

That’s the problem in newspaper land. It’s easy to scoff at digital-first, but at least it is a strategy. There doesn’t appear to be another.

Solid revenue versus dire circulation decline

What do the numbers say?

Fairfax’s latest annual report shows its New Zealand business had a seven percent drop in overall revenue, but a 29 percent rise in digital revenue. Operating costs dropped by six percent. Net debt of the ASX-listed parent company was $118 million.

NZME, meanwhile, which separated from its Australian parent company APN News & Media Ltd in June 2016, had a three percent revenue drop for the six months to June 30 last year, with digital revenue up 20 percent, year-on-year. Operating costs were trimmed by four percent, while net debt was $102.7 million.

In corporate speak, that’s a “solid” performance.

Circulation figures, on the other hand, for those still wedded to dead-tree delivery, are dismal. Four papers sell more than 25,000 copies a day – New Zealand Herald (117,269), The Press (48,738), Wellington's Dominion Post (48,092) and the Otago Daily Times (32,696). The circulation decline since 2007 is, respectively, 40 percent, 45 percent, 51 percent and, a feather in the cap for the Dunedin-headquartered ODT, 24 percent.

The Smith family-owned ODT is another beacon of hope, a “newspapers aren’t dead” headline when the rest of the metaphorical front page warns of doom and gloom. It’s held up as a shining example of thoroughly covering its region, with an old-school commitment to the basics, such as council and court coverage. It’s also taken a leap, thanks to a Government handout, into the present-day digital world, with an online TV station called The South Today.

Post-merger, the ODT will just ensure it continues to deliver the goods, says Barry Stewart, the group editor of Allied Press, the company that owns the newspaper. “We’ve had that reputation for a long time as being very community focused and covering our region as well as we can, and we’ll continue to do that.”

Except it can’t just continue to do that, of course. It’s not immune to the industry’s structural shifts, including the battle against Facebook and Google. More worryingly, perhaps, some national companies have decided to never advertise in newspapers again, while other firms drive a harder bargain as papers in the big corporate stables drop their rates to get people in the door.

“There are still huge challenges and we are not immune to any of those things,” Stewart says. “Competition is intense for advertising across a whole range of platforms. And those competitors have a place in our market and we’re certainly aware of that. And that’s a huge challenge for us.”

Stewart answers an emphatic “yes” when asked if the ODT will still be printed in 10 years’ time. But he’s realistic about his crystal ball-gazing abilities.

“Ten years ago, who would predict what the actual marketplace and environment would have been? So things are changing aren’t they, and changing rapidly, so we have to adapt and ensure that our strategy and structure is solid so that, yes, that we can continue to deliver our news and information. Whether that be in print or whether it’s on another platform, time will tell.”

Papers are money-makers

Despite the gloomy tone of much of this story, all is not lost.

Let’s do a few sums. Imagine you’ve got a metropolitan paper that charges $3 a copy, six days a week. Its circulation is 50,000 copies a day. It’s realistic to assume the paper would make at least $1 from the cover price. That’s $15.6 million a year, before you’ve totted up the ad revenue.

So the papers – the bigger ones, at least – are worth something.

There’s a school of thought that, for a company like Fairfax, the sum of the parts are probably worth more than if the company was sold as one sprawling entity. The difficulty comes with printing. Considering the consolidation of printing between companies – NZME prints Fairfax's Sunday Star-Times, for example, and Fairfax's The Southland Times is printed by Allied Press – is a masthead sold with a contract or does it have to be renegotiated?

(University of Auckland’s Ellis hones in on this physical constraint: “I think that the death-knell for newspapers is going to come when it’s no longer economic to maintain their presses.”)

In the short-term, if the merger isn’t pursued further, Ellis picks there’ll be greater cooperation between NZME and Fairfax. Already, NZME has copy-sharing deals with the ODT and the Times-Age. Stuff, meanwhile, runs videos from TVNZ, audio from RNZ and stories from Newsroom.

Ellis envisages a return of a news service like the defunct NZPA – “something they should never have killed in the first place”. He suggests it’s called NZMA, the New Zealand Media Association.

(Last June, NZME’s Boggs confirmed to The Listener that a rebirth of NZPA is being looked at. However, Bruce Davidson, the chief executive of Australian news agency AAP, tells Newsroom it is not in any discussions right now, even informally. A large news agency in New Zealand – as opposed to mini-agencies run by Fairfax, NZME and AAP, the last of which has 10 or 11 staff, mainly in Auckland and Wellington – is a great idea, Davidson says. But there doesn't appear to be an appetite for one from New Zealand's big media companies, he says; a symptom of uncertainty, disruption and changes in the industry.)

Basically, the news service’s job would be to pump out stories that deal in “straight sets of facts”, stories that are virtually the same across all media. Ellis: “Do you need four people covering a road accident? Do you need four people covering a court case?”

Sharing reporting staff would be a way for NZME and Fairfax to achieve commercially what they’ve been unable to do through a merger, he says.

More radically, he says there could be a regional approach to the production of news altogether. What if the Herald produced all the Auckland stories for both media groups, while the DomPost does the same for Wellington?

“I don’t think it would be an issue for the Commerce Commission to deal with.”

New Zealand’s scale problem

Discussions about the long-term options for newspapers brings us back to ownership.

Ellis wrote a book about it, published in 2014, called Trust Ownership and The Future of News. Impressed by the trust ownership of papers like Britain’s Guardian, the Irish Times, and family trusts behind the likes of the New York Times, it’s obvious how Ellis would like to see New Zealand’s newspapers controlled.

“The problem that we do face is that we’re a small country.”

New Zealand doesn’t have the “underpinnings” to keep journalism rolling, he says, like the level of philanthropy in the United States, or family involvement that sustains the New York Times.

Ellis doesn’t like Government subsidies – “because who pays the piper calls the tune”. (Norris agrees, saying she wants to see the Government “creating the right conditions for private business to flourish”.)

There is another way, Ellis says. There are many people, him included, who believe that Facebook and Google, because they have an effective duopoly, should be required to pay licence fees for material from newspapers and other news media operations. They’re getting the benefits, he says, without paying any of the costs.

“A large proportion of the advertising-bearing content of Facebook and Google relies on news media to a very, very large degree.”

(Another idea, thrown up in the 2016 book Don’t Dream It’s Over: Reimagining Journalism in Aotearoa New Zealand, is for a “marginal levy” on media-related goods and services, like TVs, internet connections and on-demand services.)

Right now, at least, a licence fee on tech giants seems a long-shot. There’s no clamour for it in neither the Labour-New Zealand First coalition agreement or Labour’s agreement with the Greens. But, given New Zealand’s high internet penetration and smartphone use, it would obviously work. It would help media companies struggling for recognition in a world in which people often say they’ve read a news story “on Facebook”, when the social media giant doesn’t hire journalists and vows it’s not a media company (to avoid regulation, is one view).

“There’s no question the economics of news have changed.” – Google’s Richard Gingras

Google’s Australian press office points Newsroom to an interview with its vice president of news, Richard Gingras, in September. Ahead of an Australian Competition and Consumer Commission inquiry into Facebook and Google’s disruption of the news media, Gingras told the ABC that in 2016 Google, through its ad platforms, shared $US11 billion in revenue to two million news publishers around the world.

“But there’s no question the economics of news have changed. It’s also opened up opportunities for innovation from many new players, beyond legacy publishers.”

Gingras says Google is helping high-quality journalism by working with media companies to increase their subscription revenue, develop new advertising capabilities, and by helping journalists with tools and training.

But Google is fighting deep unpopularity across the Tasman, which has bubbled up from intense media scrutiny to Australia’s law-makers.

Google reported $A1.14 billion of revenue in Australia in 2016, while Facebook claimed revenue of $A326 million. But The Australian newspaper said Facebook “actually generated advertising sales in excess of $A1 billion” while Google’s “actual figure” must exceed $A3 billion.

The Australian Taxation Office sent a tax bill of almost $A3 billion to seven of the world’s largest multinationals, including Microsoft and Google, for, Sydney's Daily Telegraph reported last April, “ripping off Australians”. (Some settlements have since been made.)

Google and Facebook have restructured their Australian operations because of the Government’s tougher anti-tax-avoidance laws.

Faced with a potential tax on news aggregators, Google Australia’s managing director, Jason Pellegrino, faced an Australian Senate committee probing the future of public-interest journalism in August. Pellegrino says regulations, handouts and intervention are not the answer. Regulations won’t help publishers transition from old to new business models, he says.

He uses the example of Spain. Google News pulled out of the country after its Government introduced a link tax. Pellegrino tells the Senate committee: “We were asked to pay for content that we were not making money off.”

(Facebook didn't respond by publication deadline.)

Journalism itself must survive

At one point in our interview, University of Auckland’s Ellis tires of the future of newspapers discussion, one that throws up many more questions than answers. This former high priest of the printed word strays into what some might deem heretical territory. Perhaps it’s not a matter of the means of delivery, he muses, but it’s journalism itself that’s important.

He ambushes me: “Your generation is not going to feel aggrieved by reading everything on a screen, is it?”

I admit to reading most of my news on a screen, something Ellis’s son does, too.

Ellis has spent a lifetime in newspapers. He knows what it takes to get a newspaper into a subscriber’s letterbox. But, ultimately, he says, it is quality journalism that’s worth saving.

“We can take ourselves down a dead-end street by placing too much importance on the means of delivery, in other words, on the maintenance of putting ink on paper,” he says.

“We need to start thinking more about how do we preserve the sort of in-depth journalism that we’re capable of producing in our newspapers, rather than the dead trees.”

Disclosure: The writer has previously worked for Fairfax and Allied Press.

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