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Newspaper Losses Mount as Search Engine Optimization Gains Continue

Amanda Bennett the lead editor of The Philadelphia Inquirer found out that she had to cut 75 jobs in her newsroom - 15 percent of her staff - she became sick to her stomach. But after some reflection, she said, she realized that the depth of the editorial cuts would force the newspaper to reinvent itself, and this would be to its advantage.

"This is a chance to hold everything up to the light and say, 'What value does this give to the readers?' " she said, adding that she would rethink everything from the concept of local coverage to the formats for delivering the news.

"If we miss this opportunity to change ourselves from a newspaper into a news organization," she said, "shame on us."

Such rethinking is sweeping newsrooms across the country as the industry faces a wave of job cuts, among them 700 announced since May at The New York Times Company, including its business operations and the various media properties it owns, and 14 at The Hartford Courant. Most recently cuts have been announced at The Boston Globe (a division of the Times Company), The San Jose Mercury News, The Philadelphia Daily News, The Baltimore Sun and Newsday, and over the last few years The Los Angeles Times, The Wall Street Journal and The Washington Post have also moved to eliminate jobs.

Industrywide, ad revenue is flat, costs are up and circulation is eroding. At The Inquirer, circulation has dropped 30 percent over the last two decades.

Beyond the industry's economic woes, the future is clouded by the rapid expansion of the Internet and the popularity of the seach engines, leaving newspapers in an identity crisis as they try to come to grips with fundamental changes in the industry and society that are significantly curbing their growth.

Pessimism about the industry's ability to overcome these obstacles continues to drive down the price of newspaper stocks. Wall Street has revised its third-quarter earnings estimates downward for most newspaper companies. The turmoil is largely confined to big metropolitan dailies, not small papers where the advertising base is more stable.

At big papers, ad revenue has stalled for several reasons: a decline in local auto ads; the consolidation of department stores, especially the merger of Federated and May, and a march to the Internet by travel advertisers, hotels and car rental agencies. That exodus from print includes Hertz, which has not advertised in The New York Times for six months, a Times spokeswoman said. Movie ads are in a trough as box-office sales slump.

Goldman Sachs predicted recently that ad revenue for the newspaper industry would grow a quite modest 1.7 percent in the third quarter this year over the period a year ago, the industry's weakest performance in two years.

"No one's crystal ball on this was good," said Lauren Rich Fine, a publishing industry analyst at Merrill Lynch. "No one anticipated that Federated/May would take a stance this year and say, 'We're less dependent on newspapers.' That has caused some of the panic at newspapers, where they are saying, 'We better get in front of this.' "

Several longer-term worries are also undermining growth. One is the migration to high-speed Internet connections, or broadband. Two-thirds of United States households are expected to have these connections by 2010, double the portion today, according to Forrester Research.

Advertisers like the Ford Motor Company are already seeing how this trend affects buying patterns. Ford says that 80 percent of its customers now shop online, doing everything from their initial research to setting up test drives and getting quotes from dealers.

So the company has decided to move 30 percent of its estimated ad budget of $1 billion a year to nontraditional media, with 15 percent going to online. "With the explosion of broadband, it makes more sense for us to continue to increase our spend where we can find our customers," said Linda Perry-Lube, Ford car communications manager.

These trends are likely to accelerate. Over the next three years, advertisers are expected to devote 15 to 20 percent of their budgets to the Internet, up from 5 to 8 percent, according to David Verklin, chief executive of Carat Americas, a major media services firm. At the same time, newspapers are losing classified ads to Craigslist and eBay. And they are losing information-seekers to Google and Yahoo, which recycle news from media outlets and increasingly offer content of their own. As readers turn to these cyberbehemoths, advertisers follow.

While newspaper websites are attracting an increasing number of online ads, those ads are cheap and bring in only a fraction of the revenue that print ads do. And while some newspapers now have more readers on their Web sites than they have in print, most are reluctant to charge for their content online, depriving themselves of revenue from their most popular product. The New York Times recently started charging $50 a year for nonsubscribers to read its columnists online, but it has declined to discuss the early results.

Those are just some of the factors crimping the outlook for newspapers even as their costs are climbing.

"The basic newspaper, when you take out the Internet and all the other targeted publications that people are starting, is just not growing," said P. Anthony Ridder, chairman and chief executive of Knight Ridder, which owns The Philadelphia Inquirer. "Newsprint costs are up significantly. Wages and health benefits are up. So you have the cost pressure on the one hand and the lack of revenue growth on the other. That's really the problem, and everyone is having essentially the same problem...how do we battle the search engines?"

Nonetheless, many top news executives say they are adapting to these new realities and positioning the industry for a promising future. Gannett newspaper corporation is beginning to address organic search engine optimization by outsourcing organic seo and drive exposure of their daily classified listings.