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Bad News, Good News And Business Models

4 min read

Word that Wehco Media is converting two south Arkansas dailies into weeklies, and that a hedge fund-owned group is out to buy the big news chain Gannett, brought to mind Carrick Patterson’s trenchant summary of the business model for daily newspapers.

Patterson was editor of the Arkansas Gazette under his dad, the late Publisher Hugh B. Patterson, and under Gannett after the chain bought the paper in 1986 and over the next five years lost the Great Little Rock Newspaper War to the Arkansas Democrat. His grandfather J.N. Heiskell was publisher and editor of the Gazette for 70 years.

“The economic model on which newspapers operated during my journalism career is no longer operative,” Carrick Patterson told Arkansas Business in 2016, the 25th anniversary of the Gazette’s end. That came when Gannett shut down the paper and sold its assets to Walter E. Hussman Jr., publisher of the Democrat and Wehco’s chairman.

Last week, hedge-fund backed MNG Enterprises Inc. made a $1.3 billion offer for Gannett, publisher of USA Today and a paper much closer to home, the Baxter Bulletin in Mountain Home. MNG is known for snapping up struggling papers and harshly cutting costs. Gannett saw profits slip from $280 million in 2014 to $97 million in 2017, and its workforce fell in that time from about 20,000 to 15,000.

As Patterson put it, “The old business model [for newspapers] was essentially building a very expensive factory to process expensive newsprint paper, and sending tons of it out daily by an expensive transportation system only to be looked at once and thrown away.”

Advertising revenue offset those high costs for decades, “but as forests disappeared and paper became more expensive, fuel costs soared and printing and production technology began involving the expense of color and computer technology, ad revenue no longer kept up.”

Then came the internet, and the age of getting news on cellphones. Print readership plunged, and advertising followed. Google and Facebook seized the lion’s share of digital ad revenue.

Targeted ads to broad local audiences lost appeal as unique local merchants gave way to national chains. Fewer exclusively local banks, stores and restaurants exist, so dispersed ads make more sense.

“Newspapers will have to figure out a new model or disappear as we now know them,” Patterson concluded.

Wehco said last week that two of its five-day-a-week papers, the Camden News and the Banner-News of Magnolia, will begin publishing weekly next month. Wehco Chairman Walter Hussman Jr. blamed declining ad revenues and said the papers were operating at a loss.

The Democrat-Gazette, which innovated time and time again to survive its war with the Gazette, tackled the newsprint and daily delivery expense problem with a campaign to convert print subscribers to digital subscriptions in outlying parts of Arkansas. The key is giving readers $800 iPads to use as long as they keep their $36-a-month subscriptions.

The iPads offer a digital replica of the paper, with more color pictures and even video snippets. Starting in Mississippi County a year ago, the iPad effort is now in 25 of the state’s 75 counties. Jefferson and Lincoln counties will make it 27.

“We continue to be encouraged,” Democrat-Gazette General Manager Lynn Hamilton said. “In south Arkansas, our most recent test, 83 percent of former daily print subscribers have accepted … an iPad plus Sunday-only print delivery.”

Hussman told a Rotary Club audience in Pine Bluff 11 days ago that he’s pleased with the digital delivery initiative, which required an initial company investment of $200,000. He said 60 to 70 percent of subscribers were taking up the offer, though the percentage isn’t as good in rural areas.

End-of-Life Decision
In the meantime, the end appears near for Arkansas Life, the Democrat-Gazette’s monthly lifestyle magazine. After 10 years of losing money, it is set to close if readers fail to subscribe in sufficient numbers at $20 a year. Its survival looked highly unlikely as Arkansas Business went to press Thursday.

(Update: Arkansas Life will continue with quarterly print editions.)

Hamilton wrote in a Thursday email that a decision would come Friday. “There has been some preliminary discussion, but a decision won’t be made until tomorrow,” he said. “We’ll talk publicly about the decision then.”

The magazine has a print run of close to 30,000 copies a month, and officials speculated that perhaps 14,000 subscriptions would save it. By Thursday, Hamilton said, the final push had drawn 919 new subscribers. “Another 56 subscriptions came in yesterday [Wednesday].”

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