Saturday, April 26, 2008

No justification for doom and gloom


Here we go again. The online publication MediaLife is bashing the free daily industry again with another story that is rife with errors. The story's premise is that the economic downturn is worse for free dailies than for other media. As evidence, reporter Heidi Dawley cites last week's closure of BostonNOW, a quarterly loss reported by Metro International and losses Rupert Murdoch has taken in the early stage of his new free daily in London.

Let's take these points one by one.

1. The Icelandic telecommunications company Dagsbrun pulled the plug on BostonNOW because of problems it was having with its businesses in Europe that have nothing to do with free daily newspapers, according to BostonNOW CEO Russel Pergament. "Their focus now appears to be primarily upon their core retail holdings. North American media is not even a distant second," Pergament said. Publisher Mike Schroeder added, “This newspaper, not even a year old, is right on track for profits in Year Three, just as the business plan called for.”

2. Metro reported a $8.9 million (U.S.) loss in the first quarter, but that was 36 percent better than in the same quarter a year ago. Moreover, Metro appears to have done an about-face when it comes to confronting its business problems by closing money-losing papers and investing in growth markets. Metro's three U.S. papers were underperformers long before the current economic downturn. Now Metro is looking at its options for those papers which could include partnerships and joint ventures.

3. Murdoch lost about $34 million (U.S.) in the first 10 months of operating his new free daily, the London Paper. With a daily circulation of 500,000, it's easy to see how the losses could pile up. But, again, those losses began before this downturn in the economy, and they would have happened whether there was an economic slowdown or not. For him, it's an investment in a new business and a way to grab market share from competitors.

Then reporter Dawley makes the unattributed claim that "the vast majority" of free dailies are losing money. Really? How would she know? By my count, 64 free dailies operate in the U.S. and Canada, and 21 of them are privately held. Their owners aren't going to disclose their financials publicly. But when a paper has been around for 10 or 20 years, you've got to assume it's doing something right.

The public companies that own the 23 other free dailies are so large that they don't have to break out information about individual papers. So we only know bits and pieces. Tribune Co., for instance, voluntarily disclosed that its Chicago RedEye and amNewYork are profitable, but it was under no legal obligation to do so. As for Metro, numerous news reports have focused on the fact that its three U.S. free dailies are losing money, but one has to dig deep into the company's financial statements to see that its group of seven free dailies in Canada (jointly owned with TorStar Corp.) are in the black, and growing like gangbusters (See page 10).

It's also curious that a story about the economics of newspapers wouldn't mention the rising cost of newsprint.

Nobody is disputing that all newspapers face economic pressures these days. But traditional paid newspapers, saddled with high-cost personnel and expensive infrastructure (giant presses, old buildings), are in more jeopardy than more nimble free dailies (which typically have smaller staffs, outsource their printing and lease space).

And momentum matters too. For years, paid papers have been the subject of negative publicity about the loss of readers, and the frequency of such stories seems to have increased in the past couple of years. On the other hand, free papers are on a roll. Consider the following:MediaLife apparently has an agenda against free dailies (see posts on 07-27-2007, 09-28-2007), but there is ample evidence that these papers will do well during difficult times. In fact, they might do much better than traditional paid newspapers.