Monday, March 18, 2019

Wall St. Journal Validates Our Ongoing Prediction that Retail is in Trouble

One of the trends we predicted for 2019 is that there will be increased scrutiny about the state of the U.S. economy, which has become the longest recovery in the country's history.

We don't want to jinx it but we've long looked at two industries going through downward spirals: retail and journalism. And the reason we follow both industries is the belief that they are canaries as being early indicators.

The latest bad news for retail was a report that Dec. 2018 holiday sales was the worst Dec. since 2009. According to the Wall St. Journal, a soft retail market raises new questions about the economy. We've also seen other articles reporting more chains are closing stores or shutting down completely. 

Retail is an important sector because it also effects real estate and other businesses because empty store fronts reduce foot traffic to the area, providing fewer reasons to shop at other stores on the block. This is true in the UK, where the demise of main street (known there as high street) stores in some towns means residents have to drive 30 minutes or more to find things they used to be able to get in town. (Bloomberg Businessweek did a story within the past year or so about the downward spiral affect this has had on the general economic health of smaller towns.) But we've seen this happen in big cities too. (The New York Times did a story last year or two about the decimation of high-end stores in SOHO.)

And since retail is an employee-intensive business, when stores shut down, people are out of jobs. And while unemployment is low, fewer stores means fewer employees who may not be able to land another retail job or transition to a job in another industry. 

Fewer local retail stores means fewer ads in local media. And that leads to the problem with journalism.

Keep in mind, journalism as a product is generally doing well. Americans are paying attention to the news, if only because they're getting hourly news notifications on their phones.

But the business of journalism is suffering. 

People are accessing news on the phones, often not paying for content. They're not subscribing -- paying -- for the news and digital ads generate less money than traditional print ads. So news organizations have to contend with demand for news but generally with fewer subscribers and fewer (and less expensive) ads.

Which is not sustainable. 

The result: "Media Industry Job Cuts Nearly Tripled Last Year," WWD recently reported, noting, "A study from an industry outplacement firm said 2018 was the worst year for media in a decade. This year isn’t shaping up so well already." The article provided some unpleasant facts:
Companies operating in news, broadcast news and publishing, television and film and music cut just under 15,500 jobs last year, an increase of 281 percent over 2017 when 4,060 jobs were cut, making it the worst year for jobs in the industry since 2009, according to a study from industry outplacement firm Challenger Gray & Christmas Inc. In 2009, media companies cut about 22,350 jobs.
And this year may be worse. Already, in Q1 alone, according to WWD, "newspapers and digital media companies like Vice and Buzzfeed have revealed layoffs totaling more than 2,000. In January alone, announced job cuts were already up 49.6 percent compared to the beginning of 2018, according to Challenger Gray."

We've already discussed media layoffs this year.

But we feel that with traditional retail and traditional and digital news outlets suffering, the economy could be in trouble.

By the way, another threat to news organizations and media is that the push in digital advertising is to focus on consumer targeting. Big brands continue to spend a lot of money to reach audiences -- but an increasing share of the money is going to providers of digital tools and data in a shift away from media companies. In other words, ad spends may not be decreasing but the amount being spent directly to media companies is decreasing. The media will have to figure out how to charge and be more effective in reaching and cultivating big brands' customers. If they don't, we will see ad dollars decrease even more.

If you have see some silver linings, let us know.

Monday, March 11, 2019

Bloomberg Businessweek & Davos Validate Concerns About Extreme Weather

On Jan. 3, 2019, we posted something unusual for us: a blog post entitled, "9 Political Trends (Without Getting Political About Them)." Readers of this blog know we write a lot about trends but we're cautious about political implications.

We identified trends and issues such as 

  • The state of the economy -- which is getting a lot of attention. In mid-Feb., the Wall St. Journal has been raising questions about the economy based on a worse-than-expected holiday retail season -- the worst since 2009.
  • Brexit -- a topic that even late night talk shows address when talking to a British celebrity. Including Monty Python Eric Idle, who hasn't lived in the UK for years.
  • Climate control and extreme weather -- number 6 on our list (but in no real particular order), and has been validated by Bloomberg Businessweek in an article entitled "Climate and Cyber Risks Top Concerns Facing the World in 2019." We've also looked at Cybersecurity, and have, for years, identified it as a threat and a trend to be aware of. While we posted our list of ongoing trends late this year, you can see it's an issue we've identified the past several years (thus our designation of it as an ongoing trend).
The Bloomberg Businessweek article, which in the print edition was entitled, "What They're Worried About" referring to members of the World Economic Forum at Davos, also included: 
  • Water supply crisis.
  • Major natural catastrophes.
  • Failed climate change mitigation.
It also listed non-weather risks such as: 
  • Increasing national sentiment. 
  • Increasing polarization of society. 
  • Rising income/wealth disparity.
We did not list any of those last three in any of our various trends -- but we feel those last three are very real and need to be addressed, somehow. Unfortunately, we have no solutions for them or the climate trends.

Monday, March 4, 2019

6 Challenges Facing Local Newspapers

Last year, we talked about "Five Challenges Affecting Local TV News." And last month, we talked about the challenges facing digital media ("BuzzFeed, Gannett, HuffPo All (Unfortunately) Validate Our Prediction About Media Layoffs.") This  week, we will look at problems facing local newspapers.

Unfortunately, there's a lot to talk about.

Last week, a newspaper holding company with an unlikely name, Tronc, provided more evidence that local newspapers are facing tough times.

Tronc stands for Tribune Online Content, and it is the country's third-largest newspaper publisher (behind Gannett and McClatchy) and owns 11 daily newspapers including the Chicago Tribune, Baltimore Sun, and the Orlando Sentinel. (In June, Tronc sold off the LA Times for $500M.), And last week, Tronc fired 50 percent of the staff of the New York Daily News and staffers at its other papers due to what its CEO said were because "As a public company, we have a fiduciary obligation to balance the interests of all of our constituents: shareholders, employees, readers and community."

Death by a Thousand Cuts?
An Axios article on the topic quoted The Washington Post's Paul Farhi as noting "the NYDN employed 400 journalists in 1988. After a layoff last year, it will 'have a newsroom staff of just 45, according to people at the paper.'"

It's hard to imagine even the Daily News -- perennially described as "scrappy" -- being able to cover the city that never sleeps with just 45 reporters. Or how the Daily News can survive against the New York Post, its longtime tabloid rival.

A number of journalism experts say problems started before Tronc acquired the Daily News (for only $1 in 2017 -- basically the newsstand cost of a single copy of the paper in 2016 -- along with an assumption of liabilities and 49 percent stake in property where the Daily News' printing plant is located. But things got worse after Tronc's purchase, described as ownership without strategy and that Tronc made (and continues to do so) by "making the product worse while making the public pay more."

Problems Facing Local Newspapers
in Tronc's case, some blame incompetent owners who took on too much debt through acquisitions and consolidation. This is a real concern as media giants are merging (AT&T-Time Warner; Disney-Fox, and Sinclair-Tribune -- the former parent company of what became Tronc), with the possibility that the acquiring companies may be taking on too much debt.

Beyond possibly incompetent owners, the main threats to local newspapers include:
  1. Falling ad rates: The common saying is that publishers are replacing print dollars with digital dimes because online ads generate a fraction of the fees charged for print ads. So even if a newspaper retails the same number of advertisers who purchase the same number of ads, digital ad rates are much lower so newspaper revenue will drop. For example:
    • For example, according to the MinnPost, a nonprofit local news site, "In 2011, newspapers lost about $2.1 billion in print advertising. Meanwhile, their digital advertising grew by about $207 million. In other words, they lost $10 in print ads for every new dollar of digital ad money.
  2. Growing reliance on news aggregators and social media: Quality journalism remains expensive to produce but 67 percent of Americans get at least some of their news from social media, according to a Pew Research study. And growing numbers of us access news via Google News and Apple News, which provide free (or low-paying) access to news reported by a third-party. So even if online readership is up, some outlets are seeing revenue drop. Another problem: readers begin to rely on news aggregators instead of the news sources, making it harder for local newspapers to form strong relationships with their readers. 
  3. Readers of Print newspapers (instead of online news sites) are getting older. The population of readers who rely on the printed paper is getting older while younger generations are more comfortable accessing news online for free. Newspapers need to find a way to make themselves relevant enough so that younger readers will pay for access. While the New York Times and Washington Post have seen a surge in online advertising, those two papers are exceptions because of how they've been covering national political news.
  4. Smaller staffs means smaller papers and less ad space to sell. Do you see where this is going? Cutting back the size of the paper or the frequency of publishing a printed version of the paper means that publishers sell less advertising, so ad revenue continues to drop, which leads to more newsroom layoffs, and a worse product. This is a death cycle for local papers. 
  5. Declining credibility. Right now, the entire journalism sector faces a tough time as credibility of the news is being questioned. But newspapers with smaller staffs won't be able to adequately cover their markets. That means they will be publishing a product offering declining value. Under those conditions, circulation and ad rates generally fall.
  6. No strategy to sustainability. The long-term business model has shifted, and no one yet has found a replacement business model that will return local news to profitability. (The Daily News reportedly lost an average of $30M over the last three years, according to the New York Post, including due to circulation declines.) The one strategy that seems to be working for the Washington Post and the LA Times is to have billionaire owners who see the important of keeping newspapers running, and can afford to do so. But there are only so many billionaires who see the value of keeping local papers around. 
The real problem is that local newspapers serve as a check-and-balance of local government and we need local oversight of government.

Some cities are seeing the rise of nonprofit news sites (like MinnPost) and others. But some are very small operations; and you can't effectively cover a big city with just two reporters/bloggers. (In some cases, these bloggers are not much more than citizen journalists, without real journalism experience.) 

So what's the solution?

In an article entitled, "Who suffers when local news disappears," The Cumbia Journalism Review says, given declining resources, the quality of local papers will decline so much that:
At some point not terribly far in the future, even those of us who believe powerfully in the need for a vibrant local news landscape are going to be hard pressed to make a case that many of these outlets should be saved.
For much of this decade, no one has been able to develop a true workable solution. Readers' relationships with their local papers and with journalism in general has changed. And, as with the coal industry, there's no turning things back to how things used to be. 

Certainly newspapers -- as with all news operations -- need to figure a way to ensure they publish quality journalism, coverage that is credible and compelling, and available across different channels (print, online, text, video, social). But they also must find ways to charge for access. A number of top news sites provide access to a limited number of articles per month, so when readers hit the limit, they may be inclined to subscribe. Right now, readers seem to wait out until the next month.

Sustainable local newspapers is important for journalists and good government. But it's also important for marketers, who need credible vehicles through which to communicate their messages.