Greatly Exaggerated: The Myth of the Death of Newspapers
By Marc Edge. New Star Books, 303 pp, softcover
Greatly exaggerated is a phrase often associated with U.S. humorist Mark Twain's famous comment about his demise. And it's a particularly apt title for Richmond-based author and former reporter Marc Edge's thoroughly researched new book, which challenges conventional wisdom that newspapers are doomed in an era of smartphones, tablets, Facebook, and Twitter.
It's a provocative thesis that Edge backs up with reams of data from publicly traded newspaper companies. He supplements this with an entertaining history of the industry dating back to 19th-century yellow journalism through to the highly profitable 20th century. There's extensive analysis of the "financialization" of newspapers in the 1980s and 1990s and its effect on advertising, as well as subsequent efforts to reinvent the industry in response to the Internet.
Along the way, Edge reveals how some publishers have exploited U.S. bankruptcy laws to shed creditors and debt, only to re-emerge leaner and better able to compete. These members of the so-called Chapter 11 Club managed this trick even as their newspaper divisions continued operating in the black, according to Edge's accounting analysis.
Edge fully acknowledges that newspaper revenues have declined sharply from 2006 to 2013. Some of the biggest losses have come in classified advertising. But the publishers that he tracked still made money every year based on what financial analysts call EBITDA. That's an acronym for "earnings before interest, taxes, depreciation, and amortization".
The EBITDA figures don't include special charges, such as writedowns, which must be incorporated in operating statements under accounting rules. The writedowns are required to address a drop in the value of company assets. Nor does EBITDA reflect large payments to buy out employees, which is real money going out the door.
Most importantly, EBITDA doesn't account for interest payments to cover costly takeovers, which is what finished off Canwest Global Communications Corp., the former owner of the Vancouver Sun and Province newspapers. But as Edge notes, the creditors scooped up Canwest's newspaper division in 2011 for $1.1 billion at auction, renamed it Postmedia Network, and went on to record a 17.3 percent profit margin in 2012, based on its EBITDA.
Edge puts a great deal of faith in EBITDA, but relying too heavily on this metric has its critics. Forbes magazine contributor Ted Gavin, for example, has listed five criticisms, most notably that while it purports to portray a company's ability to service debt, EBITDA fails to address all of the debt.
Readers pay more
One of the strengths of Greatly Exaggerated is its analysis of how publishing companies have evolved to meet new business challenges. In the face of declining advertising, Edge points out that many daily newspaper companies discovered a "secret sauce" to ensure their survival: jacking up prices for single copies and subscriptions, and creating paywalls forcing readers to fork over money for online content. In other words, the daily newspaper publishers made the readers pay more.
This has given new life to the industry just as its many critics were writing its obituary.
"Research had shown that a small percentage of readers accounted for a majority of pageviews on newspaper websites," Edge writes. "They would be willing to pay. Others, who hated the thought of losing their daily newspaper, would too."
Of course, the revenue decline has led to massive job losses, which Edge chronicles in his book. But newspaper publishers have demonstrated remarkable resiliency after a handful of closures in 2009 in the wake of a global economic meltdown.
Edge, who's taught journalism and once covered the courts at the Province, also explains how joint operating agreements between U.S. publishing companies traditionally kept weaker dailies in business. And he accomplishes this with a breezy, readable style. He also reveals how a few, such as the Seattle Post-Intelligencer and Tucson Citizen, went by the wayside as giant corporations renegotiated these arrangements.
In the financial world, you'll sometimes hear forecasters say that past performance is no guarantee of future results. If I had any quibble with Edge's book, it's that he didn't devote sufficient attention to the possibility that millennials may never embrace printed newspapers like preceding generations. But on the whole, the former reporter presents a persuasive argument that newspapers are here to stay, though they'll likely be smaller and less influential than they once used to be.
Publishers benefit from the myth
At the same time, Edge astutely points out that several of the most-quoted "experts" predicting dark days ahead for newspapers, such as New York University professor Clay Shirky, conveniently avoid discussing how publishing dinosaurs continue making money whereas most digital operations fail to break even.
Part of the reason, which digital-only companies don't like to admit, is that newspaper display advertising is seen as far less intrusive and more effective than online ads.
Greatly Exaggerated demonstrates why the death-of-newspapers meme plays into the hands of large media corporations, such as Rupert Murdoch's News Corp., who can use this as leverage against employers and suppliers of goods and services. It can also help newspaper publishers bully regulators into allowing them to make deals that strengthen one another while undermining democratic discourse by reducing competition.
At one point in Greatly Exaggerated, Edge cites research showing how local politics changed in Northern Kentucky following the 2009 closure of the daily Cincinnati Post, which was the area's dominant news source.
In seven Kentucky counties where the paper was distributed under the name Kentucky Post, voter turnout in local elections declined and fewer people ran for local office, increasing the likelihood of incumbents keeping their positions.
It's a lesson that shouldn't be lost in B.C. where two of the giants, Glacier Media and Black Press, appear to be carving up our province into their spheres of influence. For anyone concerned about where this might lead, Greatly Exaggerated offers a useful road map.