By Bill Shea

Layoffs, pay cuts, production cutbacks, facility closures and even talk of government help — it sounds eerily like the grim news of the U.S. auto industry, but it's newspapers that are scrambling to survive these days.

Five Michigan cities will lose daily print publications this year: Detroit starting today, followed by Ann Arbor, Flint, Saginaw and Bay City this summer.

In their places will be hybrid online and print products operated in some cases by a fraction of their former staffs.

Also in their place are questions about the viability of print newspapers during an economic meltdown and a generational shift in reader habits and the advertising need to adapt to those consumer preferences.

Distilled to its essence: Can newspapers survive in reduced or online-only formats?

Newspaper industry observers and industry statistics paint a mixed picture.

The situation

Newspapers have suffered severe declines in their advertising revenue lifeblood in recent years as retail, automotive and classified advertising budgets have been reduced and transferred online. Newspapers have been unable to replicate print revenue levels online.

Simply put, not as many people are reading daily newspapers and advertisers are spending where eyeballs are going, or spending far less in general because of their own economic woes.

The owner of the The Ann Arbor News, which is closing the publication in July and laying off its 272 staffers and replacing it with a new Web site and twice-weekly print product, said its Michigan newspapers are losing money, but won't say how much.

The newspaper advertising revenue numbers are proprietary, said Steve Newhouse, chairman of advance.net who is acting as the corporate spokesman on the changes at Booth Newspapers Inc., which is the Michigan subsidiary of New York City-based Advance Publications Inc., owned by the Newhouse family.

The Newhouses also own Conde Nast, whose titles include Vogue, GQ and Vanity Fair, and has reportedly been losing money and reducing staff.

Newhouse did confirm that the Ann Arbor, Flint, Saginaw and Bay City papers were all losing money, and the company will idle two of the five presses the company bought for upwards of $100 million in recent years.

Booth is reducing publication of the Flint, Saginaw and Bay City newspapers to Thursdays, Fridays and Sundays, and has cut pay and benefits for all employees. Its newspapers in Grand Rapids, Jackson, Kalamazoo and Muske-gon will remain dailies, but did experience pay cuts and some production consolidation.

It's not yet known how much money the changes will save, Newhouse said.
In Detroit, the partnership that manages the joint business operations of the Detroit Free Press and The Detroit News announced in December the newspapers would limit home delivery to Thursdays, Fridays and Sundays.

Subscribers will get an e-mailed version of the newspaper on non-delivery days, and a single-section print edition will be sold in boxes, at retail locations and by mail.

Much like Booth, the moves stem from a desire to save money while bolstering what readers and advertisers want online.

The change

In place of The Ann Arbor News, in business since 1835, starting in July will be AnnArbor.com, which will be a separate online presence from Booth's MLive.com.

The new site will be a blend of locally generated news content, user content, social networking and discussion groups, said Laurel Champion, Ann Arbor News publisher who will become vice president of AnnArbor.com.

“This is going to be a very different Web site than what I've seen out there,” she said. Community forums are scheduled to get public opinion on the site.

The company isn't talking much about its plans to monetize the site, and there is no timetable for the site to become profitable, Champion said. Management began meeting with advertisers last week to explain the plan, which Champion said is still being put together.

It's still not known how many people the Web site will employ.

The decision to replace the daily newspaper with the Web site caught some newspaper observers by surprise.

“A lot of newspapers are under stress, but it generally hasn't affected greatly smaller newspapers like Ann Arbor,” said newspaper industry analyst John Morton, who owns Silver Spring, Md.-based Morton Research Inc.

“Most of the troubles you hear about are larger newspapers because they've been so dependent on classified advertising.”

Others aren't as surprised.

“The economy is bleak throughout the country, but especially in Michigan where the auto industry has been hit hard. Spending has collapsed in some cases,” said Peter Zollman, founder of Orlando-based Advanced Interactive Media Group L.L.C., whose consulting and analysis company, Classified Intelligence, is focused on newspaper advertising.

“It's a little unusual that Newhouse decided to shut down and then launch a Web site with a newspaper, but clearly they wanted to end the legacy structures they had there. That included getting rid of everybody.”

Monetizing AnnArbor.com is the enigma. It will face the same advertising enemies eBay.com and Craigslist.com; and competing news focused Web sites, such as AnnArborChronicle.com, have a head start on online advertising dollars.

The Chronicle, started in September by former Ann Arbor News business editor Mary Morgan and her husband, Dave Askins, has three ad spaces available, with the most expensive at $300 per month.

“In the first six months, we've covered the Chronicle's expenses,” Askins said in an e-mail. “We're projecting that we might be able to add additional reporting resources (likely in the form of freelanced assignments) sometime soon. To date, we've taken the approach that we'll grow resources only as revenues allow.”

The Chronicle, which Askins said has about 20,000 unique visitors per month, and AnnArbor.com executives have had preliminary talks to check each other out as potential competitors and neighbors, he added.

“It's possible that The Chronicle and AnnArbor.com turn out to be two publications that settle into complementary niches,” he said.

The Ann Arbor News' niche was covering the city as its primary news source, so it remains unclear how that will translate into the new product.

Some say it can't.

“Right now, there's no way to fund an Internet newspaper to replace what a print newspaper has been doing,” Morton said. “You can't point to models that have enough to fund a 40-50 person news staff. There just isn't enough money on the Internet.”

The numbers

Newspaper industry economic trends don't spell a rosy picture, either. The annual “State of the News Media” study by the Pew Project for Excellence in Journalism had dire numbers for the online spending climate: “Online advertising for newspaper sites was growing at 33 percent a year earlier in the decade. But that is now over. In the final three quarters of 2008, online ad revenue declined.”

Of the $38 billion in all advertising spending estimated for last year, only $3 billion came from online, the report said.

The study's numbers are based on statistics compiled by the Newspaper Association of America, the industry's main trade organization.

The numbers don't specifically break out the relatively new phenomenon of newspapers turned into primarily online products with occasional print elements.

Gannett Co. Inc., the McLean, Va.-based owner of the Free Press and 95 percent of the partnership with The Detroit News, saw its 2008 print advertising decline to $4.1 billion from $4.9 billion in 2007. Worst hit were classified ads, which saw a 25 percent drop to $1.5 billion from $2 billion.

Gannett's shares (NYSE: VCI) hit $91 in 2004 and declined to $1.85 on March 10.

The publisher's online revenue grew from $70 million in 2007 to $291 million last year, but operating income from the digital segment was just $19 million because the company invested $262 million in its online operations.

Gannett isn't alone in watching its share price tumble. “Newspaper stocks, which had lost 42 percent of their value from the start of 2005 to the end of 2007, lost an astonishing 83 percent of their remaining value during 2008,” the Pew report said.

The optimists

Audience for newspaper sites grew by more than 12 percent in 2008 versus the year prior, according to the Pew report.

Statistics show people on newspaper online sites don't spend as much time as they do with a paper product, mainly because there's so much else to do online, but publications are adding things such as blogs and forums to keep readers longer per visit, Pew's report said. The AnnArbor.com site will have such elements.

Others see more promise in products such as AnnArbor.com because they will be cheaper to produce than a daily newspaper.

“The expectation of ad revenue is, I'm certain, far lower. By the same token, the cost structure is going to be radically reduced. You're paying people different, you're paying far fewer of them, you're not paying for things like you had to do before, like delivery,” Zollman said. “You're going to a few servers. From ink and paper, you're going to almost no costs in what would be traditionally distribution.”

It's managing revenue expectations that's key, he said.

“There are very few newspapers in the U.S. that have been able to generate more than 10 to 12 percent of their total revenue online,” he said.

If AnnArbor.com can generate 25 percent of what the newspaper formerly did, the company will likely be pleased and look to expand, Zollman said.

Some media buyers are split on how they view the end of the print newspaper and viability of online products.

Andy Winnie, owner of Plymouth-based eBuy Media Inc., has clients, mainly medical and automotive, that have bought Ann Arbor News ads, but he recommends broadcast and online over print.

“People are not using newspapers like they used to. Businesses know that, and they're not spending their advertising dollars on print,” he said.

Advertisers for some time have used the Web to grow business and aren't shocked that newspapers are beginning to disappear.

“None of us are surprised traditional media is not going to have the same place in the future that it had in the past,” said Albert Berriz, president and CEO of Ann Arbor-based McKinley Inc., a national real estate firm.

McKinley's media budget is Web-based, he said, and 52 percent of its $240 million in sales last year were generated online. The company did some advertising in The Ann Arbor News and plans to do so on AnnArbor.com.

“The ROI far exceeds anything we did in traditional media,” he said.

Berriz said he'll miss the print newspaper as an aspect of what he called the city's “hometown life,” but he's a fan of the AnnArbor.com concept.

“It's a wonderful idea. It's the way this community today communicates,” he said, adding that Ann Arbor has “intellectual capacity combined with youth.”

Nor is Berriz worried about dilution of news and advertising because of a proliferation of online sites.

“We're big believers in viral marketing,” he said. “We've changed our attitude about this. Our best advertisers are not ourselves, but our customers. We've turned ourselves inside out. All our properties have Facebook pages.”

Others remain bullish on the industry, and say its obituary has been written too soon.

“Yes, it's a business facing very difficult times right now, but it's still a great business making money most places. Where there have been radical losses like Ann Arbor, the owners in many cases are taking the time now to fundamentally restructure their businesses,” said Zollman, the newspaper advertising analyst.

“There's a saying in the newspaper industry: 'Never let a good crisis go to waste.' “

Bill Shea: (313) 446-1626, bshea@crain.com

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