Government Spending

The Next Time Someone Complains That Newspapers Are "Unprofitable"*

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Send them this Newsosaur link, derived from the latest Inland Press Association snapshot of the industry:

[T]he largest newspapers reported profits averaging 12% of sales at the end of 2008, according to the Inland study.

A 12% profit margin is more than double that achieved last year by Wal-Mart Stores, the largest of the Fortune 1,000 companies. A 12% pre-tax profit is just about a percentage point light of the margins run by Exxon and Chevron, the second and third largest corporations behind Wal-Mart on the Fortune list.

Unprofitable, except for all the profits

Yes, the industry trend lines (pictured) remain horrible, if to an important extent self-inflicted. But in the year of their widely reported death, American newspapers were still making money like oil companies.

Which is a relevant observation to consider before we re-think the First Amendment, re-write copyright law to favor newspapers over citizens, dole out corporate subsidies and targeted tax breaks, launch a journalism stimulus, mimic the European model, sic the Federal Trade Commission on the problem, let John Kerry anywhere near the levers of legislation, or any of the scores of other damn-fool ideas we've seen floated this year alone.

* UPDATE: The Inland Press Association now says its original report was in error (for instance that whole 100.1 percent drop business). The new report is here.

NEXT: The Decline of American Property Rights

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  1. Wait, Matt, so is Reason profitable based only on circulation and ads?

  2. “. A 12% pre-tax profit is just about a percentage point light of the margins run by Exxon and Chevron, the second and third largest corporations behind Wal-Mart on the Fortune list.”

    Windfall profit tax! Windfall profit tax!

  3. Are you suggesting that Ezra Klein doesn’t know what he’s talking about? That is a truly shocking allegation!

  4. Are you suggesting that Ezra Klein doesn’t know what he’s talking about? That is a truly shocking allegation!

    Interesting definition of shocking you have, X.

  5. Read this book review on the subject of “Free” for free: on the profitability of free media…

    http://www.newyorker.com/arts/critics/books/2009/07/06/090706crbo_books_gladwell

  6. Ezra is just looking out for his own rational self-interest. You should stop picking on him because someday you will bow to him as he ascends to Czar of ALL Media. He will lead us to a golden age of factual opinions sponsored by our beloved state. Don’t ever think you weren’t warned.

    REPENT!

  7. Yeah, but that won’t stop Nancy Pelosi. The newspapers are dominated by the left, and the Democrats have solid political reasons to keep them afloat. If instead talk-radio were dying, I don’t think that there would be much chance of it getting subsidized.

  8. These a-holes don’t care about the profitability of the newspaper industry as a whole. And they certainly don’t care about whether information is available to the public, since the public has more access to “news” today than it ever has in the past.

    They care about the durability of particular institutions, and they care about the career options of particular journalists.

    Because despite the fact that history teaches us that absolutely NO institutions, with the possible exception of the Catholic church, are very durable at all, these liberals want the same newspapers they read in their youth to continue to be published in the same old format and to continue to gather news in the same old way. And they REALLY, REALLY want the people they went to college with to keep the sort of jobs they currently have, especially if they’re in a press-oriented union.

    You’ll never convince them that newspapers are healthy unless they can be sure that these two things will happen…forever.

  9. Interesting definition of shocking you have, X.

    It’s a particularly sarcastic and unserious definition, T.

  10. Oh, sorry, I guess Oxford and the Sorbonne are at least reasonably durable too. I didn’t mean to slight them. So there’s three durable institutions.

    The Seattle Post-Intelligencer is not the fucking Sorbonne or the fucking Catholic Church and should not be expected to be.

  11. Wait, Matt, so is Reason profitable based only on circulation and ads?

    As far as I know, it’s not, which just goes to show that it’s not even necessary to be profitable to operate in this sphere.

    That makes sense, since for broad sections of our history “unprofitable” presses outnumbered profitable ones.

    It also pretty readily demonstrates that even if the profitability of newspapers was threatened, there would still be no need for a government subsidy program.

  12. Wait, Matt, so is Reason profitable based only on circulation and ads?

    No, I’m saying that the newspaper industry remained profitable in 2008. Do you see how those might be separate issues?

  13. When the local paper editorialized against Big Oil’s windfall profits several years ago, I wrote a LTE pointing out that the paper’s parent company’s profit percentage was even higher. One guess: do you think they printed my LTE?

  14. They care about the durability of particular institutions, and they care about the career options of particular journalists.

    I would say that they care about these things only as long as the “correct” agenda is pushed by the institutions and journalists. If Rupert Murdoch bought the NYT tomorrow, you can bet your ass they’d find a way to exclude it from any subsidy program.

  15. @ Mike | July 7, 2009, 10:29am

    Correctamundo.

    I don’t think reality will stop the Congresscritters from wanting to throw a big fat subsidy check at their waterboys. The media has been for the statists for a while. They’ve invested a great deal of their credibility in Obambi & Co. The MSM will want some payback for all their efforts to keep the Democrats afloat.

    It’s just a question on if and when the Democrats feel gracious enough to throw the media a bone.

  16. The problem with most newspapers these days is identical to the problems facing many other companies: it’s not that they’re unprofitable, it’s that they went over their heads in debt,and while they CAN make enough money to cover ordinary operating costs and have a profit left over, they can NOT make enough money to cover operating costs and service their debts.

    I’ve lost count of how many stories I’ve read lately of retail companies closing down or going into bankruptcy, and every freaking time its because of debt payment problems, NOT sales or profitability.

    The JRC, former parent company of the papers where I work, got in trouble because at the height of the bubble, some corporate jackass decided “You know what would be a good idea? Let’s take on zillions of dollars in debt to buy some papers in Detroit! I say this because I believe ‘Detroit’ to be synonymous with ‘prosperous American city where there’s craploads of money to be made.'”

  17. I would say that they care about these things only as long as the “correct” agenda is pushed by the institutions and journalists. If Rupert Murdoch bought the NYT tomorrow, you can bet your ass they’d find a way to exclude it from any subsidy program.

    That might be true, but I think that the statists have a psychological need to preserve existing institutions that goes beyond mere political advantage and favoritism.

    [It’s funny – that’s kind of a “conservative” impulse. But the left definitely has it.]

    Consider the collapse of GM and Chrysler. If “Unnamed Company X” had been standing by to re-open shuttered auto plants in the wake of a total failure by one or both of these companies, but had made it clear that they would re-open from scratch – destroying the existing brands, tearing up the existing contracts, hiring without regard to seniority, creating a new dealer network, advertising in a new way, sponsoring new events and funding new foundations – the statists would have preferred to save the existing companies. They would have preferred it because they believe that when the public invests in the durability of a company or institution, the public is entitled to win that bet. Despite the fact that it’s historically absurd. And they believe this whether the graft flows or not.

  18. Jennifer makes a good point. The biggest problem newspapers have are the incompetent corporate managers running them. Newspapers aren’t going away. But many media companies may well be.
    Fluffy also makes a good point about the fundamental “conservatism” of the statists.

    (And why don’t the media-conspiracy wingnuts get the same kind of grief around here as teh other truthers?
    Of course, as a possible conspirator, I may be REQUIRED to ask that question.)

  19. problem/is

    Too bad they laid off all the copy editors around here.

  20. Too bad they laid off all the copy editors around here.

    Yeah, if only they had some sort of preview button…

  21. Points to Fluffy.

    This may be partly a byproduct of the fact that so many people bet on the concept of company pension plans. Hence they see some kind of injustice in the institution failing if it means that people lose pensions they were counting on.

    I’m not sure it was ever true that you could count on any company being around for life. But even if it was ever true, it’s obviously absurd today. Technology is changing too fast.

  22. > So there’s three durable institutions.

    But who wants to live in an institution?

  23. That might be true, but I think that the statists have a psychological need to preserve existing institutions that goes beyond mere political advantage and favoritism.

    I’ll buy that. It’s the need for stasis. I’d argue it’s primarily driven by a fear of change. The precautionary principle is another example of the change might be horrible mindset. Yeah, change may suck but it can be fantastic. And changing the status quo got us here, so why not try again.

    Didn’t Virginia Postrel write a book about this?

  24. I’m intrigued by that 100.1-percent decline in operating profit for the bigger papers. As bad as it could possibly be, and then some?

  25. The problem is that in our system, how much profit you make is irrelevant. It’s all about growth. If you aren’t growing, then there’s panic in the board room. No one regards “value” as valuable — they just want growth.

  26. WTF? Why hasn’t anybody informed me it’s rag on Detroit day?

  27. Why hasn’t anybody informed me it’s rag on Detroit day?

    You live there. We thought you knew everyday is rag on Detroit day.

  28. I’m intrigued by that 100.1-percent decline in operating profit for the bigger papers. As bad as it could possibly be, and then some?

    That just means they swung from a profit to a very marginal loss.

    If you made a ten dollar profit last year and lost a penny this year, that is a 100.1% change.

  29. While top-line growth is important their is a huge class of investors that are very happy (think Warren Buffett) to buy businesses that show no organic growth but throw off lots of free cash flow annually.

    Having cash flow with growth is better, clearly, but not necessary. Especially if you can control the whole thing.

    I mean if you buy a business that throws off a 15% cash flow yield (basically a 15% dividend) annually you can do lots of wonderful things. You can pay yourself a fat dividend, you can go buy other businesses that are also paying a 15% dividend yield, or you can just accumulate cash.

    Blue Chip Stamps is a business that Buffett bought, in terminal decline, turned out to be a terrific investment because he used the proceeds to buy See’s Candy.

  30. Isn’t the number on the right the profit of the surviving newspapers?

  31. The question is how are they remaining profitable and is it a sustainable method. I believe revenues have fallen faster than costs in the news industry so profitability is falling. I’m too lazy to look for their financial, but I’m pretty sure that’s the case. Which means they were probably raping people for costs before.

    Information on which companies have gone belly up throughout the study would be nice as well, or at least an indication of how they were included or excluded.

    Seems like damning evidence, and it may be more damning of how they operated in the past than how they are surviving now, but there has to be more.

  32. Isn’t the number on the right the profit of the surviving newspapers?

    Yes, but this would be true of any industry. If the industry average return on capital is competitive with other industry averages, then newspapers will continue to attract capital investment and there is really no danger of the industry disappearing.

  33. Matt Welch | July 7, 2009, 10:49am | #

    Wait, Matt, so is Reason profitable based only on circulation and ads?

    No, I’m saying that the newspaper industry remained profitable in 2008. Do you see how those might be separate issues?

    Of course. I was just wondering – not trying to make a snarky point. I wonder why economic freedom doesn’t sell. I guess Reason’s profitability is related only in the sense of setting an example, and naturally you guys aren’t asking for any handouts. If anything, Reason is an example of how a publication can exist, do good journalism, and avoid the public trough all at the same time regardless of profit margin.

  34. Matt,

    Off topic, but I wanted to thank you for your spot on Hoboken in the recent print edition – nicely done. The election was recently completed, and the old guard establishment candidate for mayor won by a hair, but the reformer slate swept the city council – so now we have divided government. Libertopia-by-gridlock comes to hoboken: the first item of business was for the council to take back the power to appoint zoning board members from the mayor. Now both sides are screaming bloody murder, threatening vetos, and talking about lawsuits. It’s a real show.

  35. I wonder why economic freedom doesn’t sell.

    Who’s to say it doesn’t? The Economist magazine, love it or hate it, has broadly been an advocate for economic freedom for more than a century, and they make good money. One could make a similar argument for the Wall Street Journal. And last I looked, Ayn Rand’s books are still hopping off the shelves.

    The world of opinion magazines (us, New Republic, Weekly Standard, American Prospect, National Review, The Nation, etc.), is historically and notoriously a world where circulation and advertising rarely pay for printing and editorial costs. Which is not to say that we don’t try like hell, but that our category — more than our politics — is one that almost never breaks even on ads & circ alone.

    We’re a nonprofit (not all of the above are), and have a different way of measuring the bottom line — and believe me, nonprofits are market actors, too. And yes, we spend a fraction on editorial costs as, for example, the L.A. Times opinion section, so it’s possible to do good journalism for not a ton of money.

  36. our category — more than our politics — is one that almost never breaks even

    Fair enough, then, I was unaware…

  37. “Isn’t the number on the right the profit of the surviving newspapers?”

    Fluffy | July 7, 2009, 2:45pm | #

    Yes, but this would be true of any industry. If the industry average return on capital is competitive with other industry averages, then newspapers will continue to attract capital investment and there is really no danger of the industry disappearing.

    Let’s put it another way. If we did a study of a group thirty-year olds with a disease and discovered they were healthier than twenty-nine year olds with the same disease, could we ignore all the twenty-nine year olds who died in the interim and conclude the disease isn’t a problem?

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