So the price for newpaper companies continues to head downwards because newspapers themselves continue to enjoy a steady and gradual decline in readers and revenues as demographics and technology suck both away. At one end the old readership is simply dying; at the other it isn't being replaced as people spend the time they once spent reading the news in other ways, primarily online.
Wrong. Sure, for at least the last decade (and Philip Meyer would argue four or five decades) that challenge has been the basic reality of doing business for most print newspapers in the first world. But that steady decline is the best case scenario for print, it's what happens if everything goes well or even perfectly. The idea that newspaper companies are somehow cheap at today's prices rests on a very optimistic assumption that the future will be just like the past. Here's three potential discontinuities that instead of contributing to the steady decline scenario could wipe out one, or more, or all, newspaper businesses overnight (at least, as commercially viable going concerns - not all newspapers are run on that model of course).
Papers have been able to hang on just above this line via shared printing arrangements, by cutting back numbers of editions, by paring down newsrooms and all the other cost-saving exercises but really - audience projections that see newspapers become less and less valuable as audiences decline are ignorning the fact that one day you have a business and the next day you've tipped just below the level of audience where you don't. Papers will consolidate and experiment but long before audiences hit zero some of them will actually close. There's a discontinuity there and it will definitely happen because the fixed cost base cannot be pared back indefinitely and still produce a newspaper.
(2) Advertisers will stop advertising. Sure, that sounds like a gradual process too. The job ads dried up as they moved online and the property ads got a bit thinner as websites emerged there too. But here too there's a potential discontinuity where pretty much overnight the whole game changes.
Newspapers run ads for lots of different businesses, perhaps hundreds or thousands of different car makers and retailers and holiday companies etc et al. Yet the number of buying points, the people who actually place the ads for these companies, is far smaller than that - a relatively tiny number of media planning and buying agencies that continue to consolidate in the hands of fewer and fewer ultimate owners.
Suppose for a moment that one of the the big six media buyers in the UK - Aegis, say, or Interpublic - complete a major strategy review next week that concludes that, compared to the same spend online, newspaper advertising is a waste of their clients' money at the current price and would still be a waste even at half the price. They advise their clients - which between the big six buyers is most advertisers - to stop spending money on newspaper ads. The clients mostly do.
There's a second discontinuity that could easily happen (indeed, I am often surprised that it hasn't already and think it may simply be institutional inertia that keeps newspaper ads on the plan). How many separate decisions would it take for the major ad buyers to advise all of their clients that they shouldn't be in newspapers any more? It might be as many as half a dozen decisions, one by each of the major parent companies. Probably one, by Martin Sorrell at WPP, would kill the industry overnight.
(3) This is more of a paper-by-paper issue than a whole industry one, but a third and perfectly realistic discontinuity is a backlash of consumer activism. Take, for the sake of argument, the Daily Star, which for a week in February appeared to have taken an editorial stance in favour of the far right English Defence League. How much online coordination would it have taken for liberal-minded people to identify all of the companies advertising with the Express each day and pledge not to do business with those companies until they withdrew their ads from the paper? UKuncut can get somewhere between a quarter and half a million people to march through London. Getting enough people to commit to buying their cars and their holidays a bit more selectively until advertisers cease supporting a paper whose editorial stance has drifted beyond the pale is a significant ask but not an impossible one. In print, newspapers used to influence only their own constituency. Online, anyone can read (most of) them. For newspapers taking extreme or widely unpopular editorial positions, that expanded influence could turn out to cut both ways.
The most obvious mistake investors and analysts make is to ignore the black swan and the fact that anything really important that happens will be a discontinuity - something that makes extrapolations based on historical trends not merely meaningless but dangerously misleading. Newspapers have had their steady decline for long enough that it looks like business as usual. But it's not, and it won't be. There are discontinuties waiting to happen and when they do, the gradual decline will turn into the sudden - and apparently unexpected - collapse of many venerable businesses currently assumed to be worth millions of pounds.
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