Economic predictions + cost takeout measures publishers can implement now

By Shelley Seale


Texas, USA


News publishers responding to the economic effects of COVID-19 are looking for quick ways to take costs out of the business — from print, from operations, from labour, and more.

In a Webinar on Wednesday, Ken Harding of FTI Consulting walked INMA members through what he and his team are hearing in terms of trends and outlier best practices from media companies aiming to lower their cost environment, quickly.

Harding, senior managing director at FTI, assured members he did not intend to be critical of any publisher’s strategy.

A Webinar presented by FTI Consulting took a look at predictions for coming out of the COVID-19 crisis and preparing for a new normal.
A Webinar presented by FTI Consulting took a look at predictions for coming out of the COVID-19 crisis and preparing for a new normal.

“We understand that everyone is in a different place in terms of the costs they need to take out. Some may have been operating at a lower margin so they have less runway; others may have significant debt. So, everyone’s at a different place. This is really just to show you what we’re seeing in the industry.”

Publisher survey

FTI Consulting asked nine publishers across North America what they are currently doing to reduce costs and preserve cash. Here is what they found.

Product changes included:

  • Reduce pages in sports and entertainment.
  • Move to e-edition or mail in remote areas.
  • Eliminate delivery in high-rise buildings.
  • Eliminate TMC (total market coverage).
  • Eliminate all print pressure starts.
  • Eliminate redelivery of the newspaper.
  • Reduce certain days in print temporarily.
  • Shutter products or ancillary business lines that were unprofitable.

Operations changes included:

  • Collapse sections and eliminate zoning.
  • Reduce inserting days to one or two per week with one-part newspaper.
  • Rethink production costs and schedules, with less focus on deadlines.
  • Right-size production staffing when commercial jobs are downsized or stopped.
  • Rethink distribution with one-part newspapers; have carriers pick up at production facility.
  • Curtail facility and maintenance work.
  • Eliminate power and janitorial for unused areas.

People savings included:

  • Reduce or eliminate temporary labour (COVID-19 transmission safety).
  • Repurpose sports reporters to main news and/or areas that would reduce or eliminate correspondent expenses.
  • Re-assess or stop sponsorships.
  • Streamline management and functions for the upcoming “new normal.”
  • Furlough staff or temporary salary reductions.
  • 401K contributions suspension.

Cash preservation methods included:

  • Negotiate extended payment terms.
  • Hold all CAPEX, non-essential purchasing and investment decisions.
  • Stop or curtail IT development.
  • Stop non-essential purchasing and investment decisions.

Harding showed Webinar attendees where publishers said they were implementing the most of these cost-savings strategies. He used C for corporate publishers and P for private publishers because they are thinking about this approach differently.

Harding presented an illustration showing where nine North American publishers were focusing their cost-cutting efforts.
Harding presented an illustration showing where nine North American publishers were focusing their cost-cutting efforts.

Explaining the illustration, he said: “On the farther to the right you’d be taking more product costs out, and the farther up you’d be taking more operational costs out. So you see, in the bottom right [quadrant], no one is taking product costs out over operations. If you have to take out costs, let’s take costs out of operations, even if it’s temporary, versus reducing products.”

Some private companies are taking out product and costs but not in significant levels.

“The upper left quadrant is interesting because there’s both a corporate and a private company in there, and they’re saying, ‘We’re protecting product, but we’re taking every cost-cutting measure that’s listed’.”

Publishers in the upper right quadrant reported savings were most critical, and they are taking all the measures possible in product and operational cost reductions.

“So you can see that people are making different decisions based on their strategy and what their debt may or may not be.”

Savings results

When it came to product and business cost savings results, only one publisher had reduced print days, and one was thinking about it.

“You can see that everyone out of the nine we surveyed reduced pages in sports, so everyone is taking print pages out,” Harding said. “A little over half have stopped products.”

Three companies out of the nine had eliminated re-delivery, and a lot of them are thinking about eliminating delivery in rural areas. One publisher had eliminated several print days entirely, and another was thinking about it.

Ken Harding of FTI Consulting shares the results of publishers' cost saving measures.
Ken Harding of FTI Consulting shares the results of publishers' cost saving measures.

On the operations side, collapsing sections to reduce pages and costs was the main action publishers had taken. All but one had already done this, and the one that hadn’t was considering it. The same was true of re-thinking production costs.

Two-thirds had reduced insertion days, as well as right-sizing production staffing.

“One-part paper, which is a big change to product and thinking that you’re going to eliminate all your trucking and distribution centres you’ve used for the last 20 years and have client pick-up. Those are big operational changes. Surprisingly, a third of the people had done it and a third were thinking about it,” Harding said.

Many of these strategies were already gaining traction within just two weeks.

On the people and staffing side, most of the cost-reduction actions are meant to be temporary. Repurposing sports and/or entertainment reporters makes the most sense, Harding said. Eight of the nine publishers have already done this, and the ninth is considering it: “This makes sense. There’s no live sports. There’s no live entertainment.”

Two-thirds of the companies surveyed have already furloughed staff or implemented salary reductions. The companies that had not were privately owned. In some cases, these furloughs meant working four days a week, resulting in a 20% cut of staffing costs. Other publishers had reduced salaries in general, usually on a sliding scale with executives receiving the biggest cuts.

“Both of those [actions] are pretty prevalent, much like in 2008 and 2009, we’re seeing that across the industry,” Harding said.

Most everyone had also eliminated temporary labour to save permanent staff. The result that surprised Harding was streamlining management.

“This is a big decision that says you’re starting to think about redesigning your organisation, and over half the people have already done it and the others are thinking about it,” he said. “What that tells me, everyone believes there is going to be a new normal. We don’t know what it’ll be, but it’s going to be different in the future than it is today.”

In cash preservation, almost every publisher had stopped capital expenditures, and most have stopped non-essential purchasing and/or negotiating extended payment terms with vendors. Only one publisher had curtailed IT development.

“IT is critical as we continue to go from print to digital,” Harding said. “But a lot of people are thinking about it, so that’s a little bit probably a last effort.”

Harding sees some big differences in how publishers are reacting to the COVID-19 crisis, versus the recession of 2008 or 9/11, he said: “I think today, two things are different. I think people believe that this business has fundamentally changed, and it’s going to change again. We may not even be sure what our sustainable business model is, so we need to start thinking about some of these broader changes, and we need to keep the staff we have.” 

Forecast and revenue projections

FTI asked publishers what they forecasted for April. Using those figures and others (such as what happened in 2008), they developed two recovery model forecasts:

  • The first, a “V” shaped forecast, predicts a quick turnaround.
  • The other, a “U” model, is a longer-term recovery, which Harding said is probably more realistic.

For the April forecasts, the average decline predicted among publishers was:

  • ROP print advertising: 44%
  • FSI preprints: 60%
  • Digital advertising: 29%
  • Total advertising: 44%

The digital advertising number down 29% is the one that is probably frightening for most people, Harding said. “Even though you have this massive volume, if you know much about programmatic advertising, we have so much supply and so little demand, the CPMs are just following. So we’re not monetising this huge audience except through digital subscription growth, which has been a real bust.”

FTI developed a best-case and worst-case forecast model for news publisher's exiting the downturn.
FTI developed a best-case and worst-case forecast model for news publisher's exiting the downturn.

Based on these responses, FTI developed its “U” and “V” COVID advertising recovery forecast models. The “V” model assumes an end of lockdown by end of May, and things returning to normal pretty quickly. The “U” model allows for a longer downturn and recovery period.

“I’m hoping for the ‘V’ but I think that’s unlikely,” Harding said.

Going from a best-case (V) to a worst-case (U) scenario, the predictions are:

  • YoY total ad revenue decline from 37% to 41%.
  • Print ad revenue primarily driving this, at 43% to 46% declines in 2020.
  • Digital ad revenue more resilient, with declines of 22% to 27% in 2020, and growth returning in 2021 of 12% to 28%.
  • An unrecovered ad revenue loss between 20% to 30% as a result of COVID-19.

More than likely, Harding believes it will be a year before news media starts coming out of this and back to “normal.”

When it comes to newspaper industry revenue, the predictions are:

  • Total revenue declines, previously forecasted at 5%-6%, now expected to be 10%-15%.
  • Total revenue decline in 2020 of 18%-20%.
  • Possible high of up to 50% YoY growth in digital subscription revenue by Q4 2020.

“If you look at 2021, basically seven quarters from now, the legacy business was projected to be at 85 out of 100. So we’re going to lose 15 points from 2019,” Harding explained.

FTI's predictions for the post-COVID revenue mix.
FTI's predictions for the post-COVID revenue mix.

When it comes to revenue mix, Harding discussed what the business will possibly look like post-COVID. Print advertising share of total advertising revenue is predicted to be 20% or less by the middle of 2021, and digital subscriptions become a larger part of the mix, reaching 12% of total revenue by mid-2021.

Not very long ago, print advertising represented 80% of all ad revenue, so this represents a massive change in the business.

The big challenge, especially in the United States, will be making that leap from an advertising-based revenue model to a consumer-based one, Harding said.

“Historically, you had a newspaper totally supported by advertising and a little contribution from consumers. This says, we’re going to have a product almost totally supported by consumers and a little by advertisers. It’s a different business model. At some point, people are going to have to rethink their business, rethink their organisation, because the revenue mix is continuing to change and it will change dramatically.”

About Shelley Seale

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