Get a CEO talking about his or her news media company in today’s COVID-19 environment, and you can see the checkdowns in their eyes:
- Are my employees and customers safe?
- Can my company function remotely?
- What does the advertising decline mean with our business model?
- Do we have the cash flow to make it through tight times?
- If we have to downsize the company, what shape does that take and for how long?
There’s no model to navigating a media company in today’s COVID-19 lockdown environment. Neither the Great Recession nor 9/11 quite fit. All we have is the wisdom of crowds. For me, that’s a lot of conversations with publishers on five continents in recent days.
The uncertain storm we’re in is revealing opportunities even as our business models are devastated. We can walk and chew gum at the same time. We can right-size our workforces to the new revenue environment while focusing on the new doors that are opening to us.
To see that, we first must embrace some hard truths.
The shape of cutbacks to come
INMA member feedback in the past two weeks points to a fairly clear picture: 30%-50% advertising declines through the second quarter with easing to somewhat near a “new normal” by 2021. Companies with greater dependency on advertising and print will make bigger cutbacks.
In a simple revenue impact spreadsheet I created for a few publishers in recent days, here is a range of impacts based on advertising reliance in the business model and a 50% annualised hit to ad revenues for a US$100 million media company:
- Free news company: Alternative news weeklies, free commuter newspapers, and free Web sites (none of which, in reality, are making U$100 million in revenue) expected US$100 million in revenue and are faced with US$50 million in under-performance.
- Traditional news company: With an 80% reliance on advertising, this company makes US$80 million in advertising in a normal 2020 yet now loses US$40 million.
- Typical news company: Half of this company’s US$50 million in revenue comes from advertising, so it now takes a US$25 million hit in my scenario.
- Diversified news company: With only 20% reliance on advertising in a decade of shifts to subscriptions, this company budgets US$20 million in advertising in 2020 and now loses US$10 million.
The point of this exercise is that not all media companies are created equally. The point is that those are very different revenue holes. Thus, corporate responses are going to be different.
What comes next depends on the business model, the reliance on advertising, and the shape of the advertising bases. For example, “free news companies” have either shut down already during the Corona Crisis or they are staring at liquidity issues now. A lot of local newspapers fall under the “traditional news company” category, never quite turned the corner on digital or digital subscriptions, and are facing an existential moment unless they have well capitalised ownership. News companies that have only 20% to 50% reliance on advertising will take a hit, but the urgency to right-size the company is profoundly different from peers reliant on advertising.
Because of the uncertainty behind the duration of COVID-19 lockdowns and ripple effects, publishers seem to be embracing cutbacks that minimise permanent job losses:
- Publishers are leaning heavily into broad-based employee salary cuts and subsequent reductions in work weeks (from five days to four days, for example).
- Furloughs are on the table.
- Senior managements are taking 20%+ pay cuts without reductions in work week.
- If a department or function is under close scrutiny because of the lockdowns, it’s advertising operations.
- Classified marketplaces businesses are going to be particularly hard hit.
- Publishers are trying to preserve the digital subscriptions value chain as much as possible — from newsrooms to data to audience development.
- Layoffs are always a consideration, with part-time employees more at risk than full-time employees. Yet permanent layoffs sound like they will be in the 10% range or less. They will be more surgical than across-the-board.
My guess is if you said the revenue environment would be down dramatically for two years — certainty! — then layoffs would be under broader consideration. The fact is, we just don’t know, and that uncertainty is what’s driving the shape of the right-sizing to come.
What do the contours start to look like? You can see how Gannett, the New Orleans Advocate, Saltwire Network, and NHST announced their restructurings. Local dailies in the United Kingdom and Australia have temporarily shut down as the number of news deserts rise. Alt-weekly free newspapers have closed shop. BuzzFeed focused on cutting salaries over jobs. After announcing recent layoffs, the Tampa Bay Times, meanwhile, announced the suspension of print five out of seven days per week.
The challenge internationally is that labour is either not as big a factor in the cost mix (South Asia) or it’s very expensive to terminate employees (Europe). Media companies in some Latin American countries appear to be awaiting guidance from their governments on what they can and can’t do about reducing workforces. Again, there is no model for a situation this broad-based.
Digital subscription opportunities
You’ve heard of the double- and triple-digit surges in digital subscription starts internationally during the pandemic. Crucial to understand is that subscription success is about audience behaviour more than publisher behaviour:
- Natural human craving for credibility: What happens when one-third of the planet is confined to their homes? Apparently, they naturally crave credible information. They seek you out. We needed a stay-at-home pandemic to learn this.
- Shape and enforcement of paywall: How paywalls are structured and enforced have a lot to do with digital subscription performance. We suspect European publishers’ 4x subscription start performance over North American publishers in the past two weeks is tighter locks on crisis content, but let’s see what the data says in a month. The intensity of the pandemic market by market may equate to subscription performance.
- COVID-19 content: There is data out there that shows big increases in editorial coverage about COVID-19. It is not yet clear to me that that coverage is the trigger for subscriptions. I believe it is the bait for subscriptions. I believe a lot more time at home, combined with COVID-19 curiosity, is leading the horse to water.
No matter how or why this is happening, let me remind you of the strange lesson from the 2017 “Trump bump” in digital subscriptions. People stuck around once they sampled the goods — despite all the predictions they wouldn’t. A colleague called subscriptions a “glimmer of hope in a very dark place,” yet a “hope” it is.
Can publishers retain these new “coronavirus bump” subscribers?
The advertising opportunities I hear about include:
- Government PSAs: Government advertising in the form of public service announcements (PSAs) can be a quick win for many. Offer 2-for-1 PSA ads or packs of five. This is resonating in multiple markets.
- Appeals to the fourth estate amid cutbacks: There is some evidence that candor with marketers (with appeals to the fourth estate) are keeping advertising with publishers. The appeal is simple: We know you are re-evaluating your marketing spend, and we understand it. Just keep in mind the journalistic fight we’re in.
- Goodwill advertising among top companies: Contact the CEO of every major company in your market and offer a free advertisement to build goodwill long-term. This is having a powerful, emotional impact in terms of the relationship between the publisher and advertiser.
- Helping small businesses in downturn: A growing number of publishers are creating Web sites, message boards, and print pages for small businesses — a kind of bridge to show how they are operating during lockdowns. For example, which restaurants are offering takeout or delivery and how to contact them.
We will explore content opportunities in the weeks ahead, but three that I hear repeatedly are:
- Staying at home: We are seeing big increases in content focused on the practicalities of recreating your life in a “from home” environment: fitness, TV, music, shopping.
- Get practical with content: Print features aimed at where jobs are, mental health, and other practical matters focused on the COVID-19 human response are rising.
- Print features for parents and children in-home: There are multiple examples of print products or sections created specifically dealing with the fact that parents and young children are at home together in this crisis.
A cynic might read this post and conclude there is more darkness than hope. Yet the ground is shifting amid the chaos and fluidity. The digital subscription surge points to a revival of trust in news brands that have taken a beating in recent years. The cutbacks under consideration are brutal, but what does it say that publishers are leaning heavily toward minimising job losses rather than a more typical layoff mentality?
I live in downtown Dallas.
The local, independent restaurants and bars can no longer accept in-dining in a lockdown environment, so they are reinventing themselves as general stores, to-go alcohol servers, and curbside pickup enterprises. They’re scrapping. They’re fighting. Spend $30 with my restaurant, and get a roll of toilet paper for free!
Surveying the landscape, other restaurants have shut down altogether, laid off all employees, and judged the fight isn’t worth it. They won’t be re-opening on the other side of COVID-19, and they took the “opportunity” of recession to make a business decision they probably should have made pre-downturn.
Today’s crisis is an opportunity for media companies to reinvent their brands in the eyes of readers and advertisers. This is our trust moment. Let’s be scrappy and re-earn customer affection. Let’s project empathy and, as much as possible, certainty. People will remember the actions you take today. Trust me: We will get to the “new normal” in a few months, and we can survey our reinvention on more solid ground.
Let’s embrace the glimmer.