In a recent blog post, FTI covered trends in news industry revenue challenges. This included issues related to slowing digital traffic, macro-economic pressures in advertising, and increased subscriber churn in both print and digital.

Revenue challenges in both advertising and consumer have resulted in significant hits to profitability. In a recent survey, FTI found that average U.S. metro newspaper profitability margin is down by ~4% from 8.7% to 4.7%.

National publishers have also seen profitability challenges. While The New York Times Company has reported revenue growth of 11% for the first nine months of 2022, ending September of this year, operating costs excluding depreciation have grown 16% during the same time frame. This has led to operating margins being cut in half from 9.1% in 2021 to 4.6% in 2022.

Regardless of where a news publisher may be in terms of revenue transformation (from ad-driven to consumer-driven) or digital transformation, there are clear profitability challenges that the industry is facing. We want to discuss a few key areas where publishers should focus business transformation efforts to improve profitability in the short run and build toward a sustainable future in the long term.

Opportunity #1: Reimagine the newsroom to serve the needs of the enterprise

The newsroom is often the last area where publishers want to focus business transformation. Editorial functions are at the core not only to the value delivered to readers every day but essential to the journalistic mission that news organisations serve.

However, news media leaders must not confuse maintaining investment in the newsroom with preservation of the status quo at all costs. Media leaders should consider assessing news workflows and operations for efficiency improvements. They also need to better understand how the content generated today translates to value generated for the enterprise.

Opportunity #2: Build the commercial organisation (advertising and consumer) that aligns with the current macro environment as well as long-term strategic goals

Advertising revenue trends have whip-sawed over the last few years with dramatic declines from COVID-19, followed by strong recoveries, particularly in digital.

In the last six months, there have been major signs of slowdowns in advertising. Again, this requires news publishers to reconsider how to most profitably go to market. Assessing sales coverage models, market prioritisation, sales support, and order process improvement can all lead to meaningful cost reductions in advertising.

At the same time as the advertising slowdown, increased subscriber churn should lead to media leaders reassessing what they spend on consumer marketing, both organisationally and through third-party spend. Consumer marketing organisations may need to rethink or shift resources from certain marketing functions. Meanwhile, key performance indicators like subscriber lifetime value, customer acquisition cost ratios, and payback periods should be reassessed to ensure marketing spend meets appropriate hurdle rates.

Opportunity #3: Consider all options for the print and distribution operating model

Of all cost categories, inflationary pressures in 2022 may have impacted production and distribution costs the hardest. While newsprint and ink cost increases ranged from 20% to 30% year-over-year for many publishers, the single biggest cost impact was in the distribution network where labour costs sky-rocketed and carrier down routes caused major operational issues.

To combat these issues, some publishers are considering major operating model changes. These include solutions like using postal mail instead of carrier delivery or eliminating print on certain days of the week.

Cost reductions are often a primary goal in business transformation. However, in some cases, it may actually make sense to invest in the delivery network to the extent improved service can mitigate high churn of very high-value print customers.

Opportunity #4: Invest in technology where it makes sense, and rationalise where it doesn’t

For most publishers, technology has enabled digital transformation and allowed news organisations to better understand their audiences, drive digital revenue growth, and improve efficiency of operations. While technology is critical to every news organisation today, it also can bring complexity and excess costs into an organisation.

Tools that help publishers harness data, distribute news stories effectively, manage subscriptions and process payments can be game-changers. However, publishers need to understand how much value technology is driving for their organisations and align the cost with the value.

Should publishers be addressing business transformation in 2023?

It very much appears that macro-economic headwinds are likely to impact publishers of all sizes, resulting in shrinking operating margins as we head into 2023. Media leaders should consider options for business transformation across the enterprise in order to ensure continued cash flow for investment in growth initiatives as well as long-term business sustainability.

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