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Paper's plight is signal to industry: San Jose Mercury News' ad loss to Internet is wake-up call
TMC Net ^ | April 16, 2006 | Staff

Posted on 04/17/2006 6:15:51 AM PDT by abb

(Sacramento Bee, The (CA) (KRT) Via Thomson Dialog NewsEdge) Apr. 16--SAN JOSE - Needing to sell a used refrigerator three years ago, Ken Doctor, a former journalist working for San Jose newspaper chain Knight Ridder Inc.'s Internet division, tried a little experiment.

He placed classified ads in Knight Ridder's San Jose Mercury News and two Web sites: the paper's own and an up-and-comer called Craigslist.

The Craigslist posting brought the most responses, got the fridge sold - and provided a telling look at the Internet's impact on the media landscape.

Today, Craigslist is an international phenomenon and the Mercury News is an orphan. Already zapped by the tech-industry implosion and a sluggish recovery, the paper is losing precious ad dollars to Craiglist, and others. Although some of those dollars are flowing to Career Builder, an Internet operation partly owned by Knight Ridder, the paper is still struggling.

Although it sits in one of the wealthiest regions of the country, the Mercury News is sufficiently troubled that The McClatchy Co. of Sacramento plans to sell the paper and 11 others it's acquiring through its pending takeover of Knight Ridder. McClatchy, publisher of The Bee, is keeping 20 other Knight Ridder papers.

Mercury News executives say the paper can come back. Yet those who've witnessed its problems up close say the Mercury News may represent the proverbial canary in the coal mine - a paper whose troubles reflect challenges facing newspapers everywhere.

Consumers are heading to the Web for news and advertising, taking dollars from newspapers in cities far beyond San Jose.

"You'll see erosion in other cities," said Charlene Li, an analyst in Silicon Valley for tech consultant Forrester Research Inc.

Newspaper executives insist the foundation isn't crumbling. McClatchy says buying Knight Ridder - a deal worth $4.3 billion, plus $2 billion in debt assumption - is a vote of confidence in an industry whose 18 percent profit margins are twice those of the average Fortune 500 company. McClatchy had margins of 23 percent and record earnings last year despite a soft second half. The company's earnings fell 14 percent in the first quarter.

McClatchy says the papers it's keeping are better able to cope with competition - from the Internet and other sources - because of their high growth rates. While San Jose is largely built up and has relatively little room for growth, cities such as Fort Worth and Kansas City, whose papers are being kept, are adding population in droves.

"The markets we're retaining have a leg up," said Gary Pruitt, McClatchy chairman and chief executive. "They are growing at a quicker rate, and with that economic growth comes more readers, more advertisers. The rising tide tends to lift all ships."

Still, newspapers are struggling to meet Wall Street's raised expectations. The Mercury News' reported profit margin of 8 percent last year would have been quite respectable in the mid-1990s. Today it's a pittance.

At the same time, investors fret about the industry's future. McClatchy's stock has fallen 11.7 percent since the Knight Ridder deal was announced, in part because investors are anxious about how successful McClatchy will be in selling the 12 papers. There are also fundamental concerns that newspapers are losing business to the Internet.

"The metro newspaper challenge is the same everywhere," said Peter Appert, an investment analyst at Goldman Sachs.

Newspapers say they can capture readers and advertisers as they migrate to the Internet. While print circulation is falling, online readership of newspapers' Web sites was up 21 percent last year, says the Newspaper Association of America.

McClatchy's online ad sales grew 30 percent in the first quarter and accounted for about 6 percent of total revenue.

A key asset it's buying from Knight Ridder is a one-third stake in Career Builder, a successful help-wanted Web site. Career Builder's other owners, Gannett Co. and Tribune Co., have the right to buy out that share, and the issue is unresolved.

In the meantime, McClatchy is augmenting its Web sites by introducing search engines to link readers to local shopping information and news stories.

"We want to deliver highly targeted local audiences to the advertiser," said Chris Hendricks, vice president for interactive media.

In one of the bleakest segments of the business, McClatchy's auto ad revenue was down 18 percent in the first three months of this year. Analysts say the decline reflects a slump in auto sales as well as a movement of advertising to the Internet. While McClatchy captures some of that revenue, through its Web site and its part ownership of national Internet site, the challenge is considerable.

Overall, classified ads are a huge area of concern for newspapers. They are a big profit stream but are tailor-made for the Web with their "searchable" text, Appert said. Classified ad revenue has dropped 11 percent industrywide since 2000, says the Newspaper Association of America.

Newspapers' Web sites run classifieds. But market research that Doctor, an independent consultant, conducted for Outsell Inc. of Burlingame suggests consumers are more likely to turn to sites like Yahoo and Google when they're shopping.

What's happening in San Jose "is an important early warning sign for publishers across the country," Doctor said.

For newspapers, the most troublesome rival may be Craigslist, founded by a San Francisco computer engineer named Craig Newmark. Except for help-wanted ads in San Francisco, New York and Los Angeles, Craigslist doesn't charge for listings. It runs 8 million classifieds a month, from Anchorage to Auckland. And while a fifth of its business comes from the Bay Area, CEO Jim Buckmaster said other cities are coming on strong.

He said Craigslist is being scapegoated for newspapers' woes. "It's not like newspapers are losing money," he said.

In the late 1990s, when Silicon Valley was booming, the Mercury News' operating profits surpassed $100 million a year, according to an estimate by Morgan Stanley.

When the tech bubble burst, one key revenue category at the paper collapsed: Help-wanted ads fell from $118 million in 2000 to $18 million in 2003.

"There was almost a direct correlation between the loss of jobs at Intel and the loss of a full-page ad for programmers," said Publisher George Riggs.

Morgan Stanley said the paper earned $18.8 million last year. Help-wanted ads are trickling back, reaching $23 million last year. But the job market is tough, and the ad climate tougher.

"The bounce-back has been impacted by competition from Monster, from Hotjobs, from all the other different sources, Craigslist," Riggs said.

Yet he said the paper is recovering. After dropping 15 percent, circulation has stabilized, he said. So has total ad revenue. The paper has had encouraging success with niche products, including a Spanish-language publication and a group of free daily papers in the suburbs.

Riggs said McClatchy is making a mistake selling the Mercury News. "I don't agree with it, but I respect it," he said.

The sale has become a touchy issue. Knight Ridder CEO Tony Ridder, a former Mercury News publisher, told the newspaper that he learned of McClatchy's decision at the last minute. Pruitt said "we did our best to be forthright with Knight Ridder about divestitures."

Around here, people are still digesting the decision. Economists wonder why Silicon Valley is lumped in with Rust Belt cities such as Akron, Ohio, and Fort Wayne, Ind., where papers are also being sold.

"It struck me as odd," said Stephen Levy of Palo Alto's Center for Continuing Study of the California Economy. He said the valley is an above-average growth market.

Journalists fear the paper will be sold to MediaNews Group Inc., a Denver chain with a reputation for slashing costs. At a recent San Jose symposium on the future of newspapers titled "Who Needs Ink?" employees handed out leaflets for a Web site called

But the fate of the Mercury News generates little interest among the tech elite, many of whom get their news from the Internet, said Paul Saffo, director of the Institute for the Future think tank in Palo Alto.

"Among the inside tech crowd, so much is being done on blogs and electronically," he said. "It's fundamentally different than if (the paper's sale) had happened 10 years ago."

TOPICS: News/Current Events
KEYWORDS: msm; msmwoes; newspapers
Bulltetin! Dinosaur food migrates!
1 posted on 04/17/2006 6:15:55 AM PDT by abb
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To: abb

We used Craig's list rather than newspaper for rerenting our condo this time. We got quicker response and better candidates.
So we won't use the newspaper again.

2 posted on 04/17/2006 6:23:06 AM PDT by Oldexpat
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To: abb

This isn't right! The newspapers is an INSTITUTION! Maybe the Federal Government can bail them out or impose some sort of tax on these Craigslist ads.


3 posted on 04/17/2006 6:41:57 AM PDT by D-Chivas
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To: abb

I wait to see LOTS of Marxist scum Journalism school graduates working at McDonalds. SOON!

4 posted on 04/17/2006 7:10:53 AM PDT by FormerACLUmember (No program, no ideas, no clue: The democrats!)
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To: abb

I used to use the Dallas Morning News classified ads. No more. I sold 2 cars on Craigslist in a week for my asking price..for free. I have bought furniture, gotten a dog, sold used computer equipment, all for free on Craigslist. I love it.

5 posted on 04/17/2006 7:11:17 AM PDT by gop4lyf
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To: gop4lyf

Check this WSJ story today. Craigslist isn't the only advertising the Dinosaur Media's losing

6 posted on 04/17/2006 7:12:48 AM PDT by abb (Because News Reporting is too important to be left to the Journalists.)
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To: gop4lyf

Out of curiosity I entered and to see what I could find. In each case it turned up a website listing the supposedly hottest hard core porn sites on the Internet. Do you have the real URL for craiglist? I might want to use it to sell some of my stuff. Thanks.

7 posted on 04/17/2006 7:36:14 AM PDT by libstripper
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To: abb

All of our younger relatives and friends across this country use Craig's list to sell items. A couple of them found jobs.

Our sons, ages 39 and 38 are really enjoying this trend. Years ago their peers laughed at them for not buying or subscribing to any news paper. Now both of them are main stream with their peers and neighbors.

The older one is married and lives on a cul de sac in one of N California's new boom cities. Only a few homes on their Cul de Sac took the SF Gay Rhonical or one of the two local newspapers. They only subscribed to get the ads an coupon specials from the stores they shopped at.

Our son and DIL were on a special mailing list and got the ads and coupons without buying a newspaper in mailings that come every Wednesday. We discussed this with our DIL and she discussed it with her neighbors who subscribed to the fishwraps. We followed up with Miss Marple's and others's advice for these people to go on line or to contact the local store manager to get the ads and coupons.

The end result, when this month is over, there will be no newspapers being paid for by anyone on that cul de sac.

The other big hammer against the liberals in these areas is satellite tv. A lot of the builders refused to connect cable to their new homes. They instead left a connection box that was easily accessed by satellite tv. So most homes have the availibility of Fox News in their homes. Many of the cable systems in N California don't have Fox News.

Last but not least, the two zipcodes in their area voted for GW in 2004 with a plus 60% ratio.

8 posted on 04/17/2006 8:06:38 AM PDT by Grampa Dave (There's a dwindling market for Marxist homosexual lunatic wet dreams posing as journalism)
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To: abb

Sad, they were one of the first papers to go on the WWW, mid-nineties IIRC.

9 posted on 04/17/2006 8:22:12 AM PDT by antiRepublicrat
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To: libstripper
Do you have the real URL for craiglist?

Check your spelling. It's

10 posted on 04/17/2006 10:00:22 AM PDT by Steve0113 (Nearly all men can stand adversity, but if you want to test a man's character, give him power. -A.L.)
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