BOB GARFIELD: It's almost a reflex to talk about the terminal condition of the newspaper industry. The numbers do seem bleak. For years, newspapers have lost far more readers to death by old age than they've replenished from the young. And advertising, classified and retail, has migrated steadily to the Internet. So many media watchers saw the inevitable in the last few weeks as the Boston Globe, the Philadelphia Inquirer, the Philadelphia Daily News, the New York Times, Newsday, the San Jose Mercury News and the San Francisco Chronicle all announced they were eliminating staff, some 450 newsroom positions among the seven of them. Long-time newspaper analyst John Morton believes the imminent death of newspapers is greatly exaggerated, but he understands the anxiety. It's caused, he says, by two factors, weakening retail ads and the rising cost of the paper they're printed on.
JOHN MORTON: Well, you've got a situation where the main revenue generation, which is from advertising, is going up very slowly and yet newsprint costs are going up 10 to 15 percent a year. There was a new additional increase of 35 dollars per metric ton imposed on October 1. That's the eighth increase since the middle of 2002. That tends to, you know, squeeze margins.
BOB GARFIELD: There's a business truism that says you can't cut your way into profitability, at least in the long term. Can these deep cuts on the editorial side be any kind of long-term solution?
JOHN MORTON: Well, I mean, cutting news staff is generally not a good idea. The news information is basically what makes the whole thing work. I would point out, though, that the Philadelphia Inquirer, the New York Times and the Boston Globe already had by newspaper standards fairly large staffs. And what these cuts will do is bring them down a little bit closer to what is typical for newspapers of their circulation size.
BOB GARFIELD: Historically, newspapers have been enormously profitable. Is the industry objectively doing poorly or is it just kind of coming down to earth relative to other industries?
JOHN MORTON: It's not doing poorly. I mean, last year the average operating profit margin of the publicly reporting companies for their newspaper operations was 20.5 percent, which is high, more than twice what the Fortune 500 does. The big question is how high should they [CHUCKLES] be? And - and Wall Street has an enduring appetite for ever-higher profit margins and that's some of the pressure that these companies feel.
BOB GARFIELD: The publisher of the Philadelphia Inquirer recently took some heat for running a General Motors ad that was by design hard to distinguish from editorial matter in the paper. And he said at the time that newspapers in the current environment simply have to be more sensitive to advertisers' desires. You know, I just don't know any way of asking this question but this way - is whoring to Madison Avenue really any kind of solution?
JOHN MORTON: No, I don't think so. I mean, to me, the heart of the newspaper business is knowing what's for sale and what isn't. And to the extent that you blur that, I think you're only doing damage to yourself.
BOB GARFIELD: I want to ask you about the Internet. Newspapers are losing readers to online sources. They're also losing classified advertising, the most profitable part of their business, to online outfits like Craigslist and so forth. Is there anyone who's getting that figured out and do you have any idea how that's going to play out?
JOHN MORTON: Well, let me make a couple of observations. One is that the newspapers' problems with circulation began long before there was an Internet. It's been exacerbated by the Internet. It's retail, it's gone south. But, so far, the Internet has not become such a powerful force that you can attribute any decline in the newspaper business to it. But clearly, you know, the Internet is only going to get to be a bigger and bigger factor, and newspapers probably made a big mistake in the beginning when they adopted the assumption that everybody expects everything on the Internet to be free. Dow Jones from the get-go decided against that. If you want to get the Wall Street Journal online, you've got to pay for it. And it's been a very successful strategy for them. Of course, they have a specialized audience and it's a little easier to sell to those folks, but I think most newspaper companies now are trying to figure out ways that they can start charging. And it probably means that some of the heavy traffic that newspaper websites currently get may diminish. But I think in the long run, it's what newspapers have to do.
BOB GARFIELD: All right. Now, you have been literally for decades the most prominent newspaper analyst, and as such have been kibitzing [LAUGHS] newspaper management for decades. And I'm just curious, what would you tell them to do to stay alive and to stay healthy, you know, for a long time?
JOHN MORTON: Oh, I'm afraid what I would tell them to do is something they can't do. I would tell them that you need to invest more in journalism, on research and development, on how to create products that will bring in incremental revenues. The fact is that circulation is not a good indicator of profitability because newspapers make a lot of money in a lot of other ways. And increasingly they're doing that. I mean, they've created a lot of niche publications, generally free, oriented towards specific interests like automobiles, home decorating; if the market's large enough, an ethnic grouping of one kind or another. I mean all of these things cost money and likely would reduce profit margins. They're going to have to get used to it [LAUGHS] and Wall Street's going to have to get used to it.
BOB GARFIELD: Okay. Well, John, as always, thanks very much.
JOHN MORTON: You're welcome.
BOB GARFIELD: John Morton is a newspaper analyst and media consultant. His company is Morton Research, Inc. [MUSIC UP AND UNDER]
BROOKE GLADSTONE: Coming up in sports, a color commentator suddenly works blue. And in other news, the sexy secrets of the Food Channel.
BOB GARFIELD: This is On the Media from NPR. (FUNDING CREDITS)