Fresh Ways to Keep News Operations on Solid Financial Ground

This high tide of often-gripping content has had a beneficial impact on most of the "ships" in the news ecosystem, ranging from online platforms to TV news channels to newspapers. And some members of the industry have invested intellect and capital to develop business models to make news organizations more profitable.

They must grapple with an increase in audience fragmentation. And there are actual declines in some media sectors, like legacy newspapers. That chaotic and competitive landscape makes it even more imperative for journalistic operations to find business models that will enhance their financial viability.

Encouraging Factors

To assess the most advantageous strategies moving forward, news organizations should consider four main factors.

1. Political polarization has driven news consumers to familiar and preferred "liberal" and "conservative" content – placing pressure on the center. Since 2017, only about 50% of the population has viewed major news organizations as "credible," according to a poll commissioned by Morning Consult and The Hollywood Reporter. While this number may be discouraging, at least it is not declining. And the credibility of three major legacy TV networks (NBC, ABC and CBS) actually increased from approximately 58% to 61%, according to the same survey.
2. Although approximately 50% of consumers bemoan a perceived lack of news credibility, in general, a higher proportion (about 72%) is satisfied with the outlets they choose. Internet news sites (74%) edge out television, cable and print media, when it comes to satisfaction, according to data published on theasci.org.
3. Despite subscription declines, average consumer spending on newspapers increased from $19 in 2019 to $22 in 2020 (the most recent year available), according to the Bureau of Labor Statistics. This was spurred by price increases. Consumers' willingness to pay more indicates the perceived value of newspapers. And it compensates for overall subscription declines.
4. According to the Pew Institute, the share of adults who trust local news sources is 75%. That is significantly greater than the percentage who trust national sources, indicating that a focus on localism will enhance financial viability.

We can draw some conclusions from these four groupings of "tea leaves." They indicate that business models will be more successful if they include a serious and creative plan to develop an internet platform. Organizations also need to treat editorial content as an investment opportunity rather than a cost-cutting target and develop a focus on localism. And they should develop analytics and back-office savings that make the most of this environment.

Some organizations are already on the right path, successfully incorporating these factors into their business models and developing new ways of handling costs that are enhancing financial strength. The Baltimore Banner and Tampa Bay Times are two cases in point. Let's look at each one in turn.

Baltimore Challenger

One of the most expansive and innovative examples of a new business model can be found at The Baltimore Banner, which launched in June. It competes with the legacy Baltimore Sun, which was acquired in 2021 by the hedge fund Alden Capital.

The Banner is going up against an entrenched print competitor with a 100% digital approach. Its management is investing heavily in content and eventually plans to have the largest newsroom in Maryland.

Its business model can be characterized as not just local, but hyper-local. Members of the editorial staff, which may soon include 100 people, are dedicated to specific neighborhoods and societal groups throughout the city and will eventually include other areas of Maryland. Although it launched only a few months ago, The Banner's content and research is already being cited by other news outlets in the market.

Extensive data analytics infrastructure will support advertising and customer development. Several back-office and non-strategic functions like payroll, advertising operations and financial planning are being outsourced overseas at a considerable cost savings.

The combination of these efforts is intended to make The Banner economically self-sufficient by 2025.

Even The Banner's financial model is fairly unique. It's owned by a nonprofit, the Venetoulis Institute, and was started with seed capital from entrepreneur Stewart Bainum.

The Banner has only tapped into a few of the financial resources available to journalistic operations. For example, others might partner with a local foundation or educational institution on a research project. Several philanthropic organizations – including the Knight and Ford Foundations – provide support for certain initiatives.

The available options aren't limited to nonprofit entities. For example, the Society of Professional Journalists may subsidize the cost of a journalist who is dedicated to a particular topic.

Other opportunities may be on the horizon. For example, in California, a state bill (SR 19) has been introduced that would support local news outlets using a model similar to PBS or NPR. However, the legislation is generating controversy because it imposes editorial limitations, such as a prohibition on endorsing political candidates.

Tampa Bay Tactics

While The Baltimore Banner eliminated the print cycle completely, the Tampa Bay Times has found success by curtailing the print schedule to two days per week, Wednesday and Sunday.

The change, which took place in 2020, had a sharply negative effect on revenues. However, the beneficial impact on operating expenses was about 70% greater than the revenue loss, resulting in a combined operating profit improvement of almost $14 million over a two-year period.

Tampa Bay Times also made significant investments in editorial content and beefed up its e-newspaper. It added exclusive comics, entertainment and opinion content, along with themed pages. The electronic version offers a full facsimile of a print edition. And there's considerable flexibility; a full page of content can be added the same day that a story breaks.

Tackling Churn

Both The Banner and the Tampa Bay Tribune use extensive data analytics to target new subscribers and reduce churn among existing subscribers. Churn is generally defined as the number of subscribers who terminate a service as a percentage of the total in a given month. It is the bane of any subscriber-based business, be it news, wireless telecom or cable television.

A 3% monthly churn rate implies that a business will need to replace over a third of its customers just to say even (3% times 12 months equals 36%). Churn among cable television and newspaper companies has risen sharply in recent years as a result of competition, consumer preferences and subscriber cancellations.

However, 30% of churn is related not to those factors but to failed payment transactions, according to the software company Vindicia. The implementation of better analytics to help businesses understand why failed transactions occur can help them reduce their churn rates by 3% or so per year. Vindicia concludes that the exponential impact of churn reductions can increase revenues by 10% and the lifetime of a subscriber by six months.

The American Press Institute also offers resources on best practices for attracting and maintaining subscribers. It's provided four recommendations:

• Collect information about consumers' interests and behaviors;
• Identify those at risk of churn;
• Take measures to glue subscribers to the news service (such as welcome packages and subscriber-only benefits);
• Track which content is the most engaging.

There's no doubt that traditional media will continue to face great challenges in terms of competition, economic uncertainty and technological change. But news operations like The Baltimore Banner and Tampa Bay Times point the way toward emerging opportunities that others can mine.

If a growing number of operations discover new sources of funding, learn from consumer data, apply creative efficiencies and focus on local issues, we may see more headlines about a buoyant and successful news industry.

This article was originally published in the Sep/Oct issue of TFM.

John Sanders is a principal with the financial and valuation consulting firm Bond & Pecaro Inc. He can be reached at johnsanders@bondpecaro.com.

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The opinions expressed here are the author's views and do not necessarily represent the views of MediaVillage.com/MyersBizNet.