Small community newspapers buck the recession, but the clock is ticking

It's no surprise that smaller newspapers are holding up better in the current media recession, which predates and has been exacerbated by the worldwide economic downturn. Historically, they have had wider margins and have not had to face the same competitive pressures as their urban, regional and national counterparts. Since only the newspaper, in many cases, covers the news in smaller communities, reasonably robust markets still exist.

Yet, this certainly doesn't mean that all is well in the world of community newspapers. These businesses have watched a fifth of their revenue evaporate so far, according to an Associated Press report, and classified ads, the source of most of their cash, are under assault.

The greatest crutch for community newspaper publishers has been that there is no competition – they have virtual monopolies in their markets. Even in a market like Cape Cod, the Cape Cod Times, owned by News Corp. (NWS) via several subsidiaries, really faces no direct competition. The Boston Globe is unlikely to address the hyper-local news that the Times covers. And, the local television stations aren't going to move in on the paper's turf. The Boston-based broadcasters have a lot more to cover. Advertisers, such as local car dealers, are going to turn to the local newspaper before they buy space in the Globe.

This perspective is severely flawed. Community newspapers have engineered competitive landscapes to reflect their preferences. "There are no other newspapers" does not mean "there is no competition." I remember having the former posed to me when I was consulting to a print media company and countering with the latter. The response was something to the effect of, "It doesn't work that way."

Looking back to Cape Cod, competition for both news and revenue is growing. Alongside the local newspaper, Cape Cod Today is an online pure-play that claims a monthly circulation of above 500,000 (self-reported monthly unique visitors), which more than rivals the local print-based competitor. The citizen journalism endeavor does provide local competition to the newspaper for coverage – and for advertising. Further, the proximity of Cape Cod to Boston results in classified ad competition from Craigslist and other online venues.

This situation in Cape Cod is being replicated all over the United States. In every metropolitan area, community newspapers are slowly coming under siege from the market forces to which they thought they were immune. The Times Herald-Record in Middletown, New York, for example, has to contend with the expanded reach of New York City. Quite simply, if commuters to urban jobs live in a community, there is an urban threat to newspapers.

Much of the problem still lies in the future.

Community newspapers haven't felt the full force of Craigslist, though they are nervous. Classified advertising accounted for close to $20 billion in revenue in 2000 – nearly 40 percent of the industry's revenue in the United States. Last year, it fell to less than $10 billion. Not only is the decline greater than 50 percent, its share of newspaper industry revenue has fallen to around 25 percent. Traditionally, newspapers have pulled in 20 percent to 30 percent of their revenue from subscriptions and single-copy sales. Shrinking circulations have imperiled this revenue stream, as well.

For now, newspapers with daily circulations of below 15,000 have bucked the trend, seeing a net increase in classified ad revenue of 23 percent for the five-year period ending in 2008, according to trade group Inland Press Association. Revenue from all ads (including display ads), increased only 2.5 percent for the same period, illustrating how much the small newspapers will rely on classifieds, a sector that may have a limited life. For newspapers with daily circulations of above 80,000, total ad revenue fell 25 percent for the five years ending in 2008.

The Associated Press observes that there are worse places to be than community news. Nonetheless, the cheer leading we're seeing now isn't any different from what I heard in community newspaper offices in 2004 and 2005. Classified ads are working, but there's a clock on their usefulness. What surprises me is that publishers can keep their heads in the sand for so long without taking a breath.

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