California newspapers headed for financial ruin, finds FTI report

24 April 2020 Consulting.us

The financial fortunes of California newspapers will rapidly decline over the next two years, according to an economic analysis from FTI Consulting commissioned by the California News Publishers Association (CNPA). Two of the driving factors are a Covid-19-related drop in advertising revenue, and California’s AB 5 legislation, which would reclassify newspaper carriers as employees and increase costs for an already faltering industry.

The rise of the internet has been unkind to print media, much as it has been to department stores, booksellers, and the record industry. Craigslist and other online marketplaces cratered profitable newspaper classified sections, while advertisers shifted dollars to web and mobile as newspaper readership declined.

Since 2005, more than one in five papers in the US have closed, according to Pew Research, while the number of journalists working for newspapers has been cut in half since 2008. Advertising revenues, meanwhile, have fallen by at least 50% from their peak in 2005.

Advertising revenues are projected to drop 25% by Q4 2021 because of the Covid-19 pandemic, under the “base case” scenario from FTI’s report. The more realistic projection is a 45% drop from pre-Covid advertising revenues.

Impact of Covid-19 on newspaper revenues

Another major challenge for Californian community newspapers is the state's AB 5 law, which would reclassify newspaper carriers from independent contractors to employees. The initial one-year exemption from AB 5 for newspaper carriers is set to expire January 1, 2021.

Delivery is the highest functional cost for local newspapers, at about one-fifth of total expense, and 40% higher than editorial. AB 5 – which targets the gig economy and aims to extend the labor protection of employee status (minimum wage, sick leave, benefits) to more workers – would increase newspaper distribution costs by an average of up to 85%.

“Local journalism and community newspapers have never faced a challenge of this magnitude,” said Ken Harding, FTI senior managing director and global leader of publishing + digital media, and the report’s principal analyst. “Without major changes on the horizon, we will see fewer local journalists, more stress on an already stressed industry, and more newspaper layoffs and closures.”

In the last month, six California papers have closed, and four community papers and one ethnic newspaper plan to close in May. Many newspapers have already laid off or furloughed staff.

The CNPA is asking the California governor and legislature for a number of measures to help preserve the industry as it approaches the brink. The association is asking for: priority funding to California’s news organizations which have incurred losses in the pandemic; prioritizing the placement of state public outreach advertisements in local papers; exempting newspaper carriers from AB 5; incentivizing advertisements and subscriptions via tax deductions; and exempting California new outlets from sales tax until the economy recovers.

“Communities without local news media outlets lose touch with government, business, education, and neighbors,” Chuck Champion, interim executive director of the CNPA, said. “They operate without journalists working to keep them informed, uncover truth, expose corruption, and share common goals and experiences. They lose a focal point for conversation and decision making. And they are left without local sources on the big stories.”

“At a time of great public consternation and concern, an informed public is the asset that ensures an orderly response and a resolve to endure. Local news media outlets have never been more prescient or more worthy of aid for such common good,” he added.


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