Report: Newspaper cost structure crippling the industry
Posted by Simon Day on July 9, 2009 at 11:47 AM
According to Moody's Investors Service, the nature of the newspaper industry's cost structure is causing the field's current woes and will require transformation in order to reduce fixed costs by outsourcing printing, Fitz & Jen reported.
The current cost structure leaves revenue generation sectors well under funded with content creation and advertising sales receiving just 14 percent and 16 percent of the cash operating costs respectively. On the other hand, 70 percent of costs are devoted to print distribution and corporate expenditure. Moody's blames this imbalance for the industry's lack of flexibility.
The current cost structure leaves revenue generation sectors well under funded with content creation and advertising sales receiving just 14 percent and 16 percent of the cash operating costs respectively. On the other hand, 70 percent of costs are devoted to print distribution and corporate expenditure. Moody's blames this imbalance for the industry's lack of flexibility.
"This disconnect is a legacy of the industry's vertical integration beyond content creation and into the production and distribution of newspapers," said John Puchalla, Moody's vice president and senior newspaper analyst, according to a report by CoStar Group.
As revenue from advertising continues to decline the large cost of outsourcing printing is causing huge cash flow problems for newspapers.
"Ultimately, we expect the industry will need to reverse the vertical integration strategy through cross-industry collaboration and outsourcing print production and distribution processes," Puchalla said. "Although newspapers may lose some of their in-house control over press time, they would also release resources to beef up investment in content and technology."
Puchalla said he believes more recapitalization and closures are imminent unless newspapers can begin to better monetize digital content and cut structural costs to rival increased competition in the news industry.
As revenue from advertising continues to decline the large cost of outsourcing printing is causing huge cash flow problems for newspapers.
"Ultimately, we expect the industry will need to reverse the vertical integration strategy through cross-industry collaboration and outsourcing print production and distribution processes," Puchalla said. "Although newspapers may lose some of their in-house control over press time, they would also release resources to beef up investment in content and technology."
Puchalla said he believes more recapitalization and closures are imminent unless newspapers can begin to better monetize digital content and cut structural costs to rival increased competition in the news industry.
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