Moody’s: Newspapers have to reduce print-centered strategy

A report issued last week by Moody’s Investors Service says that the newspaper industry has to reduce the fixed costs associated with print-centered distribution or risk financial failure.
The ratings agency said the newspaper industry devotes only 14 percent of its cash operating costs to content creation while 70 percent supports the current print distribution model and other corporate functions. This “imbalance,” Moody’s said, “limits the industry’s flexibility to overcome competitive threats.”
“This disconnect is a legacy of the industry’s vertical integration beyond content creation and into the production and distribution of newspapers,” said Moody’s Senior Analyst John Puchalla.
Puchalla said he expects publishers will reverse some of the current disparity by outsourcing print production and distribution. “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.”
The analyst said the industry’s move to reduce print frequency may also serve to help publishers cut costs while preserving their newspapers’ value.
“Newspaper companies’ credit ratings have moved considerably lower over the last few years, but additional downward pressure remains," Puchalla said.
“If newspapers can't monetize the content in new digital channels at the same level as with print, or cut structural costs enough to keep up with the changing competitive environment, the prospect of additional recapitalizations or shutdowns will grow, adding further pressure to ratings, he added.
The full report titled, "Newspaper Industry Costs: Out of Balance," is
available at www.moodys.com.