The Future of Print

Newspapers: A Structural Disconnect in the Cost Structure

Posted in Doom by futureofprint on June 5, 2009

Currently, a structural disconnect exists in the newspaper industry’s cost structure. Just 14% of cash operating costs, on average, are devoted to content creation — the primary value creation activity — while about 70% of costs support the print distribution model and corporate functions. The remaining 16% of cash operating costs relate to advertising sales — another critical task that drives the majority of newspapers’ revenue. The overall imbalance limits the industry’s flexibility to overcome competitive threats. …

Most newspaper companies have moved only slowly away from in-house print production and distribution, said Moody’s. Thus, high operating leverage for the industry remains, and is creating intense pressure on cash flow as revenue declines.

“Ultimately, we expect the industry will need to reverse the vertical integration strategy through cross-industry collaboration and outsourcing print production and distribution processes,” said Puchalla. “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.”

Via Reuters

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