State of the News: Company still profitable, revenue continues to drop

The Buffalo News made a lot less money in 2011. A whole lot less.

But here’s the good news: The Buffalo News made decent money in 2011. A whole lot more than many other newspapers.

“We had a profitable year – a very profitable year by most standards, but far off what we’ve done in the past, “ Publisher Stan Lipsey told employees during the annual State of the News meeting on Feb. 1.

“The newspaper industry will never be what it once was,” Lipsey said. “The news is moving forward” as a stronger, leaner company developing new sources of revenue, from online ventures to doing the printing work for other newspapers.

But with revenues continuing to drop because of declines in both advertising and circulation, Lipsey said it will be a challenge to keep the paper’s revenue line from dipping below the expense line.

“I’m hoping the people in this room will get that [revenue] line going up again,” Lipsey said. “But if we can’t, we’ll have to look for ways to get that [expense] line down more … We can’t let the two lines cross.”

For now, Lipsey said the News is not contemplating another round of buyouts in an effort to further cut costs and bolster the paper’s profits. But it is looking at putting up a paywall on its website to limit the free content that now is currently available to visitors as a way of protecting its print franchise and its position as the Buffalo Niagara region’s premier provider of news and information.

“If we don’t stop the bleeding …” said Warren T. Colville, the News’ president. “What we’re trying to do is slow down the people who are leaving to read us online.”

Exactly what form a paywall would take remains unclear. The News currently is studying a variety of pay models, such as one that limits the number of stories a visitor can access each month to another used by the New York Times that combines a Sunday subscription with digital access, Colville said.

“We don’t want to make mistakes. We want to learn from them,” Colville said.

The News expects to study its options over the next six months. Colville said he hopes to have a better idea on which path makes the most sense for the paper in the next three months.

The News’s operating profits tumbled by 43 percent last year to $9.3 million – the lowest level since at least the 1980s. It was the first time in at least a quarter century that the News’ operating profits dipped below $10 million (the paper earned $16.2 million in operating profits in 2010).

“That is a huge drop in operating profits,” Lipsey said. The News’ net income, which includes other expenses such as taxes and depreciation, fell to $3.5 million, which was 57 percent less than the $8.1 million the company earned last year. Just four years ago, in 2007, the News had net income of $21.4 million.

The decline in earnings stems from a continued erosion in the News’ revenue stream. The company’s total revenues fell by 5 percent last year to $102.4 million, down from $108.3 million in 2010.

The revenue sources that account for the bulk of the News’ sales – advertising and circulation – both weakened again last year. Those declines were too steep to be offset by the small, but growing, segments of the News’ business – digital media, mail and outside printing.

Advertising revenues fell by almost 9 percent last year to $65.6 million from $71.8 million in 2010. Lipsey noted that advertising revenues have fallen by roughly a third since 2007, when ad sales were $104 million.

Since 2007, retail advertising at the News has dropped by 43 percent; national advertising is down 15 percent.

Circulation revenues dropped by 4 percent to $27.5 million from $28.7 million and are down 12 percent since 2007, when they stood at $31.1 million.

Home delivery revenues of $17.5 million were down 4 percent from last year, while single copy sales fell 7 percent to $8.8 million.

Daily circulation continues to decline, falling by 5 percent to 153,359 from 161,409 in 2010. Home delivery circulation fell by 3 percent to just over 117,000, while single copy sales dropped by 9 percent to 28,340.

Sunday circulation fell by 2 percent to 234,570 from 240,135 in 2010, although Lipsey said the News saw a “positive impact” from the revamped Sunday paper that was launched in mid-September

Sunday circulation from home delivery slipped by 2 percent to 176,358 from 180,400 in 2010. Sunday single-copy sales dipped by 2 percent to 51,500.

“It’s going the wrong way,” Lipsey said.

Revenues from the News’ rotary press revenues from printing other newspapers, such as the New York Times and Batavia Daily News, grew by 27 percent to $2.3 million from $1.8 million. The News also recently reached an agreement to publish the East Aurora Advertiser, which will further expand that business, Lipsey said. Mail and commercial printing work brought in another $2 million in revenues.

The News’ outside printing and mail business also is quite lucrative, adding $1.4 million to the company’s profits last year, Lipsey said.

Digital media sales grew by 14 percent to $5 million from $4.4 million in 2010, but only a little better than half of the 26 percent jump in revenues that News executives had predicted last year. “Digital media, that looks very good,” Lipsey said.

However, Lipsey also noted that digital media revenues at the News equaled about 7 percent of the company’s overall sales, which is less than the industry standard of about 10 percent.

Michael MaLoon, the News’ digital director, said he hopes digital revenues rise by 17 percent this year. He sees a “gigantic opportunity” for revenues from cell phones and other mobile media. Traffic to the News’ website from mobile devices grew by 34 percent last year, while traffic from mobile apps rose 8 percent.

“That’s been a significant driver for traffic for us,” MaLoon said.

Social media sites, from Facebook to Twitter, also are driving traffic to the News’ website, with 1.5 million referrals last year from Facebook and 250,000 from Twitter users. “Social is really driving traffic for us,” MaLoon said.

The News expects to revamp its website in September or October, MaLoon said.

On the expense side, the News’ efforts to reduce its costs by slashing its work force and holding the pay of Guild members steady in the face of declining revenues are paying off for the company. Overall expenses inched up by just 1 percent to $93 million from $92 million in 2010. The company has cut its expenses by 8 percent since 2007.

Payroll costs fell by 2 percent to $36.3 million from $37.2 million. Pension and buyout expenses jumped by 23 percent to $6.9 million from $5.7 million because of the latest round of buyouts that took place last year. Those buyouts cost the company about $5 million, News executives said.