The Orange County Register has been struggling with a slide in advertising and readers. Now the sudden prospect of higher paper prices is compounding things for the county’s dominant daily newspaper.
The Register, the Santa Ana flagship of Irvine-based media company Freedom Communications Inc., has made some dramatic changes in the past year, driven by the newspaper industry’s slump.
Changes include bringing in a new publisher, cutting the print edition of one of its magazines, revamping its Web site, increasing online coverage and cutting back its stand-alone business section and a second daily newspaper aimed at younger readers.
CEO: Future for Newspapers
Despite challenges, Scott Flanders, Freedom’s chief executive, said he strongly believes “in the viability of the daily newspaper.”
“We must evolve as our readers change in the manner in which they consume and access news and information,” he said. “The newspaper is no longer the sole source of the day’s events. TV and the Internet each contribute in this regard, and it is essential that we offer the local reporting that is available only from our local reporters.”
This year the Register faces the added worry of rising prices for newsprint.
Paper prices are forecast to jump 20% this year, which “is a lot,” said Jennifer Saba, associate editor at trade publication Editor & Publisher.
“Last year ad revenue was terrible across the board for the industry,” Saba said. “Circulation was bad. The one good thing they had was print prices were easing. But that’s not the case now.”
Freedom owns 33 dailies, 88 weekly newspapers, magazines and other publications, as well as eight television stations and various Web sites.
The company’s Freedom Orange County Information division, which primarily consists of the Register, accounts for about a third of privately held Freedom’s $900 million in yearly revenue.
Freedom’s “significant declines in revenue” and earnings before interest, taxes, depreciation and amortization at its newspaper unit led Standard & Poor’s to lower its rating on the company in a recent report.
It cut Freedom’s rating from “BB” to a “B+.”
The company has about $700 million in debt.
Classified Woes
Newspaper operators are seeing big drops in classified advertising primarily driven by a “difficult real estate environment,” said Emile Courtney, credit analyst at Standard & Poor’s.
Employments ads have also shifted online, he said.
If the economy takes a “severe downturn,” revenue from classified and employment advertising could fall further, according to Courtney.
“The biggest challenge potentially facing Freedom and the Register is prospects for an economic downturn and the risk that it may aggravate the revenue trend line,” he said.
Moody’s Investor Service also recently lowered its rating on Freedom’s debt. It dropped its corporate rating for Freedom to “Ba3” from “Ba2.”
The move reflected Freedom’s “continued weakness in operating performance,” Moody’s said.
Revenue at Freedom Orange County Information dropped about 10% during the past year on lower auto, real estate and recruitment classified sales.
The figure includes OC Post, the smaller daily that debuted in 2006 and recently was scaled back.
Big Changes
The shift at OC Post and other recent changes are some of the biggest the Register has seen in the past two decades.
Among them: Longtime publisher Chris Anderson was replaced late last year by Terry Horne, the former chief executive and publisher of the Phoenix area’s East Valley Tribune, Freedom’s third largest paper after the Register and Colorado’s The Gazette.
Anderson was behind the launch of OC Post, a tabloid-size paper with shorter, easy to read stories.
In the beginning, readers bought OC Post by subscription or at newsstands. But last fall it became a free publication.
As of this month, the Register has scrapped OC Post as a stand-alone paper and combined it with one of its weekly newspapers, the Irvine World News. The combined paper, which bears both names, is inserted in the Register three times a week in the Irvine area.
“Cost savings” drove the change, Flanders said.
“We have further plans for this publication that we are not prepared to discuss at this time,” he said.
The Register also recently nixed its daily business section, shifting stock charts online and folding the rest of the coverage into the main section of the paper. A business section still appears on Sundays.
The move “saves money on paper” and focuses more on the Web, which is “where people are going,” Editor & Publisher’s Saba said.
Web Push
The Register continues to push its Web site and those of smaller publications, such as SqueezeOC, which gives people ideas of what to do in Orange County. It started as a magazine and Web site, but the Register scrapped the print version in September.
Freedom is seeing “growth in both the number of online users and the amount of time they are spending with our online content,” Flanders said.
It’s also seeing advertisers shift some of their spending from newspapers to the Web, he said.
“Some categories are migrating faster than others,” Flanders said. “Our strategy is to be the marketing partner for small and midsize business as they seek to maximize their advertising investments, whether in print or online.”
The migration to the Web is a “long-term trend” for newspapers, Standard & Poor’s Courtney said.
“There’s been tremendous growth in ad revenues on a small base,” he said.
But there’s a catch.
Print ad sales have dropped faster than increases in online sales, according to Courtney.
Plus, print ads generate more revenue than online ads, Editor & Publisher’s Saba said.
“It will take a long time to offset the decrease in the print world,” she said. “Eventually, it will stabilize so that there are not so many declines in print and we’ll see growth in online.”
