So what is a cycle? A ride in the park? Or an uncontrollable economic helter-skelter?

The existence of the economic cycle is widely debated. I believe in it, but a close friend, a world-class economist and mathematician, tells me I'm talking rubbish.

But looking back over the European-centric Organization of Economic Cooperation and Development data over the last 40 years, as well as tapping personal experience, my hunch is that not only is there a cycle, but that this recent downturn wasn't it. The question, therefore, is this: Is there another industry dip to follow?

Aligning economies

The OECD review reveals a number of things.

First, over the last 40 years, what were then largely independently fluctuating economies are now aligning.

Who would have believed two years ago that the existence of the euro could be affected by Greece? Among major economies, in 1975, the fluctuation in GDP, from a 1 percent decline in Switzerland to a 27 percent jump in the United Kingdom — was 28 points. By 1995 the difference was only 3 percent (Japan, +2 percent and the United States (+5 percent.). Last year, the difference was 1.5 percent (all the GDPs were in the negative range).

Despite the assertion by my friend the expert, I deduce a 10- to 11-year cycle at play here. Consider this: The U.S. economy has experienced a dip every 10 years, beginning in 1971/2.

Other factors have come into play: The oil crisis in the mid-1970s; 9/11 (stats show, however, that the economy was already slowing); Japan's 1998 financial crisis (caused by a liquidity trap — code for bad banking practices).

Germany chipped in with its own crisis in 1987 (blamed on global competition). The United Kingdom, meantime, generally lags the USA by a year, but that pattern didn't stop the country from faltering in 2005 thanks to plummeting export demand.

More universal

In each case we see a common cyclical effect in the first two years of the decade, and a man-made effect in between. The problem is that world markets are aligning, and external influences — of which the banking fiasco is the most recent example — are becoming more universal.

Bottom line? We are heading for a second, if not so serious, downturn: the so-called "double-dip." And it is becoming increasingly global.

The news publishing industry is inherently highly cyclical. Our problem isn't that the industry is subject to a pattern of downturns and upturns, but that we have failed to learn from past experience how to manage, and grow from, change. So, as the Chinese proverb says, "Plan for war and hope for peace." And hope the feedback is good.

Resilience

If the last two years has shown this industry anything, it's that newspaper companies can be remarkably, if painfully, resilient. Q1 profits for many companies were commendable and publishers in the United States and elsewhere are reorganizing and clawing their way back from bankruptcy. Even the unions at Le Monde recognize they need new owners and investors, in return for giving up some of their traditional control of the company.

But we need to keep going, and assume that firstly the decoupling between advertising revenues and GDP will continue, and that GDPs themselves may begin to fall again, creating a second geometric impact on profitability.

The hard challenge this time is to get costs out in advance — and not after — the next economic downturn.

This is a painful and unpopular thing to say after so much sacrifice has been made industry-wide, but it's better to slowly anticipate a need than to suffer through another heart-wrenching period in a couple of years' time.

As The Economist reported earlier this month, "Newspapers have escaped cataclysm by becoming leaner and more focused." But the fact is that newspaper companies were slow to anticipate what was coming, and even slower to react.

Hindsight strategy is not a great way to move forward. It's easy for me to say this.

However, next time around I'm not talking about the USA, Germany or Japan. Because of economic and technological alignment, the next crisis could affect burgeoning markets such as Australia, India, China and Thailand. To be blunt, the reality is that publishers should have had better tools in place to forecast the upcoming downturns, and better accounting mechanisms to respond to their consequences.

Easy tools to apply

Recruitment revenue cycles lead the economic cycle: not the other way around. These indicators need to be implemented to ensure future profits are retained and enhanced. Fortunately, these are relatively easy tools to apply.

Of course there is much debate about the extent to which resource cutbacks have affected the quality, and long-term performance, of the industry. In the United Kingdom, a study by OfCom, the media regulator, shows that readers' perceptions of the quality of their newspapers have not fallen despite massive cuts in costs. Why? Because most of the savings have been made in production areas, which have been long overdue (I first wrote about this in 2003).

With some notable exceptions, there is still too much fat in non-creative and sales areas. Sadly, as I've written before, too many cuts are still being made in revenue-generating areas, with little investment in training and R&D.

So, having been so critical of my friends in the industry, what would I do in your shoes?

Invest in product

First, I would buy fewer shoes. Then I would establish a plan to remove an incremental 1 percent to 2 percent from my core fixed operating costs per year, regardless of revenue improvements. Not for greedy, disinterested shareholders, but to protect and grow the business. For a typical newspaper with a 15 percent operating margin, an incremental 1 percent annual cost-savings would in five years generate 4.2 percent in revenue that could be devoted to new product development.

I would also establish a business development process — there are a range of options — not obsessed with digital, but to concoct realistic solutions for media consumers and communicators. My experience is that simple, cheap research — talking to customers, for example — reveals a string of opportunities.

Finally I would agree with shareholders to establish a long-term financial planning model that anticipates those inevitable revenue cycles. This approach will let you invest in development when times are good and avoid having to go into debt, or worse, when times aren't.

This isn't new thinking. The trends have been around for 40 years. The lessons to learn have been there for at least 20.

Follow my advice. If I'm wrong about the double-dip, you'll come out flourishing. If I'm right, well, at least you'll survive.

Jim Chisholm is a France-based media consultant. He can be reached at jim@jimchisholm.net

 

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