• Reuters, Friday, June 5, 2009 9 AM

The newspaper industry is spending far too much on producing and delivering a printed paper and not enough on creating its content and selling the product, says a new report from Moody's Investors Service.

It is a "structural disconnect" to have about 14% of cash operating costs devoted to content creation, while about 70% of costs are devoted to printing, distribution and corporate functions. The remaining 16% of costs are related 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."

This disconnect is a legacy of the industry's vertical integration into the production and distribution of newspapers," says Moody's Senior Analyst John Puchalla. The industry needs to increase cross-industry collaboration and outsource print production and distribution processes, Puchalla says. That would release resources to beef up investment in content and technology. The report recommends a greater emphasis on Web content with reduced print frequency.

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