Save The Newspaper Industry and Still Lose Weight

This is a really interesting article on the newspaper business; how the eyeball model is failing and why a “subscription consortium” could be a positive development if Congress changes the antitrust laws that likely restrict newspapers from enabling this now.

Harder to foresee was the emergence of a painful paradox: Newspapers’ revenues have shrunk even as their audience has grown, because online-ad revenue does not come close to replacing print-ad revenue. Exactly why is not perfectly clear, but one reason is that only some newspaper advertising has moved to newspaper websites, with the rest shifting to such online upstarts as Google and Craigslist. Another reason is that readers seem to perceive print ads as information but Web ads as distractions, and so ad rates are much lower online than in print.

[From National Journal Magazine - How to Save Newspapers--and Why]

Before tackling the subscription concept, I do wish to take issue with Rauch’s suggestion that it is not “perfectly clear” why online advertising is failing to bridge the gap for newspapers with declining print distribution. While not “perfectly clear” it may fall into the rather obvious category that online advertising is more transparent than print and thus is less likely to benefit publishers through inefficiency. In other words, even CPM based display ads are performance based in that the advertiser pays for exactly what is delivered, not what is reported to be delivered.

Newspaper advertising is not monolithic either, there are classifieds, business card ads, information ads, sale ads, coupons, and spotlight ads. Of all these categories it is classifieds that have most certainly been negatively impacted by Craigslist et. al. For the other ad variants there is a good analog to online display ads but it’s not entirely clear that newspaper ad sales groups understand how to sell online ads, but having said that it is also true that coupons are far different from spotlight ads.

Perhaps the real problem that the newspaper business has is not a lack of options but a lack of imagination. Why is it that the best newspapers can do is interstitial and display ads?

There is one problem that newspapers face which is difficult to overcome and that is the fact that newspaper advertising is predominately local whereas online the boundaries presented by geography simply don’t apply. If I am placing ads for an automotive dealership and SFGate’s numbers present a picture that suggests only half of the online audience is within the 5 Bay Area counties that I care about then the consequence of that is that their ad rates are only worth half of the rate card to me.

This only serves to illustrate the weakness that display ads have online… if your .46% click through rate is now no better than .23, the 1:30 ratio of people who click on an ad to buy a car now causes a chain reaction that results in having to display the ad 12,000 times to get a lead across the finish line. What this means is that the CPM rate is worth about $8.30 to me if my competitive marketing costs are $100 per car buyer, and this is a success story! If my RPM (collective CPM to a page) is $25 on average, I have to generate 10 million pageviews just to generate $250k in revenue.

Rauch presents an interesting concept of a consortium subscription but here’s why it won’t work. News is fungible and with the explosion of news sources that are available online it is unlikely that newspapers as represented online today could justify a subscription cost on the basis of unique reporting alone. Even a meaningful consortium of newspapers would have a hard time sustaining this concept.

This is because newspapers by and large have taken a chainsaw to news gathering operations and as a result do very little in the way of unique local coverage. Cable news in particular has been aggressive about picking up alternative forms of local coverage and are ramping up initiatives to collect user submitted videos in particular, all of which further threatens the newspaper model of journalism.

Newspapers can, I believe, succeed online but they will need to broaden their reach and deepen the portfolio of advertising products they offer. As advertisers demand more precise targeting and yield the newspapers will have to respond with much better targeting and probably something like technographics that predict how different audience groups engage brands and online media.

As I have written before, I don’t think that newspaper executives are stupid or incapable of understanding what is happening to their collective industry. I do believe that smart people fall into a trap of viewing something different as simply an extension of what they have already been doing, and as such tend to be incremental in their innovations. Journalism is not broken, nor is the notion of print newspapers, but what is clear is that simply doing online what you were doing offline isn’t working and no amount of volume will make it up. If The Huffington Post can do as well as the rumor numbers have them doing, then the Washington Post can as well.

Lastly, the title of this post is something I played around with while thinking about television advertising for products that promise weight loss without any work. Eat all you want and shed the pounds! Of course they don’t work because losing weight is a simple equation about burning more calories than you are taking in (lot’s of factors, but in a nutshell this is it). The newspaper industry isn’t going to be able to save itself without some serious work to remake the culture of the newspaper business, deal with the costs of their unionized print operations, and optimize what is a generally expensive and low yield news operations. Nothing is free, same goes here.

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Intractable Business Model Conflicts

In one sense, the Web is a blessing. Daily circulation for the newsprint Post, now 673,000, may be down from 813,000 in 2000, but we are drawing an eye-opening 9.4 million unique visitors online each month, 85 percent of them from outside the D.C. circulation area. Those readers don’t bring in the cash that print subscribers do — given the gotta-be-free mentality of the Web — but they do expand our reach.

The ticking time bomb here is the wholesale abandonment of newspapers by younger people who grew up with a point-and-click mentality. When I was speaking at Harvard recently, a smug graduate student said, “I get everything I need from YouTube. What are you going to do about it?”

[From Howard Kurtz - Post Buyouts Come With an Emotional Cost - washingtonpost.com]

What an interesting juxtaposition of thoughts in this column in the Washington Post. Like many manufacturing industries have done in recent decades, the newspaper industry is in the midst of structural reorganization as a consequence of technology and consumer behavior shift.

What Kurtz is observing is an interesting conflict of business models born out of the inefficiency of one and the brutal requirement to be efficient in the other. Print subscriptions are suffering and as a consequence the ad margins that newspapers enjoy for advertising and classified advertising that eyeballs never see is going away.

Contrast this to the online side where pretty consistently it is found that online unique readership of newspaper websites is 10x greater than print subscription numbers. Yet because online is a somewhat performance based model with display advertising, newspapers can monetize only those parts of their web sites that generate impressions. More people see the website but revenue per unique visitor is lower.

Scott Karp recently observed that traditional advertising fails on the web and it is no more evident than in the newspaper business where they enjoy high, and growing as well, traffic but have a failing online business model.

Kurtz is wrong about younger generations abandoning newspapers, indeed it would be very difficult to support any statistical argument that begins with the premise that only old people are clicking on newspaper web sites. What younger generations are abandoning online, as they are in broadcast, is dumb advertising that provides little utility and in a digital world can simply be ignored or fast-forwarded through.

Kurtz also offers this observation:

The economics of the Web, for now, won’t support a staff that can hold public officials accountable across the region and still cover every Nationals game. So I cling to an old-fashioned, almost mystical belief in the power of ink on paper.

He’s right but in making his observation he is exposing his own ignorance to the broader underpinnings of “being digital”. Online web media won’t support hundreds of staffers because they simply don’t need to. We are entering an age where we rediscover the power of syndication at the hands of technology that has driven down integration to the cost of text. The Washington Post online doesn’t need to cover every Nationals game because ESPN, MLB.com, and numerous blogs are already doing it. Syndicating that content either through exclusive agreements or with public RSS provides readers with a far more compelling and comprehensive experience than any single newspaper alone can manage.

Of course, syndication is nothing new in newspaper, the AP and various other wire services have build large businesses on this idea, and most recently the Washington Post itself is syndicating TechCrunch’s stories.

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