21 Comments

Summary:

Newspapers haven’t really had a monopoly on the news or the advertising market for some time, but they continue to behave as though they do. If they are to survive the transition to a digital future, they will have to learn how to compete for both.

As newspaper companies like Advance Publications attempt to wean themselves away from a reliance on print — a transition that almost every mainstream publisher will likely have to emulate at some point — the full implications of this disruption are starting to become obvious. One is that a digital newspaper becomes just another online information source among thousands of others, and that kind of competition isn’t something most publishers are used to dealing with. Many newspapers also seem to have forgotten what business they are actually in, and that misunderstanding goes a long way towards explaining the rush to implement monopoly-style features like paywalls. But as Justin Fox notes at the Harvard Business Review, this kind of rear-guard action will ultimately be futile for all but a select few.

Fox, who used to work at one of the Advance newspapers in Alabama that recently had its staff slashed and publishing frequency reduced, points out that the foundation of most newspaper business models — that is, the monopoly over information delivery — was doomed as soon as the internet came along, with its virtually frictionless distribution model and non-existent barriers to access. But Fox makes an important point: the real foundation of these monopolies from a business standpoint wasn’t so much the delivery of news (although that was important) but the delivery of advertising to a captive market:

The monopoly was on the delivery of printed advertising messages into homes in a given city or (better) metropolitan area: department store ads, supermarket ads, car dealer ads, and, most of all, classifieds. Notice that I didn’t mention news. That’s because, once a monopoly was established, the editorial content of a newspaper had no detectable impact on its financial success.

Advertisers are a newspaper’s main customers, not readers

Although most newspaper publishers probably don’t want to admit it, the thing that allowed them to build sustainable media businesses — particularly in smaller markets — wasn’t so much their access to news or the production of great journalism as it was control over a dominant advertising platform. All the jokes from newspaper production departments or ad sales reps about how news articles are “to keep the ads from bumping into each other” have more than just a grain of truth to them. And the attempt to maintain that revenue source is what has driven so many papers to install paywalls, as a way of keeping readers from fleeing to the digital version.

Robert Niles at the Online Journalism Review makes a similar point in a piece he wrote about paywalls, and how they are fundamentally backward-looking — a point that blogging pioneer Dave Winer has also made, and one I have argued in a number of posts about the downsides of a blanket paywall strategy. As Niles notes, newspaper publishers often behave as though they think their readers are their customers, and therefore they should be the ones footing the bill by paying for the news. But that’s a crucial misunderstanding of the facts, since advertisers are the ones who have always paid the bills:

Many beginning news publishers cripple their business by failing to recognize who their customers are. A customer is whoever writes you a check (or gives you a credit card number). Too many publishers naively believe that their customers are their readers, when the customers actually are the advertisers or foundations that are paying the bills to keep the publication running.

The problem is that those advertisers now have an almost unlimited field in which to play, and they are finding what they need elsewhere, whether it’s in the kind of socially-driven advertising they can get on Facebook or Twitter, or through targeted web advertising aimed at specific groups or niche markets. None of these things are features that most newspapers are equipped to provide, for both technological and cultural reasons. Their specialty has always been the broad, mass market consumer — but if advertisers want that, they have billions of webpages on which they can drop a cheap display banner.

Publishers need to focus on unique information, not commodity news

As advertising revenue continues its inexorable decline, newspapers are being forced to confront the fact that the financial model that supported their news and journalism is crumbling. And simply cutting costs to try and bring them in line with revenues — as Advance is being accused of doing in New Orleans and Alabama — without investing anything on the digital side is a recipe for disaster. As Niles argues, the only thing that publishers can do in the face of digital disruption is to focus on the things that make them unique and rid themselves of everything related to the old commodity-style news business.

What unique information can a news publication provide? Investigations. Perspective. Analysis. And don’t overlook the uniqueness of a specific community of engaged readers, contributing to the publication’s information with their own unique perspectives, reports, and analysis. When well-cultivated by engaged leadership, that community itself can become a publication’s greatest unique asset.

Could a paywall of some kind — or what digital-media veteran Steve Outing prefers to call a “freemium” model for news — be part of the solution? It could be for some, says Fox, but not for the vast majority of small or medium-sized metro papers. One of the newspapers (other than the New York Times) that has had the most success with a paywall, he notes, is the Arkansas Democrat-Gazette, and most of that success has come from getting readers to maintain a print subscription rather than actually generating large amounts of new revenue. “That feels more like a rearguard action than a plan for the future,” he says.

If former monopoly owners are going to remain part of these small to medium-sized markets, according to Fox, “they’ll probably need owners who don’t really care about making money.” That may not describe billionaire Warren Buffett, who has been spending hundreds of millions of dollars acquiring newspapers of late — it seems obvious from his comments that he believes smaller newspapers still have a monopoly of sorts on the information their communities want or need.

But if Niles and Fox and media theorist Clay Shirky are right, Buffett may find himself confronting the exact same challenges that Advance and Postmedia are: namely, how does a former monopoly survive in a market — for both news and advertising — that has become almost hyper-competitive?

Post and thumbnail images courtesy of Flickr users Mark Strozier and Giuseppe Bognanni

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  1. SocraticGadfly Friday, June 15, 2012

    But … if a newspaper is drawing half the value of before, with still-cratering print ads and online that will *never* replace that, how does it pay for as much investigative journalism, at least at a publicly owned newspaper group?

    1. That’s an excellent question — I wish I knew. I think newspapers have to focus more on what they can specialize in, and then find a way of getting their community of readers to support them in that, whether it’s through a subscription or some other method.

      1. I realize you don’t claim to have the answers, but how would a subscription be different from a paywall?

    2. By subscription I mean paying for specific content or related products/services (events, etc.) as opposed to a blanket paywall around all of a paper’s content.

  2. BrokenPencil Friday, June 15, 2012

    Makes perfect sense, Matthew. In the early 1990s, Time Magazine rep called to sell me a subscription at a very reduced price. I countered by saying that I’d rather pay substantially more for the subscription rather than at 75% discount that he was offering if the magazine could de-clutter itself from all those three quarter page ads in favour of the actual news and commentary contents. A supervisor came on and told me that my suggestion was a non-starter because the loss of ad revenue would never be recouped by the increase of subscription fees and possible loss of subscribers due to increase of the subscription fees. What has not been considered in re-imagining the newspaper business is that the delivery of timely and intelligent information (based on news data) can be sold to niche market at higher premiums in multiple markets as long as the delivery is done in manners that are linguistically, ethnically and intellectually agnostic as well as these information are distributed to be used without hefty and cumbersome intellectual property provisions.

  3. ” Too many publishers naively believe that their customers are their readers, when the customers actually are the advertisers or foundations that are paying the bills to keep the publication running.”

    Mathew, if this is true (and I’m assuming that it is), how can so many supposedly intelligent people (newspaper publishers) be so unaware of such a fundamental basis of their business?

    Is this as dumb as the record labels failing to realize that suing your customers is not a good idea?

    1. Mathew Ingram Rich Friday, June 15, 2012

      I think it falls into the same general category, yes — Clay Christensen talks a lot about why this happens in his book The Innovator’s Dilemma. Smart companies can fail to take measures they should, even when they see the train approaching.

  4. How about television? How much of their revenue is advertising, versus viewers’ cable/sat fees? I dropped my sat subscription because of all the ads. I’d probably resubscribe and put up with the ads if it was free. Make it worth my while!

  5. like groundhog’s day, the movie .. over and over and over and over again, same crap about newspapers … time to move on, please

    1. If you don’t like reading them, Greg, feel free to go and read something else instead.

  6. it looks like, that Buffet was right, in the end, no ? ;)
    #localmoopoly

  7. Rohan Jayasekera Sunday, June 17, 2012

    “The classified ads (and stock market quotations) are the bedrock of the press. Should an alternative form of easy access to such diverse daily information be found, the press will fold.”

  8. Rohan Jayasekera Sunday, June 17, 2012

    “The classified ads (and stock market quotations) are the bedrock of the press. Should an alternative form of easy access to such diverse daily information be found, the press will fold.” -Marshall McLuhan, “Understanding Media: The Extensions of Man”, 1964

    1. Indeed — pretty smart guy, that Marshall :-)

  9. Reblogged this on projectzme.

  10. Zach Copley Sunday, June 17, 2012

    Another thing to factor in is that the dinosaur news media has lost its “trusted advisor” status. There have been too many cases of WMDs-in-Iraq and other managed news stores, and people no longer trust the news. Ironically, the big news outlets have created demand for alternative sources of information, which the net has an ample supply of.

  11. David Gehring Sunday, June 17, 2012

    If the local news business is really in the business of selling inventory to advertisers, it’s time the local news org sales teams start working as channels selling aggregated inventory to their advertiser customers. Also, on another note, Google Consumer Surveys would be fun for publishers to explore as an alternative method for monetization… Early indicators are promising.

  12. Excellent analysis.

  13. Thanks Mathew for highlighting this crucial point about who the customer is, and has always been, for newspaper businesses. I feel it’s already too late for most traditional newspaper publishers for the simple fact that even with all the digital-first talk of the past few years, none of the investment focus has been on becoming better advertising platforms.

    I can’t imagine a newspaper company ever competing with a Google or Facebook as an actual advertising platform, and they certainly dont’ appear to be trying to fight this battle. At that point, they’ll slowly lose all the people you correctly point out are their customers, the advertisers. I’m actually impressed with the FT’s content sales strategy, but a focus on selling content and not advertising is a revolutionary switch in business model, and could almost be considered creative and innovative.

    I wrote a blog post on this misperception, incorporating a somewhat unconventional analogy (strip clubs) I’d hope readers of this article might like http://bit.ly/zWVf5N

  14. OK, here is my free million dollar idea for the newspaper industry.
    I hate Craigslist. It’s creepy and weird and you cant tell if you’ll meet a freak or nutjob when you buy or barter something on there. Why not take the massive spaces you have and create your own Craigslist type site and all transactions happen at your site. If your a local paper, your viewers should not have a problem getting to your location. You can provide a secure place where transactions can happen. You can create an area where advertisers could meet your customers. You could sell concessions, jeeze there is a million things you could do with that idea. You could advertise that and you would at least get some of your missing revenue from classifieds back. The other way is to blow it up into a full blown permanent Flea Market/Job Fair.

  15. Walter Neary Monday, June 18, 2012

    The fundamental problem with meshing journalism and newspapers is that for decades, and perhaps today, you could make money with a bad paper. It delivered advertising, as you say in this wise post. Publishers spent revenue to hire staffs just enough to tell themselves they had a good paper, and then over time they could whittle away at their staffs, raise profits, and still tell themselves they had a good paper. You could put out steadily worsening newspapers and still grow your profit margin. If the publishers have found a way today to somehow reclaim or save some of their advertising revenues, cut their staffs and still make money, they will. The model of laying off staff to help increase profit margins goes back decades. The question of what happens to newspapers and traditional media is different than the question of what happens to good journalism; the question there is, will anyone ever be willing to pay to support good journalism?

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