Rachel Chou, the chief marketing officer at Open Road Media, noted that the company only publishes between twelve and fifteen front-list (new) titles per year; everything else is back-list. Most of the titles are available only as ebooks, but Open Road makes some available through print-on-demand (POD), and will do short print runs if a book is really taking off. “There are certain books that really need to be in a [physical] bookstore,” she told moderator Phil Olila, chief content officer at Ingram Content Group. “They deserve that table up front, they have that reader that really wants to hand out a gift.” Open Road starts print runs at 500 copies, and the largest print run they have done is 15,000 copies. “If we’ve done a print run and we find that it’s really taking awhile to get through the inventory,” she said, “we can switch it back” to POD.

Chou also noted that advertising has changed: “I think we’ve done three print ads in three years. The budgets have definitely gone toward digital and online and social advertising.”

Dan Weiss, publisher at large at Macmillan’s St. Martin’s Press, has overseen digital-only series like the Sweet Valley Twins e-singles. He noted that the cheap paperback mass market is shrinking, and said, “We think it’s gradually being replaced by digital-first.”

“We’ve done serials, we’ve done e-first, e-only, we’ve scooped up online writers like [Amanda] Hocking. We’ve done prequels, sequels, interstitials,” Weiss said. The company hasn’t done a print-only deal — like bestselling self-published author Hugh Howey’s print-only deal with Simon and Schuster for Wool — yet. “We feel it’s important as a full-service publisher to have all rights,” Weiss said. “That may change.”

While Weiss said that St. Martin’s doesn’t like to give away content for free, he has occasionally had difficulty convincing others at the company of the need to price digital content cheaply (a challenge that he said is not limited to Macmillan). “As the serial format continues to grow, getting publishers and getting my colleagues to understand that pricing is crucial has been really challenging,” he said. “We have to argue that this is the minor leagues, and we’re trying to build sluggers for the major leagues, that we can take into print.”

Photo courtesy of Shutterstock/Vladimir Melnikov 

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Day signed a seven-figure deal with Harlequin; the first ebook, Afterburn, will be released on August 15, and the second, Aftershock, on November 15. Each will be about 30,000 words long and will cost $3.99 as ebooks. They’ll also be released as a “two-in-one trade paperback” in November, according to the release. Overall, Cosmo and Harlequin plan to release two Red Hot Reads a month starting in August, and all the books will ”feature strong narratives centering on modern young women living the free-spirited and outgoing lifestyle espoused by the international magazine.”

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• Evolution of the E-book Market

The picture that emerges from Paton’s discussion of the news on his blog, and from reports by Reuters and others, is of a newspaper business that has desperately been trying to bail the boat with digital-first initiatives aimed at boosting online advertising revenue and/or cutting costs, but is still taking on water at a furious pace. According to Paton, the chain emerged from bankruptcy in 2009 with $225 million in debt — down from about $700 million before the filing — and while digital revenue has grown by more than 200 percent since that date, it has not been nearly enough to compensate for the decline in print revenue and the chain’s legacy cost structure. As Paton describes it in his blog post:

“The Company exited the 2009 restructuring with approximately $225 million in debt and with a legacy cost structure, which includes leases, defined benefit pensions and other liabilities that are now unsustainable and threaten the Company’s efforts for a successful digital transformation.”

Legacy costs from a former business model

Despite its attempts to push a digital-first agenda, which includes opening community newsrooms and cutting back on printing plants and other embedded costs, the Journal Register Co. is in the same boat that many other newspapers in the U.S. are: print advertising, which still represents over half the company’s revenue (a ratio that is much higher at some other papers) has fallen by almost 20 percent over the past few years, and circulation revenue has also fallen. And meanwhile, the chain is carrying not just debt but leases for buildings and pension plans that were designed for a much healthier industry: according to Paton, the chain’s projected revenue for 2012 is half what it was in 2005.

As Financial Times columnist John Gapper has noted, one of the obvious legacy costs that many newspapers are struggling with is the burden of carrying pension obligations for the thousands of employees they maintain, many of whom have jobs that are either being phased out or no longer exist — something Rick Edmonds at Poynter says is commonplace throughout the industry.

@jxpatonJournal Er, yes, I might have one or two questions if you'd just stripped my defined benefit pension scheme by declaring bankruptcy

—
John Gapper (@johngapper) September 05, 2012

It may be cruel to think of using bankruptcy to shed those kinds of obligations (Alden Global, the financial entity that is a controlling shareholder of both Journal Register Co. and its parent company Digital First Media, apparently plans to buy back the remaining assets after the bankruptcy is finalized). But is it really that different from the upheaval that other industries have been through over the past few decades? To take just one example, the steel business was disrupted by the arrival of cheap mini-mills — in some ways, the steel equivalent of the Huffington Post or BuzzFeed — and it took years for that to work its way through the system, with an entire generation of workers laid off.

The automotive industry and the airline business have both gone through similar painful transformations, not to mention companies like Kodak and others who have seen their industry disrupted by digital forces. While the upheaval in cars and airlines may not have been caused by the web the way the disruption in newspapers has been, the reality is that all of those businesses were stuck with massive legacy costs as a result of a prior business model that stopped working for a variety of reasons. Moving from print to digital for newspapers isn’t just a matter of shutting down the presses or selling a few buildings — there is much more involved.

Digital first is not a magic wand

Journal Register Co. may be a more extreme version of what is happening elsewhere in the newspaper industry, but it is hardly unusual (other companies that have already gone bankrupt once, like Canada’s national Postmedia chain, are also still struggling). Everyone pays attention to what the New York Times is doing, and how its paywall seems to be generating substantial amounts of revenue — but even that has not come close to making up for the ongoing decline in print revenue, and the high embedded costs of a business that is still based around print. That’s why chains like Advance are shutting down printing altogether, and trying to make the jump to digital sooner rather than later.

Critics are calling foul on Paton’s talk of a digital-first turnaround, and saying the bankruptcy of Journal Register Co. means his vision is questionable — but this is like complaining that a giant steel company hasn’t been able to make its tiny new mini-mill compensate for the billions in traditional revenues it is suddenly missing. And in many ways, the transformation that is required for the newspaper industry is much harder than what the steel or auto markets went through: it’s not just that readers want something different, it’s that advertisers are also fleeing. That’s a double whammy.

So yes, newspapers have to try new things, put digital first — and try at the same time to change the culture within their newsrooms, which is even harder than tangible moves like selling off buildings. And even paywalls might help for some, but they are still ultimately just a line of sandbags against the rising tide. And the reality is that the tide is rising faster, not slower, and the upheaval it is going to cause won’t be measured in months or years, but in decades.

Post and thumbnail images courtesy of Flickr user George Kelly

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The Columbia School of Journalism released a massive report on Tuesday that looks at the current landscape of digital media — the small and the large, the mainstream and the alternative — and finds what will come as no surprise to anyone familiar with the industry: disruption and confusion, and a notable lack of any obvious solutions. Although there are hints of some possible new business models, the bottom line is that journalists and media companies simply don’t understand enough about what is happening to their traditional business. And until they do, the chaos is likely to continue.

The study (which is available as a PDF document here) is broken down into nine sections, which give an overview of some of the major trends that have been impacting the media business — including the rise of aggregators such as The Huffington Post, the fact that online advertising produces a lot less revenue per user than traditional media does, the various experiments with news paywalls (“many efforts to get readers to pay for content have been fitful, poorly executed and motivated more by ideology than economics”) and the rise of low-cost competitors such as Examiner.com. And all of this in the context of an explosion of information, as described by journalism professor Vin Crosbie:

Within the span of a single human generation, people’s access to information has shifted from relative scarcity to surplus.

The report also looks at some of the alternative models that media organizations are trying both on the hyper-local level — via community sites such as The Batavian in upstate New York, which is virtually a one-man operation run by Howard Owens — and at national publications such as Forbes, which has been blurring the line between editorial and marketing content in a way that some traditional journalists may find troubling. But while some publishers are having some success with new ventures such as Groupon-style “daily deals” platforms and other experiments, there are few signs of a silver bullet solution that will make it easy for existing media companies to transition from their old way of doing business to a new one.

As Clay Shirky has said, the problem we suffer from now isn’t information overload, it’s “filter failure.” That should leave plenty of room for media companies and journalists to act as filters and curators for this information onslaught — and many are doing this, including Andy Carvin at NPR. But how do media companies monetize this? And can it ever produce enough revenue to make up for the loss of the old business model? Those are the questions that media entities everywhere are struggling with.

The report notes that despite its massive online readership, the old print business still produces 80 percent of the revenue for The New York Times — and one reason why those large reader numbers don’t produce much revenue is that the majority of those readers are “flybys” who rarely spend much time on the site and don’t return very often.

As Felix Salmon of Reuters notes in his analysis of the study, the fundamental issue for all media companies is that the traditional connection between their content and the advertising that pays for the infrastructure needed to produce that content — the buildings and staff and trucks and satellite time — has been disrupted. In the past, media companies controlled the platform, whether it was the newspaper or the magazine or the TV network, and advertisers paid to have their messages inserted into that platform. The study notes:

Digital disrupts the aggregation model that was so profitable for so long. Almost no one used to read the entire newspaper every morning, and audiences frequently tuned in and out of the network news at night. Yet, news organizations sold their advertising as if every page was turned and every moment was viewed.

This is all part of the broader trend of media disintermediation, or what Om calls “the democracy of distribution.” The web — and social-media tools such as Twitter and Facebook and YouTube — allow information to flow freely and to be published instantly by non-traditional journalists in non-traditional ways. But so far media companies have yet to figure out how to deal with this in any concrete way. Even though these trends have become obvious by now, and individual journalists such as Andy Carvin and Nick Kristof at The New York Times are exploring how to use these tools to create and distribute powerful journalism, few media outlets have made these new processes a part of their business.

So far, the most ambitious attempts to reinvent the business of media on a large scale have come from companies like the Journal-Register Co., where CEO John Paton is pushing an ambitious “digital first” approach and has cut costs dramatically. But in a way, the company is more equipped to make these kinds of aggressive moves because it went bankrupt before Paton took over.That gave the company a lot of leeway to reinvent and try new things.

Other media entities have to figure out how to reinvent their businesses without effectively starting with a clean slate, and that is much more difficult. The only thing the Columbia report makes clear is that they have to do it somehow and quickly; if anything, the disruption in the industry is accelerating. Which is why experimentation is so important — unfortunately, experimentation is not something the traditional media business is known for.

Post and thumbnail photos courtesy of Flickr users Zert Sonstige and Zarko Drincic

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As newspapers everywhere struggle to stay afloat and remake themselves for a web-based world, many continue to debate how much emphasis they should put on digital vs. their traditional print operations. John Paton, CEO of the Journal Register group of newspapers, says the time for debate is over. Newspapers need to be digital first in everything they do, he says, and more than that, they need to take the same approach to their businesses that many web-based startups have, and that means being transparent, crowdsourced, collaborative and flat. There’s no question; it’s an inspiring message, but will anyone listen?

In a speech he delivered Thursday at the Transformation of News Summit in Cambridge, Mass. (put on by the International Newsmedia Marketing Association or INMA), Paton said that the Journal Register — which he took over in February — has been living and breathing these principles for the past year, and they’ve paid off in terms of both revenue growth and profits for the company, which was effectively bankrupt last year. Paton says the Journal Register’s profit margins will be about 15 percent this year.

In effect, Paton says, the Journal Register — which publishes about 170 daily and weekly papers in Pennsylvania, Michigan, Connecticut, New York and New Jersey — is already a digital-first company whether it wants to be or not, because its total online audience is bigger than its print audience. “We are already a Digital company,” he said in his presentation, “with small sales in the area of growth and a burdensome cost structure on the declining business – Print.” The newspaper CEO said the company has dealt with that cost structure problem by outsourcing everything it can to others who can do it cheaper or better.

We are getting out of anything that does not fall into our core competencies of content creation and the selling of our audience to advertisers. Get rid of the bricks and iron [and] focus on core competencies — meaning, get rid of those things that don’t add value to the business. Reduce it or stop it. Outsource it or sell it.

What’s most interesting about the Journal Register’s approach is it doesn’t rely on putting up paywalls, the way that media mogul Rupert Murdoch has done at his newspapers in Britain — which led to a decline in online readership of more than 90 percent — and the way some other media outlets such as the New York Times are planning. Instead, Paton is focused on expanding the relationship his newspapers have with both readers and advertisers in their local communities, and taking that online. He says it’s working even better than expected.

Digital ad growth is 2 times better than the industry. More importantly the company’s digital revenue has grown from negligible to 11 % of ad revenue in November – in less than a year. The company will write about 1,000 digital ad orders this month and has expanded its revenue streams from about 13 basic revenue streams to about 60. And all of that with less costs.

In addition to the advertising growth, Paton says his papers are reaching out to the communities they serve, to make them part of what he calls the “new news ecosystem.” For one paper, the Register Citizen in Connecticut, that means creating a new community newsroom, which the newspaper is moving into later this month — the new offices have no walls, Paton says, and feature “a newsroom café with free public Wi-Fi, a community media lab and a community journalism school.”

The Journal Register CEO has also been taking the same approach to his own company: Earlier this year, Paton launched a project called ideaLab, in which employees from across the company were chosen from an open application process that generated almost 200 comments on Paton’s blog (his post about the lab is here). Armed with their choice of mobile phone, a netbook and iPad, members of the ideaLab get 10 hours of paid time per week to experiment and innovate — and only one rule, Paton said: There are no rules, and no sacred cows. Paton also had strong words in his presentation about why most newspapers aren’t changing:

The reasons… are simple: Fear, lack of knowledge and an aging managerial cadre that is cynically calculating how much they DON’T have to change before they get across the early retirement goal line. Look at the grey heads in any newspaper and you will see what I am talking about.

The solution, according to Paton?

Stop listening to newspaper people. We have had nearly 15 years to figure out the Web and as an industry we newspaper people are no good at it. No good at it at all. Want to get good at it? Then stop listening to the newspaper people and start listening to the rest of the world. And, I would point out, as we have done at JRC – put the Digital people in charge – of everything.

Whether anyone decides to take the Journal Register Co. CEO’s advice, it seems clear that the approach is working for Paton’s chain; he says in the year to date, the company outperformed the newspaper industry, with ad revenue growth three times better than the industry average, and classified ad performance that was six times better. Since costs have shrunk, profit margins have actually increased. On top of that kind of financial performance, it’s refreshing to see a newspaper publisher not just talk about going “digital first” but actually put his money where his mouth is. If you care about the future of newspapers and media, it’s well worth reading the entire presentation.

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