Friday, January 30, 2009

To avoid ending with whimper, publishers must tout printed product

Nobel Prize winner T. S. Eliot likely hadn’t a clue as to the versatility of the last verse of “The Hollow Men.” Not only is it a possible description for the world’s end but it also illustrates the potential closing stages of the daily newspaper industry:

“This is the way the world ends,
not with a bang but a whimper.”

Consider: On any given day there’s a publisher ordering his paper’s management team to cut back further on the printed edition because, as the annual and quarterly reports say, print revenues are down, online revenues are up. While that strategy, if you can call it that, might improve profits in the short run, this pathological behavior only diminishes the paper’s revenues, competitive stand¬ing and its future.

This self-destructive practice won’t kill the newspaper business next year or even in 10 years. If it continues, based on current run rates of circulation and advertising losses, it could take decades before the daily newspaper industry col¬lapses, echoing Eliot’s last stanza.

The Newspaper Association of America reports trends that everyone in the daily newspaper industry knows: Over the last 23 years, newspapers’ daily circ has fallen by more than 11 million; the last time the daily newspaper industry experienced a circulation increase was in 1987, when it sold 300,000 more cop¬ies than it did in 1986.

Daily newspapers peaked in 1973, when there were 1,773 titles; more than 300 newspapers have since stopped pub¬lishing. Newsprint consumption is half of what it was in 2003, meaning newspa¬pers are sizably smaller today.

Same story

Advertising revenues tell the same story: Print advertising revenues peaked in 2005 at $47 billion; since then, reve¬nues have dropped by more than $5 bil¬lion and even when online advertising revenues are added in, the newspaper industry’s ad revenue is down by more than $4 billion from 2005.

Tribune, the latest company to an¬nounce cutbacks, will soon sell news¬papers that offer more maps, graphics, lists, ranking and statistics.

Tribune owner Sam Zell and Randy Michaels, the chief operating officer, announced that they are planning to produce newspapers with a 50-50 ratio between ads and editorial content and reduce the news content, across all of the company’s newspapers, by as much as 500 pages a week.

Finding efficiencies and creating a newspaper that readers and advertisers will buy makes perfect business sense.

But while it is too early to tell if Tri¬bune’s latest initiative will lead to growth in revenues and profits, it appears as if this move is more of the same — simply cutbacks — and it can’t help but make one wonder what Tribune’s stable of dai¬lies will look like if this venture fails.

The answer

Is there any way up?

Yes. A newspaper is both a consumer product and an advertising vehicle. The latter’s success hinges on the former. So if publishers want better results, they had better find a solution to the one part of their business that no other media wishes to duplicate — the daily printed newspaper.

This requires a print strategy. This is, presumably, what Messrs. Zell and Michaels have crafted. Because if Tribune and its fellow companies fail to formulate a plan to own the one thing that no other media outlet, including the “demonic” Craigslist, is interested in producing or duplicating — a daily printed newspaper — publishers face a grim future indeed.

The results of the daily newspaper industry’s two practices — publishing a newspaper that it struggles to sell, more often than not, in a monopoly market, and updating its Web site, which is freely accessible and appears to be easier to sell to advertisers than the printed edition — has made many publishers mis¬takenly believe that the online edition doesn’t require the sales support of the printed edition.

Carries the day

But the printed product still carries the day in terms of revenue and profits and it remains a highly effective promotion vehicle for the newspaper’s Web site.

About two years ago, Netcraft, an Internet monitoring company, announced that there are 100 million Web sites, a number that’s no doubt higher today. If you‘re a newspaper publisher, take note: If you’re struggling to sell ads in a monopoly market, how are you going to effectively compete against 99.9 million other Web sites?

Here is how Harvard Business School Prof. Michael E. Porter views the competitive landscape. In his book, “Competitive Advantage: Creating and Sus¬taining Superior Performance”, Porter wrote: “A firm that engages in each generic strategy (cost leadership, differ¬entiation, cost focus or differentiation focus) but fails to achieve any of them is stuck in the middle.

“It possesses no competitive advantage. This strategic position is usually a recipe for below-average performance.”

The daily newspaper industry can differentiate and stand out from all other media by creating a printed product that people want to read and advertisers find attractive.

Consumers are overwhelmed with media choices and their time is short, so publishers need to overcome resistance to their product. One solution? Give away the paper free to consumers and adopt a print format that readers find easily ac¬cessible: the tabloid. This might better be called the Examiner model as produced in Washington, D.C., Baltimore and San Francisco.

Ultimately, the daily newspaper industry is responsible for its own health. Either it demonstrates to advertisers and readers its strength as a printed product or it lives out T. S. Eliot’s last verse.

Correspondent's note: This article orginally appeared, by the same author as this blog, in the July 2008 edition of Newspapers & Technology magazine.

Tuesday, January 13, 2009

The Next Bailout Scenario

By Combined Wire Services

WASHINGTON — The seats in the congressional hearing room, previously occupied by the chief executives of the country’s automakers, hadn’t even cooled Thursday when they were immediately filled by America’s leading newspaper executives who were there to do what their colleagues from the auto industry had done — beg for a taxpayer-financed bailout package.

With advertising and circulation revenues hitting new lows every quarter, and newspaper job losses on the rise, the industry is in a precipitous state. As of yet, no one in the newspaper industry appears to know how to correct the situation, which worsens daily.

The newspaper industry’s recent headlines include the faithful at the Church of Christ Science no longer praying to God for a miracle to save the print edition of their prestigious newspaper, The Christian Science Monitor; instead, they’re asking Him to make the newspaper’s Internet edition a far more trafficked Web site than it was before the print edition’s demise.

“We pray every day for our Web site,” said a spokesman for the Church.

Need help

Other headlines include the newspaper industry’s leading supplier of news content, The Associated Press, announcing it would eliminate jobs in 2009; along with the precarious financial position of New Jersey’s leading daily newspaper, The Star-Ledger, few newspaper executives and analysts have hope that the industry can be turned around without government assistance.

“They (the newspaper industry) need help,” said John Morton, a former newspaper analyst.

“I’m … I’m not sure what happened to our revenue,” said Arthur Sulzberger Jr., publisher of The New York Times and chairman of the paper’s holding company, during a Senate Banking Committee hearing on Capitol Hill. “It … it … just seems to have gone away. We’re trying to find it.”

McClatchy Newspaper’s Chief Executive Gary Pruitt; MediaNews Group Chief Executive William Dean Singleton; News Corp.’s Chief Executive Rupert Murdoch; and Gannett Chief Executive Craig Dubow, publisher of USA Today, seeking approval for a government-funded bailout package, joined Sulzberger.

All four executives, who lead some of the largest and most prestigious newspaper companies in the United States, said that unless they received a portion of the $700 billion set aside to save Wall Street banking firms, they would either declare bankruptcy or be forced to shut down in the next six to eight months.

No support

Still, members of the Senate Committee and the House Financial Services Committee harshly criticized the executives’ testimony, where they later appeared, as being short-sighted and failing to address the single greatest issue facing the domestic newspaper industry — providing a newspaper people want to read and advertisers want to buy.

“We’ve been firing as many people as we can,” said MediaNews Group’s Singleton. “We’re going to fire as many people as possible in order to get our profit margins back to where they were in 1982.”

“At Gannett, we’re seriously considering making our newspapers the size of Readers Digest magazine — only thinner — and then increasing the daily cover price to a buck,” said Dubow, the company’s chief executive officer.

“Isn’t that a recipe for disaster,” asked U.S. Sen. Mel Martinez, (R-Fla.), of Dubow.

“It’s revenue maximization,” replied Dubow.

As soon as the four executives had finished their testimony before both committees, congressional members peppered them with questions about their management tactics, styles and abilities.

“Do you guys think you could run my 8-year-old nephew’s lemonade stand,” asked U.S. Rep. Barney Frank, (D-Mass.), chairman of the House Financial Services Committee.

“No, no, I’ll handle this question,” said McClatchy’s Pruitt as he shouted down and pushed Murdoch aside for the opportunity to answer Frank.

Making profit?

“If the economy was robust, and if we were within five feet of a four-way stop, I’m fairly certain we could make a profit,” Pruitt said. “Of course, my answer is predicated on weather conditions, the quality of lemonade served and the amount of traffic at the intersection, none of which we might be able to control.”

“Have you thought about, oh I don’t know, marketing your newspapers and telling people why they should read them or buy advertising in them,” asked U.S. Sen. Richard C. Shelby (R-Ala.), the Senate Banking Committee’s ranking Republican.

“We’re The New York Times, for God’s sake,” Sulzberger said. “We don’t need to tell anyone who we are. America and New York, they know who we are!”

“We eliminated the marketing department five layoffs ago,” answered Pruitt.

“These guys make the auto industry look good,” said House Speaker Nancy Pelosi, (D-Calif.), during a news conference after Thursday’s hearings. “At least Detroit faces real competition; these newspaper guys are a bunch of incompetent monopolists.

“Maybe they need to be replaced by executives from some major utility,” she added.

Some lawmakers, however, were in favor of evaluating a bailout.

“I’m prepared to vote in favor of this funding if I’m allowed to control your editorial pages,” announced U.S. Sen. Christopher Dodd, (D-Conn.), chairman of the Senate Banking Committee, during the hearings.

“While this request doesn’t mean too much of a change to The New York Times, it does have some sharp ramifications for The Wall Street Journal,” Dodd added.

Upon hearing Dodd’s statement, the Journal’s chairman, Rupert Murdoch, collapsed and had to be revived by paramedics. He was later taken to Walter Reed Army Medical Center, where doctors report he’s in stable condition and is scheduled to be released today.

Both congressional chambers are expected to debate the request from the newspaper executives today.

Correspondent's note: This article, written by this correspondent, originally appeared in the January 2009 edition of Newspapers & Technology magazine.

Thursday, January 08, 2009

Unshackle the chains: The U.S. Daily Newspaper Industry -- 2009

As 2009 dawns, executives and employees across U.S. daily newspapers might be worried that they’ll follow Tribune’s lead and file for Chapter 11 Bankruptcy this year.

It wouldn’t be because they’re burdened with the same amount of crushing debt as Tribune. It’ll be because their revenue stream, which will likely come under more pressure this year, will not cover their costs. Like Tribune, they may be forced to sell assets, lay off employees, or implement a new ownership structure.

Whatever they’ll do this year, daily newspaper executives will likely not focus on the one issue that can save them – Finding a new way for an effective and venerable print product to compete in the Digital Age. Failure to do so and these executives will likely find themselves in an even more precarious situation at the end of this year than they were at the end of 2008.

The Internet is a convenient crutch. Listen to any daily newspaper executive and this relatively new medium is the cause of all ills, from declining circulation to shrinking print advertising revenues. Indeed, the story of the Internet’s affect on the daily newspaper industry is the next iteration of David and Goliath, and, right now, David is winning because Goliath either doesn’t understand how to use all of the tools available to him or is too lazy to do so.

The daily newspaper industry’s problems didn’t show up yesterday or even six months ago. It’s long been criticized for providing an irrelevant product and for being difficult for advertisers to purchase. In addition, it has long evaded the basic principles of economics, raising advertising rates while demand for its product, as measured by circulation numbers, drop.

In spite of its troubles, the daily newspaper industry possesses strengths that are unique. If it can harness them, change its thinking, focus on core capabilities and correct shortcomings, it likely has a bright future.

Strengths of the business

“You still have 120 million (print) readers in the aggregate across the newspaper industry in the United States on any given Sunday,” said David Walker, chief executive officer of NSA Media, of Downers Grove, Illinois, which buys about $1.5 billion of newspaper advertising annually, in both the United States and Canada.

“You can’t get to 120 million in virtually any audience, other than television, on a specific day and date like you can with newspapers,” said Walker. “You certainly can’t get their digitally; online; with radio; with magazines; with search engine marketing, mobile blasts, addressable TV, yet.

“There’s nothing else (like the U.S. newspaper industry) that kind of hits that really superbly large, critical mass of audience and does it very precisely, on a local basis,” Walker added.

Newspapers are “opt-in media, local, a known entity and, contrary to popular belief, they’re still relevant and there’s high engagement, said Mark Johnson, a vice president of Livonia, Michigan-based Valassis, which buys around $650 million annually in newspaper advertising.

A newspaper’s relationship with its subscribers “is the most relevant thing in the value proposition,” said Walker. “The value proposition of newspapers is day and date specific, local, huge audience. The value to the advertiser is that they’re a wanted medium with … subscribers and, more particularly … wanted advertising from … subscribers.”

Newspapers are “daily, actionable, easy to read, easy to find what you’re looking for, good for branding and information,” said Merrill Lynch managing director Lauren Rich Fine, who follows the newspaper industry. “Advertising in newspapers still works.”

Weaknesses of the business

In the Digital Age, media is infinite so the daily newspaper industry, which tells marketers large and small that they need to market their products, needs to market itself and expand its footprint, providing more options and information to advertisers.

“Newspapers need to tell people why they’re important, exciting and relevant,” said Johnson. “They need to talk about their readers and how they’re consumed.”

Part of the industry’s problem, say some advertising executives, is the information newspaper executives use to make the case for buying print.

“Media kits are still fighting the fight from 20 years ago – frequency and reach,” said Chicago-based advertising and marketing consultant Rick Shaughnessy. “What I do not see is a segmented consumer behavior based model that shows me that when my target audience intersects this ad in this medium that it will mean something.”

One of the industry’s greatest weaknesses, said Shaughnessy, is “that it defines itself by its distribution medium, not by killer content.”

Walker warns that while the newspaper industry would prefer to talk about its audience, “Everyone is going to validate it with circulation because they’re not going to be too open to the notion of being counterintuitive of audience. So if you’ve been trailing along at ‘X’ circulation and suddenly you have a precipitous decline … but an increase of 25 percent in audience, you’re going to have a really hard time selling that.”

The daily newspaper industry needs to focus on its print product and upgrade its marketing skills because, “Newspapers can’t generate the same revenues online that they did in print as in print they sold on the possibility that every page was viewed and therefore monetized,” said Fine. “Online, advertisers now really know which pages are being viewed.”

Even newspapers’ traditional stronghold, coupons, is under pressure., of Mountain View, California, around since 1998, working with more than 900 top consumer brands, now has 8.2 million unique visitors every month, said the Web site’s chief executive officer, Steven Boal. While that audience number might be small compared to aggregate U.S. daily newspaper circulation, consider this warning from Boal:

“Newspaper coupon redemption rates are most often less than one percent while redemption rates are often 15 – 20 percent,” he said.

Ways out of this mess

The best corrective action, say NSA Media and Valassis executives, for the newspaper industry is to know its audience as intimately as magazines know theirs.

“Magazines sell the vertical niche that they represent. They deal with how relevant they are to a specific marketer’s mission,” said Walker.

Will this payoff?

“One particular group that (this information) is important to is pharmaceutical companies and yet you don’t see any really well thought through initiative on the part of the newspaper industry to address the pharmaceutical category in a way that’s relevant to a pharmaceutical marketer,” said Walker.

As a result, Walker estimates, pharmaceutical companies spend more than $5 billion a year on magazines and “close to zero in newspapers – around $50 million across the country.”

Successful advertising selling today comes down to telling the advertiser how a consumer uses the print product, said Johnson. “Does it have a shelf life and is it used as a reference piece? Do they pass it on to others? Do they clip coupons, do the puzzles, make recipes, pin articles to the bulletin board?

“Does the audience go to Web sites referenced in ads or articles? Do they write letters to the editor? Do they purchase products mentioned or advertised? Do they read it?” These are some of the questions Johnson wants answered.

Of course, if you want to know how your readers use your print product, you need to provide one that people want to read.

Free or paid?

With declining circulation numbers, there’s a debate as to whether continuing with paid distribution makes sense, especially in a time when most newspapers offer free Web sites.

“The cover price is no matter to me,” said Johnson. “The cover price does not dictate engagement. It’s the newspaper’s reach, readership and engagement with consumers that matters.”

“I’m not convinced that papers should try to win readers back to print,” said Fine.

“Making it free may devalue it,” said Shaughnessy, “But there may be a mixed revenue model, where free papers have more ads than paid ones.”

Changing the mindset

“Man is born free; and everywhere he is in chains,” wrote 18th century French philosopher Jean-Jacques Rousseau. Of course, he was writing about the world’s political institutions then but he could just as easily been describing today’s U.S. newspaper industry mentality.

The mental chains wrapped around it prohibit it from improving its print product, upgrading its marketing skills and finding a solution to its problems. Newspapers need to provide marketers with more information, a print product people want to read and a Web site that attracts users.

Said Fine: Newspapers are “focused on putting out fires right now and are distracted from investing. Further, there doesn’t seem to be an obvious plan to replace the lost classified ads or decline in readership. They are all online and doing a decent job but it is hard to compete against the online independents as they don’t have the legacy cost structure.”

It isn’t so much the business model that affects the daily newspaper industry as it is the industry’s mental model. Executives see advertisers taking their business elsewhere and feel they have no other choice than to throw in with their Internet edition.

The problem with that solution is that they risk being commoditized on the Web. No other Web site offers a print product like a daily newspaper. So rather than view the print edition as a liability, newspaper executives should consider it a strength, especially when they’re pitching any advertiser.

At the University of Pennsylvania’s Wharton School, Jerry Wind and Colin Crook wrote a book entitled, “The Power of Impossible Thinking.” If daily newspaper executives took their advice, changed their thinking about their business – and improved their company’s marketing skills and placed an emphasis on their print edition – there’s a good chance they’ll do the impossible -- Return the daily newspaper industry to healthier days in 2009.

Editor's note: A shorter version of this article by this correspondent appeared in the January edition of Newspapers & Technology magazine.