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.


Mike said...

This is an exhaustive outline of all the problems the newspaper industry and its print products face. I just don’t see a lot of “beef” here in terms of how newspapers can truly compete in the future.
Stack the firewood now as I expect I will soon be burned at the stake for the following heresies, but here is exactly what the industry and local newspapers need to do:
• Be an even better source of local (or locally relevant) news. Get rid of extraneous international and national news that can easily be found elsewhere.
• Make the printed page more functional and less flowery. Just for giggles, sometime, go back and look at a 19th Century newspaper and marvel at how the multiple headlines and multiple columns (and fewer pages) convey more information in less space.
• Cover news that matters to your constituency in more easily digested chunks. How often are Editors crowing about their multi-day, multi-page investigative pieces? (Let’s be honest, they are written for and ready by a very small chunk of the mass audience and really are aimed at winning journalism prizes – they are by journalists for journalists … how incestuous!)
• Work with advertisers: Better options for them + more research = better results (and more advertising business). Encourage smaller (but no less expensive or effective) ads. Fewer pages of ads means those that are there will stand out. Limiting ad size and improving effectiveness are not mutually exclusive.
• Kill the Sunday newspaper and put out a Weekend edition on Saturday. Seriously, wouldn’t one edition that covers all the news of the week past and offers a comprehensive look at the week ahead be of tremendous value (and relieve the pressure to get read in a single day).
• Provide only the content its local readers truly want. For examples of what not to do look at the cuts made by local newspapers recently as they try to cut costs. Newspapers are cutting out the crossword (the very thing that is best done on paper by word-literate newspaper readers!). They are drastically reducing the number of daily comics (because we all know they are much more fun to hunt down on the Internet!). They are slashing local business news (because giving up turf to local TV news and local business news digests makes good business sense?). Or consider how many papers have multiple reporters assigned to covering the NFL team in a city many miles away (this is all about the local editor’s ego and a waste of local resources).
Finally, print smaller format pages and fewer of them. Consumers over and over tell us that we cannot make the newspaper too small … but we can (and do) waste a lot of space on content they do not care about.
If you would like to debate this subject I welcome all responses - Mike Johansson (

Leigh Hanlon said...

I believe that newspapers need to figure out who their profitable readers really are and stop tailoring the content to the dedicated cadre of whiners, complainers and outright assholes who have figured out that harebrained editors and publishers will invariably think they somehow represent 1,000 others with similar crazy opinions who simply lacked the motivation to contact the paper.

A major step in this direction would be treat every newspaper like a trade publication and deliver a smaller, narrowly focused reader base, rather than the scattergun approach used today.

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