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Newspapers in Decline

Posted by anandrr on January 30, 2009

The headlines blare: Newspapers are Dying! Being a voracious newspaper reader myself, this is a matter after my own heart. FT’s Lex tried to attack the problem. But he stops way short.

As Lex points out, the problem is simple: newspapers cost too much to produce, but print ad revenues are declining rapidly. Online ad revenues are growing but fall well short of the costs of running a newspaper. To wit, the New York Times costs $338M per quarter ex-printing and distribution, but online ad revenues clock in at a meager $74M. But Lex is blind to the solution. Presumably with good reason. Lex’s salary depends on his/her not seeing the truth in front of his/her eyes. The newspaper business model has been broken for a while now, and while the newspaper companies are trying to fix it by going online, very few of them seem to understand what that really entails. And so we are still where we have always been, online ad revenues can’t make up for the high cost of producing a quality newspaper.

First, let’s look at how well they’re doing the online bit. We’ll stay with the New York Times, they have an exceedingly good website (by newspaper standards) already.  Assume for the moment that you’re researching the 9/11 attacks. You search for 9/11 on Google, notice how not a single link on the first page points to the Times’s coverage of that seminal event. Indeed, not a single newspaper on that list of links. So if you were trying to research an event that happened in the New York Times’s own backyard, the New York Times doesn’t want you to know that they can help you. Immediately after the 9/11 attacks, the Times ran a series called Portraits of Grief, an incredible series that memorialized every victim of the 9/11 attacks. Only the Times had the resources to do something like this. And yet, search for 9/11 victims on Google…. And on and on it goes, you can search for anything New York related let alone US related and the biggest US newspaper is nowhere to be found. In short, the Times has a great website and certainly gets a large subscriber base that reads it everyday, but in so doing they have replicated the offline business model online.

Offline, newspaper publishers are only interested in today’s newspaper. Advertisers have already paid for yesterday’s newspaper and are unlikely to want to advertise in it again, but there are advertisers who wish to be in today’s newspaper, so let’s make sure we attract them. As a result newspapers spend a lot of money to ensure that they put out the best product for today’s news and ignore yesterday’s newspaper altogether. They charge $1 for today’s newspaper but $10 for archived newspapers precisely because they can’t monetize yesterday’s newspaper with advertisers.

But online, the game changes. All your webpages can be monetized with current advertisers. Newspapers therefore have to make sure that all their webpages are available and searchable by all consumers, news consumers, researchers, everybody. But that isn’t all. The New York Times doesn’t add much value by having its own Wall Street desk most of whose work is reporting on earnings and other announcements from different companies. Reuters already does a great job of that with people sitting in Bangalore. It’s not at all clear what value the Times desk adds over a wire service (even if they were sitting in New York not Bangalore). All in all, it’s not clear why the Times has to pay $338M in salaries mostly to reporters who don’t add value over a generic wire story. There are stories that only the Times could cover. New York based stories for instance, just as the Wall Street Journal is extremely good at covering business, and the San Jose Mercury at covering Silicon Valley, and The Hindu at covering south India. What newspapers need to figure out is what their core competency is, cover that by themselves, outsource the rest of the reporting and stop pretending like their Op-Ed pages matter (thought experiment: if the Times stopped publishing tomorrow, which of their columnists would you read if all they had was a blog each? My answer: Paul Krugman, and yet certainly the Times spends millions of dollars a year on its elite stable of columnists).

If they did all this, the Times would gain a lot of impressions because their website rocks and attracts a lot of visitors, they would lose a number of impressions because nobody thinks the Times is such a great newspaper any more, so lets say their quarterly revenue falls from $75M to $50M. At 25% margins that’s still a great business, it’s not a change-the-world business, but in a world where news and opinion are both commoditized, it’s the best you can do. Unfortunately the Times will never accept that, they have to be the “paper of record” (whatever that means) after all. And nor will the San Francisco Chronicle, and ultimately that is what is dooming the newspaper business. Not that the business is unhealthy but that every newspaper owner has an inflated sense of the worth of his or her business to the world.

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One Response to “Newspapers in Decline”

  1. Jon Phillips said

    Good analysis … and that comment on the columnists is both true and damning…

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