Last chance to save US newspapers

Recently, journalist-entrepreneur Steve Brill laid down a beautiful rant in an interview with Poynter, the journalism education foundation in Florida. He was like-a-sledgehammer-to-the-face blunt, arguing that his efforts to save the industry from itself with a metered content service, Press Plus, were thwarted by small minded, third- and fourth-generation owners who were too “paralyzed” to deal with the competition from digital advertising and had failed to invest in quality content that people would actually pay for. 

Rare in the industry, Brill named names, singling out Digital First Media, saying that they should be called Digital Last, and slamming the Denver Post for setting the bar of free articles at 100 in its metered content roll-out.

“They started the meter at 100 [free articles per month]! There was perhaps nobody other than the mother of a reporter who read 100 stories a month online,” he said. They also put their coverage of the local American football team, the Broncos, and their popular marijuana coverage, outside the paywall.

Like my recent piece about Peak Content, Brill also has a fairly sceptical view of the sustainability of VC-fuelled, totally ad-supported digital media start-ups. He said: 

“As a general matter, some of those places, like Vice or Vox or Huffington, will succeed if they continue to attract loyal viewers and readers. But they won’t all succeed. The amount of the valuations being paid for them is breathtaking, given their collective lack of cash flow.” 

And he adds acerbically, “… if everything on your site is free, you may worry less about screwing over your readers.”

Ads, not readers, always paid the bills

Brill is of course right that if you screw your readers with low quality content or an obviously declining and hollowed-out product, you’re a business without a future. The industry cannot cut its way to growth, and you have to invest in journalism that someone is willing to pay for.

But by the time that he was trying to sell his paid content solution, the industry was hemorrhaging cash. Freeing up money for investment involved increasingly painful choices year after year.

Looking back over the last decade at local and metro newspapers in the US, the analogy that always comes to my mind is the opening scene of The Matrix. A local police officer – a good stand-in for top leadership of the day – projects confidence that his men can handle Trinity, the purest embodiment of tech-based disruption ever. He says, “I think we can handle one little girl. I sent two units. They’re bringing her down now.” Agent Smith says coolly, “No Lieutenant, your men are already dead.”

Between 2007 and 2009, the years immediately preceding when Brill was trying to sell his paid content solution to newspapers, an OECD report showed that the newspaper publishing market in the US had dropped by 30 percent, from just under $60 bn to less than $40 bn. 

More than any other country studied, the US market was heavily reliant on advertising, to the tune of 87 percent of its revenues, the OECD report found. Advertising revenue always drops during a recession and, even before the Great Recession, it began the sickening swoon that would see an almost 60 percent drop from its peak in 2005 to now.

Newspaper nostalgists like to talk about the giving content away for free on the internet as some kind of ‘original sin’, but if almost 90 percent of your revenue came from ads, then reader revenue was small peanuts long before the internet. 

Addressing  this incredible imbalance in revenue sources was always going to be challenging and should have begun long ago, back in 1972 when US newspaper readership began to drop. 

Life after the near-death experience? 

It’s easy to look back and say that the newspaper industry should have done something different in the fat, dumb and happy years of the 80s and 90s. But any student of Clay Christensen and his Innovator’s Dilemma knows that few industries respond to disruption effectively.

Brill’s crusade was too late. We have to look to the future, and for newspapers in the English speaking world, we’re at a point where half measures will not be enough. These three key aspects of the industry as it currently stands must be addressed. 

Daily print is a luxury – I mean this on two levels: For many newspapers, daily print is a luxury they cannot afford and most, if not all, newspapers will have to cut their print frequency. Yet they still need to make sure that this is a luxurious experience for their print customers: a premium product for a premium audience who are willing to pay the premium.

Brill puts it this way: “…if they’re print subscribers, you give (digital) to them for free but make them even more loyal print subscribers. If you decide, as many newspapers will, to print three times a week or once a week, you will have converted people to use a digital subscription in addition, so they will get a 24/7 newspaper. You cut print and distribution costs and are back to having fairly decent profit margins. That’s the only way out for papers.”

But that’s not what’s happening. Print is being cut to the bone while customers are being asked to pay more for a clearly diminished product and often poor and almost always poorly marketed digital products.

Digital revenue begets digital transformation – One of the saddest parts of my former job as a local executive editor is that when I tried to stop doing something print focused to free up staff to do something to grow digital audiences and revenue, I was frequently told we couldn’t, because of the revenue tied to it. Newspapers are being killed by their cash cow, print. Focus on digital revenue growth and and you will accelerate digital transformation.

The end goal of digital transformation isn’t innovation for its own sake but radically increased engagement with audiences. As Google’s Hal Varian pointed out in 2013, in the US and UK, readers were spending 25 minutes a day with print but only two to four minutes with a newspaper’s digital content. 

“If readers spent as much time reading the online content as the offline content, ad revenue from online content would be much closer to the offline revenue,” he said.

Invest in mobile revenue – In my last piece, I said that for every investment in editorial innovation, I’d invest in two revenue innovations. And I’d make sure that at least two thirds of those revenue innovations were in mobile. Looking at the UK market, we’re seeing what I feared for a long time: a tipping point where print advertising declines accelerate. Sadly, it looks like that decline is also coinciding with search and social advertising giants Google and Facebook consolidating their digital advertising market share, largely through growing mobile audiences and revenue. It’s the same story in the US.

Let’s not candy coat what is happening. This is an existential threat for newspapers. And we cannot repeat the same mistake we did with the first generation of digital and say that we can’t make money with mobile. The fact is that people are making money with mobile, and if we cede another digital market to the likes of Google and Facebook, there will be precious little left to fight over. 

By |2016-02-01T00:01:00+00:00February 1st, 2016|Analysis|Comments Off on Last chance to save US newspapers

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