Tuesday, April 29, 2014

Underpants, updated yet again

Originally written in 2002, revised and updated (with no change in premise or position) occasionally. Last update, April 29, 2014.

A warped look at where newspapers and the Internet stand more two decades after we met, staring awkwardly across the dance floor.

The pay wall debate is over, and pay walls won. At last. The final skirmishes are over metering versus "hard walls," etc. That, too, is likely to end with the majority of newspapers adopting hard walls, with payment required before viewing any full story.

There's a classic South Park episode starring the Underpants Gnomes in which the gnomes steal underpants and collect them in huge quantities, under the assumption that having a large quantity of anything somehow magically results in profits. This is how newspapers once treated the notion of web traffic.

Despite the recent embracing of a subscriber model, there is no indication that the elusive sustainable online business model for newspapers of our size is ready to show itself. Many newspapers continue to allocate print-generated revenue into digital categories to prop up the numbers. This is a self-defeating practice.

Where we are

In two weeks we launch a new web site. Meet the new boss. It'll be cleaner, more intuitive, brighter, and, most important, populated by our content management system and, therefore, more easily updated, both during the day and overnight.

Before going on, allow me to note -- traffic numbers still don't mean very much. They're notoriously unreliable and they don't translate directly into advertising dollars, particularly in small markets. In her blog "Daily Patricia," Patricia Handschiegel draws a smart distinction between traffic and audience:
"What a lot of companies are secretly finding out is that traffic does not mean there is an audience, and that at the end of the day, the audience is where the value is. Boasting giant page views and unique visitors means very little when those you are driving to the site are not sticking around, using it or returning."
Our continuing strategy, dating back to 2002, is predicated on the premise that by giving away their local news content online, newspapers are sacrificing the engine – paid circulation – that drives sustainable profitability. Roughly 80 percent of American newspapers have now either adopted or say they plan to adopt some kind of subscriber plan. That's in line with where Western Europe was in 2007.

Newspapers' dealings with Google have been so one-sided that even obtuse newspaper managers have severed the tie. Newspapers paid a heavy price for the pennies Google generated when it aggregated our content (though the Post Register never participated).

Advertising that has driven newspapers, radio and television for decades still doesn’t seem to work online – Internet users resent the interruption far more than do newspaper readers. In fact, newspaper research still indicates that readers consider advertising content of equal value to the news – there is no other medium that can make that claim. There’s no newspaper equivalent of the DVR, but there is an online equivalent (my computer is like most – it has a program that blocks pop-up ads). So, while billions of dollars are being spent globally on Internet advertising, only the large aggregators are making real money. Local web sites have not settled on a workable advertising model. Growth in digital revenue for newspapers is slowing.

For independent newspaper companies like ours in isolated but healthy markets, the Internet’s impact will evolve over a generation or more. In some ways this is trickier than dealing with a sudden shift – we must manage the process of change, gaining expertise in new media without reducing our expertise in print (the “fiber media”), particularly since print will likely provide the majority of our revenue and profit for the foreseeable future. Pick your metaphor – we’re walking a precarious path with one foot in the analog world and the other in the digital one.

Newspapers in large markets replete with free-access general news web sites are at the highest risk and are suffering the most from online competitors and shifts in readership habits. This isn’t to say it hasn’t affected us – it has and it will. But we’re still in an enviable and strong position and must learn to adapt as the market demands it – not before and certainly not after.

There's no arguing that the Internet has removed a major obstacle to local newspaper competitors. But delivery was never our main ace in the hole -- it has been, and is more now than ever, journalism. Citizen journalism is an interesting idea but not the basis for a business model. Real, passionate, local, expertly practiced journalism differentiates us from our rivals, from TV web sites to those coming from someone's basement.

Differentiation is not just a journalistic issue. “We've had a lot of scams off of Craigslist,” said Detective Gretchen Ellis, Tacoma Police Department, talking about the recent infamous case in which a Craigslist ad led to the complete ransacking of a vacant house. “We've had prostitution things happen, rental scams, fraudulent activity. In this case, it appeared the items were going to be given away, but they were not.” This presents us with a tremendous advertising opportunity – there is still a place for trained human intervention. Of course, then there’s more tragic case of the Craigstlist killer.

There’s a growing theory that newspaper web sites aren’t necessarily about advertising revenue but should be used simply to draw younger readership to the newspa… um, the news thingy. This assumes that instead of cannibalizing the newspaper’s circulation, it enhances it. There is some data to suggest this is true, but it remains an unproven idea. Others promote an online-first strategy, which might make sense for newspapers and magazines seeking a national or global audience, but there's no evidence to support that approach for regional or local newspapers.

It’s telling that one of most intelligent recent comments about our business comes not from a publisher or journalist but investment banker Jonathon Knee:
“You have to focus on your competitive advantage, which is local. When the smoke clears, the local newspaper, which may not be the sexiest part of the newspaper industry but is overwhelmingly the largest and most profitable part of the industry, will be a smaller and more-focused enterprise whose activities will be directed to those areas where their local presence gives them competitive advantage and they will continue to generate as a result better profits than the supersexy businesses in the media industry asking for government or nonprofit help like movies and music.”
Why we should embrace online circulation
John Gottschalk, retired chairman and CEO of the Omaha World-Herald, a partially employee-owned newspaper (with some sister papers in the company) that enjoys one of the highest market penetrations in the country. His advice on the paid versus free issue:

“We are, de facto, the originators of most of the news in our region. Our franchise is unique. Regardless of distribution channel, relevant, timely and valuable content is the arbiter of the free or paid question.

“If a newspaper publishes a lot of easily available, non-exclusive material from other sources, and in general, a mediocre report for its readers; it will be difficult for readers to find sufficient value in that content to sustain their patronage. When they quit reading, the newspaper platform loses its power as the best medium for advertisers.

“Content is king in my book – regardless of distribution channel. It escapes me why anyone would allow the use of valuable, exclusive, costly, unique and presumably credible content by some other organization that will just beat you over the head with it as a free enhancement to its advertising platform.

“Giving content away is bound to shrink market dominance and ultimately lead to the loss of uniqueness that sustains the readership needed to stay in business. Our business is, after all, advertising distribution, and it requires the presence of a significant number of ‘consumers.’ It is the unique content and character of a newspaper’s report that enables the success of the advertising platform.”

A bold look at traffic
Most people still think it’s important to drive traffic and the money will eventually, magically follow, even though there’s no evidence to support that theory after a decade of online news experimentation. However, there’s increasing agreement that we’d like to turn back the clock 15 years and charge for access as part of an online business model. Alan Mutter has called the free online content model newspapers’ “original sin”.

As part of a value-added ad package bundled around print, online advertising for us and our clients potentially has some modest benefit. Otherwise, there may not be much. So, let’s maintain a web presence, reduce our investment of time and other resources, and put out a damn good paper that reaches the broadest possible market.

The key is this: If we don’t put out a “newspaper” regardless of the medium on which it ultimately gets “delivered” that contains compelling, necessary, unique information that local readers need to have, none of our strategies will matter. Content (news and information, including advertising), is, indeed, king.

And finally…
 Industry pundits, all of whom have been at least partially wrong right from the start, need to begin each analysis with this acknowledgment: Newspapers of 100,000 circulation and smaller are almost always a different matter than the 100 or so (out of 1,400 total) that serve larger markets. Like most smaller newspapers, the Post Register produces more local content in a day than our broadcast and print competitors produce in a week. We have the largest newsroom in our half of the state. We are the best in the world at covering eastern Idaho, and we ought to act like it. That’s what sets us apart from any other medium and what sets 1,300 other local newspapers apart from their competitors. For heaven’s sake, apply a simple value principle to what you do.

Social networking, mobile media, texting and opt-in e-mail marketing (what Seth Godin once called "permission marketing") all have a place, but none of them shows great promise in generating near-term direct revenue. The trick is to experiment with these appropriately without allowing them to become a distraction while we struggle to re-build revenue streams and recover from the recession.

All this side, there is, finally a bottom line. Print and online will co-exist for the foreseeable future, and our strategies need to take that into account.

Monday, April 28, 2014

Unchaining newspapers

American print journalism has been undergoing wrenching changes for nearly two decades now, and some encouraging trends are emerging.

The most obvious is what America’s best journalist on the business of journalism is calling the “deconsolidation of the U.S. press.” That’s what blogger Ken Doctor is calling the phenomenon of wealthy people, from Amazon’s Jeff Bezos to Warren Buffet, buying up newspapers for reasons that aren’t entirely financial.

Doctor, on his blog, “Newsonomics,” writes recently that when the buyer of the Minneapolis Star-Tribune was asked whether his purchase was for business or altruistic reasons, he replied, “50-50.”

The latest such transaction was the sale of the Anchorage Daily News by Alice Rogoff, former chief financial officer of U.S. News and World Report. Rogoff and her husband, David Rubinstein, are worth more than $3.1 billion. They’ve been publishing a feisty local alternative to the larger daily they just bought from the McClatchy chain.

During the golden era of newspaper publishing – roughly the last half of the 20th century – many local owners sold to national and multi-national chains because the money was good, with margins often exceeding 25 percent. The Post Register only sniffed at those kinds of numbers, mostly because its owners often invested more heavily in news and other resources than mega-business owners.

Now, newspapers are less attractive in purely financial terms, so the trend is reversing. Local people of means are buying newspapers, at least in part because they want to preserve the sense of place that local or small-group ownership can provide.

While no one can blame business people for wanting to maximize profits – what’s more American, after all? – local newspapers have always been about more than just the money.

Glen Taylor, the new owner of the Star-Tribune, said his purchase was not a deal based purely on business. (He’s already a billionaire, after all.)

“I’m interested in this one because it’s a Minnesota paper,” Taylor said. “For the long run, if we can continue to have a news media that’s consistent, fair, broad-based … I think it’s in the interest of our state. I would be proud to be part of that.”

“What’s most interesting about this spate of buys is that they are local,” writes Doctor. As he notes, there’s opportunity for local print media in the digital environment, “but it’s a tough, years-long slog.”

It’s easy to see the day when local or small-group ownership is the rule, not the exception, and that will be good for the communities they serve.

Doctor’s conclusion: “It’s dizzying change for what used to be a staid industry. … the unwinding of the chains is real. The post WWII logic of buying and building holds far less logic financially.”