Tuesday, March 30, 2010

Misperceptions in the digital ecosystem

Recent discussions in “legacy publishing” circles (owners and managers of print newspapers and magazines) are trending toward agreement that the quality of the content (what we used to call “news and information”) matters more than the bells and whistles of technology and interactivity. Typically, the question is whether “general interest” content providers (large newspapers and magazines like Time, Newsweek, the New York Times, the Los Angeles Times, etc.) can survive without making drastic changes.

The issue, of course, is that much of what these general interest publications provide is now available for free up and down the Internet. Online publishers are generally now taking one of three directions:
1. They are using free or inexpensive content by aggregating stuff floating around out there or by using writers (typically opinion columnists) who provide their stuff free or nearly free. These sites tend to be either political or sleazy (or, in the case of sites like Huffington Post, a little of each) with a high level of unmoderated interactivity (like a place to post anonymous comments at the bottom of each story without the fear of accountability). We won't, of course, discuss purely puerile or pornographic sites -- they are in their own league.
2. Sites like the Christian Science Monitor that are betting they’ll be able to produce such high-interest and unique news and information that they’ll generate enough valuable traffic to become ad-supported. There are two major issues here: First, they’ll have to put a stop to anyone attempting to take their original reporting and posting it elsewhere. The law remains fuzzy on this, particularly when it comes to sites that don’t require subscriptions to view the material. Second, they’ll have to figure out how to create advertising that people actually at least glance at to create value for their advertisers. This works best if you can combine a print/online complementary ad strategy, which CSM seems to be at least modestly pursuing through its weekly print edition. Other larger, more global news organizations like the New York Times and Wall Street Journal are either employing or considering pay walls to supplement advertising revenues.
3. The seemingly forgotten segment in this debate is highly local web sites whose specialty is broad, deep, unique and unrelenting local news for a comparatively small geographic area. These are almost exclusively operated by small daily newspapers across the country, of which there are approximately 1,200. These are not “general interest” products; rather, they are obsessively local products that can’t be replicated without the combining the resources of the legacy print product with the future promise of online. For these operations, paid subscriptions remain a real part of the revenue mix.
“In reality, the world is almost exactly the opposite of how many see it today: It is the technology that is commonplace and the quality content that is unique,” writes Jim Spanfeller, former president and CEO of Forbes.com and the treasurer of the Online Publishers Association. “What a shame that many of today’s content companies will not be around to profit from the sure-to-come better understanding of the digital ecosystem. Why? Because they, themselves, are among the core promulgators of these misperceptions.”

Saturday, March 27, 2010

The Internet, underpants, and everything (updated for 2011)

Originally written in 2002, revised and updated (with no change in premise or position) in August, 2011.

A warped look at where newspapers and the Internet stand more than a decade after we met, staring awkwardly across the dance floor.
What the geniuses are saying

"It is time to stop giving our journalism away". ... giving readers free access to its content was "undermining the value of our journalism, undermining the value of the Times and undermining the perception that journalism and news has a value." --James Harding, Times of London editor

"... the media industry has always operated primarily with a subscription/ad hybrid model. Those that were willing to pay were their customers, those who did not were not. It would only make sense in any environment that something given away for free would mean more would take advantage than if something cost money. It’s hard to understand why the industry doesn’t understand this about itself. Dear media: Don’t be afraid to ask for what you are worth, and especially, try to offer readers a better product than what’s free online. That’s how you’ve survived all along. Ad-only models have never paid the bills. That’s why historically there haven’t been as many of them as ad/subscription hybrids. Companies should give it a shot — they’ve got nothing more to lose than they already are now." -- Patricia Handscheigel

“You’re never going to get the traffic that really matters. So it’s a traffic thing, but also, how do you monetize the traffic that you have? It’s impossible.” --Publisher with Condé Nast

Web users will have to pay for what they watch and use, says Barry Diller, the media and technology executive whose company runs the Ask.com search engine and the Match.com dating service. It’s “mythology” to view the Internet as a system of free communications. "It is not free, and it is not going to be," he said.

“Traffic growth simply doesn't matter. Period. What matters is revenue.” --Andrew Schmitt, Nyquist Capital

The answers remain elusive
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 have treated the notion of web traffic. (Interestingly, some folks now think Twitter is following the same business model.)

There is no indication that the elusive sustainable online business model for newspapers of our size is ready to show itself. Newspapers and other local web sites are using no fewer than a dozen advertising alternatives, from horizontal and vertical banner ads to paid search contextual advertising to interstitial and video ads. Those same web sites are using nearly as many different ways to charge for advertising – pay-per-click, flat fees, etc.

Most ad managers for newspapers that have free access sites acknowledge that revenue growth either slowed or stopped altogether. In most cases, this includes an allocation of print classified revenue, and it doesn’t take into account (because it can’t be calculated) whether the newspaper has lost both circulation and print ad revenue by putting its news content online for free.

Many also have signed agreements with regional or national companies to vertically integrate their online advertising and/or news content. This is making big money for the aggregators (Google, Yahoo, Monster, etc.) but precious little for individual small newspapers. It makes a little more sense for larger newspaper companies that can aggregate the revenue. Lately, producers of this news -- the Associated Press, Rupert Murdoch, and others -- have begun to see that Google isn't a particularly good partner.

The Internet currently accounts for about 16 percent of total global advertising spending, or about $80 billion out of $500 billion. That percentage is growing every year, of course, but it remains a fraction of the total and the growth rate is shrinking (theses numbers are aggregates of various studies). It’s likely that the percentage is smaller – much smaller – in isolated markets like ours where opportunities for aggregating revenue for contextual searches and banner ads on global sites are nearly non-existent.

Where we are

For starters, we’ve not been static and our web site isn’t inconsequential. We get 3,000 unique user sessions a weekday on postregister.com, which help account for more than 900,000 page views per month, when all of our various sites are combined (including classified, obituaries, real estate and Marketplace).

Before going on, allow me to note -- traffic numbers 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 2001, 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. Only time will tell if that’s a sound position. If it’s not, the implication is that paid circulation ultimately will become a fond memory, no longer a component of the newspaper business model. Our secondary premise is that it’s much easier for us to go from paid to free than the other direction. If the time comes that free access is the clear business model, we can make the switch literally in 24 hours.

We are not entirely alone in our strategy. About 450 -- one-third of the toal -- or so American dailies use a pay wall today. Most of the rest are considering that strategy, many saying they will go to some sort of paid subscription in the near future. More important, consumers are starting to warm to the idea of paying a reasonable fee for access to information they consider both unique and important, particularly from newspapers, according to research by Boston Consulting Group.

Here's a particularly intriguing story out of Newport, Rhode Island, from Newsweek:

Spooky things began to happen this summer in the yachting mecca of Newport, R.I., shortly after the Newport Daily News  hurled caution to the wind and began charging a $345 subscription fee for its online news—$200 more than for the print edition.

First, the phones stopped ringing in the paper's circulation department. Fewer subscribers were canceling home delivery of the paper, something they had been doing in droves when they knew they could get the same product for free at NewportDailyNews.com. "Those calls have stopped," William F. Lucey III, assistant publisher and general manager, told NEWSWEEK.

But something even stranger happened: after the Web site put up a pay wall for nearly all its content, readers would brave driving rainstorms to go out and buy the newspaper. Since then, newsstand sales of the Newport Daily News have jumped by 200 copies a day. For a paper with a daily circulation of 13,000, that's a significant gain, especially since, in an era in which most papers are seeing steep declines in readership, even holding steady is a success; an increase is a triumph. "The fact that weather hasn't been fantastic makes me believe that the pay wall has had an effect," Lucey says. "We think that more people are buying the paper now that they can't get it for free online."

In Western Europe 80 percent of newspapers charge for online access one way or another, and that was in late 2007 before the more recent trend toward pay walls picked up steam. This comes from a paper written by Valerie-Anne Bleyen and Leo Van Hove at Free University of Brussells (irony noted). They wrote:

"When analyzing the strategies of the 82 Western European newspapers in our dataset, we find — on a first level — that 19.5 percent of the sites are completely free, while 80.5 percent of the newspapers try to monetise (part of) their online content in direct ways. Within this second category, 28.8 percent offer only a charged–for PDF version, while 71.2 percent try to generate revenue sources in other ways (too)."

And Walter Hussman, publisher of the Arkansas Democrat-Gazette in Little Rock, concludes a great piece in a May, 2007 column for the Wall Street Journal with this summation:

“It is time for newspapers to reconsider the ultimate costs and consequences of free news.” He begins his piece by observing what we’ve been saying since 1999: “One has to wonder how many of the newspaper industry's current problems are self-inflicted. Take free news. News has become ubiquitous, free, and as a result, a commodity. Anytime you are trying to sell something that becomes a commodity, you have lost much of the value in providing that product or service.”

(Perhaps not coincidentally, Hussman runs a family-owned newspaper that defeated Gannett in a head-to-head battle for Little Rock.)

And, of course, back to my new favorite blogger, Daily Patricia, who continues to make too much sense to attract a lot of attention:

"Just because so many in business have been foolish enough to give away product that costs money to make does not mean that the monetization models that have existed, thrived and survived on platforms for decades are suddenly broken. There’s plenty of proof of this."

One need only look at Google News to understand the flip-side of this problem for us. Because so many newspapers provide their online news product for free, Google News is able to aggregate it, generate huge traffic numbers and turn contextual searches in to dollars. Meanwhile, it doesn’t generate a single piece of unique content. We’ve done all the work.

This notion seems to just now be dawning on our business’ top executives, despite the fact that not feeding the aggregators has been one of our stated reasons for having a pay wall since 2001. The bandwagon is getting a little crowded.

Advertising that has driven newspapers, radio and television for decades 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.

Newspaper advertising is different than that for other media. The aforementioned Hussman agrees: “It turns out that a Web site is a very different medium from a newspaper. While consumers often find pop-up ads a distraction and banner ads as more clutter, readers often seek out the advertising in newspapers.”

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 in an enviable and strong position and must learn to adapt as the market demands it – not before and certainly not after.

Tim Rutten, media columnist for the Los Angeles Times, summarizes the likely future pretty well:

“Look, there are going to be newspapers around for a very long time, but the successful ones are going to be hybrid news organizations in which there's some sort of amalgam of print and online presentation of the news. It's clear that there are going to be some things we will continue to do best in print, some things we're going to do for our readers online on a 24-hour basis.”

What to do now?
One of the strategies that has not been pursued aggressively enough by our industry is differentiation. As unfiltered “information” expands online, we can offer added value by applying proven journalistic standards to how we operate on the Internet. Our value will be enhanced as we maintain our position as a credible source of information. We'll be increasingly focused on local only, but we must practice journalism.

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 recently retired as 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 10 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.

Thursday, March 25, 2010

Latest from my favorite blogger

Daily Patricia continues to make too much sense to attract a lot of attention:

"Just because so many in business have been foolish enough to give away product that costs money to make does not mean that the monetization models that have existed, thrived and survived on platforms for decades are suddenly broken. There’s plenty of proof of this."

Thursday, March 18, 2010

Serendipity and the Internet

Published in the Post Register in April, 2009.

The Internet offers so many advantages that it might seem a little persnickety to point out some of its flaws.

Allow me to be persnickety. For example, the Internet is invaluable for research, so long as you know roughly what you're looking for and you know how to distinguish between reliable sources and completely bogus ones (an increasingly difficult feat). The Internet is an unsurpassed tool for maintaining social and business connections and sharing certain types of information.

On the other hand, it's not so good at helping us experience the serendipitous discovery of things we hadn't been looking for. That, I humbly submit, is another reason why reading a newspaper or a magazine will always offer something different and in some ways be more valuable than getting information online.

Florida State University Professor William McKeen wrote eloquently about this a few years ago in a New York Times column:

"The modern world, it seems, is conspiring against serendipity. But we cannot blame technology. I've met this enemy, and it is us. We forget: We invented this stuff. We must lead technology, not allow technology to lead us. The world is a better and more cost-effective place because of technology, but we've lost the imperfections inherent in humanity -- the things that make life a messy and majestic catastrophe."

How often can any of us recall browsing a magazine or newspaper -- perhaps in the doctor's office waiting room or just walking through a bookstore -- and discovering something that we hadn't known anything about, having it spark our curiously and eventually opening up a whole new world to us? The precision of a search engine reduces the opportunity for that sort of spontaneous experience, and we're poorer for it.

I have an abiding passion for music -- from Bach to heavy metal -- and the Internet has been a boon to me in allowing me to listen to new types of music before I purchase the digital tracks. But I make an effort to seek out music with which I'm unfamiliar just to make sure I'm not missing anything.

Unfortunately, that's probably less true of information. I tend to stick to a handful of sources and the occasional Google search. Meanwhile, there's a lot I'm missing.

I was reminded of that when I spent a little time last weekend reading through a travel magazine. Places I'd never considered visiting suddenly found their way onto my list.

Reading the Post Register should provide a moment of serendipity or two every morning. That's something you'll likely not experience in the narrow experience of surfing the Web.

As McKeen says: "We must allow ourselves to be surprised. We must re-learn how to be human, to start again as we did as children -- learning through awkward and bungling discovery."