Getting Over Print Newspapers

This post is in response to Why newspapers can’t stop the presses from Newsosaur by Alan Mutter. It is a series, and at the time of this writing he was on installment 3. Please help me explain why he thinks newspapers should focus on newspapers because I can’t make any sense of this.

Because newspapers on average derive approximately 90% of their sales from print advertising, the only ink-on-paper newspapers that can afford to attempt digital-only publishing are the ones that are irreversibly losing money. -Alan Mutter

So we have newspaper companies that are irreversibly losing money. These companies have discovered that in the internet paradigm, their value proposition is valueless or near valueless.

A conventional newspaper moving to online-only publishing might produce at best 10% of the cash generated by its print-plus-online predecessor.

Assuming the [LA Times] were producing an operating profit of 10% of its sales … then the annual earnings of the Times before interest, taxes, depreciation and amortization ((EBITDA)) would be about $72 million.

I made the same ballpark calculations for NYT and WPO back in December. And the Krugman Paradox addresses this as well. I even go so far as to calculate that NYTimes.com would need to raise its online audience by 5.44 times in order to just break even - not yet generate positive cashflow.

This is absurd. It would make NYTimes.com bigger than Wikipedia.org. So let's forget that for the moment. Going back to printing, general interest newspapers are nearly valueless in today’s communications climate. The market value reflects not only that, but also the outlook going forward.

As for Mr. Mutter jumping the shark, his article assumes that there is an audience of newspaper subscribers waiting to subsidize Tribune’s debt. Is there? I see no indication of this. Let’s go all the way back to this September 2004 study by the Online Publisher’s Association which found that only 3% of 18-34 year olds prefer newspapers over other forms of media. Here’s the important slide:

2004 OPA Research: Generational Media Study PDF

So who will buy these newspapers? The old and dying? The average life expectancy of the average American is 78 years. According to the 2007 NAA advertising planbook, the biggest print newspaper consumers are Baby Boomers (those born between 1946 and 1964). As those readers and subscribers die, who will replace them? The consumers behind the boomers are almost completely uninterested in even touching a newspaper. The demographic and actuarial data point to double digit percentage declines in newspaper readership going forward.

We don’t even have to look at the studies above to know this. Ask anyone 34 or younger right now which newspapers they subscribe to and then watch as they look at you in confusion and amazement, as if you didn’t know the news was ‘free’ on their computer or cellphone, when they wanted it, how they wanted it.

Online, offline, combo, …Mr. Mutter, it is quite likely that Tribune’s total debt will go unpaid.

Moving on, lets look at online revenue.

This is dangerously false, because it overlooks the reality that the vast majority of online revenues at most newspaper companies come from print advertisers who are “upsold” to the web when purchasing a print schedule. -Newsosaur part 2

I agree completely that online ad sales are insufficient to generate economically sustainable revenue streams. It was the topic of my MA Thesis if you want to read all about that.

My conclusion however is that newspapers need to:

1. Figure out what unmet need they are now filling.
2. Figure out the value that filling that need will produce.
3. Operating within that value stream.
4. Diversify their revenue streams away from advertising

One newspaper segment that is doing this better than the others are the financial papers. IBD, FT, The Economist, WSJ, they all offer upsells to their normal content in the form of conferences, seminars, conventions, newsletters, paid website features. IBD for example “generates approximately $10 million in annual revenue from its seminar business.” as reported recently in TheBigMoney

In conclusion, newspapers need to figure what the heck they are offering their community. Is it content? Is it advertising? Is it a web presence? Is it a printed product? How are you, newspaper industry, helping businesses connect with potential customers? At an average CPM rate of $0.34 in Q4 2008 I’d say you’re not helping much.

Lastly, as an example of a targeted, offline only news site that is cashflow positive and economicaly sustainable I offer you Cnet.com (recently aquired by CBS for $1.8billion). “CNET revenue of 406 million and EBITDA of 79 milllion for FY 2007 is expected to hit 450 million and 92 million respectively in 2008.” -from paidcontent.org

Newspaper focusing on… newspapers? You jumped the shark Mr Mutter.

Disclosure: No positions.

Comments

[notsosmart:]

dead papers printing.the youth,that can read, are not interested in big papers. maybe locals can make it with "obits" & local "sports & pictures" & local bargain ads.yes the buggywhip still exists in amish country.very local.

Feb 07 10:04 AM

[auto44:]

Advertising is the life blood of any media and is priced by circulation. Advertisers will spend money where they get the most positve returns on the dollars spent. I am retired and find it much more comfortable to read a paper or book or magazine. How ever the internet gets the news here a lot faster and the information is limitless and often includes graphs etc. that I can interact with and ways to listen to videos of the event. It is a far superior media.

Feb 07 11:01 AM

[speculari:]

Once upon a time... newspapers were "ironed" upon arrival in the household, by a maid or manservant to both remove any wrinkles and, to "fix" the ink to prevent the mistress or master from getting their hands dirty. The paper was later used (since the news was now old) to wrap garbage, fish, & other household detritus and then disposed of or, discarded.
The metric tonnage of newsprint production has been in decline for a number of years overall, sharply down in the U.S. & Europe but, still on the increase in Asia.
We all know the fates of "ironing" & servants... all that is now left... would appear to be a little reading, and a lot of wrapping!

Feb 07 11:55 PM

[Penny09:]

I find this issue of print vs online very relevant. I work for a newspaper publisher. we print 3 papers with 1 online. i'm very interested in bringing a proposal about taking the smallest paper online but i really need a greater understanding of what it takes do that and the ramifications especially for a paper in a market of about 100,000 with a fair literacy rate and a fair access to the internet. This debate here has really got me interested in new media and the real implications for print media.
My real question is should you letting an ailing better die or attempt to resuscitate it online? Or what is the best way to strike a balance between the 2?

Apr 17 01:02 PM