This Just In…News is Now a Commodity

Anyone can write about the news.  There’s no monopoly on coverage of anything anymore.  And this means that newspapers have lost any supposed cachet they once had.  If you want to read about the latest event in your hometown, chances are you will find several sources among bloggers, tweeters, facebookers and newspaper reporters.  Instant access to electronic information gives a leg up to social media channels as a news source before most will consider picking up the local paper in hard copy.  This is a battle that print media outlets must fight – to become the source of choice when it comes to news.  It’s becoming increasingly difficult to win as barriers to entry are zero.

The Commoditization of the News Industry

Let’s face it – news is now a commodity.  And we’re all capable of being amateur reporters (this blog is case in point).  The reputation that local newspapers once had in providing hard hitting journalism which you could find nowhere else is now gone.  Between the constant barrage of 24 hour news on television, the endless ‘Bloomberg tickers’ on many screens, and the ever growing blogosphere (~500 million as of 2013) – there is limited value add in your local news journalist.  News reporting is available for free all over the place – Yahoo, Google, Huff Post, etc.  Content is non-exclusive – anyone can write about anything.  We can debate the quality of what’s out there but the fact of the matter is that supply is greater than demand.

I believe that this is what newspaper publishers are really struggling with now.  It’s clear that they are no longer the prime provider of news and information to their communities.  Pick any current news topic of note and plug it into a search engine.  I’d bet that 90% of the time you’ll find a good source of reporting by someone not affiliated with a newspaper.  Problem is, newspaper publishers haven’t come to terms with this fact and they don’t know how to deal with that.  And most newspapers these days garner most of their published news from wire sources such as AP (a non-profit collective owned by newspapers) and UPI – not from your friendly neighborhood staff writer. 

As newspapers have worked overtime to improve operational efficiency through cuts to staff, process improvements and divestiture of non-core businesses; it hasn’t been enough to stem the tide of falling ad and subscription revenue.  Massive infrastructure costs continue to burden these companies and they need to scale down while improving their focus on quality journalism.  Reducing journalist staff does nothing but destroy their only real value add product.  Their entire value proposition is quality journalism.  If newspapers continue to get rid of journalists they will end of penny wise and pound foolish. 

What is needed are innovative delivery engines and perhaps a psychological change from the standpoint of publishers to generate less revenue but to do it profitably.  What’s better?  Earnings of $250M/year with a loss of $25M or earnings of $100M/year with a profit of $5M?  Easy math.  While they’re at it – they must deliver a clear value proposition to their subscribers.  If they newspapers can’t provide a service that their competitors can’t do for cheaper or free then they’ll die.

Where are the New Revenue Streams?

There’s mounting evidence that the average Tom, Dick and Harry newspaper is not going to make its living by putting up a paywall.  So far, there are only two real success stories – the Wall Street Journal and the New York Times where digital  subscriptions are over a third or their total subscriber base.  By comparison, the Gannett collective, which produces newspapers such as the omnipresent USA Today, only has a 2.2% digital subscriber mix.  And all that being said, the WSJ and NYT are still very low both in volume and revenue compared to other media outlets (Netflix, Hulu, MLB, etc.) as Alan D. Mutter points out in his excellent article on the dearth of digital subscription revenue for newspapers.  The model below demonstrates the small number of digital subscribers for the WSJ, NYT and Gannett combined equalling ~1.7M subscribers.

Digital Subscriber Base

Those Paywalls Will Come a Tumbling Down

Recently, both the SF Chronicle and Dallas Morning News announced they were bringing their paywalls down.  The rationale being that the Subscriber base that goes to digital is so low it isn’t worth the cost, annoyance of customers, or the general hassle of running the paywalls.

The fact is that paywalls will not work unless there’s premium content available that is customized based on the user.  Paywalls amount to nothing more than a convenience fee to see what’s been printed in digital form.    Newspapers need to create compelling content with multimedia integration if they want anyone to pay.

Much better platforms exist to allow users to curate their own content in a format that they like and appreciate.  Flipboard is a great example of this.  Users can curate their own content from a variety of sources including blog posts, news sites, social media, et al.  This content is aggregated and dynamically updated as new posts are created from the sources the user specifies.  So you effectively get your own online Zine for nothing while the app and the web do their work in the background.

Advertisers are also getting onboard the content aggregation bandwagon.  They are becoming curators themselves and are beginning to create publications that Flipboard users can subscribe to.  And they are creatively placing their own advertising within these curated publications.  Levis is a good example of a company using this technology  – and users are actually subscribing!  Flipboard is also offering this capability to its Users which has the potential to lead to a whole new revolution in the ‘blogosphere’.

What Have we Learned from Television?

Besides learning about Duck Hunting, Gold Mining and Deadly Fishing expeditions – I think we can safely say that we’ve realized consumers want their TV ‘ad free’.  As consumers have proven through their use of DVRs and paid subscription services such as Netflix, Hulu and even Sirius/XM – they are fleeing in droves towards ad free content.  The bottom line is that Customers won’t buy unless they get the content they want with fewer to no ads.  To top that off, there’s this strange phenomenon that people feel like they shouldn’t have to pay for digital content.  The internet is free right?  What’s that all about?  Making matters worse for the newspapers is this overarching journalistic notion that they are providing a public service for the people.  They don’t care about the money – they just want to ‘do good’.  Tell that to Pulitzer and Hearst!

Mathew Ingram has written about this extensively and his recent articles on both the fall of paywalls and the future of partnerships between content providers and aggregators are both worth a read.

5 Ways Newspapers can Save Money and Make More

Lack of funding and innovation means there’s no way to compete with the traditional model

If newspapers are to survive they absolutely must get away from non-core business functions and create new revenue streams.  Simply put – what got them here won’t take them there.  They need to take cues from other companies that have reinvented themselves and learn to focus on their core value proposition – providing high quality journalism that you cannot get anywhere else.

Boeing is a great example of a company that reinvented itself by changing itself from a manufacturing company to a design, assembly and marketing company.  They cut out many of the core cost components of manufacturing all the parts of a plane and focused more on the design of those components while outsourcing the actual manufacturing.  This saved the company a great deal and allowed them to focus on the putting together and selling of airplanes.

#1 – Kill the Printing Presses

Newspapers need to follow suit by getting out of the business of printing the paper.  Many have already outsourced distribution to a network of contractors.  Why not sell off the presses and pay for the service? Sell the buildings, the land, the equipment to someone else and pay for that value added service while getting a much needed injection of cash to fund innovation in the process?

In Benjy Boxer’s recent article in Forbes, he outlines the average annual costs of both the NYT and Wash Post to produce print versions of their paper as shown below:

NYT and WA Post Cost Per Reader

The weekly home delivery charge is $6.95 (without special offers) for the Post and $6.35 for the Times.  Those have to be extremely thin profit margins when you add in operating, distribution and labor costs to produce those papers.

Reducing total cost of ownership and operation of the presses will also allow the newspapers to focus on the global trend of people moving to digital.  Younger people simply don’t read the physical paper as much as older folks do.  Ultimately, they are the customers you should be targeting for long term sustainability.

2 – Improve Back-end Content Management Capabilities

Most newspapers have very limited capabilities in the way of robust content management.  In order to keep up with the Joneses and where technology is headed, as well as to provide their subscribers with the quality experience they demand (if they’re being asked to pay) they must leverage cloud-based technologies that allow them to compete with the likes of the Huffington Post, Flipboard, Reddit, et al.  Newspapers must have the ability to quickly customize content and create a user experience (or better yet, let subscribers create their own) that is worth paying for.

3 – Collect Customer Data in a Non-intrusive Way

I believe most newspaper companies are just scratching the surface in the world of business intelligence and analysis.  There is so much data available to them about their customer base and they have the ability to collect even more.  However, it’s largely an unmet need today and a huge prerequisite to generation of new revenue streams.

Newspapers need to develop/improve their capabilities to profile their subscribers both explicitly (based on volunteered data) and implicitly (based on their behavior and interaction once on the site).  By collecting and analyzing this data, they will be able to a) provide targeted content based on demonstrated and stated user preferences, and b) sell targeted advertising at a premium.  There are huge opportunities here waiting to happen if only the newspapers would invest more in this area…

I’ll write more about this in my next article – Give me Data or Give me Death

4 – Focus on the User Experience

In order to attract and engage customers – newspapers will have to create amazingly robust digital content available on all platforms.  Content Management Systems must be improved and provide the ability to personalize the information that the subscriber is presented.  The ability to do this is predicated on having more information about the subscribers likes, interests, dislikes and behaviors to name a few things.  Therefore, that data must be collected and analyzed in order to provide a custom experience for the subscriber.  When competitors like Flipboard (a free service) are allowing people to curate their own content and create their personal publications – there is limited value add that most digital newspapers can provide in their current form.

5 – Improve Content and Quality of Journalism

This is the bread and butter for newspapers.  The only real, tangible reason why people read their local paper is for the quality of the journalism.  If I started a newspaper tomorrow and just reproduced newswire-based content organized in a readable way I would fail.  Because anyone could do the exact same thing without much effort.  Quality, local journalism is the difference between getting news from my local newspaper vs. the blogosphere.  If that quality disappears or becomes generic, then much of my reason for buying the paper goes away.

Invest in your journalists, pay them well, engage the social media/blogosphere community for curated content, and get away from reliance on AP, UPI and the like.  Then maybe you’ll have a shot at survival and growth.