The Newspaper Dilemma

By Conhaim, Wallys W. | Information Today, July/August 2006 | Go to article overview

The Newspaper Dilemma


Conhaim, Wallys W., Information Today


[Editor's note: This is Part 1 of a two-part series. Part 2 will appear in a future issue.]

The advent of the Internet has been revolutionary for newspapers. However, newspaper publishers are still searching for economically viable digital publishing models. Part 1 of this two-part series examines why newspapers have been migrating toward online delivery and how well they are doing in the rapidly changing media environment; Part 2 will cover alternative visions for the future of newspapers.

The Internet can be viewed as an opportunity for newspapers, but it is also a threat to them. As more people spend more time online, they spend less of their time reading newsprint. Worldwide circulation has dropped 2 percent to 3 percent annually for the past decade.

Economic Decline

Even before the Internet changed everything, U.S. newspapers were experiencing steady drops in readership. In 1964, 80 percent of adults read a newspaper daily; by 2003, daily readership was down to 54 percent. The rate of circulation decline has increased in recent months.

The greatest losses seem to be in the major metropolitan areas that have populations between 250,000 and 500,000. Large national and small-town newspapers appear to be holding their own. Recent 6-month circulation figures among major papers ranged from slight gains for The New York Times to steady ones for USA TODAY to as big a drop as 15.6 percent for the San Francisco Chronicle.

Lack of public interest in the news does not appear to be the issue. Online news readership is high for all age groups, and television is finding audiences for 24-hour news programming.

Profits at the largest newspaper companies have been declining precipitously. In an April Wall Street Journal roundup, 1Q 2006 profits at McClatchy Co. (which was in the process of purchasing the Knight-Ridder chain) fell 15 percent, while Tribune Co. profits fell 28 percent and New York Times Co. dropped 69 percent over the previous year's first quarter. A New York Times report recorded 2,000 staff layoffs in the industry last year alone.

All of this matters because it threatens to undermine the strength of our most significant news gathering institutions. They are the bulwark of our democratic system.

For a long time, the industry has been warily anticipating this day. Newspaper associations have been discussing the inevitable future since news of French and British experimentation with teletext and videotex crossed the Atlantic in the mid-1970s. There have been comprehensive planning efforts and "newspaper of the future" projects. Leading-edge newspapers and chains have been developing alternative ways to deliver their services, not only to readers but to advertisers as well.

These early efforts are beginning to pay off, at least in terms of securing a leadership position for newspaper content online.

News Wins Online

More than 1,500 U.S. daily newspapers have online editions. According to the Newspaper Association of America (NAA; http://www.naa.org), newspaper sites reached more local Web users than any other local site in 22 of the top 25 U.S. metro areas. Newspaper Web sites were the preferred online destination for local news for general Internet users (62 percent) as well as online newspaper users (85 percent).

Readership of newspaper Web sites is on the rise: It's 8 percent higher than last year with 37 percent more online users in 1Q 2006, according to Nielsen//NetRatings. About 56 million readers viewed newspaper Web sites online during a recent quarter, compared with more than 45 million average daily circulation for hard-copy editions. During 2005, the number of unique newspaper Web site visitors had jumped 21 percent while the number of their page views rose 43 percent, according to an NAA study.

The use of the Net as a source for news is especially strong among young people, the lowest demographic group among print newspaper readers. Some 71 percent of young broadband users go online for news in an average day, according to a recent study by the Pew Internet & American Life Project.

Changing Media

"The State of the News Media 2006" (http://www.stateofthenewsmedia.com/ 2006), a report of the Project for Excellence in Journalism, reminds us that newspapers are still the primary supplier of news content to the Internet. Rather than the end of journalism, the report documents "a seismic transformation in what and how people learn about the world around them."

The 2006 study has identified six emerging trends that are having a heavy impact on the news industries as a whole.

They are as follows:

* More outlets covering fewer stories

* Dominant, big-city newspapers as most threatened

* Idealists at old-media companies losing out to accountants

* A move of traditional media toward technological innovation

* News aggregators challenging old media

* Questions about whether online journalism will ever become as large an economic engine as print or television

The last item is the key issue for newspapers.

A Daunting Problem

Print newspapers are a perfect package. Their timely, expertly edited content and convenience attract readers and readers attract advertiser dollars. The newspaper is the most influential marketplace for ideas and goods in its community.

As major change appeared more imminent, and even before the advent of many nonnewspaper online news sources, newspaper managers' primary concern with their own new media efforts was fear of "cannibalization"-that readers would migrate to free online editions and abandon the revenue-making print editions.

Advertising, primarily local and classified, accounts for some 70 percent to 80 percent of a newspaper's revenues and significantly subsidizes the news gap. Newspaper advertisers pay for potential eyeballs.

If newspapers could earn as much in advertising from an online user as from a hard-copy reader, cannibalization would not be a problem. However, according to Borrell Associates, it would take 20 online readers to generate the ad revenues one daily hard-copy reader currently brings in.

Newspaper Web sites now represent only 5 percent of newspaper ad revenues despite their popularity with Web users, according to the NAA. Web readership increases alone cannot reverse the industry's declining performance. Nor can we expect average consumers to pay for online news any time soon. A recent Pew study found that only 6 percent of Internet users had ever purchased online news items.

We can easily see how online delivery and personalization, even by newspapers, destroy the synergy, fragmenting both the news content and the advertising and breaking up the critical mass of readers that forms the basis for setting advertising rates.

No alternative business model has yet emerged as an easy winner. Newspapers are reassessing their future in light of these facts and in the face of unprecedented competition-a good deal of it from other online players.

Competitors

The Internet lowered the barriers for entry into the various services that are part of the newspaper package-information on current affairs, opinion, sports, entertainment, service pieces, personal advice, and advertising (including supplements) that is conveniently delivered to the home or is easily available. This is a balanced blend of components that research shows is of considerable interest to consumers/readers.

With their online involvement, newspapers are also on a 24-hour delivery cycle, organizing news and advertising for easy online retrieval, syndicating their content, and/or marketing their archive libraries.

For many, these are activities that are subsidized by hard-copy revenues.

For each of these diverse roles, however, there are now many online competitors. On the news side, multiple news aggregators, search engines, RSS feeds, bloggers, and other sources directly provide more than enough news to the 71 percent of the U.S. population now using the Internet.

Entrepreneurial subject specialists and generalist startups (some exercising the press' traditional watchdog and opinion leader roles) have already become well-known brands attracting significant ad dollars. In addition to daily online-only news media such as Slate and Salon, we are seeing growth in group blogs by respected journalists, such as The Huffington Post, and conglomerates of blogs on various topics such as Weblogs, Inc. and Corante, among many others. Portals and search engines allow people to create free current awareness services for themselves.

In terms of local advertising, newspapers must now contend with online real estate and auto buying listings, job and resume sites, personals and social neworking services, numerous food and entertainment directories, the eBay classified marketplace, craigslist, and Google Ad-Sense. Google Local and Local.com provide easy online visibility, contact information, and directional maps for local businesses.

Significantly, the nature of advertising itself has changed, in great part as a result of the Internet. Advertisers' desires to reach mass markets have given way to a need to reach niche markets that match the niche products in the marketplace, because it's now possible. Online ads give advertisers exact feedback on the actual usage of ads by counting clickthroughs, a level of accountability and results orientation that print newspapers cannot provide, except for coupons and affinity programs. Print advertisers pay for demographics; online advertisers generally for actual hits or, as in direct mail, for reaching specific demographic or lifestyle groups.

It is not surprising that online advertising has taken off. It was already a $12.5 billion business in 2005, a 30-percent increase over 2004.

The Response

Newspapers know that simply replacing their hard-copy services with online equivalents will not allow them to thrive in the new environment now or in the foreseeable future. A paradigm shift is needed.

Yet, delivery of online information and services, whether or not the online medium eventually replaces the paper, is now irrevocably part of newspapers' identities. Newspapers and, in fact, all print media are now beefing up their online staffs and doing more to mainstream their online operations, many of which originated as separate experimental projects. They know online services are part of the solution. They just don't know precisely how.

The list of innovations being tried is extensive and all over the map. Here are a few:

* Encouragement of staff blogging

* Making room for "citizen journalism"

* Generating multimedia content

* Subscription to full daily personalized online edition

* Subscription to selected online content

* Free and paid access to archives

* Free and paid access to editorials

* Free and paid keyword alerts

* Downloadable facsimile editions

* Inclusion of nonnewspaper content

* Exclusive online content

* Delivery to mobile media

Each of these innovations has value in itself, but individually, or as a group, they have not yet made a large enough impact to make a difference in newspapers' prospects.

The critical issue now-and for those of us who rely on newspaper content in all its forms-is for the industry to find a business model that will take it into the future. In Part 2, we'll learn what some of the industry's leading thinkers are proposing.

[Sidebar]

More than 1,500 U.S. daily newspapers have online edtions.

[Sidebar]

The use of the Net as a source for news is especially strong among young people, the lowest demographic group among print newspaper readers.

[Author Affiliation]

Wallys W. Conhaim is a strategic planner, researcher, and analyst specializing in interactive services. Her e-mail address is wconhaim@conhaim.com. Send your comments about this column to itletters@ infotoday.com.

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