Monday, June 08, 2009

Facing up to life after print for newspapers

There are many unsettling parallels between newspapers and General Motors, the iconic American corporation struggling to regain its financial health and vigor as a consumer brand.

But there is a major difference between the opportunity that lies ahead for publishers and the continuing challenges facing America’s No. 1 disgraced automaker. Publishers have a far better chance at re-inventing their businesses than GM – but only if they act quickly and wisely.

GM recently joined Chrysler in filing for Chapter 11 to restructure a company burdened not only with insurmountable debt, an uneconomic manufacturing infrastructure and unsustainable union obligations but also a revenue crisis caused by a long-running slump in customer confidence aggravated by a precipitous collapse in the economy.

That sounds a lot like newspapers, especially the several who in recent months sought bankruptcy protection from debts that, in retrospect, they shouldn’t have incurred and now can’t handle. But here’s the difference:

Unless GM goes into some entirely different business, it always will be a capital-intensive, 19th Century-style manufacturing company. GM never can escape the need to operate big-ticket, dedicated manufacturing facilities that cost as much to own if the company builds a thousand cars as if it builds millions.

While your heart wants to wish GM well in the effort, your head says the company seems fated to creak and groan and struggle and shrink until there’s nothing left but a black hole in the federal budget.

The story could be pretty much the same for newspapers, minus the federal bailout. But the outcome could be significantly brighter for publishers, if they are quick, creative and bold enough to reposition their businesses for the modern, interactive world.

Unlike GM, publishers are approaching the day when they will have the opportunity – and perhaps no other choice – to exit the anachronistic manufacturing business that is eating most of them alive.

Between 60% and 70% of the cost structure of newspaper companies is consumed by the production and distribution of the print product that for years has been falling out of favor among readers and advertisers alike.

To be sure, most newspaper publishers will be required to be in the printing business in the immediate future, because roughly 90% of their sales are generated from ads and circulation fees for the physical product. Stop the presses tomorrow and you will kill the businesses before they can effectively transition to the future.

But the days of print newspapers are numbered. As the last generation of newspaper readers fades away (the trend is indisputable in the chart below), the demand for the print product will continue to shrivel among consumers and marketers.

Like it or not, it’s only a matter of time before it will not be economically feasible in most markets to print newspapers seven days a week.

If manufacturing newspapers were all that newspaper companies could do, then that would be the end of them. But newspaper companies, unlike GM, have options.

While printing and delivering newspapers certainly ranks among the core competencies of the industry today, newspaper companies possess many of competencies requisite for success in the Information Age. They are:

:: Enormous brand recognition and a high degree of credibility in their markets.

:: The largest, best-equipped staffs of content creators in the communities they serve.

:: The marketing power and know-how to attract large and desirable audiences.

:: The largest and best-connected advertising sales staffs in their individual markets.

Not even the strongest online competitors have those capabilities.

To gain full advantage of the resources remaining at newspapers after the recent years of extreme cost cutting, many publishers are going to have to face the emotionally difficult decision to cut back on their daily print schedules.

By producing a limited number of premium-priced, niche publications on only the days when it is profitable to do so, publishers can begin to focus more of their attention and resources on creating the wide array of tightly targeted Internet and mobile products that represent the future for their franchises.

Freed of the requirement to produce enormous quantities of newspapers every day of the week to support an increasingly challenging business model, publishers could get out from under the high costs of their production infrastructure by shuttering their dedicated production plants, selling off their fleets and outsourcing to lower-cost vendors the strategically immaterial chores of production and distribution.

This step is difficult to contemplate for those of us who get goose bumps watching the presses roll and enjoy burrowing into the pages of a crisp, new paper.

It is particularly painful to contemplate the enormous dislocation that would befall the pressmen, mailroom staffs, circulation crews and other dedicated workers whose jobs would go away. I was in Chicago when we moved from hot metal to computer composition in the 1970s. It was awful watching the proud and skillful members of the typographers union consigned to history.

But there was no denying the wisdom of that business decision. Today, the time for more tough decisions is upon us.

Publishers must do everything they can to save what’s left of the press, even if it means eliminating the presses.

11 Comments:

Anonymous Anonymous said...

Outstanding analysis as usual.

I might question a bit the "marketing power" of traditional newspapers. Here in my neck of the woods, the paper has apparently ceased all marketing efforts - making no effort at all to lure back former subscribers who drop, or even doing billboard campaigns about their columnists or content.

As for ad sales, I suspect that this capability is withering rapidly -- these departments are beaten down and always have openings.

7:04 AM  
Anonymous Laid Off Too said...

Mr. Mutter, I agree newspapers have a better chance than GM, Chrysler, etc. However, let's look at these points in order:

:: Enormous brand recognition and a high degree of credibility in their markets.

Recognition, maybe. Credibility? I think your graph makes a point that's going down, like GM and Chrysler. Many people see papers are being politically influenced.

:: The largest, best-equipped staffs of content creators in the communities they serve.

Cuts are making the staffs smaller. They don't seem to have enough to do in-depth reporting, and they are getting beat on "instant" reporting. What's left?

And are the papers better than TV and radio people?

:: The marketing power and know-how to attract large and desirable audiences.

I'd question this significantly. If a paper is no longer a physical product, will the papers be the first thing you find when doing an online search? Do papers have the technical people needed to win this battle against people whose entire business model depends on it, and have years of expertise?

Again, TV and radio may be easier for non-techies to find.

:: The largest and best-connected advertising sales staffs in their individual markets.

As Jeff Jarvis pointed out, companies are looking to alternative ad methods, making papers and TV and radio bid against each other. Who's going to win that, if there are fewer papers/week being produced?

I get all my national news online now. If the kid next door didn't deliver the twice a week local paper, I'd cancel rather than pay the $2/month. My kids looked surprised when I show them an article of interest from it. Otherwise they would never look at a paper. They don't care where it comes from.

In summary, I think a paper could survive online, but to do it will require a huge paradigm shift and expertise that may not be easy to find.

7:18 AM  
Anonymous Benjamin Cole said...

Not sure who I would rather be, GM or the LA Times.
People will be buying cars 25 years from now, I am pretty sure.
Newspapers?
Okay, so papers gravitate online. Yes, they will survive, and yes, no one will care what they say.
I think automakers have a terrific future, developing high mpg cars or CNG cars.
Newspapers?
The best future of ll is for people who want to take part in urban graft and corruption. A huge growth industry ahead.

11:27 AM  
Anonymous Anonymous said...

I wouldn't want to be employed by or invest in GM or the newspaper business. But if I had to choose, I'd go with Government Motors.

One reason: barriers to entry. A decade ago my thinking was influenced greatly by the stable of writers in the local newspaper. Now, my thinking is most influenced by a stable of bloggers and I rarely read the local newspaper online or in print. In fact, if I were a 'name' local columnist and were still willing to work hard (vs phoning it in) I would quit the newspaper today and open a blog on the internet.

I think this is a wonderful thing for both news consumers and producers, with a painful transition involving a lot of muddling through. As an example, I've been slow to find a replacement for the newspaper's 'things to do on the weekends' service. Now I have links to town websites that have fairs I've enjoyed in the past and I've found a better nightlife source than the newspaper. So we'll muddle through for a time as the online world slowly replaces the various newspaper services but in the end the consumer will be better off.

1:00 PM  
Anonymous Anonymous said...

To me this kind of shows just how much newspapers industry is like the music industry was five years ago. The labels were asleep at the wheel for at least decade and missed the digital opportunity. The recorded music business is half the size it was at its peak as a result.

But since they woke up? Digital is 1/5 of the business (It’s 12% at the New York Times). And their ranks have been trimmed, too, but that doesn’t mean the world is ending for them. Look at WMG: It has about half the employees it had in 2003 but it’s sporting its highest market share in a decade and has held revenues roughly flat in a down market.

Sure, record labels are not consumer brands in and of themselves, but the important labels do resonate. This is especially true within a genre and, most importantly, among the artists and hardcore fans within that genre. This is critical in a world of increasing fragmentation.

Maybe the newspaper publishers can look their way for some inspiration rather than at GM for a redundant dose of reality.

2:17 PM  
Anonymous Walter Dnes said...

Sorry, but I believe that "newspaper websites" are doomed. The internet is moving more and more towards integrated audio and video. It's a natural fit for a TV station or TV network. Most radio stations have some association with a TV station, if not common ownership, and identical call-letters. They can easily survive on the internet.

A newspaper website has static text. To quote an old saying, it's like taking a knife to a gunfight. The "newspaper website" will get slaughtered. Can you give me any good reasons why the LA Times website (just an example) can take on the CNN website? Even more, how could the LA Times convince people to pay when the CNN.COM website (and ABC.COM, and BBC.CO.UK and CBC.CA) are giving it away for free?

There'll be a few niches for specialist publications like The Wall Street Journal or The Economist, but I don't see each city and large town having one or more successfull pay news websites.

3:36 PM  
Blogger Gary said...

Very insightful article, if a bit depressing. A question ... do you think it would be possible to keep daily printed editions alive via the coalescence of several major newspapers into a single National Newspaper (entitled "
The U.S. Daily News, or whatever), something on the order of Le Monde or Die Zeit?

6:21 PM  
Blogger chuckl said...

I'd respectfully like to suggest that "newspapers" are not monolithic; neither are publishers. Some of them are crippled by crushing debt, other aren't. Some are losing money, but others remain profitable, albeit not as much as before. Some, like the New York Times, are experimenting and coming up with some innovative ways of making their content more relevant and valuable, others are just squeezing the last dimes out of their subscribers and advertisers before the vultures begin to circle. Some can't see outside the manufacturing box they're in while others are embracing the Internet and multimedia to solidify their position as community forum and the source for local news. All media companies are facing similar challenges. Some will embrace change and not only survive, but thrive. There's no reason that a news organization untethered from the manufacturing albatross and savvy about downsizing and making a reasonable transition to digital advertising from print. Some will end up like Buick, but others will scuffle through, like Toyota.

6:25 PM  
Anonymous Dennis Robaugh said...

" ... the outcome could be significantly brighter for publishers, if they are quick, creative and bold enough to reposition their businesses for the modern, interactive world."

Rare are the examples of publishers these days who are indeed "quick, creative and bold enough" to make the necessary decisions to reposition a news business. Brian Greenspun comes to mind in Vegas. More often, newspaper publishing companies and the people who run them are slow, schizophrenic, bland and timid (kind of like their web sites) -- and they do everything they can to drive out bold thinkers (the types of people who "just think things up" at places like Google).

I agree with the previous commenters who note that these so-called strengths of newspapers have been diminished greatly -- devastatingly so in some markets.

More food for thought here, from Dan Sinker, about the failures of print publishers to innovate: http://www.chicagomediafuture.org/?p=187

Certainly some publishing companies and newspapers are going to make this leap. But many won't reach the other side.

6:43 PM  
Blogger Concord Carpenter said...

sad

5:01 PM  
Blogger Lanna said...

Though the charts and the facts undisputeably show that paper newspaper readership is going down, the College Readership Program has been hugely popular on university campuses. (Providing print papers to students for free). Maybe it's that they're free, maybe it's that they're carefully positioned by the campus coffee shops, but it's interesting to note that university students, who are often the most tech-savvy and digitally-oriented, are really embracing this more traditional program.

5:18 PM  

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