Will business model ‘stabilize’ for newspapers?
And it had better not, if Pruitt intends to save what’s left of his newspapers, where relentless cost cutting has halved the headcount of his flagship Sacramento Bee to some 700 increasingly nervous souls in the last three years.
“It feels like the 19th inning, but we are not sure,” the chief executive of the nation’s third-largest newspaper chain said Friday after reporting that his company’s sales in the first half of the year slid 9.6% to $618 million and his net profits in the same period plunged 68.5% to less than $3 million.
“I do think the business model will stabilize,” he continued. “I am hopeful we are much closer to the end than to the beginning. But I can't give you a read more than that.”
Sorry, folks, but it is unrealistic to think the newspaper business model will stabilize, because we are in the midst of profound and fundamental changes in the way people get information – and marketers connect with them. The model cannot stabilize, either, because the traditional strengths of the newspaper business have been turned into liabilities in the new order of things.
If Pruitt and his fellow publishers don’t intelligently de-stabilize their businesses to modernize them, they run the risk of seeing further deterioration of their once-formidable franchises. Like most other publishers, Pruitt already has lost a lot of ground: The market capitalization of his company, which peaked at $3.5 billion in 2006, now is less than $200 million.
This is why the newspaper business is not going to stabilize:
:: Because people can acquire content from any number of sources on any number of platforms at the time and place they want, there is increasingly less utility in the print product, which necessarily is a static (and often out of date) aggregation of a small subset of all the news, information, entertainment and commercial content available in the ever-expanding digital universe. Despite the diminishing importance of the legacy product among most consumers, the newspaper industry still depends on print circulation and advertising to provide 90% of its revenues.
:: The proprietary production and delivery platforms that previously provided publishers with unrivaled market share and pricing power now represent unavoidably huge fixed costs that put them at a distinct competitive disadvantage to the proliferating digital platforms. Even though roughly 1 out of 3 newsroom jobs has been lost at American newspapers in the last decade, publishers still pay far more to produce content than most digital competitors. Sadly for those of us who treasure quality journalism, the high cost of producing original content has turned the medium’s most cherished competitive advantage into a liability from the standpoint of hard-eyed financial analysis. The same can be said for owning printing presses and large fleets of delivery trucks.
:: While the monopoly or near-monopoly status historically enjoyed by publishers allowed them to charge formidable advertising rates for access to the substantial audiences they aggregated, the increasingly sophisticated digital media make it possible for advertisers to finely target their pitches to specific audiences – and sometimes even individuals – at a fraction of what they have to pay for a newspaper ad. While newspapers depend on selling un-targetable print ads at the rate of $12 (or more) per thousand in order to support their high fixed costs and double-digit profit aspirations, un-targeted banner ads can be bought by the fistful on the web for $1 per thousand – or less. With all due respect to the quality of the typical newspaper ad environment, it is hard to believe this differential pricing can be sustained over the long term.
In light of the above, it is futile to merely “hope” the newspaper business will stabilize. The hopelessness of hope is perhaps best illustrated by the fact that half of the industry’s revenue base vaporized in the last 5½ years while publishers were hoping for a different outcome. Barring a miracle, industry-wide ad sales, which were $49 billion in 2006, are unlikely to top $23 billion in 2011.
Given that despair is not an acceptable option, what are publishers to do? They must begin intelligently, and speedily, de-stabilizing their enterprises by:
:: Accepting that the old business model is winding down.
:: Understanding that consumers and advertisers are forsaking one-to-many media like newspapers in favor of some-to-one media like Facebook and one-to-one media like the wondrously individualized smart-phone experience. (See also this slightly out of date but still relevant post from 2007.)
:: Embracing digital technology to create truly new products and platforms for delivering content, building audience and then monetizing those efforts through advertising or other means. This explicitly means going far beyond porting print content to a Newspaper.Com website and upselling web banners to print advertisers.
:: Considering such previously unthinkable measures as reformulating content strategies, pulling back on seven-day-a-week printing, cutting ad rates and entering into partnerships with digital competitors that previously may have looked more like enemies than friends.
:: Leveraging their formidable strengths – brands, market presence, content-creation capabilities and sales forces – to move smartly into the future.
There is a way forward. But it will take vision and work, not just hope.