Wednesday, April 11, 2012

Four ways newspapers are failing at digital

Nearly two decades after the commercial debut of the Internet, most publishers still are applying the anachronistic newspaper model to their digital businesses. This is nuts.

And it has to stop, if publishers have any hope of retaining a semblance of the relevance, readership and revenues that historically made them the influential and commercially successful enterprises they would like to continue to be in the future.

Although readers and advertisers are flocking to the proliferating digital media as fast as they can, the stubborn fact is that most newspapers derive only about 10% of their revenues from digital products. While it is true that the relative digital contribution to newspaper revenues has grown in recent years, the gain has more to do with the 50% plunge in aggregate advertising sales since 2005 than a truly meaningful increase in digital revenues. In other words, the numerator looks bigger because the denominator shrank.

If publishers want to get serious about adopting real digital business models, they have to address four enormous problems:

Weak digital product portfolios

Instead of using the web, mobile and social media to connect with new readers and customers, the typical newspaper dedicates the majority of its digital efforts to faithfully porting its print product to pixels. The typical newspaper website is heavy on words and light on interactivity. Most mobile products fail to leverage the power of this intensely intimate medium to deliver personalized and localized information to solve immediate individual problems. The “we-talk, you-listen” Facebook pages maintained by most newspapers almost universally fail to build community, which, of course, is the entire point of social media.

Aging, undiversified audiences

In light of the above, it is not surprising that the audiences attracted to newspaper-centric digital products look remarkably like print customers. “The average print reader is a female nearing 60, when the age of the average population is 43,” says Greg Harmon of Borrell Associates, who has been tracking web readership at newspapers for a decade. “The user of a newspaper website is a little less female than the print subscriber and just over 50 years old, but the average age of the online newspaper audience gets one year older every year.” Unless publishers use their digital media to attract younger and more diversified audiences than they have today, the future of their business would seem to be limited to the lifespan of their aging readers.

Limited revenue opportunities

While online ad spending is expected by PricewaterhouseCoopers to double from current levels to $62 billion by 2014, newspapers today have no ability to compete in such fast-growing categories as search, mobile, social, video and targeted banner advertising. Because they have not invested in modernizing their advertising capabilities, publishers are stuck with offering un-targetable banners and online upsells from their tattered print classified businesses. Further, researchers say the folks who formerly bought local advertising are spending ever-greater portions of their budgets on direct contact with consumers via websites, search-engine marketing, daily deals, couponing, contests, social media and e- or snail mail. Borrell believes as many as $3 out of every $4 spent on local digital marketing this year will go to non-advertising venues. Most newspapers have few products to capture those dollars.

Feeble competitive response

In addition to traditional broadcast and Yellow Pages sales pressure, newspapers today must compete with a growing number of digital reps for everyone from Google and Groupon to local webmasters and social media agencies. Estimating that there now is one digital rep to rival every three salespeople fielded by newspapers, Borrell reports that the typical small business gets more than 20 pitches a month from an advertising or marketing representative. Although research shows many businesses continue to value their newspaper reps, even the best relationships can’t make up for a lack of the digital and marketing products that merchants increasingly are buying. In perhaps the single biggest challenge the industry must overcome, newspaper reps can’t possibly sell digital products they don’t understand, can’t explain or don’t believe in.

Now that I have your attention…

Though most publishers are further behind the curve than they ought to be (and think they are), newspapers continue to possess powerful brands, content-creation capabilities, sales relationships and marketing muscle.

The first step to getting serious about digital publishing is to develop a strategic commitment to building relevant and remunerative products. Because most profit-pinched newspapers lack the time, money and in-house talent to develop such products, it makes sense for the industry to pool its resources to create a Digital Widget Works to build products to compete with the upstarts.

The time to act is now. The contest will only get more intense, with Groupon, LinkedIn, Facebook, Twitter, Yelp and a host of wannabes feasting on fresh capital faster than you can spell IPO.

© 2012, Editor & Publisher

16 Comments:

Blogger Bryan M. said...

You write: "it makes sense for the industry to pool its resources to create a Digital Widget Works to build products to compete with the upstarts."

Wouldn't that be some kind of collusion? Can you give an example of where another industry has done this?

Thanks.

6:56 AM  
Blogger JQ said...

The big four magazine publishers banded together a few years ago to form a consortium called NIM, which has been working on a magazine-reader app that's coming to Android tablets soon via a cable-TV pricing structure.

7:35 AM  
Blogger Joanna Leiserson said...

Your prescription assumes newspapers would be willing to sacrifice their single-digit margins while investing in digital technological and content-creation capacity. They wouldn't do it when the margins were 30-40%. Even then it was cheaper to embrace denial. Their spots haven't changed. That's why newspapers are dead men walking: denial when there was a chance of survival, denial when there isn't. --Mike Phillips

1:04 PM  
OpenID jboydston said...

"...it makes sense for the industry to pool its resources ..."

This is already happening with Open Source software, specifically WordPress. Ten times the value for one tenth the price.

The software is free, some ambition required. @joeboydston

5:49 PM  
Blogger chuckl said...

Newspapers won't be successful digitally because they simply don't think digitally. Its not that they dont want to, its a different mindset. Look at the succesful online newspapers like daily beast, huffpo and even a clever aggregator like Flipbook and analyze all the ways they are different from "newspapers." newspapers might argue that those are not sustainable business models for them, but those are examples of what works. And they work mostlly because they have adapted so well to tablets. Reading the news is often and increasingly a lean back experience, and that mode works well for newspapers like huffpo and the others. Compare that to not only how poorly most newspapers are designed for tablets, but more importantly, how poorly they are thought through. Huffpo and Beast in particular are set up to be provocative, social and interactive. Meanwhile digital replica Tablet versions of dailies like the sf chronical just kind of lay there like, well fish wrap.. The medium for people reading news is largely becoming the tablet, and if newspapers dont adapt and capitalize on that opportunity with products that reach the bar set by huffpo and beast, they are surely toast. They should get out of the office and observe how people are using tablets and adapt their product to fit the readers, because the readers, given a choice, will not adapt to them.

8:02 PM  
Blogger Qcitymetro said...

If it were only as simple as some would have us believe. Huffpo, Beast and others aren't saddled with the legacy cost (and social tradition/obligation) of having to cover city council, school boards, high school games, etc., then deliver that product to homes in small towns across America before most people are out of bed. They are free to gorge themselves on low-hanging fruit with no obligation to any community. Newspaper executives have made mistakes, to be sure. But when the barriers to entry fell, the upstarts had the advantage of not having to turn a ship. They could build their boats from scratch...just the way they wanted them. Newspapers, meanwhile, are in the unenviable position of having to compete on this new battlefield while at the same time being tethered to a fading product that still provides the lion's share of their revenue. No one should underestimate that difficulty.

4:06 AM  
Blogger MCObot said...

Qcitymetro is right. Whatever missteps newspapers have made adapting to the digital landscape, the only online news products with a working business model are slicers/dicers/repackagers like HuffPo and Business Insider --- which rely entirely on newspapers and old school journalism to exist.

As unseemly as newspaper hand-wringing may be, digital back-slapping is worse. Internet advertising and the pennies it generates are killing traditional print advertising, but the fact is that display ads bring in actual dollars that keep the lights on. I don't think that means newspapers are putting out a bad product. It just means that digital ad sales don't bring in enough money to support a sophisticated news gathering organization with any kind of local focus. That doesn't look like it's gonna change any time soon, so let's give newspapers a break for selling print ads while they still can (at least until someone figures out how to replace that revenue).

8:45 AM  
Blogger Matt said...

Trying to co-ordinate several news organisations sounds like a nightmare. Better to start small and iterate. Be agile :)

Like JQ said in his comment, it took the NIM consortium several years to develop anything.

5:55 AM  
Blogger Matt said...

There is some informal collaboration and sharing within the news industry - Hacks and Hackers meetup (London) is an awesome place to share ideas.

http://meetuplondon.hackshackers.com/

6:12 AM  
Blogger chuckl said...

Alan has been writing this blog since newspapers first started crumbling, and people were making the same arguments in newspapers' defense in 2007. Legacy infrastructure, too much debt, social obligation, too many costs, the ship is too big to turn, digital dimes for analog dollars. Boo hoo. Meanwhile, newspapers are declining more. Readers and advertisers are leaving in droves. I think many in the newspaper biz no longer have the stomach for this fight and theyve decided to simply bleed whatever they can out of their old cash cow, cut staff to the marrow, and finally retire when they cant squeeze anything else out of the business. The irony is that news and news consumption has never been more popular. But people arent reading news the same way anymore. Adapting to this new environment requires a radically new way of thinking, and i dont see that coming from newspapers

10:05 AM  
Blogger Rich Julius said...

If as Joanna says, “newspapers are dead men walking” then there is yet some hope for a pardon. The fact is, newspapers can derive not pennies, not dimes, but actual digital dollars from the right digital advertising strategies--strategies that include engagement with the local business community and a willingness to give advertisers the interactive advertising products and services that they are begging for. Alan writes “…newspapers continue to possess powerful brands, content-creation capabilities, sales relationships and marketing muscle.” This echoes almost precisely what I wrote several weeks ago in http://bloggingwrites.com/capitalizing-on-news-assets-205/. Qcitymetro says that newspapers are “saddled with the legacy cost (and social tradition/obligation) of having to cover city council, school boards, high school games, etc.” But that’s precisely the value that local newspapers bring to the table. National and international news can always be delivered as curated aggregation; the local journalists are the only ones who can supply valued local content. Local newspapers have everything they need to be successful--if they learn to think like digital startups. They face tremendous inertia, but it’s mental inertia; they are like passengers on a sinking ship, too fearful of letting go of the handrail to get into the loud, scary speedboat that’s come to rescue them.

11:10 AM  
Blogger peterpudding said...

I agree with all of the above, but if newspaper reps are competing with digital reps (which is no different than fighting off a launch of a competitor title)surely your reps must be better equipped and trained than their competitor. Give them the tools to compete.

Despite the market and the competition , sales reps on local papers are not in the same league, YP immerse there digital reps in a 2 week course and that is after they have been trained to sell directories. if you are brave enough to suggest investing in training newspaper reps , you would be taken away in a white van.

Its then traditional (in my experience) to send a rep out with a colleague who may have a vast experience of 3 months in the job and a week later they are on their own. Its probably not as bad as this but not far off

A lot of sales managers are a joke too, they come loaded with cultural baggage, no training and more often than not, hide themselves behind a pile of admin. In most cases they haven't a clue what is being said to the customer and more to the point even if they did, would they no how to coach the rep... me thinks not

cheers Pete

5:14 AM  
Blogger peterpudding said...

I agree with all of the above, but if newspaper reps are competing with digital reps (which is no different than fighting off a launch of a competitor title)surely your reps must be better equipped and trained than their competitor. Give them the tools to compete.

Despite the market and the competition , sales reps on local papers are not in the same league, YP immerse there digital reps in a 2 week course and that is after they have been trained to sell directories. if you are brave enough to suggest investing in training newspaper reps , you would be taken away in a white van.

Its then traditional (in my experience) to send a rep out with a colleague who may have a vast experience of 3 months in the job and a week later they are on their own. Its probably not as bad as this but not far off

A lot of sales managers are a joke too, they come loaded with cultural baggage, no training and more often than not, hide themselves behind a pile of admin. In most cases they haven't a clue what is being said to the customer and more to the point even if they did, would they no how to coach the rep... me thinks not

cheers Pete

5:16 AM  
Blogger Stephen said...

"When a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact."
-Warren Buffett

This reminds me of the Airline Industry. Before deregulation, it was a "great business" to be in, and companies made MASSIVE amounts of money even with hugely compensated, benefited, unionized workforces. PanAm had a massive building all to itself in midtown Manhattan. Then deregulation happened, and barriers to entry went away. Overnight it became a terrible business to be in, but people acted as if the rules hadn't changed. All of a sudden, the same great CEOs were making "terrible" decisions left and right. The truth though was that there were no more good decisions to be made.
Beware all this talk of innovation and being agressive. The climate has changed and newspapers now live in the desert. This not to say that newspapers don't need to change, it's just that the answers aren't gonna be some clever idea. It's gonna come from cutting costs, keeping it simple and accepting their new reality. The survivors in the Airline Industry have been the most conservative. Southwest Airlines has played the exact same game since the seventies. Sticking to single markets, single flights, no frills, no "fail early fail often" mentality. Get it right as soon as possible and then stick with it, without gettting greedy. This is the ethic of all animals in arid climates- be as efficient as possible and watch your competitors die around you.

7:33 AM  
Blogger chuckl said...

Stephen, I would respectfully disagree with your analogy of airlines and newspapers. The business models are entirely different, and while deregulation certainly changed the business landscape, a new technology did not spring up that suddenly offered people an option to flying in a plane. There was no disruptive technology to flying the way the Internet disrupted newspapers. A better analogy to newspapers is magazines. And the magazines that are making a successful digital transition are those that are being more innovative and are adapting to the new reading devices, like the iPad. Look at Popular Science and some of the other mag+ titles for guidance about how print needs to adapt to disruptive technology, not the airline industry.

11:35 AM  
Blogger John Hancock said...

What a great article and thread of comments!
I think newspapers need to simply experiment a little. No big show-stoppers or great leaps for mankind, just add a business directory to your website, start upselling advertisers to websites and collateral, charge a dollar for event listings... no biggies and no need for protracted training courses that teach you in the end that digital is growing.
The beauty of digital is that it is far cheaper to experiment there than ever it was in print!

2:11 AM  

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