Monday, November 26, 2012

Online sales are flat-lining at newspapers

With total ad sales sliding 5.1% in the third quarter of this year, newspapers have set what must be some sort of record in the annals of American business by having their primary revenue stream fall for 25 quarters in a row. 

In 75 months of unremitting declines, the industry’s consolidated advertising sales have plunged from an all-time high of $49.4 billion in 2005 to what I estimate will be no better than $22.5 billion in 2012. The year-end revenue projection is based on historic trends. 

It is a testimony to the legendarily high operating margins of the industry and the considerable cost-slashing skills of contemporary publishers that nearly all the newspapers in business in mid-2006, when the trouble began, are still plugging along today.   

But no industry ever cut its way to success. And the question, as newspapers mark six-plus  straight years of contracting revenues, is what, if anything, they are going to do to turn things around.  The nearly universal answer we have heard from editors and publishers is that they are going to transition from print to digital publishing.  

That is the right answer.  But the objective record shows that, to date, they have manifestly blown the opportunity.  Let’s look at the numbers: 

On the eve of the Thanksgiving weekend, the Newspaper Association of America quietly updated its website on Wednesday to report that print advertising revenues in the third quarter fell by 6.4% from the prior year to $4.5 billion, the lowest level for the period since 1982. To put the decline in perspective, $4.5 billion in 1982 dollars would be worth more than $10.3 billion today.   

On the plus side, the NAA, a publisher-funded trade organization, reported that digital revenues advanced by 3.6% in the third quarter to a bit under $759 million.  But the $23.5 million year-to-year gain in digital sales was too small to offset the $311 million year-to-year drop in print revenues. Thus, newspapers in the quarter lost more than $13 in print revenue for every $1 they gained in digital sales.  

Unfortunately, as illustrated in the chart below, the pivot from print to pixels has been far too feeble for the last six years for digital sales to come anywhere close to replacing print revenue. Here is the long-term trend:

After peaking at an all-time high in 2005, print ad sales at newspapers began what would prove to be a six-year dive in the middle of the next year, falling by 2.6% in to $11.2 billion in the third quarter of 2006. That means print sales in the third quarter of this year were $6.6 billion lower than they were in the comparable period in 2006, reflecting a 59.5% decline.  

In the same six-year time frame, digital sales at newspapers rose 19% from $638 million to $759 million.  With the $6.6 billion drop in print revenue dwarfing the $121 million increase in digital sales, newspapers between 2006 and today lost a staggering $55 in print revenue in the third quarter for every $1 in new digital dollars. 

But, wait, it gets worse: 

As illustrated in the green line along the bottom of the chart below, digital advertising growth at newspapers has been all but flat in the last six years at the same time the over-all market for digital advertising (orange line) has grown explosively. 

While the Internet Advertising Bureau has not yet reported digital sales for the third quarter of this year, I have projected from historic trends published by the trade association that the figure will come in at approximately $9 billion in the period.  

Assuming my projection is correct, then the over-all market for digital advertising between Q3-06 and Q3-12 grew by 114% while digital sales at newspapers increased by only 19% in the same period.   

One of the reasons newspapers are underperforming the market is that they have built their interactive businesses on the two weakest digital advertising categories: banner and classified advertising.     

As reported on page 21 of this IAB presentation, the percentage of digital ad dollars spent on banner advertising in the first half of the year has dropped annually for the last three years.   The percentage of dollars spent on online classified advertising has tumbled by more than half since 2006.  

The single most significant digital ad category is search, which consistently has accounted for nearly half of all expenditures since 2008, according to IAB. Notwithstanding the growing desire of advertisers of all stripes to target specifically identifiable customers, transactional search is a format where newspapers never invested and never have been able to compete. By their inaction, publishers have been shut out of nearly half the digital market. 

Now, the same thing appears to be happening again. While the IAB reports that mobile advertising has doubled in each of the last three years, most newspapers have only rudimentary capabilities in this rapidly developing area. Publishers also are weak contenders in video, the next-biggest area of growth after mobile.  

The challenges will keep coming.  Not the least of them will be the innovative, target-marketing capabilities bound to be developed by Facebook, Twitter and dozens of other social media to capitalize on their expanding audiences.  And who knows what lies beyond?  

While publishers are preoccupied with managing the epic decline in print, they are losing sight of the future. 

Monday, November 19, 2012

Web election audience overtakes newspapers

In 2008, the Internet and newspapers were tied in the number of people who turned to each them for news about the presidential election.  This year, the Internet absolutely buried newspapers as the preferred source for campaign news.

The dramatic shift in the relevance, authority and influence of newspapers on this most consequential of news stories was revealed in a comprehensive post-election survey released last week by the Pew Research Center. 

The study adds to the accumulating evidence – as discussed here and here  – of the profound cultural and commercial challenges facing local publishers. 

Nowhere are the challenges more evident than in the strikingly different ways Americans consumed election news in 2012 than they did a mere four years earlier. 

While newspapers and the Net each were cited in 2008 by approximately a third of Americans as their go-to outlets for political news, Pew found that the number of people in this year’s contest relying on newspapers plunged to 27% while those using the web soared to 47%.  As illustrated in the chart below, television remained the top source for campaign news, sustaining the dominance it has enjoyed since Pew began asking the question in 1992. 

The sharp contraction of the newspaper audience in the last decade underscores the need for publishers and editors to seriously re-examine the coverage they offer in both print and digital media. 

It is not going to be easy, because print cannot match the in-the-moment immediacy of television and the web.  And the digital offerings of most publishers, which tend to emulate print in substance and sensibility, generally lack the intimacy and interactivity of  Twitter, Facebook, YouTube, blogs and host of other user-generated media. 

While most newspapers bannered the outcome of the presidential election on the morning after President Obama won his second term – and I frankly can't imagine what else they could have done – the big news was old news to almost everyone in the land. 

The reason the news looked so old is that anyone who cared about the election had been monitoring the results in real time on the previous evening.  

In its post-election census of voters, which also discovered a widespread distaste for the tenor and tone of the presidential campaign, Pew found that 78% of respondents followed the results of the voting on election night.  Of those monitoring the ballot count, 92% tuned watched television and 34% used the web.   

In a significant new development in this election, Pew found that a substantial portion of individuals consumed the news simultaneously on multiple screens. Fully 39% of voters between the ages of 18 and 39 – and 28% of those between the ages of 40 and 64 – watched the returns on television and online at the same time. Multi-screen use was only 9% among those over the age of 65.  

Pew did not ask whether people passively consumed political news on the digital platforms or whether they actively commented on it.  But the anecdotal evidence suggests a number of people were having quite a conversation among themselves.

As but one measure, Twitter reported  that it handled 31 million “election-related” tweets on Nov. 6, which represents a 17-fold increase over the 1.8 million messages on election day in 2008.  

To be sure, the election generated historically high traffic at newspaper websites, too.  Traffic at the New York Times website was 75% higher on election day this year than it was in 2008, according a source at the paper quoted by the Nieman Journalism Lab.  

But the ancient “it's-not-news-until-we-say-so” mentality was alive and well at NYTimes.Com, which took until 12:03 a.m. (all times EST) on Nov. 7 to confirm the Obama victory that NBC called at 11:12 p.m. on the prior day. The peak Twitter traffic commenting on the outcome occurred at 11:20 p.m. 

While the Times merits respect for the values and traditions that caused it to be far more cautious in calling the race than most TV news organizations and websites, the unfortunate perception is that the newspaper was sluggish and out of touch in comparison to the growing array of video and digital competitors vying for audience and advertising dollars.

If newspapers don’t find a way to reassert their relevance in a world of real-time media, they will become increasingly marginalized.  

Thursday, November 08, 2012

Newspaper endorsements: Out of step?

Supporters of President Obama gasped prior to the election when four of the major newspapers in Iowa backed Mitt Romney for president in that crucial state. As it turns out, they needn’t have worried, with the President breezing to victory with 52% of the Hawkeye vote.
But the endorsements penned by the Des Moines Register, Cedar Rapids Gazette, Quad-City Times and Sioux City Journal were far from the only ones in the country this election cycle that were out of step with voters in their states. 
The disconnect was similar in a number of pivotal states, suggesting the waning power of newspaper endorsements – at least in this particular election – to sway the electorate in an age when readers have access to multiple digital and cable-news sources to shape their political views. 
In a rundown of swing-state endorsements, Poynter.Org found publisher-reader disconnects all over the place.  

Though final returns from Florida were pending at this writing, Romney evidently was narrowly defeated in spite of being endorsed by seven of the state’s dailies.  He failed in Nevada, even though he was backed by two of the three biggest newspapers in the state.  And he lost Ohio in spite of being pushed by the Cincinnati Enquirer and Columbus Dispatch, which serve two of the biggest blue counties in the must-win state.
The disconnect was bipartisan.  Romney captured North Carolina, even though Obama was favored by five dailies in the state, including such biggies as the Charlotte Observer, the Raleigh News & Observer and the Winston-Salem Journal. 
At the same time the recommendations of many newspapers diverged from the sentiments of the majority of voters in their states, a number of publishers skipped endorsing a presidential candidate altogether.  Among the major publications declining to back a candidate this year were the Milwaukee Journal-Sentinel, the Virginia Pilot and the Palm Beach Post. 
Given the number of publishers whose endorsements failed to help their chosen candidate carry their states, is the decision not to endorse a presidential candidate the better part of valor?    
Maybe.  But maybe not.  
A non-endorsement policy might be good for a newspaper’s credibility, because it eliminates one of the potential arguments that its coverage is biased. And a gelded editorial page might be good for business, because an endorsement-free publication minimizes the chances of offending readers and advertisers.
But a newspaper lacking the gumption to endorse a presidential candidate looks pretty lame in a day when opinions are a dime a dozen on the Internet and the airwaves.  
The only thing worse than a newspaper recusing itself in an election is a publication that finds itself zigging when its readers are zagging. 
The fact that so many newspapers were not on the same page as the majority of voters in several swing states in this election suggests they may be dangerously out of tune with the communities they serve.    

And the reason for this may be that newspapers tend to be published by and for older white people, an increasingly shrinking portion of the population and the electorate.  Without new products and services to appeal to next-generation voters, the relevance and influence of newspapers will continue to diminish, too.   

And that cannot possibly be good for business.

Wednesday, November 07, 2012

Newspapers failing to diversify digital audience

Though newspapers have been pretty good over the years at growing traffic on their websites, they are shockingly bad at capitalizing on the social power of the digital media to broaden their audiences.

Audience diversification is important, because the typical newspaper website is read, more or less, by the same senior citizens who take the print paper. Here’s how serious the demographic challenge is: 

Using data from the Census Bureau and the Pew Research Center for People and the Press, I calculated a couple of years ago that at least half the audience at the typical newspaper is no less than 50 years old, because publishers are not attracting younger readers. 

Today, “the average print reader is a female nearing 60, when the average age of the national population is 43,” says Greg Harmon of Borrell Associates, who has been tracking readership trends for more than a decade. “The user of a newspaper website is a little less female than the print subscriber and just over 50 years old. Our research shows that print and web readers are basically the same people – and that the average age of the online newspaper audience keeps getting one year older every year.” 

As the core newspaper audience ages to perfection (and beyond), a proliferation of faster, better and cheaper digital devices is cutting into the appetite for print among consumers of all ages. 

In a poll released earlier this year, the Pew Research Center for People and the Press found that only 20% of Americans look to their local newspapers for campaign news vs. 40% as recently as 2000.  In a separate survey a year ago, Pew found that the early adopters of tablet computers were not twenty-something hipsters who abhor print, but, rather, the same sort of mature, highly educated and high-income individuals who traditionally read newspapers. 

Given the profound demographic and cultural forces challenging newspapers, how are publishers doing at diversifying their audiences via the social power of the digital media to build audience and community?  Just awful. 

Here’s how we know:

In a study completed in September, professor Rich Gordon of Northwestern University crawled the 300 largest news-oriented sites in the Chicago area to determine who linked to whom.  

Analyzing the results, he found that 81.7% of the links generating traffic for sites associated with the Chicago Tribune came from within the newspaper’s family of sites and that 80.4% of the link-driven traffic at the Sun-Times Media Group came from its corporate cousins. To be fair, newspapers were not the only large sites gaining the bulk of their link-driven traffic by steering existing readers from place to place on their own sites. As but one example, 91.7% of the link-driven traffic at Patch sites came from other Patch sites. 

Turning to the question of how well the Chicago news sites used the social media to build traffic, Gordon found that small websites – which cannot hope to benefit from the legacy readership enjoyed by the large sites – are much better than the big guys at leveraging Facebook to build and diversify their traffic.  

Whereas the smallest news sites in the survey drew 48.1% of their traffic from links on Facebook, the newspapers and other big sites got only 14.5% of their in-bound traffic from Facebook.  On the other hand, the big properties benefitted slightly more than the small ones from Twitter links to their sites. Gordon found that Twitter was responsible for 4.2% of big-site links and 3.6% of small-site links.

While there’s nothing wrong with using internal links to illuminate readers and expand advertising inventory, the heavy reliance on self-referential readership means that newspapers are not expanding beyond their core audience to capture younger readers. As print inexorably wanes, the lack of differentiation in the digital audience will be an obvious impediment to publishers seeking to sustain their relevance, readership and revenues in the digital age. 

One way for newspapers to broaden their base is to be far more avid about aggregating and linking to third-party content than they have been to date. While these practices seem to be anathema to many journalists and publishers, they not only enrich a website’s content offerings but also have the side benefit of encouraging third parties to link more generously to publishers. 

We know publishers can do this. The Chicago Tribune created ChicagoNow.Com to aggregate content from dozens of local bloggers covering everything from politics to pancakes.  But ChicagoNow lives on its own pages and merits only a modest link on the flagship website. This isolation not only keeps bunches of interesting stuff off the main Tribune site but also cuts the odds that the followers of the third-party content will see – and engage with – the Tribune’s valuable, staff-produced content.  

A tentative approach to social publishing won’t work. If publishers don’t go all in, there’s great danger they will be left out.

© Editor & Publisher