Monday, July 15, 2013

Study finds elders pick web over newspaper, too

In fresh evidence of the mounting demographic challenge facing publishers, a new study from Oxford University found that online sites beat newspapers as the preferred news source for every age group – including those over 55 years of age. 

While it has become increasingly clear for some time that younger individuals are more inclined than their elders to use digital sources to keep up with the news, publishers generally were confident that they continued to enjoy the loyalty of middle-aged and older readers.  

But an ambitious survey of 10,843 individuals in nine countries has found that a majority of consumers in every age group now cite online media over printed newspapers as their main source for news. The study, which is freely available here, was conducted by the Reuters Institute for the Study of Journalism at Oxford University. It polled individuals in the “urban” portions of Brazil, as well as throughout the entire countries of Denmark, France, Germany, Italy, Japan, Spain, United Kingdom and United States. 

Because the survey was conducted only online, “the results will under-represent the consumption habits of people who are not online,” said David A.L. Levy, the director of the institute in an introduction to the findings. He described offline individuals as “older, less affluent and with limited formal education.” 

As such, the survey undoubtedly undercounts individuals who still rely on newspapers and television as their primary sources for news. Despite this limitation, the findings demonstrate a consistent and unmistakable generational divide in media consumption in all of the countries surveyed.  

As illustrated below in Figure 1, more than half of the global respondents in the 18-34 age groups preferred online sources over newspapers as their principal source for news. By contrast, only 7% of those under the age of 35 cite newspapers as their primary information outlet.  

The really surprising finding is that online venues are cited as the main news source by every group of older respondents, too.  In the 45-54 cohort, 32% of respondents chose online as their main news source vs. 11% for newspapers.  Even in the oldest group, 55-plus, online sources edged newspapers by 21% to 18%. 

In the United States, the digital tilt is even more pronounced. As illustrated in Figure 2, supplemental survey data generously provided by Nic Newman, a co-author of the study, shows a stronger preference in most age categories for online news consumption in the U.S. than identified around the globe. In a finding that should be particularly chilling for publishers, Americans rely significantly less on newspapers than respondents around the world. 

Attempting to measure news consumption in another way, the Oxford researchers asked respondents in all nine countries what media they used in the course of a week.  

While more than three-quarters of those in the under-45 category said they went online, fewer than a third of the respondents in the three youngest groups said they read a newspaper. As illustrated in Figure 3, more than 70% of those over 45 accessed online sources for news, substantially surpassing the number of individuals consulting newspapers in the two most senior age brackets. While those over the age of 55 were the most avid newspaper readers, barely 54% of them consulted papers vs. 72% who used the web.  The responses from Americans mirrored the global findings, though there was a notably stronger preference for digital than print among U.S. respondents. 

Turning to television, the other major legacy news medium, the Oxford researchers found a strong preference for online news over TV among younger individuals.  
While more than half of those in the two youngest age groups cited online media as their main news source in the nine-country survey, fewer than a third of the respondents in the youngest cohorts favored television.  As illustrated in Figure 4, the preference for TV surpassed the web for only those in the 45-plus age groups.  The distribution in the United States mirrors the V-shaped spread shown below, where online usage the highest among the most youthful consumers and TV usage is highest among the older respondents. 
Taken individually and collectively, these sweeping shifts in consumer behavior pose a profound challenge to the immediate economics and long-term viability of nearly every publisher and broadcaster.  The stakes are high, because companies in the business of selling access to readers and viewers cannot survive if their audiences go away. 

The above examples reflect only a smattering of the rich data available in the Oxford study. Anyone who cares about the health of the businesses paying for most journalism today should read the whole thing.  You can find it here

Thursday, July 11, 2013

The smartest guys in media give up on print

For all the corporate-speak accompanying the dramatic restructurings of Twenty-First Century Fox, Time Warner and Tribune Co., the simple reason these diversified media giants are jettisoning their publishing assets is that their leaders fear for the future of print.

In a historic capitulation, three of the largest companies ever built by putting ink to paper are severing their publishing assets to concentrate, instead, on the broadcast and entertainment portfolios that they hope will grow faster and generate more profits than the legacy businesses they are hastening to exit.  

The managers are separating their assets to protect the value of their broadcast and entertainment properties from the long-running deterioration of the publishing business that well discuss in a moment. First, the background:     

The scramble to divest publishing assets began a year ago, when Rupert Murdoch elected to separate his prospering broadcast and entertainment holdings from such diverse publications as the Wall Street Journal and the Sun of London.  Since the spinoff was completed last month, the shares of Twenty-First Century Fox, which got to keep all the thriving TV and movie assets, have almost doubled in value.  At the same time, the shares of the publishing company, News Corp., which got to keep the original name, have fallen by 16.5%.

Following Murdoch’s lead, Time Warner in March opted for divestiture after failing to sell  not only the eponymous Time Magazine but also such classic franchises as Sports Illustrated and Fortune.  This transaction remains to be completed.  

Not to be left behind, Tribune Co., after announcing a major acquisition of local TV stations earlier this month, said yesterday that it also would cleave itself in two.  One company would operate its broadcast and entertainment assets, while the other would publish the flagship Chicago Tribune, Los Angeles Times and the rest of the company’s newspaper holdings. 

The Tribune spinoff came as a surprise, as the company had been looking for a buyer for its newspapers. The decision to halt the sale process and move the properties to a new company appears to be driven in part by tax considerations (described here) but also may reflect a lack of buyers willing to as pay as high a price for the publications as the company had hoped to fetch. 

In the deals described above, stockholders of each media company will get pro-rata shares in each of their respective spinoffs.  The shareholders then will be free to hold, sell or buy more shares in either or both of the new companies.  This will create an opportunity for investors concerned about the future of publishing to invest in broadcast assets without having to worry about print.  Conversely, investors favoring print could sell their broadcast shares to add to their publishing holdings. 

By isolating one asset class from another, the media companies can assure that poor performance on the the part of print will not drag down the earnings and share values of the broadcast assets. 

An example of how this strategy might play out is what happened after Belo Corp. (BLC) in 2008 decided to keep its broadcast operations but spin its newspaper assets into a new company called A.H. Belo (AHC).  In the intervening years, the shares of BLC climbed from $10.60 to $14.36 at yesterday’s close for a gain of 35.5%, while AHC in the same period fell from $14.04 to 7.24 for a drop of 34.4%.  BLC got a big boost in when Gannett last month agreed to buy it for $1.5 billion.    

While the executives orchestrating each of these transformative transactions emphasized the potential for the newly separated entities to unlock fresh shareholder value, their desire to divest their long-standing publishing assets amounts to a vote of no confidence in the businesses on which their media empires were built.  

More than 500 years since Guttenberg invented modern printing technology, we have come to the historic moment that some of the smartest guys in the media business are giving up on print.  These are the daunting challenges that are running them off: 

Shrinking audiences. With digital technologies empowering individuals to acquire content when and where they want it, fewer consumers than ever see the value of subscribing to a newspaper or magazine that, owing to the unavoidable latency of print, often is out of date by the time it arrives.  As Gallup reported earlier this week, only 9% of Americans rely on newspapers and magazines as their main news source, as compared with 55% for television and 21% for the Internet.  The demographic headwinds for newspapers are even worse, as discussed here

Decaying revenues.  With advertisers following audiences to the web, smartphones, iPads and smart TVs, the combined ad sales of the nation’s newspapers have plunged by more than half since reaching a record $49.5 billion in 2005. Last year, the industry’s primary revenue stream amounted to a mere $22.3 billion. Although ad revenues at magazines have not fallen as drastically as those at newspapers, Time Warner’s publishing revenues slid from $5.8 billion in 2005 to $3.4 billion in 2012, according to its financial statements. Given these trends, it is no wonder that the print incarnation of the competing 80-year-old Newsweek, whose circulation topped 3 million as recently as 2006, succumbed at the end of 2012. 

Contracting profits.  Notwithstanding aggressive efforts to control expenses, shrinking sales have led to sharp declines in the enviable profits once enjoyed by publishers. To be sure, publishing profits generally remain ample: The earnings before interest, depreciation, amortization and taxes of the nation’s publicly traded newspaper companies in 2012 averaged 13.7%, or nearly twice the 7.7% EBITDA posted by Walmart, the largest Fortune 500 company.  But the newspaper industry’s profits last year were notably less robust than the average 24.2% realized in 2005. The story is similar at Time Warner:  Although TWX’s publishing division generated an impressive 30.7% operating profit in 2012, the return pales in comparison to the 56.6% margin delivered in 2005.

The substantial profitability still available to many publishers proves that the business, while wounded, is far from dead.  But the rapid – and so far irreversible – decline in audience, sales and profits over the last seven  years clearly has motivated the leading shareholders and executives of three of the most iconic publishing companies to exit the business before things get any worse.  

The silver lining for the freshly divested publishing companies is that their managers will be single-mindedly devoted to making them successful.  But the executives of the standalone companies will be operating in dangerous territory without the formal or tacit support they once received from their wealthier broadcast siblings. In other words, the newly liberated publishing companies will be working without a net. 

Wednesday, July 10, 2013

Newspaper websites need a UX fix

As a young copy editor in the days when newspaper articles clattered off Linotypes, I sometimes went to the composing room to trim stories into the spaces allotted to them.
This involved “editing” 14 inches of hot type into a seven-inch hole by scanning a slug of slugs – reading upside down and backwards – to find a seemly place to end a story, usually by throwing away the balance of news that wouldn’t fit in print. In the haste of deadline, the editing was not notably sensitive, resulting in the time – and I am not making this up – that the last line of a story appearing in the newspaper said in its entirety:  “Needless to say,”.
This anecdote illustrates a fundamental difference between print and digital publishing: Print permits only so much information to be squeezed into a prescribed number of pages, requiring thoughtful and disciplined use of the space. When it comes to digital publishing, however, space is limitless and cheap, setting a trap for the sort of self-indulgence and sloth that can turn off readers and advertisers.
And it is a trap, unfortunately, that most newspapers have fallen into.  Although newspapers typically put together attractive and easy-to-navigate printed pages, their web incarnations for the most part are awful. In the interests of fixing this, it’s time to talk about what techies call the user experience, or UX.   
Quality UX matters, because it is what attracts people to a website or mobile app, keeps them engaged in the content and then encourages them to do whatever the publisher has in mind. 
In the case of Google, a single box on its pristine home page invites visitors to launch a query of any sort. Through the magic of its technology, Google generally delivers in nanoseconds not just what you want to know but also approximates who you are, where you are and what sort of ad to serve you.
While the pages at Amazon are a lot busier than those at Google, the UX on every one is carefully designed to get you to do just one thing: “Buy now with one click.” The page is scrubbed of anything that would distract a visitor from that goal.
By contrast, most newspaper websites are messes of wretched excess. It takes five to seven “page-down” clicks on a standard computer screen to get from the top to the bottom of the typical newspaper home page. With layers of news, advertising, promotions and whatnot, the array is so dense and disorganized that you don’t know where to look, what to do and – if you happen to click off the page – where to go next.
Gazing at the typical home page, you can readily imagine the committee meetings that produced them: “Tout classifieds!”  “Add video!” “Create more ad units!” “Add weather!” “Push daily deals!” “Add a Twitter feed!” “Promote the Sunday paper!”  And so on.  
With all the fuss over the home page, here’s the part most newsfolk forget:  At the typical paper, only about a third of the traffic comes through the home page. On average, another third of the traffic comes from search engines and the final third comes from referrals via email, third-party websites, Facebook and other social media.
As editors and publishers focus on cramming 15 pounds of potatoes into the five-pound sack represented by the home page, scant attention is paid to the rest of the site – where two-thirds of the traffic is coming and going without ever transiting the home page. By neglecting their “inside” webpages, newspapers squander the opportunity to build readership by furthering engagement with the fly-by readers who typically generate more than half of their page views.  
While these factors were problems before pay walls, the opportunity to recruit long-lasting interest from occasional readers is further complicated when access to non-subscribers is limited or prohibited by pay systems.
Notwithstanding this latest self-imposed barrier to audience growth and diversification, publishers seeking to get the most out of their online audiences would be wise to take a (web)page from Reuters, which is beta-testing a smart, new concept here.
The new Reuters website insightfully treats every article as a reader’s first point of entry, seeking to entice further engagement by pointing to additional articles relevant to the story that first brought the reader to the site.  Rather than standing alone, each article is embedded in a flow of stories, making it easy and enticing to sample the site’s other offerings. Although the Reuters design is rich with additional reading prospects for visitors, the navigation cues, while obvious, are low-key and uncluttered.
In other words the new site is a great example of how a thoughtful UX can capture a reader’s attention – and, one hopes, keep her coming back for more.  Check it out. 
© 2013 Editor & Publisher

Tuesday, July 09, 2013

How TV could suffer the fate of newspapers

Second of two parts. The first part is here

In pivoting aggressively from print to local TV, Gannett Inc. and Tribune Co. are embracing a legacy media model that could be headed for the same audience fragmentation and economic dislocation as the newspaper businesses they are trying to escape. 

As detailed here yesterday, the two iconic publishing brands have announced parallel, billion-plus acquisitions that will boost their local broadcast holdings at the same time they reduce their exposure to the fraying newspaper empires on which both companies were built. Going further, Tribune is seeking buyers for some or all of a publishing portfolio that includes such prominent brands as the Chicago Tribune and the Los Angeles Times. 

The long-time newspaper publishers can’t be blamed for being attracted to broadcasting. Television generated a record $49.7 billion in local and national advertising sales in 2012, while newspaper advertising revenues – which have been sliding relentlessly for seven years – ended 2012 at less than half the all-time high of $49.4 billion hit in 2005.   

Though the transactions planned by Gannett and Tribune clearly reflect their confidence in the continued health of broadcasting, a look at the collapse of the once-indomitable newspaper business suggests that TV, in due course, could suffer a similar fate. We’ll review the accumulating evidence in a moment. First, here is a quick review of what happened to newspapers: 

When the Internet emerged in the mid-1990s, it posed an enormous threat to the lucrative mass-media business model enjoyed by newspapers (and broadcasters) by providing individuals with not only a broader array of content than ever before but also the power to pick and choose the time and place they consumed it.  Then, as now, interactive technology even made it possible for people to publish and promote the words, pictures and videos that they created on their own.  
Starting as a trickle that later turned into a wave, consumer choice began to erode the massive, one-of-a-kind audiences that gave publishers in most markets the power to charge the premium advertising rates that for many years produced exceptional profitability for the industry. Notwithstanding the arrival of the Internet, newspaper ad sales continued to climb for more than decade, actually hitting a record in 2005. It wasn’t until 2006 – well before the Great Recession materialized – that newspaper sales began the precipitous – and, so far, unarrested – decline that has vaporized more than half of the industry’s primary revenue stream.

While there is a danger in oversimplifying the reason for the decade-long delay between the arrival of the Internet and the collapse of the newspaper business, the key factor appears to be that it took roughly 10 years before half of U.S. households obtained cheap and reliable broadband Internet service.  

Once Americans (especially the younger ones) had a convenient way to get and give content on their own, they seized it with enthusiasm.  Along with advertising sales, the industry’s average weekday circulation since 2005 has plunged 42% to the point that barely one in three households still takes a newspaper. 

Now, let’s get back to TV, where forces similar to those that unhinged the newspaper business are about to converge on local broadcasting.   

Although there is nothing more convenient than leaning back on the sofa for an evening of channel-surfing, a broad array of research shows that a growing number of consumers are turning their video-watching time into a lean-forward experience where they exercise the power of personal  choice. Here are the key trends: 
Soaring content options.  Thanks to the rise of digitally delivered multichannel services, the number of broadcast and cable TV channels has more than doubled to 1,781 since 1970, according to the U.S. Census Bureau. But the choices available from the traditional sources pale in comparison to the billions and billions of videos available on the Internet, where YouTube alone says users upload more than 100 hours of video every minute of the day. 
Diversified platforms.  Consumers can acquire programming on more devices than ever, including disc players, recording devices, gaming boxes, streaming services, cable pay-per-view, smartphones, tablets, computers and more. Reflecting these choices, the number of American households subscribing to cable TV dropped to 49% in 2012 from 63% in 2000, according to the National Cable Television Association, a trade group. Meanwhile, Ericsson, the telecommunications technology company, predicts that video consumption on smartphones will increase by more than sixfold within five years to represent fully half of all of the world’s mobile data traffic.  
Disaggregated audiences. In a 2012 study, Google reported that 77% of viewers use multiple computer, tablet and smartphone screens when they watch TV. Distracted audiences may be the least of the broadcast industry’s problems.  According to a survey last year by Deloitte LLP, no fewer than 80% of viewers skip commercials when watching recorded programs.
Decaying demographics.  As dramatically illustrated in the chart below, young people are far less inclined to watch video than their elders, a generational divide strikingly similar to the one challenging newspapers. While individuals in the 65-plus age group watch an average of more than 56 hours of television in a week, those in the 18-24 cohort consume a comparatively modest 37 hours of video per week, according to the Nielsen rating agency. Significantly, the big drop in video consumption across the age groups (as indicated by the blue bar), is in off-air viewing. 
The power of consumers to choose their own programming, select viewing venues, shift viewing times and zap advertising plays utter havoc with every facet of the traditional broadcast model, which relies on charging advertisers hefty fees for access to large audiences that can be reliably assembled at a predictable time and place.  

The only reason the TV business remains healthy today is inertia.  Because the medium to date has been well understood and reasonably well proven, it favored by many marketers and advertising agencies as a way to communicate with vast numbers of what, they hope, are prospective customers.  

As the forces described above inexorably shrink the tune-in audience, advertisers looking for cheaper, better, and surer, ways to connect with customers will shift their purchases to digital platforms delivering precision-targeted messages to select individuals at exactly the time and place they are most likely to respond to them. 

At the same time advertisers get better at tuning in to the needs and desires of consumers, consumers are going to get better at tuning in to the video content they really want. The definitive shift in broadcast TV consumption will occur when it becomes as easy to control the big screen in the den as it is to customize your smartphone. We are not there yet. 

But here’s why the day is coming: While nearly every household in the United States has at least one TV, only 22.5% of homes in 2012 were equipped with so-called smart TVs connected to a broadband Internet service capable of smoothly streaming user-selected programming, according to the eMarketer research service. If the experience of the newspaper business is any guide, the broadcast audience – and, therefore the medium’s appeal to advertisers – could begin to decay as smart TV penetration nears 50% of homes. 
Because it remains a chore today to find alternative video programming even with a smart TV, consumers have yet to exercise the full power of video choice available to them. But any number of companies is working on solving this problem.

Shortly before he died, Apple founder Steve Jobs told his biographer that he had “cracked the code” for an improved home video experience that puts the viewer in control of the torrent of video options. Once Apple, or someone else, makes it as easy to find and acquire programming for a flatscreen as it is to manage your iPhone, then consumers will forsake traditional off-air viewing for all but such exceptional events as, say, the Super Bowl or the inauguration of the first woman president.  

Just as advertisers followed consumers away from newspapers, they will follow TV viewers to wherever they go next. If and when that happens, the party will be over for broadcasters. 

Monday, July 08, 2013

Gannett and Tribune pivot to TV: Is it wise?

First of two parts. The second part is here

Turning away from their roots in the newspaper business, Gannett Inc. and Tribune Co. are embarked on a pair of ambitious transactions that will transform them into two of the largest players in local TV broadcasting, but here’s the irony:

They are trading their prominence in one fading media vertical for dominance in another legacy business that could be headed for the sort of pounding that has cut aggregate newspaper advertising revenues from a record $49.4 billion in 2005 to $22.3 billion at the end of last year.  

Why would they do that?  Simple: 

In pivoting from print to broadcasting, the senior executives of both companies are focusing on a business they know that has been far better to them in recent years than the increasingly gnarly newspaper business on which both media empires were built.  By massively scaling up their broadcast operations, the managers can increase revenues, cut costs and boost profitability in ways that are bound to enhance shareholder value – and, not incidentally, their personal compensation – in the immediate future. 

But will these choices prove to be wise over the long term? We’ll discuss that tomorrow. Today, let’s look at what these companies are doing – and why: 

The scramble to acquire television assets began in mid-June, when Gannett (GCI) agreed to pay $1.5 billion for Belo Corp. (BLC), the sister company of A.H. Belo (AHC), the publisher of the Dallas Morning News and other newspapers. The acquisition will make Gannett the fourth-largest owner of major network affiliates in the United States, almost doubling the number of its stations to 43 from 23.

The Belo twins, which had operated as a single entity until 2008, were split into two separate publicly traded companies in the hopes of maximizing the value of the broadcast assets as the newspaper business contracted.  With GCI paying an aggressive 28% premium to acquire control of BLC, it is clear the plan worked.  

As discussed previously here and explicitly referenced in the press release announcing the transaction, GCI has been on a long-running campaign to de-emphasize its reliance on the newspapers that generated more than two-thirds of its $5.4 billion in sales in 2012. When the BLC transaction is complete, the company’s broadcast revenues will increase by nearly 80%, substantially improving the print-to-TV balance on its P&L. Wall Street instantly cheered the deal, raising Gannett’s stock to its highest level in more than five years. So, the plan to lift the value of GCI’s shares is working, too. 

Not to be outdone, the Tribune Co., which recently emerged from an epic four-year bankruptcy, announced last week an even bigger deal, agreeing to buy the assets of Local TV LLC for nearly $2.8 billion.  By adding the 19 outlets owned by Local TV to its 23 stations, the transaction will make Tribune the largest local broadcaster in the land.  
Like GCI, Tribune today draws nearly two-thirds of its sales from print.  While privately held Local TV does not publish its revenues, a bit of reverse financial engineering suggests that the acquisition would contribute something in the neighborhood of $1 billion in revenues to Tribune’s broadcast business, thus bringing the print-broadcast balance close to 50-50. 

But Tribune is not stopping there: The company, which owns one of the largest newspaper portfolios in the land, is well along a path to sell some or all of its publications. If the company succeeds in jettisoning the Chicago Tribune, Los Angeles Times, Baltimore Sun, Orlando Sentinel and half a dozen other publications at acceptable prices, then Tribune would become a pure-play broadcasting company. 

Meanwhile, the pending broadcast acquisitions, if properly executed, should deliver instant financial gains for both Gannett and Tribune, as they would provide each with unprecedented reach in advertising sales along with fresh opportunities to cut the costs of everything from programming to paperclips. Here are some ways this could play out: 

Sales people calling on national advertisers potentially could double the size of the orders they write by simply placing ads at more affiliates than they can today.  If advertising production were centralized, the stations could cut costs by repurposing creative assets from market to market.  Billing, trafficking and all manner of other back-office functions – from purchasing to payroll – could be streamlined and consolidated as never before.  

By expanding their affiliate bases, each of the super-broadcasters would have a growing pool of sharable news and entertainment content. Instead of investing in elaborate weather setups at every station, Gannett might create a central, technology-rich facility where a handful of crack meteorologists sequentially knocked out forecasts for multiple markets.  Tribune might hire star sportscasters at a single hub to provide localized feeds, assembly line-style, to all the affiliates in its portfolio. Health, food and gardening segments produced in one place could be shared across the in-house networks. Gannett or Tribune could even produce their own morning, mid-day or evening programs, thus turning the syndicated programming they buy today from a cost center to a profit opportunity.  

The rich content produced for TV could be repurposed in any number of ways for web and mobile use.  Operating at scale, the respective companies could invest in sophisticated, video-rich websites that are updated 24/7 by regional or centralized teams.  Each company could afford to build state-of-the-art mobile apps for everything from traffic to selling used cars. Gannett might even share some of the digital goodies with its newspapers.

Assuming the economy remains relatively healthy, it is fair to conclude that the upcoming acquisitions will provide the publishers-turned-broadcasters with sales and profit opportunities surpassing those available to them today.  So, the immediate appeal of the acquisitions is obvious.   

The problem is that this strategy is built on the premise that local television audiences – and, therefore, the advertising revenues generated by serving them – will remain as robust today as they have been in the past. 

Fueled in part by vigorous election-year spending, the combined ad sales for national and local TV in the United States hit a record $49.7 billion in 2012. But there are reasons to fear that the television business is headed for same sort of traumatic, and so far unmitigated, dislocation that newspapers have been suffering for more than seven years. Tune in here to see why.   

Next: How TV could suffer fate of newspapers