Sunday, May 25, 2008

Newspaper war in Silicon Valley

An old-fashioned newspaper war is about to break out among a trio of free publications in the heart of one of the least print-centric places in the universe, Silicon Valley.

The free-for-all may, repeat may, momentarily motivate some residents of the ultra-wired community to pry themselves away from their laptops, Blackberries and iPhones. If so, that would be great for local merchants seeking cheap and targeted advertising. But is not clear the rivalry will turn out to be good business for the publishers, because the jury is decidedly out on the efficacy of the free-newspaper model.

Ground zero in the upcoming Silicon Valley newspaper war is leafy and genteel Palo Alto, CA, a high-end bedroom community about 50 miles south of San Francisco that is home to such institutions as Stanford University, Hewlett Packard and Steve Jobs.

The contenders in the slugfest, which seems like the sort of thing that would be more at home in gritty Manhattan, are:

:: The long-running Palo Alto Daily News, which is owned by Media News Group, the chain that dominates all the Bay Area but San Francisco with such titles as the San Jose Mercury News, Contra Costa Times, Oakland Tribune, San Mateo Times and Marin Independent Journal.

:: The incumbent Palo Alto Weekly, which is owned by the local Embarcadero Publishing Co., the publisher of a number of other free products in the Bay Area.

:: And the newcomer, the Palo Alto Daily Post, which is expected to be launched this week by the enterprising Jim Pavelich and Dave Price, who were among the threesome who originally founded the Daily News. Jim and Dave pocketed many undisclosed millions in early 2005 when they sold the Daily News to Knight Ridder at the last moment immediately before the newspaper industry entered its long nightmare.

The fracas in Silicon Valley is getting under way at a time when the model for free newspaper publishing is far from proven.

The world’s largest publisher of free dailies, Metro International, which boasts 23 million readers a day in 100 countries, reported a 6.1% drop in sales and a loss of €6.4 million in the first quarter of this year. Metro, which is actively shopping its titles in Boston, New York and Philadelphia, has a colorable case when it blames the worst media environment since 1930.

But Piet Bakker, a professor at the University of Amsterdam who writes a terrific blog on free newspapers called Newspaper Innovation, reports that “almost a quarter” of the more than 300 free dailies ever launched in the world were shuttered within a few years.

Although Piet estimates that 70% of the surviving publications are not profitable, he notes that a large proportion of the freebies are fairly new, having been brought to market since 2005 or later. “Launching costs are substantial and almost no paper expects to make a profit in the first three years,” he writes. “Circulation and readership data are not yet available while advertisers have to be convinced, as well.”

Noting that the worldwide popularity of free newspapers is rising rapidly at the same time paid newspaper sales are contracting in places like the United States, Piet believes free papers are attracting new readers who otherwise might be lost forever to publishers. If advertisers agree, then free newspapers will become viable in the fullness of time, assuming their publishers have the staying power to take them to profitability.

If not, then ever more freebies will join such casualties as Boston Now, which characterized itself “as a healthy, growing 119,000-circulation daily” when it announced last month that it was “suddenly compelled to halt operations due to rapidly deteriorating economic conditions.”

While Palo Alto is an economically and demographically succulent market where real estate prices continue to climb even to this day, the upscale community hardly seems like a place where multiple, profitable free newspapers would be likely to thrive.

Unlike the East Coast and European cities honeycombed with the public-transportation systems targeted by the publishers of most free newspapers, the closest Palo Alto comes to mass transit are the Benzes, Beemers and Priuses that shuttle kids to their soccer games. Unlike the East Coast and European cities built around dense, central office hubs, people in Palo Alto work at remote and self-contained office campuses surrounded by acres of free parking. Unlike the many retail districts that dot East Coast and European cities, Palo Alto has a single, modest shopping street and a ginormous mall surrounded by even more free parking.

In short, unlike the readers who consume free newspapers on the East Coast and in Europe, the people who live in Palo Alto not only drive everywhere all the time, but also frequently are observed reading their email and writing text messages as they motor along at speeds surpassing 70 miles an hour.

Will another free newspaper encourage them to pull over for a quick read? In the interests of public safety, I hope so.


Anonymous Anonymous said...

The newspaper as a product is already deteriorating with staff and budget cuts, where publishers are trying to do more with less. Making your product have zero value in terms of the consumer seems to make matters worse.

Last summer in London, I noticed how repulsive these types of newspapers were on the Tube, stereotyping the content as trash before I even gave it a chance. When I overcame these generalizations and picked up a copy, I found the latest gossip in celebrities and lowest common denominator news, viz. trash that editors thought would "sell."

My economics professor in high school once told our class how free products don't work. In a time before Mothers Against Drunk Driving used their clout to raise the drinking age from 18 to 21, this professor was a residence hall director who held school-sponsored keg parties. He personally attested that such events were safer compared to the current status quo because of staff supervision. He also told us, to the amazement of many, when students would exhaust ever single keg for that evening.

The first method my professor did was to give the beer away for free, which naturally yielded a high turnover, and the second method was to sell each cup of beer for a nickel. Surprisingly, students were awed by how much beer they could get for a quarter, regardless of whether they were drunk or sober. Consequently, students emptied every single keg by paying a nominal transaction fee.

In the long-term, free newspapers seem to lack the readership quality of paid newspapers. Even a penny-press model, where newspapers are sold for less than a quarter, seems to have better retention levels than newspapers that show how crappy their product is becoming (,1759,2276808,00.asp?kc=PCRSS03079TX1K0000584).

7:14 AM  

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