Saturday, June 6, 2009

How depressing 2: Chicago meeting of newspaper business leaders should scare anyone who cares about the industry

It’s regularly and rightly said that most newspaper journalists were too slow to jump into the possibilities of the Internet. What’s less often said, but I believe even more true, is that the business side at most newspaper companies was even worse. If you want any proof of how bad things are on that front, just look at the recent Newspaper Association of America meeting in Chicago, where the American Press Institute and others presented suggestions to industry leaders for saving their businesses.

Imagine you’re a young business school graduate trying to decide where you want to start your career. (OK, I know there are no jobs, but imagine it anyway.) You attend a newspaper industry summit and hear one of the big ideas from an organization at the heart of this world is to compete with Craigslist. What do you think you would think? Talk about an industry looking in the rear view mirror. Isn’t that an idea that might have had legs, oh, maybe five years ago? How could it represent in the eyes of that young business school graduate any kind of exciting opportunity today? The advice boils down to, “Let’s win back our business from the guy who’s eating our lunch.” How is the newspaper industry going to attract any of the best and brightest into its ranks if its ideas are stale, at best?

What might even be more troubling about this proposal is how newspaper people seemed to denigrate the Craigslist brand, when all they need to do is talk to people – including in their own buildings – to find out that most of those who’ve used the site seem to genuinely value it. Why? Because it gets results and it’s free.

Veteran newspaper business analyst Rick Edmonds, writing on Poynter’s Web site, says that API’s white paper on taking on Craigslist quoted one publisher as describing the free site as “a flea market on the bad side of town.” What does that make newspaper classified sites if they’re trying to take back their old business from Craigslist?

It almost seems like newspaper business folks don’t know what business they’re in anymore. But one thing is clear: the industry is on the defensive. The “ideas” to make money from content that API presented at this meeting seemed more about getting paid for their existing assets than serving readers and communities in ways that would build a future business. Clearly, many in the industry already think their news reports have more value than they’re being compensated for. That’s why they keep talking about pay for content, which was the thrust of API’s other white paper. But the big question is whether most newspapers are producing content people would pay for. My answer, with some exceptions, is no.

The first recommendation of the API white paper on paid content is, you guessed it, to “adopt a paid content model.” The way the first model for getting paid is described reflects the tone of the entire document: “Put a wall around unique news content, establish a marketplace for news, and let consumers pay for it a nugget at a time.”

I’m not arguing that there isn’t a place for paid content. Clearly there is. But the idea that most newspapers have “unique” content that people would pay for is questionable in the first place. As is the idea that the money a paper would receive for its online content would offset its decline in print revenue or make up an adequate stream to pay for the continuing business. Newspapers in many communities (especially mid-size and large) are no longer in a monopoly position where they can “establish a marketplace” for what they offer. The marketplace already exists. It’s out of newspaper publishers’ control. And there are plenty of others – TV stations, radio stations, football teams, specialty web sites, retailers, and, yes, even bloggers – happy to provide much of the “news” that some newspaper folks still seem to think is their exclusive franchise.

The white paper goes on to tout the “successful” subscription Web sites at papers like the Albuquerque Journal as examples other newspapers might follow. Now, because of my former role with the E.W. Scripps Co., I happen to know something about the “successful” Web site of the Albuquerque Journal. By what definition is it successful? You don’t find Scripps emulating the Albuquerque model at its own papers even though it’s fully aware of the economic results of that approach in New Mexico. Why not? Smart people committed to building new revenue streams are running Scripps.

API’s second recommendation is to “capture revenue from rights.” OK, that may be a problem worth addressing. But the white paper says the total dollar amount the industry is losing is $250 million. That’s 10 percent of the decline in advertising sales in the first quarter of 2009. So even if it recovered every penny it was losing, which is unlikely, it would barely make a dent in the economic condition of the industry. Is this really a big idea?

The third recommendation is to “seek fair compensation” for their content from aggregators who are already paying them. Wait a second; this is at a meeting of the same people who’ve been responsible for getting compensated up till now. And this recommendation is coming from an industry group whose board is larded with senior executives from what looks like every company of any significance. Put yourself in the position of shareholders who learn that the executives running the company they invested in haven’t been getting “fair compensation” for their product. You’d think they might ask why they were paying these people big salaries to run their company when they weren’t getting “fair” compensation for its owners. This would be like a recommendation in a report on how to improve journalism saying reporters should tell the truth. What, you mean they haven’t been up till now? That’s pretty disappointing.

No. 4 is typical pabulum: “Invest in innovation.” That sounds good, but if you look at what most newspaper companies are doing it comes down to one word: Cutting. They’re not investing. How should they do this under current conditions?

No. 5 is even better: “Refocus on readers and users.” Again, put yourself in the shoes of the shareholders, for whom the people on the board behind the API study are generally supposed to be working. You mean, they might ask, you haven’t been focused on making money from readers and users? What’s wrong with you? Why were you leaving money on the table?

Then the white paper tells the industry leaders the three steps they’re going to need to take if they’re going to become consumer-centric.

“ Become part of the social web. Newspaper executives should take it as a personal and professional challenge to participate in social media: Share photos and video online. Follow industry experts on Twitter. Create a Facebook or LinkedIn profile. This is extremely valuable market research. Learn all you can.”

Of course leaders should always be learning. That’s a given. But are they serious? Isn’t this a little late? If newspaper industry leaders aren’t doing this already, do they really belong in their positions? Why should shareholders pay executives to learn all they can when they should be able to find ones who already know what they’re doing? If people need advice like this, should they be running newspaper companies?

The next step: “ Encourage journalists to develop expertise. Create deep content with special value for communities of interest. Launch specialty sites that revolve around content and community building.”

How do you encourage journalists to develop expertise at the same time as you’re dramatically reducing the size of editorial staffs, making it necessary for most journalists to cover more topic areas? Don’t get me wrong. I’m a believer in the value of expertise and in the value of specialty sites and publications. But there seems to be a yawning gap between this recommendation and the world most newspaper people are living in. How should newspapers that are in the red or dangerously close to that point achieve this objective?

Finally: “Create a marketing services function. Focus on helping your business customers to use the Internet more effectively to meet their goals.”

This, to me, might be the most important recommendation in the entire paper. If newspaper customers are more successful as a result of newspapers’ help, newspaper companies should be more successful. But how does a company do this when it’s strapped, doesn’t have the expertise in house, and few people with this kind of knowledge want to join it because who wants to become part of an industry widely perceived as dying? If you could work for Google helping businesses use the Internet more effectively or for the San Francisco Chronicle, losing $10s of millions a year, which would you choose? Which company is going to get the better talent? I think the answer is obvious.

Finally, the white paper gives some guidelines for “moving forward” on the economic action plan.

Here’s #7. “Infuse the workforce with people who are technologically savvy and audience attentive.

Am I the only one who senses a disconnect here? Very few newspapers are hiring. And if they were, why would people who are technologically savvy and audience attentive choose to join companies that for the most part aren’t? Those people want to join businesses that have a story to tell, businesses that can paint a picture of a brighter future. What is it in the offerings from API that would make people want to join a newspaper company? (We’re going to beat up on Craigslist?) The first mantra of the newspaper business, according to API, seems to be, “By god, the users will pay, because we say what we have to offer is valuable.” The second seems to be, “If anybody messes with our stuff, we’ll force them to pay.” And the third might be: “Businesses that are paying us should pay us more.”

As someone who still loves newspapers and the possibilities of thriving local news organizations, I find the thinking of this industry group depressing. What does it say that these API white papers may represent the best ideas of the industry’s business leaders?

21 comments:

  1. Fantastic post, John. You'd think, after 15 years of stupendous mistakes, newspaper executives would have learned something. But no--they seem perfectly content to sail their industry (and its workers, readers and advertisers) right over the edge of the cliff. So sad.

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  2. Frighteningly well said. Thank you!

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  3. So right. And so depressing. Thanks for this excellent write-up.

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  4. Great post John. I'm sure you were in the audience at the 2005 ASNE convention in DC when Craig Newmark's mugshot was thrown up on the screen and the collected senior editors were asked if they knew who it was. The paucity of hands raised was shocking. The panel: "The Future of Newspapers." Lather, rinse, repeat.

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  5. Good post, John. Words newspaper executives should pay attention to. But they won't.

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  6. Why is it that newspaper have such a hard time with craig's list? I guess the problems is simply that many newspaper people continue to see "classified" content as "advertising", while Craig's List has turned classified "advertising" into "content". In other words, classified advertising on Craig's List is the equivalent to "editorial" in a newspaper or on a newspaper site.

    Until newspapers begin to understand this they will continue to not understand the new world.

    As a former classified ad manager, I know that the days of newspaper classified is over -- forget about it, that is the past.

    By the way, great column. If I ever get back into the newspaper business (if there is one in the future) I'd love to work with someone who speaks intelligently about the industry. Oh well.

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  7. Right on... retaining talented Web folks has always been a challenge for this industry.

    Part of it is the compensation model, part of it is the inept management at the top that doesn't do much beyond pay lip service to innovation.

    This industry was innovative at the start of the Internet wave. I was on the founding team of startribune.com and we had many industry firsts: database CMS, entertainment guide. Heck, in the mid-90s we even had a full MLS database with pictures.

    Very few of those people are still in the business, much less at startribune.com.

    The industry needs to stop trying to turn back the clock. Classified revenue is gone and won't come back. Deal with it.

    craig newmark isn't an evildoer. Classifieds were a fluke based on a monopoly over cheap distribution of information. Once the internet made distribution even cheaper, classifieds became a very expensive, user-unfriendly product.

    First step in getting people to pay for something is to create a product that adds value.

    I had some thoughts on that:
    http://blog.agrawals.org/2009/06/07/what-the-ap-must-do-now

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  8. Loads gun, shoots self in face.

    /22-year-old sports writer

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  9. I can tell you, having worked in print for 21 years, that moronic decisions by editors and publishers have created this demise when it could have been nipped in the bud. Papers cut services, provide content that is, at times, 36 hours old, deliver papers that are little more than pamphlets chocked full of AP and canned news and they expect people to pay for that? I live in a depressed town where two factories just closed. We have 4,000 people here and I just had a $4K sales week for my sports websites. If you do a good job and provide good product, people will pay...

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  10. I totally agree with "Douglas" that classifieds are content. He's right that it's too bad newspaper people largely saw them as advertising, which was strange given that most market research showed ads were important content. We tried to make them "content" in our YourHub.com initiative in Denver and basically failed because it was too hard to imagine giving up any revenue. By the way, I've seen it written that yourhub.com is a failure. That's a subjective judgment. But the bottom line, I think, bears out that it's actually a viable venture.

    "Redesign" tells an important story about the innovation that existed online in the newspaper industry. I think the problem had something to do with the Web seeming so small to those running the existing businesses. And it's awfully hard to willingly give up revenue, as some felt they might have had to do with classifieds, to build a new business. Clayton Christensen has it right that it's very difficult to build a new, innovative company from within an existing business. Maybe the best thing to do for newspaper classifieds would be to create independent companies to run the classifieds. Let them do whatever they think best, including buying space/pages in the newspaper. And eliminate their revenue from a newspaper's bottom line. That's what one former newspaper advertising exec suggested to me and I think he made a good point. One thing that's killing the spirit at newspapers is the endless cutting. It would be better to establish a new, very low bottom without the classifieds and build a cost structure on top of that. At least the staff would understand that there's a plan and it's tough-minded, although it would be painful.

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  11. You nailed it. Fossilized "leadership" crippling newspapers.

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  12. I must be really stupid then. I pay for newspaper content all the time. When I realize I've gone to lunch again without anything to read, I go looking for the Wall Street Journal. First, I try to get a free copy in the lobby of a hotel near my workplace that gives it away to its guests. If they're out, I pay $2 at a nearby coffee shop. Just for something to read at lunch! Gee, I must be really stupid. I didn't realize that no one else does this.

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  13. Agreed - newspaper execs still don't realize exactly what it would mean for them to really *innovate*.

    If they want a good example of who to emulate, they should try taking a look at Hulu. Hulu was a big-media-company-coalition effort at facing reality and truly taking on the web on the web's terms. The whole idea was mocked by the web media outlets right from the get-go. (They were routinely referred to as "Clown Co." before they came up with a name for the site.) Fast-forward a year and Hulu's a hot site that's attracting audience. Why? Because they're delivering content that people want, and receiving compensation for it in a way that doesn't involve a large cost or inconvenience for the customer (advertising vs. pay for access).

    Newspapers need to follow Hulu's lead if they want a place in the Internet-enabled world.

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  14. Here's another thought I've had re: the future of the newspaper business:

    I looks like it’s getting to the point that most newspapers can’t exist as an independent entity anymore. But that doesn’t have to mean that a newspaper shouldn’t exist at all. I had an idea about how one could stay alive (below). Can anyone tell me why this wouldn’t make sense?

    If a newspaper inists that it can only exist as a standalone company, then yes it’s probably dead. But a newspaper would have significant value as part of an integrated multi-media news organization.

    Let’s say CNN, for example, bought the NY Times, as well as Time or Newsweek, and, say, something like the Huffington Post. The resulting organization would have significant value and reach, across all segments and media of the news business, from the most immediate (the Web, via a consolidated site combining the best of all of the proprties’ online content), to TV news, to printed news in both daily and monthly formats.

    Though they’re no longer financially viable, printed news and magazines still have relevance to many people and could still be successful with a lower cost structure. The key is to have all the properties held within such a conglomerate share a single news-gathering organization. In this way, the cost of news-gathering could be spread across all 4 forms of media, leading to significant cost savings, and thereby providing the potential for the print properties to be profitable once again.

    Any idea why this couldn’t work? I suppose the reason it hasn’t happened up till now is because it would have been to expensive to buy each of the individual properties and make such a merger viable. But given the huge drop in market value of print properties - due to their flagging business, as well as the current recession - I would think this is an idea that’s much more viable now.

    Thoughts anyone?

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  15. The API strategy is depressing because it's too little too late to save what once was. The reality is that even the best newspapers have been operating under 10 to 30-year-old assumptions.

    But putting my optimist's hat on for a second, I do think there is lots of opportunity for local journalism and media. In my opinion, the worst assumption of all has been that people prefer one big brand to meet all their information needs. That goes beyond "print vs. online" and straight to the core value of the product, or products, that you offer. When most people go online to get news, they either use a portal like Yahoo, or they search. The links take them all over the place. This indicates that people prefer choice to a "walled garden.

    Thus, whether your medium is in print or the Web or mobile or magazine stands, you need to have your brands out there where your audience is. In this context, keeping everything walled inside your single daily newspaper, or even your newspaper Web site, is futile. The only winning content strategy with a future is niche publishing, and a network of niche audiences that you can advertise to across all media.

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  16. I elaborated on my comment in my blog. See "Newspapers Need a Galileo": http://futureforecast.com/blog/?p=217

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  17. Rudolph,

    You are one of the few. I used to read the paper to get the news every day. I never read the classifieds though.

    At some time in the last ten years, I stopped. I can't remember exactly when, but now I get all of my news online. When I want to read at lunch, I take a book along.

    Unless the newspaper industry can come up with a really great idea, they are toast. Forget "innovation", in my experience anyone who uses the word is a fool. Ideas are what drive business, and good ideas are far to rare (and almost never come from the top).

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  18. This comment has been removed by the author.

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  19. As a longtime observer of the newspaper business, I think many observers would do well to get the facts right before rushing to judgments. Newspapers are like Microsoft in that both are frequently maligned as entities that didn't "get it" when in fact they did get most of it right, but for a couple of assumptions.

    Microsoft saw the value of the Internet -- that's why they made WinSock widely available back in the early 90s. Where they erred was in thinking that Microsoft Office file formats were going to be more broadly used for Internet applications than HTML.

    Likewise, newspapers *have* had a long history of innovation and outstanding execution. Newspapers have always been a critical part of the Internet DNA, from AOL to Pointcast and beyond. I've seen that innovation within a newspaper organization is very much like roulette -- a manager has only so many people to dedicate to so many projects. Compare this to Craigslist, where a small team focused on a single mission, over time, can do wonders. Ray Ozzie often made this point when comparing his small, enterprising team at Groove to the Microsoft Outlook group: agile development wins, just about every time.

    A newspaper industry professional can only endure the rollercoaster of exuberance and despair so many times before getting off. I met Mark Potts while at @Home over a decade ago and before that wrote code for Media Marketing Materials, which produced automated sales proposals for newspaper teams at Hearst and others. During those years I met a number of outstanding professionals and I mourn what their jobs have become.

    As a close, I submit that darose's vision of the future of newspapers isn't too far off...just substitute "News Corp" instead of "CNN". History will repeat itself.

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  20. Fifteen years ago I talked our daily metropolitan newspaper management into starting a Web site. None of them had heard of the Web prior to then, and they were understandably skeptical.

    A year later (1995) when the new Web site's online readership was skyrocketing, I proposed placing the newspaper's classified advertising online, experiment with online auctions and doubling the staff to, um, six.

    Instead of seeing opportunity, they saw a distant threat. Not only did they refuse to place their classifieds online, but they countered my proposal by threatening to do away with the Web site altogether.

    In the words of the paper's advertising manager, "We're doing a quarter billion dollars worth of business each year from our ad sales, and if you think I'm going to risk that by placing them online for whatever paltry sum that might bring, plus risk undercutting our print product, you're nuts."

    It soon became apparent that no one in the newspaper's upper management saw the freight train approaching, didn't believe it to be there, and actively resisted any innovation or experimentation that required them to deal with the issue. Instead, it was business as usual.

    Our underfunded, but highly popular, Web site became the paper's dumping ground for newsrooms misfits. Whenever there was a problem employee, he or she was banished to the Web site because, well, the Web site was unimportant.

    In 1999 I quit in frustration, went to work for a dot.com, tripled my salary, and have subsequently watched that once grand newspaper lay off 20 percent of its employees over the past year.

    Newspaper owners didn't get it 15 years ago, they didn't get it 10 or five years ago, and as I watch their pitiful efforts at trying to duplicate their print product business model online, I'm fully convinced that they don't get it now.

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  21. I'd like to comment with regard to your statement about a young business school graduate not wanting to start a career in the newspaper industry. I have been a circulation executive for almost 20 years and have worked for some brand names. I have met very few newspaper professionals who made a conscious decision to launch a career in the industry. Obviously this is not the case with journalists, but with circulation and advertising people, I dare say it's true.

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