Hey Newspapers - Isn’t it all about the Advertising? (and Craig Newmark)
by Jason in Web Economics / 02.16.09
A lot of attention in the media and blogosphere lately has focused on various strategies to help the “dying newspaper industry,” ranging from micro-payments, iTunes for news, volunteer payments, platform plays, and other strategies. Here’s the thing though; if you look at the numbers, you see that the problem facing newspapers is not with subscription or newsstand revenues not being transferred online. It’s that their advertising isn’t moving online. Or, to be more specific, it’s that it’s not moving online fast enough. To understand this, let’s look at the revenue and cost breakdown of a typical newspaper:
Notice anything? If you assume that, for online news, you take out all of the costs of physical production and any subscription and newsstand revenues (not realistic, but I’ll get back to that later), you see that online NEWSPAPERS SHOULD BE FINE. That is, if they can move their readers and advertisers online. And, why shouldn’t they? Online advertising allows for more dynamic content, it’s easier for targets to take action, it can be differentiated, etc etc etc.
[Source: Entertainment Industry Economics: A Guide for Financial Analysis by Harold L. Vogel. Highly recommended book.]
Yes, but here’s the rub: The growth of Advertising on the Web is controlled by 50 something executives in middle America. OK, I exaggerate a bit for effect, but the point is that it is corporate marketing departments who make advertising decisions, and they are not used to moving at “internet” speed. And to be fair, despite all proclamations to the contrary, we still haven’t even scratched the surface in truly perfecting the art and science of online advertising. This should not be surprising given that the study of advertising through traditional “push” mechanisms has been going for a hundred years. So, in essence, the problem is that newspapers aren’t convincing their print advertisers to come online fast enough.
Want to see what I mean? Go buy a physical copy of the New York Times, Wall Street Journal, or the Austin American Statesman. Now go page by page and look at the quality and number of ads in each as compared to those alongside the same articles online. It’s not even a comparison. To advertise in the paper New York Times, it costs a small fortune. Want to advertise on the NYT online? You just have to be any old Teeth Whitening offer. (I’m still waiting for ShamWow to start their huge internet campaign and splash ads across the NYT and WSJ online).
That, my friends, is the problem. If all advertising came fluidly online as fast as readership did, there would be no problem. Don’t get me wrong; the advertisers will come online. BUT they will come online at a glacial 8% or so a year, less in recessions like now, a little more in boom times. So, I think the message for newspaper management here is: 1. Be patient, and 2. Work with your print advertisers to bring them online. Here’s an idea. For the month of March, offer an identical free online placement for every print ad placement in your newspaper. (Yes, you’ll lose your huge revenue from the teeth whitening and Shamwow industry, but trust me on this one). You’ll get your advertisers used to the online advertising, you’ll get them addicted to the crack of online marketing data and conversion, and paradoxically enough, it will improve the experience for your users.
The other point is that while Newspaper subscriptions and newsstand sales are decreasing, they will not go to zero. We have a bad tendency in the technology world to over-rely on linear extrapolation. In booms times, we are quick to extrapolate up to near-term infinite growth, and in down times, we are bombarded by predictions of everything hitting zero in the coming apocalypse. The truth is that linear extrapolations are never right. It just goes against the natural forces of behavior markets, etc. which tend to oscillate and then revert to a mean, versus growing or shrinking linearly forever. Yes, newspaper subscriptions and newsstand sales are decreasing, but they aren’t going to zero. There will still be a substantial market that wants serious news they can be read without booting up anything over their morning coffee. Businesses will still have them in their offices, and people will still grab them as they get on their plane.
Finally, if you want someone to blame, blame Craig Newmark. As you may also have noticed in the above charts that classifieds accounted for 32% of revenue in 2005. This is coming under complete attack by none other than Craigslist, which offers, in many ways, a better service for free. I’m being facetious about blaming Newmark, of course. The racket with newspaper classifieds was up, at least in its current form. But, here again, I don’t believe that it will go to zero for newspapers. It will decrease, however, and they will have to experiment with new business models.
The higher-level problem here is that the convergence of digital media, digital distribution via the Internet, and the emergence of low-cost digital reading devices is causing truly the first big disruption to the publishing industry, which hasn’t really changed in 100 years. So, there will be a shakeup. The more innovative will survive, the slower will die or be swallowed by those who crack the new code faster. So, we have an evolution problem here. We see the future, but it’s not here today, and it will take 10 years for it to fully get here. We’ve seen this before. Anyone else old enough to remember all the “No one will ever put their credit cards online” discussions of the late 90’s? Of course they would; it just took 10 years for the majority of folks to come over. News organizations will not go away, online newspapers will work, and (GASP) even thrive on the web. It’s just going to take a few years. Want to speed it up? Email your favorite corporate marketing executive and tell them to get online.