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Fragmentation -- A Word That Is Already Giving Newspapers And Their Web Sites Grief; “We’re Following The Money” – Words Advertisers Are Telling Newspaper Publishers Causing Even More Sorrow

Philip M. Stone May 10, 2007

Fragmentation has already hit print, and it is starting to show up on its web sites, too. One stop shopping at a generalist news operation is losing favor to specialist operations. Why read about professional sports in your local paper or its web site, for instance, when you can visit ESPN and similar on the web that provide more specialist detailed sports information than one can ever absorb.

An endangered species?

It started with print – the free newspapers came along emphasizing the entertainment and celebrity news and information that attracts the young. So why pay for the local newspaper when the free newspaper provides even more information on the subjects that matter the most to that demographic, and as an added bonus it doesn’t cost anything?  Sure, there will still be those who continue to read the paid-for, but there is no mistaking that where free newspapers take hold the circulation of the paid-fors begins to sink and it’s not just necessarily because of the price.

In London the two new free PM newspapers between them distribute some 900,000 copies every weeknight, but the Evening Standard is able only to sell just over 203,000 copies at its full 50 pence price with another 65,000 or so in bulk sales – mostly airlines. Since the free newspapers came along the Standard’s readership has fragmented somewhat to the free newspapers, and where the readers go, so go the advertisers.

That fragmentation is yet one more reason why the paid-for newspaper has to set itself apart from the free newspaper. What can it do better than free newspapers with their limited staff, better than web sites, better than anyone? The answer to that usually comes down to hyper-local news coverage, because the fact is that if people really want to learn what is going on in their community then the local newspaper is usually the first place to look.

Compounding the fragmentation problem is that there are early signs that it is beginning to hit Internet news sites, too. Hitwise, the online measurement company, reported this month that the market share of visits to the top 10 News and Media websites declined by 3.8 percent from March 2006 to March 2007, indicating that news consumption is beginning to fragment as users expand their range of news sources to non-traditional news websites.

And with the New York Times, Tribune, and the Washington Post each reporting significant drops in their Q1 rate of Internet revenue growth, it may be that reader fragmentation and online advertising fragmentation is beginning to bite hard.

“There are literally hundreds of thousands of non-traditional sites that people are using to find their news,” warned LeeAnn Prescott, Hitwise director of research.

Nevertheless the Newspaper Association of America (NAA) reports that audiences for newspaper web sites are increasing faster than the Internet audience at large, but does that mean more people going to each newspaper web site or there are just more newspaper web sites out there? Whatever, publishers still have not figured out how to gain enough revenues from their web sites to replace print’s lost advertising revenue, and that is the real bottom line.

There seems to be a great divide between publishers explaining why they have lower print circulation – getting rid of bulk copies, stopping circulation in outer regions and the like – and advertisers who are being asked to pay the same if not more each year for less print eyeballs. And when publishers tell the advertisers to consider their web readership, too, those advertisers for the most part are just not on board. If they are going to spend money on the Internet then they’ll set up their own sites and figure out neat and inexpensive ways to get people to come to those sites – they don’t need newspapers for that.

They don’t like seeing print circulations decreasing and they are not sold on the spin that an ad on the newspaper’s web site is just as effective as an ad in print.

And that’s what newspaper publishers meeting in New York got this week --   double-barrel shotgun blasts from two of print’s top advertisers on what they really think about newspaper marketing practices, and if their speeches don’t drive publishers to intensify their search to stop the rot then nothing will.

Anne MacDonald of Macy’s told publishers they needed to recover their circulation – she knows there is nothing superior to several pages of display advertising each week and publishers know that department stores are their real cash cow – but the lady is not happy -- her ads are not being seen by so many people as before, and she is not sold on the argument that a newspaper’s web site is just as effective an ad platform as print.

MacDonald is important. Federated Department stores has an annual $830 million newspaper ad budget and most of that goes on the Macy’s brand. She is already diverting some of that spend to television to build the Macy’s brand under its new consolidation, so newspaper publishers can’t just sit there and say she has no choice but to come to them.

She was blunt – she wants newspapers to be successful; and she wants newspapers to provide the type of material that her prime demographic – ladies from 25- 65 – want to read and that various minorities (some 30% of her customer base) find interesting, too.

And then there was Rich Wagoner, chairman and CEO of General Motors. He was equally blunt. “We are going where the customers are going”, and that means the spend is being diverted to the Internet. To get more of GM’s business, newspapers need to be more creative, he told the publishers, letting them know he was open to “new thinking from newspapers.” Without that creativity, without new thinking, newspapers will get left behind, he warned.

And if those two were not enough to get publishers real jumpy, at the opposite end of the country, in Seattle, the world’s richest man was telling advertisers that he believes that within the next five years the traditional media spend is going to fall apart.

Bill Gates was especially biting when it came to talking about newspapers. “I have a lot of friends in the newspaper industry and, of course, this is a tough, wrenching change for them because the numbers of people who actually buy, subscribe to the newspaper and read it has started an inexorable decline.” And he noted that as the decline gathers pace then advertising dollars will shift even more to digital.

Back to the New York convention and leave it to Craig Newmark, founder of Craigslist that has cost the newspaper industry literally hundreds of millions of dollars because of his free online classified advertising site, to really cheer up his audience.  His simple view of the newspaper business: “People who run printing presses are screwed.”

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