When Publishers Accept They Are No Longer Just in the Newspaper Business But Instead They Are In the Information Business Then Solutions to Their Problems Become Clear

Philip M. Stone April 25, 2005

It’s difficult for a newspaper publisher, used to making margins of at least 20% and more annually -- almost a license to print money – to accept that those days may be gone forever. But it will be the smart publisher who accepts that fortunes are there to be made by becoming a purveyor of news and advertising on the Internet, too, and there is no reason why that combined business should not be an even larger profit maker than just newspapers alone.

Frank Vega, publisher of the San Francisco Chronicle, put it most succinctly at the Newspaper Association of America (NAA) annual meeting in the Golden Gate City. “We cannot be a one-platform publisher any more. We are going to have to be a multi-platform provider of information.”

Exactly six years earlier, in the very same hotel where the NAA held its conference, Andrew Grove, the co-founder of Intel, had warned publishers exactly what they had to do to survive -- embrace the Internet or their business would die.

Some have embraced the Internet – the New York Times for instance reported that its March website traffic hit an all-time record – 555 million page views from 15 million unique visitors – but others are retrenching wanting to save at all costs the print edition’s profitability even at the expense of their Internet site.

For all the problems newspapers are facing – loss of circulation  - newspapers like the Los Angeles Times and The Boston Globe have reported 5% declines for the past six months, loss of the young readership, loss of classified advertising – the fact is that most are still cash cows. The NAA reported that print ad revenue in 2004 was $46.7 million, an increase of 3.9% over 2003, so even though online advertising grew at an outstanding 26.7% it only totaled $1.5 billion, less than 4% of what print brings in.

With those kinds of numbers do newspapers take the long-term approach and invest now in the Internet for the future, or should a newspaper do whatever it has to do  -- cutting costs on both the print and web – to maintain the print edition’s 20% margins. There are signs that both of those camps are active.

Knight-Ridder has newspapers in 28 US markets and is extremely active online. Its online sales beat the industry norm for last year and rose 39% to equal $114 million – an operating profit of $36 million -- but even with such a success those numbers represented just 4% of Knight-Ridder’s total revenue.

But what is clear is that Knight-Ridder accepts there is money to be made online, and indeed that is where large future growth is to be found. Knight-Ridder along with Gannett and Tribune have combined resources to invest in various Internet projects including their recent purchase of Topix. 

On the other side of the coin, however, there are newspapers cutting back on their editorial spending, using more and more wire copy – the same wire copy found on the Internet -- and reducing the editorial hole with more ads. And then they wonder why their readers flock to competitive Internet sites.

Rupert Murdoch, who told a gathering of newspaper editors recently that newspapers must embrace the Internet, called in McKinsey & Co., a few weeks ago to advise News International on how to embrace the Internet for its fullest advantage.

The industry as a whole is awaiting those results, but McKinsey fired a shot across the print media’s bow in San Francisco by forecasting that their classified advertising revenue was going to take a $4 billion hit by 2007 – that’s about 9% of the $46.7 billion that newspapers earned from 2004 advertising. And where is that lost advertising going? The Internet, of course.

What McKinsey was warning was that readers are not just flocking to the Internet for free news, but they are also going there for the help wanted ads, too. And if that trend follows into automobiles and property then newspapers will really be in serious trouble.

Internet purveyors of classifieds have set up a pricing system ranging from free to up to $75 and there is no way a newspaper, with its current pricing which could well be up to $700 for a similar ad, can compete. So what it means is that as newspapers ponder whether they should have free news on their Internet sites, what they had really better be looking at is how they capture eyeballs for the classified advertising which they must migrate to the web, too.

What does McKinsey recommend?  That newspapers try to protect their classified advertising market share at all costs. Newspapers need to make a reason why readers should look at their classifieds -- all too often readers just bypass classifieds, but if there was really interesting editorial content within those pages then readers will go there.

As if all of that itself wasn’t enough of a bomb, then the Associated Press dropped one of its own. It said that from 2006 it was going to charge a license for its news to be used on members/subscribers web sites. Pricing hasn’t yet been worked out.

Other news agencies such as Reuters have long charged their media clients a license to put the agency news on their web sites. But the AP, owned by the US newspaper industry, made its news available to its members for the web at no additional charge. That now changes, making one more expense for web investment.

But the fact is any newspaper that doesn’t embrace the philosophy that it is no longer a one-platform business and it must invest whatever it takes to be THE online presence in its market will discover after a few years that actually it is a no-platform business.