How to Save Newspapers
It’s no secret that the newspaper business is in very serious trouble. That’s a problem for the companies that own newspapers and for the journalists who work for them, but it is also a problem for the rest of us.
Newspapers make up the foundation of the fourth estate that is essential to the functioning of our society. As somebody who has first hand experience with societies that lack a well functioning free press, I can tell you it isn’t a pretty picture.
There is no problem with newspapers; it’s the newspaper business that needs to be fixed.
The Broken Newspaper Business Model
Historically, newspapers have been a fantastic business. So much so, that the legendary investor Warren Buffet invested heavily in them (he still owns almost 20% of the Washington Post and a small slice of Gannet) and made a fortune.
The model worked like this: Newspapers would subsidize print and distribution in order to get the widest possible audience. They would earn enormous money selling advertising space and more than make up for the money they lost getting papers into people’s hands.
However, they didn’t sell just any kind of advertising, but largely classified advertising. Anybody who wanted to advertise a job opening, sell a car or even find a lost cat would buy a text ad. In actuality, newspapers made very little money from display ads that promoted brands.
Then came the internet, the most powerful direct marketing tool ever devised, which shattered the newspaper business model. Classified advertising abandoned newspapers for the web. It’s never coming back.
The Chinese Wall
Another crucial element to the business model was the “Chinese Wall” that separated editorial and business interests. This was to insure that the reporting remained independent. While it didn’t guarantee truth, whatever falsities that appeared would be come by honestly.
For editors, the Chinese Wall is sacred. It represents much more than a business practice, it is a rallying cry; a reason for being. The idea that commercial considerations have no place in editorial rooms is considered to be fundamental to journalistic integrity.
Unfortunately, loyalty to an idea rather than its purpose is a recipe for disaster. The Chinese Wall concept needs to be updated. Most importantly, this can be done without endangering journalistic integrity.
The Fundamental Difference between Print and Online Media Businesses
Print businesses sell space. Electronic media manages inventory.
If a TV station sold all of their prime time, but not their fringe time dayparts they would go broke. There are a certain amount of hours in the day and a limited amount of commercials per hour. Whatever you don’t sell you lose. Costs are up front while revenues are on the back end.
Print is different. You can add or subtract space fairly easily. Fewer ads mean fewer pages and lower costs. More supply can be created in order to meet greater demand.
It is clear that for newspapers to be profitable, they will have to make the web profitable. Online newspapers are an electronic medium. The business needs to be run that way.
Managing Inventory Online
The value of inventory on the web varies widely. Commodity pages, such as social media, go for about one dollar per thousand views (CPT). Coveted placement on the home pages of valuable brands can go for as much as $100 CPT.
Advertisers don’t buy web pages, they buy campaigns. They will gladly buy expensive inventory on a site like ESPN.com or NYTimes.com and then use cheap commodity space to bring the campaign in for a price.
What’s crucial to understand here is that a media owner needs to have both. If you only have cheap commodity space, it’s hard to make money (which is why very few social media sites are profitable). On the other hand, if you only have prime inventory you’ll also go broke.
Managing an online advertising business is like running a mortgage bond business. You don’t sell the inventory as one unit, but break it up into tranches that can be mixed and match by advertisers to create efficient campaign portfolios.
Newspapers prospered with a similar model, small amounts of premium inventory combined with large amounts of classifieds was essential a print version of the same thing. Online though, they seem to have lost their way.
Rethinking the Chinese Wall
Print is static. Ads placed next to content stay there. Editors have a responsibility to make sure that there is no appearance of impropriety.
The web is dynamic. An ad appears with a page view, not a specific article. With less risk of undue commercial influence comes less responsibility.
Moreover, editorial and business sides need to work together in order to ensure the right inventory mix. Pulitzer prizewinning content can generate not only high ad rates, but also crucial low cost inventory through reader discussion and other social components. That doesn’t diminish the value of journalism, it enhances it.
Most of all, it creates a profitable business. An efficient portfolio of prime and fringe inventory is what advertisers demand and that’s what online businesses need to deliver.
Stealing the “Free” Model
While more effective inventory management will help improve online revenues, print operations aren’t going away anytime soon. Even with the diminished potential due to the online competition, traditional operations contribution to overhead is essential for maintaining a large and talented editorial staff that can competently report and comment on a broad range of topics.
One possible solution is to take a take a key insight from free newspaper business models. These younger players expect to lose money from the daily newspaper, but they earn enormous margins on high margin supplements.
In effect, the idea is similar to the way newspapers used to lose money with the content heavy part of the paper but earned tons of money on classified sections. The key difference being that the new emphasis needs to be on brand building display advertising rather than on direct response, where the internet reins supreme.
A More Integrative Approach
In order for a newspaper business of the future to work, functions need to be integrated at the implementational level. Editorial, technology, user interface. sales and marketing all need to work together to create not only products that inform, entertain and inspire, but also the right ad inventory mix.
Journalists can no longer create value on their own in blissful ignorance of business realities. While they shouldn’t cater to specific advertising interests, they do need to create products that will build profit margins. This has nothing to do with independence, but has everything to do with survival.
This isn’t a problem that can be solved in meetings, but must be overcome by building strong day-to-day working relationships. Cross-functional teams need to be built and turf battles need to be banished. There is no such thing as “healthy competition” between departments. Everybody is going to have to work together.
Finally, as Rishad Tobaccowalla points out, for newspapers to thrive again there needs to be a fundamental shift in the way they are managed. Sacred cows are a luxury that a starving business can not afford.