Success in businesses is not the result of highly mysterious factors.
To be successful an enterprise must offer a product or service that people want; it must provide it with better quality and service than other providers—or at a lower price than competitors; it must change with the times and demand; and it must never forget to focus on customer needs rather than its own. And a limited number of competitors helps. Duh.
Many journalists have trouble understanding these principles, however, and we were treated to 2 classic stories in which journalists breathlessly announced this discovery over the weekend.
The New York Times told us about the “resurgent” Seattle Times. The Times is starting to reap the fruits of monopoly caused by the demise of the print edition of the Post-Intelligencer and the stabilizing economy. It has picked up most of the print readers from the P-I, raised its circulation prices, and been able to keep the higher ad rates that were charged when ads were put in both papers. http://www.nytimes.com/2009/08/10/business/media/10seattle.html
The Associated Press told us “Small is beautiful” and that local papers do not feel competition for big players like CNN, metropolitan television, and Craigslist because they focus on local news and advertising not available elsewhere. “Less competition means the print editions and Web sites of smaller newspapers remain the focal points for finding out what's happening in their coverage areas.” http://tech.yahoo.com/news/ap/20090809/ap_on_hi_te/us_small_newspapers_1
Journalists are also starting to discover that the industry might not be as dead as they have been portraying it to be. A number of stories have reported that the drop in advertising due to the recession appears to be near bottom, that profits and share prices are rising, and there is no wholesale rush to the web by print newspaper readers.
These “surprises” are developing, I believe, because journalists have never covered their own industry with the same interest and vigor that they have covered other industries. This is partly true because they have adamantly and publicly expressed distain for the business side of the news industry and because they tend to accept and endlessly repeat the views of publishers without critical fact checking or seeking better understanding of the business dynamics of news. Whatever happened to the old journalism adage "If your mother says she loves you, check it out!"
Perhaps they will learn.
Monday, August 10, 2009
Thursday, July 23, 2009
PROFITS, RECESSION, AND RECOVERY
New York Times Co., Gannett Co., Media General , and McClatchy Co. have all reported profits in the second quarter and the results have led to share prices doubling and tripling.
The developments must come as a surprise to those who saw the poor performance of recent quarters and convinced themselves that the newspaper industry is dead and gone.
Admittedly, the positive results in the past 3 months were achieved through restructuring, reducing news staffs to their 1970s levels, heavy cost cutting everywhere, and postponing reinvestments. But it shows there is still life in the industry and that the industry can be expected to recover in the coming year if economic conditions continue their current rate of improvement. As I have said many times, a industry with $50 billion in revenue is not going to ignore that revenue, close the doors, and disappear overnight.
Many have viewed the poor company performance in the past 2 years and then mistaken the steep concurrent drop in advertising as evidence of a general decline caused by long-term industry trends. In doing so, they have disregarded the impact of the economy on newspaper advertising and mistaken the dramatic drop in advertising as being an indicator of the industry's broader condition rather than the shorter-term results of 4 quarters of negative growth that have affected the economy as a whole. Some have also ignored the effects of corporate debt problems had on the industry's overall condition.
In multiple blogs and articles journalists and editors have pointed out that newspapers have fared worse than other media in the recession and used that the fact as evidence that the industry is a death's door. Two decades of research on newspapers during recessions, however, has shown newspapers typically fare worse because retail and classified advertising on which the industry relies are more affected by downturns than brand advertising (See post “The Credit Crisis, Volatile Markets, and Recession and Media” and the articles below). Obviously a lot of newspaper managers and journalists don't pay attention to research about their own business.
If one looks at the newspaper advertising expenditures over time (see Figure below), one sees that they fall with recessions and then recover. This pattern was especially evident from 1991 to 1993 and 2001-2003 when short downturns pushed newspapers into decline.
If one considers different category of advertising, it is clear that the classified advertising—which was a driver of growth in the 1990s—was significantly troubled after 2000, but recovered and spiked in 2005 (Figure 2). Its relative decline by comparison to retail and national advertising is probably the result of some substitution with the Internet, nevertheless newspaper classifieds produced $10 billion in 2008—3 times that of online classified.
U.S. newspapers are in a mature industry with low growth potential once recovery from the recession occurs. Most companies will performance reasonably well after the recovery, but certainly some companies will have difficulties because of imprudent strategies and choices. Nevertheless, the industry as a whole will still remain in place producing revenue for many years to come.
Picard, R.G. (2001). Effects of Recessions on Advertising Expenditures: An Exploratory Study of Economic Downturns in Nine Developed Nations, Journal of Media Economics, 14(1): 1-14.
The developments must come as a surprise to those who saw the poor performance of recent quarters and convinced themselves that the newspaper industry is dead and gone.
Admittedly, the positive results in the past 3 months were achieved through restructuring, reducing news staffs to their 1970s levels, heavy cost cutting everywhere, and postponing reinvestments. But it shows there is still life in the industry and that the industry can be expected to recover in the coming year if economic conditions continue their current rate of improvement. As I have said many times, a industry with $50 billion in revenue is not going to ignore that revenue, close the doors, and disappear overnight.
Many have viewed the poor company performance in the past 2 years and then mistaken the steep concurrent drop in advertising as evidence of a general decline caused by long-term industry trends. In doing so, they have disregarded the impact of the economy on newspaper advertising and mistaken the dramatic drop in advertising as being an indicator of the industry's broader condition rather than the shorter-term results of 4 quarters of negative growth that have affected the economy as a whole. Some have also ignored the effects of corporate debt problems had on the industry's overall condition.
In multiple blogs and articles journalists and editors have pointed out that newspapers have fared worse than other media in the recession and used that the fact as evidence that the industry is a death's door. Two decades of research on newspapers during recessions, however, has shown newspapers typically fare worse because retail and classified advertising on which the industry relies are more affected by downturns than brand advertising (See post “The Credit Crisis, Volatile Markets, and Recession and Media” and the articles below). Obviously a lot of newspaper managers and journalists don't pay attention to research about their own business.
If one looks at the newspaper advertising expenditures over time (see Figure below), one sees that they fall with recessions and then recover. This pattern was especially evident from 1991 to 1993 and 2001-2003 when short downturns pushed newspapers into decline.
If one considers different category of advertising, it is clear that the classified advertising—which was a driver of growth in the 1990s—was significantly troubled after 2000, but recovered and spiked in 2005 (Figure 2). Its relative decline by comparison to retail and national advertising is probably the result of some substitution with the Internet, nevertheless newspaper classifieds produced $10 billion in 2008—3 times that of online classified.
U.S. newspapers are in a mature industry with low growth potential once recovery from the recession occurs. Most companies will performance reasonably well after the recovery, but certainly some companies will have difficulties because of imprudent strategies and choices. Nevertheless, the industry as a whole will still remain in place producing revenue for many years to come. It will do so because more than 45 million people are still willing to purchase a paper daily and retail advertisers still gain better results from newspaper advertising than from broadcast, Internet, and other forms of advertising.
Related Articles of Interest
Picard, R.G. & Rimmer, T. (1999). Weathering a Recession: Effects of Size and Diversification on Newspaper Companies, Journal of Media Economics, 23(4):21-33.
Picard, R.G. (2001). Effects of Recessions on Advertising Expenditures: An Exploratory Study of Economic Downturns in Nine Developed Nations, Journal of Media Economics, 14(1): 1-14.
Picard, R.G. (2008). “Shifts in Newspaper Advertising Expenditures and their Implications for the Future of Newspapers,” Journalism Studies, 9(5):704-716.
van der Wurff, R., Bakker, P. & Picard, R.G. (2008). Economic Growth and Advertising Expenditures in Different Media in Different Countries, Journal of Media Economics, 21:28-52.
Friday, July 17, 2009
ONLINE AGGREGATORS AND NEWSPAPER STRATEGY
Google, MSN, and Yahoo and other aggregators are cited by newspaper executives are harming newspapers. But what have they actually done? It is important to have a realistic understanding of their effects if one is to fashion strategies for the future of newspapers and news organizations.
Aggregators carry news stories from major news services and thus make international and national public affairs, entertainment and sports news widely available. The headline news on the aggregators’ home pages is becoming the primary news provider for those less interested in news and the online sections are well-used by news consumers who want more news or more timely news than appears in their daily newspaper.
Aggregators and others sites carrying content from news services are now contributing about 20 percent of the revenue of Associated Press, for example, taking some financial pressure off newspapers to fund the cooperative on their own. Other news services are also gaining income from online operators, thus helping them keep prices lower for newspapers as well.
So how do aggregators news harm newspapers? They harms papers to the extent that some less committed newspaper readers are willing to substitute their local paper with a news sources that don’t cover their cities. Some are willing to do so and this is taking some subscribers and single copy purchasers away from newspapers. U.S. newspapers have lost approximately 6 million circulation since 2000, but about half of that was circulation of the 70 competing newspapers or second editions papers that have been closed since the millennium. So one can thus say that at least 3 million people have decided to use other news sources.
Aggregators are also accused of STEALING value through their search functions and links to newspaper sites. Certainly the aggregators are CREATING value with the technique but are they taking value in violation of copyright or norms of content use? The answer is “no” because they do not represent the material as their own and direct those searching to the newspapers own sites, where they are exposed to advertising sold by the online newspapers.
Newspapers are now getting between 7-10 readers online for every reader they have in print. This plays an important role in making their sites attractive to advertisers, a development that generated the $3.2 billion in online advertising revenue that newspapers received in 2008.
Newspapers, of course, could stop the aggregators from linking to their content by putting it behind walls and charging for its use. If they did so, the aggregators could not link to it legally or technically without users encountering a pay or registration wall. So why haven’t newspapers done this until now? Frankly, because they get more readers and more advertising income by offering the material free.
Publishers are increasingly arguing that they should turn newspaper sites into paying sites and they have been holding joint discussion about how that might happen and whether it would be beneficial to do so simultaneously. This has raised some antitrust concern, but it raises real and significant questions of what such a strategy would accomplish.
In my estimation it is not as easy answer to the challenges newspapers face and has some elements that put its effectiveness in doubt. This is primarily because it is uncertain what existing readers will do. Will they subscribe to print AND online? Will they stay with print only? Or will they drop print?
The first option would be financially beneficial, but is likely to attract a limited number of readers unless the joint pricing is so attractive that it produces little new income for the newspaper firm. If that is the case the benefit of the strategy is reduced. The latter option would be very damaging to papers because print advertising creates more value than online advertising and prices for print ads would decline more than would be gained online.
It also needs to be recognized that people who do not currently buying newspapers are unlikely to buy subscriptions to online news sites. Thus, creating a paid model will likely reduce the boosted audience that free online news currently provides. This would have a negative effect on online audience and the increasing revenue that is being obtained from online advertising.
But what of heavy news users? As I have written in other entries in this blog, heavy users tend to be promiscuous and move between many online news sites. A commonly used system for micropayments would be necessary or these heavy users will reduce their use of multiple sites if each requires separate payment registration. Even with such a system in place, it is unlikely that more than 5-10 percent of the newspaper purchasing population would regularly use such a system.
Moving to a paid online model will not be as easy as agreeing that everyone should switch to paid on January 1 next year. It will require considerable strategic thinking and providing new types of value for consumers if it is to be successful. Even then, the benefits for newspapers will vary significantly depending upon the size, location, and competitive situation of individual newspapers.
Aggregators carry news stories from major news services and thus make international and national public affairs, entertainment and sports news widely available. The headline news on the aggregators’ home pages is becoming the primary news provider for those less interested in news and the online sections are well-used by news consumers who want more news or more timely news than appears in their daily newspaper.
Aggregators and others sites carrying content from news services are now contributing about 20 percent of the revenue of Associated Press, for example, taking some financial pressure off newspapers to fund the cooperative on their own. Other news services are also gaining income from online operators, thus helping them keep prices lower for newspapers as well.
So how do aggregators news harm newspapers? They harms papers to the extent that some less committed newspaper readers are willing to substitute their local paper with a news sources that don’t cover their cities. Some are willing to do so and this is taking some subscribers and single copy purchasers away from newspapers. U.S. newspapers have lost approximately 6 million circulation since 2000, but about half of that was circulation of the 70 competing newspapers or second editions papers that have been closed since the millennium. So one can thus say that at least 3 million people have decided to use other news sources.
Aggregators are also accused of STEALING value through their search functions and links to newspaper sites. Certainly the aggregators are CREATING value with the technique but are they taking value in violation of copyright or norms of content use? The answer is “no” because they do not represent the material as their own and direct those searching to the newspapers own sites, where they are exposed to advertising sold by the online newspapers.
Newspapers are now getting between 7-10 readers online for every reader they have in print. This plays an important role in making their sites attractive to advertisers, a development that generated the $3.2 billion in online advertising revenue that newspapers received in 2008.
Newspapers, of course, could stop the aggregators from linking to their content by putting it behind walls and charging for its use. If they did so, the aggregators could not link to it legally or technically without users encountering a pay or registration wall. So why haven’t newspapers done this until now? Frankly, because they get more readers and more advertising income by offering the material free.
Publishers are increasingly arguing that they should turn newspaper sites into paying sites and they have been holding joint discussion about how that might happen and whether it would be beneficial to do so simultaneously. This has raised some antitrust concern, but it raises real and significant questions of what such a strategy would accomplish.
In my estimation it is not as easy answer to the challenges newspapers face and has some elements that put its effectiveness in doubt. This is primarily because it is uncertain what existing readers will do. Will they subscribe to print AND online? Will they stay with print only? Or will they drop print?
The first option would be financially beneficial, but is likely to attract a limited number of readers unless the joint pricing is so attractive that it produces little new income for the newspaper firm. If that is the case the benefit of the strategy is reduced. The latter option would be very damaging to papers because print advertising creates more value than online advertising and prices for print ads would decline more than would be gained online.
It also needs to be recognized that people who do not currently buying newspapers are unlikely to buy subscriptions to online news sites. Thus, creating a paid model will likely reduce the boosted audience that free online news currently provides. This would have a negative effect on online audience and the increasing revenue that is being obtained from online advertising.
But what of heavy news users? As I have written in other entries in this blog, heavy users tend to be promiscuous and move between many online news sites. A commonly used system for micropayments would be necessary or these heavy users will reduce their use of multiple sites if each requires separate payment registration. Even with such a system in place, it is unlikely that more than 5-10 percent of the newspaper purchasing population would regularly use such a system.
Moving to a paid online model will not be as easy as agreeing that everyone should switch to paid on January 1 next year. It will require considerable strategic thinking and providing new types of value for consumers if it is to be successful. Even then, the benefits for newspapers will vary significantly depending upon the size, location, and competitive situation of individual newspapers.
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