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Nieman Journalism Lab
Pushing to the future of journalism — A project of the Nieman Foundation at Harvard

The still-evolving Newsonomics of digital transition

[Each week, our friend Ken Doctor — author of Newsonomics and longtime watcher of the business side of digital news — writes about the economics of the news business for the Lab.]

It seems like a simple enough question. If newspaper companies could make the switch to digital publishing, how much would they save in costs?

Newspapers have been Big Iron companies, operating on a industrial manufacturing cost basis, as the information revolution has developed all around then. They’ve participated, triumphed here and there, yet seen their business model effectively cut in half, as first the classified business cratered and then other ad lines shrank.

Surely, as newspaper companies go digital-first, multi-platform and tablet-ready, there’s a financial path from here to there. Surely we can see how the old costs of physical production, printing and truck-based distribution can be winnowed, replaced by hyper-efficient digital creation and distribution.

I’ve been plumbing around in those numbers for a couple of weeks, and I can report back that the print-to-digital transition is at best a work in progress. Sometimes it seems more like an exercise in the pseudoscience of numerology. There are all kinds of intriguing numbers — but they just don’t add up yet.

The numbers we know, though, tell stories, and offer pointers.

Take this one: 4.1 percent. That’s what Warren Webster, president of AOL’s newly expanding Patch, recently told me it costs his company to match the content production of a “like-sized newspaper.” Meaning that Patch can produce the same volume of content (quality, pro and con, in the eye of the beholder) for 1/25 the cost of the old Big Iron newspaper company, given its centralized technology and finance and zero investment in presses and local office space. (Staffers work out of their homes.)

That’s an astounding number, which even if tripled, gives a legacy publisher or editor pause.

Yet the second sentiment coming out of that publisher’s or editor’s mouth is this: Tell me exactly how is Patch going to make enough just to be profitable, even if it only pays one very full-time reporter, plus freelance, per community.

For Dave Hunke, publisher of USA Today, which has just announced a major restructuring to get itself “ready for the next quarter-century,” such cost questions are very much on his mind. Yet asked how much cost could be cut out of the legacy enterprise if it went wholly digital, he pauses, laughs and says, “That’s honestly one of the few questions we haven’t looked at. You could have a reasonable number if you had a business model around the digital business.”

Hunke’s point is a big one. You can have a business model that supports a wholly digital news enterprise — it just won’t be a very big one. Take SeattlePI.com, supporting about 20 editorial staff and flirting with profitability. For Hunke, the question is how you keep a big news staff and a big news footprint as you transition. That’s the still-looming question for metro newspapers, who see the many startups forming around, under, and near them. And, at this point in the digital evolution, there’s simply nowhere near the money necessary to pay for big newsrooms.

Still, the question of digital transition economics is one that’s on many minds.

If you could flip that print to digital switch, what might it mean in numbers?

Start with 60 percent. That’s the rough percentage of costs that might come out of an enterprise, as print production, printing, circulation and distribution expenses, along with those jobs, were eliminated. The 40 percent or so remaining? Figure about 20 percent of costs are newsroom, and 10-15 percent are ad sales. Add in a reduced (from print heyday) number of finance, HR, marketing and management jobs. As one publisher told me: “There are still way too many managers around, managing lots fewer people and lots less money.”

That 40 percent or so number gives a notion, though, of where this is all headed, though it’s only a marker. Hunke announced a 9-percent staff reduction with the restructuring, and, of course, everyone wanted to know where those cuts were coming from — production, circulation, advertising or elsewhere. He says he couldn’t say because he doesn’t yet know.

“Nothing’s a clean cut,” he says. He makes the point — one familiar to many publishers — that he’s leading a digital transition, but one that includes maintaining (and maybe growing) a print product along the way. His multi-platform, segmented audience approach means that job descriptions themselves are in flux. That, of course, makes budgeting even more difficult in the transition.

The notion of continued care and feeding of the print product — Hunke, correctly I believe, sees it as a niche product for a certain group of readers — is key. Remember that daily newspapers still depend on print for 85-percent-plus of their revenue. My sense is that the tablet will accelerate a print-to-digital transition — especially for baby-boomer readers — and that hastening will favor newspaper companies that manage products, costs, and revenues smartly.

There’s no template, though, and no formulae that anyone can share. The transition road is too dark and bumpy at this point, without map or GPS.

                                   
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Ann Marie Lipinski    July 24, 2014
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  • http://kapost.com Toby Murdock

    “And, at this point in the digital evolution, there’s simply nowhere near the money necessary to pay for big newsrooms”

    that’s right, and it’s unlikely that there ever will be. so there needs to be a fundamental economic shift.

    to do it, instead of the “big newsrooms” you mention, there needs to be a shift to virtual newsrooms.

  • http://howellflipside.blogspot.com/ Bill Day

    Dave and the team at USAT (and countless others around the industry) are hard at work solving the question of what does the paper of the future look like. I have the utmost confidence in the ability of our editorial and distribution teams to find ways to deliver audiences what they want – when and how they want to get it.

    But debates about the relative merits of content farms, tablet apps, paywalls and micro payments are only half the story about the future of newspapers.

    The other part of the equation has to be a shift on the business side.

    Newspapers still rely on sales structures geared around:

    waiting for the phone to ring,

    then putting Bob or Sally Salesrep in a car,

    creating a half dozen spec ads,

    having the client sign a contract,

    billing them every month,

    then chasing them for payment –

    all to chase declining average customer value.

    Local media organizations of all stripes need to begin aggressively experimenting with new business side innovations to lower capture and management costs and drive new sources of revenue. Until they solve that problem, all the content/distribution innovation in the world won’t stop the decline of newspapers.

  • http://www.ideanursery.net IDEA NURSERY

    In this debate most arguments focus on savings or cost coming out, but what about new costs associated with creating a digital product? Developers, social networking specialists, online distribution channels like itunes, digitizing archived content….

    In order to build a true business and design sustainable pricing (for subscriptions, applications, pay per view content) understanding this side of the equation is crucial.

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  • http://portlandafoot.org Michael Andersen

    One thing I’ve realized since moving from legacy to startup: Print production offers huge side-benefits in marketing. A local daily newspaper with dozens or hundreds of stands around town, and hundreds of people visibly consuming the product, would have to greatly increase its marketing budget for a website to achieve the same profile.

  • http://www.plumberirvine.org Plumber2010

    One other positive thing that may come out of it is that the mass of ordinary Americans
    might have a more realistic view of the world than their media has allowed them in the
    past, feeding them ‘soft’ instead of ‘hard’ news.