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A conversation with David Rose, little magazine veteran and publisher of Lapham’s Quarterly
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March 31, 2011, 10 a.m.

The newsonomics of oblivion

Editor’s Note: Each week, Ken Doctor — author of Newsonomics and longtime watcher of the business side of digital news — writes about the economics of news for the Lab.

So, how long do newspapers have?

Two years ago, that question was on the lips of many as newspapers cut back deeply — in staff, in number of pages, in the size of the page, and in selling their very headquarters and flagship buildings — in the depth of Deep Recession. We hear it less now. In part, that’s because many publishers and editors decided writing their own obituaries — talking about the sorry state of their enterprises and detailing the cutbacks for the public — wasn’t smart. In part, like any tired story, we’ve moved on and now occupy ourselves with digital reader payment strategems and with the discussions of how tablets and smartphones are, and aren’t, forever changing journalism.

Yet the question looms in the dark corners, in private conversations, and occasionally bursts into public view: “How long do newspapers have?”

Saturday, in Dallas, I moderated an on-stage conversation between two immoderate forces in daily journalism: The Deseret NewsClark Gilbert, aka “the baby-faced dean of disruption,” as his alternative rival, the Salt Lake City Weekly, has called him; and John Paton, the Digital First, bomb-throwing CEO of the post-bankrupt (and up from cardboard desks and leaky newsroom pipes) Journal Register Company, not long ago the bottom feeder of the industry.

Paton had tossed aside his usual JRC change presentation. Instead, he went with 10 tweets, each, in turn, well-retweeted.

The first and second: “The newspaper model is broken & can’t be fixed” and “Newspapers will disappear in less than 10 years unless their biz model is changed now.”

His point: Piecemeal change is a dead-end, given the converging downward spirals of the business. Only massive, digital-first strategies and re-organizations that scrap old structures, budgets, job descriptions — and, massively, costs — have any hope of porting today’s newspaper companies to that other side of a mainly digital news age.

He’s right, of course. No, not necessarily about the 10-year prediction. It could be five or fifteen, but that makes little difference to the notion. Today’s daily newspaper companies have little chance of surviving in anything resembling tomorrow’s form very far in the future.

In fact, as I talk, privately, to those running the companies, they, too, are largely in agreement. While they talk little publicly these days, the fact remains: You can’t find anyone who says he yet has a proven, sustainable business model for moving forward.

That’s the reason we’re seeing such significant embrace of digital reader walls and fences. The New York Times, the Dallas Morning News, and the Augusta Chronicle all share a goal: get off the road to oblivion and somehow find a new route, a life-saving detour, in uncharted territory. Fear of oblivion is becoming, finally and for more publishers, a motivator for more systematic change. If it works, a new digital reader revenue line could be one important building block of a stable new business model, though it won’t be enough by itself.

Oblivion like the once-famous “revolution” in Gil Scott-Heron’s song won’t be advertised. No one’s going to send out a press release or hold a news conference to say, “It’s over.” Newspapers have numerous fellow travelers among legacy media on the road. As we heard this week, CBS News’ ratings have been in decline since 1992. Somehow we will finally pull the plug on that format, but in the meantime, it’s a long winding-down, marked by lesser and lesser capacity to both do the work of journalism and to see its impacts.

Let’s look at several data points as we explore this notion of the newsonomics of oblivion.

How can we measure the threat of disappearance, of slipping away into history?

Let’s start with this number: 20 quarters. It has been 20 quarters since the U.S. newspaper industry experienced a quarter’s performance that was better than that same quarter a year earlier. It was way back in the second quarter of 2006 that the industry last experienced growth.

Things just keep getting worse, in deep recession, in lesser recession, in timid recovery, and now in a wider economic recovery that has lifted into positive (year-over-year, actual dollar growth) territory all other media that depend on advertising for much of their income. Broadcast and cable TV, radio and magazines have all regained a positive revenue path, as online media’s growth has shot out in the growth lead, the recession itself accelerating the movement of dollars to it.

Gannett’s recent public report, saying publishing division revenues will be down between 6 and 7 percent for the quarter now concluding, is indicative of the continuing deep malaise.

While first quarter industry numbers won’t be publicly reported ’til mid-April, look for them to be down 6 to 10 percent in ad revenue. Print advertising just isn’t recovering. Even good growth rates of 15 to 30 percent in digital — helped by more “online-only,” and fewer bundled-with-print, ad products — can’t come close to making up for print decline. “We’re now growing digital at almost 30 percent,” one CEO recently told me. “But we’d have to grow it at 80 percent or more to make up the [print] losses.”

The numbers suggest that only more cost-cutting retains profitability, which is running 5 to 10 percent currently, the black maintained only by the ongoing staff and other reductions of the past several years. (Witness the recent cuts at Gannett and McClatchy.)

The story is the same throughout the industry, with similar trends in Japan, continental Europe, and the UK; only one of London’s half-dozen quality dailies is even turning a profit these days.

We can look at the models built by Axel Springer. Not well known to Americans, the German publisher is the largest newspaper publisher in Europe, with huge reach overall in 36 countries, including 170 newspapers and magazines, over 60 online offerings for different target groups, and TV and radio properties. In print, it’s the leader in Germany, in both ad revenue and market reach, touching 53 percent of the German population annually. It says it is second only to innovator Schibsted in digital (as percentage of total) revenues.

And yet: Its own forecast future is highly problematic.

By 2020, those extended lines paint a blurry picture, says Gregor Waller, who has just left Axel Springer as vice president for strategy and innovation to start a new digital venture. Waller’s presentation at a recent World Association of Newspapers/IFRA conference is among the best I’ve seen among news publishers. It looks honestly at what’s happening now — and what’s likely to happen — and draws logical, if heart-stopping, conclusions.

Citing the familiar trends of increased advertiser choice, mobile reader migration, the social web revolution, and print decline, Waller’s “conservative” projection forecasts that, by 2020:

  • Print circulation revenue will drop by 50 percent;
  • Classifieds revenue will drop by 90 percent;
  • Display revenue will drop by 30 percent;
  • With online ad revenue, growing at a compounded maximum 11 percent rate, there will be “no way to close the revenue gap with online advertising.”

All of which results in a “huge revenue gap.”

Waller’s conclusion: “Digital advertising will play an important role, but without paid content, publishing houses with a big editorial infrastructure for daily quality news will not survive.”

Which is another way to describe oblivion for the industry as we now know it.

Axel Springer is aggressively testing paid metered models at its Berliner Morgenpost and Hamburger Abendblatt, paralleling The New York Times’ major move this week, and that of more than two dozen U.S. dailies — which have, or soon will, paid schemes.

Waller would be the first to tell you that digital reader revenue isn’t the panacea, but one important piece to creating a sustainable new business model.

John Paton will tell you that digital reader revenue is a distraction, and that the radical restructuring of newspaper companies is their own possibility of finding that future.

They’re both right.

In 2011, it’s a Rubik’s Cube that can’t be solved, with one of Hollywood’s looming, time-ticking-down deadlines. A big twist here, a little one there, and then lots more, we can only hope, will provide a solution. We can be agnostic as to whether that model comes out of the legacy companies, out of cable and broadcast, out of public media, out of for-profit start-ups, or, likely, some combination of those. But we need solutions that provide stable funding for, as Waller puts it, “big editorial infrastructure for daily quality news.”

The threat of oblivion should be a powerful motivator, and we now see — finally — after a decade of decline, its specter moving us away from incremental, “experimental” tests to a fundamental restructuring of the business of news.

Image by Thomas Hawk used under a Creative Commons license.

POSTED     March 31, 2011, 10 a.m.
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