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March 5, 2012, 8:30 a.m.

Where’s the money coming from? Fresh Pew data on the uncertain economics of newspapers

The survey — built on private data and conversations with newspaper executives — shows an industry still clinging to print while moving to digital.

It’s a story that wouldn’t exactly merit a “BREAKING” crawl on CNN: American newspapers aren’t in great financial shape. But a new report from Pew’s Project for Excellence in Journalism fleshes out that fact, showing that within the industry there’s quite a bit of diversity in how well newspapers are adjusting to the disruption of their business models.

Pew found that, while some are doing better than others, the gap between digital and print revenues is still yawning, and that efforts at expanding the digital base — through daily deals, mobile advertising, or other experiments — are only slowly having an impact. Even with digital advertising rising at most newspapers, the report found a 7:1 ratio of print advertising dollars lost to digital advertising gained in 2010.

Perhaps what’s most remarkable about the report is how Pew put it together: using private data from 38 newspapers in six companies, as well as interviews with executives from 13 media companies. At the newspapers surveyed:

  • For every $11 in print revenue, they still earn just $1 on the digital side.
  • Digital revenue is still dominated by display ads and classifieds, which account for about three-quarters of all digital revenue. Daily deals make up about 5 percent; mobil advertising, just 1 percent.
  • Non-traditional business — digital marketing, web services, events, and the like — generated only about $6,500 per quarter at the median newspaper studied.

Aside from the data, the report’s interviews with executives offers some troubling evidence of the industry’s resistance to change. This sentiment from one of the surveyed execs seems to capture it:

“Probably the most difficult thing is to change a corporate culture because you don’t really have the power to do it,” noted one executive. “You can change CEOs, executive VPs, digital VPs. You can wave this magic wand all you want. But at the end of the day, the troops in the field hunker down. From our company, and I would venture for other organizations as well, the most difficult thing to do is change it. “

In order to get access to newspapers’ numbers, Pew promised to keep their identities secret. That’s a very reasonable tradeoff to get access to granular data, but nonetheless, there are points in the report where a bit more background data would be useful in interpreting the numbers. Where Pew provides it, it illustrates that “success” can have different meanings. For instance, Pew notes that the newspaper with the highest growth rate in digital revenue saw that number grow 63 percent in a year — a truly remarkable number. But the study points out this newspaper was a small one (20,000 circulation) where, even with that kind of growth, digital revenue made up only 6 percent of total revenue. And that growth was driven, in part, by a hiring boom in the city’s major industry. In other words, that kind of growth won’t be easily replicable elsewhere.

2011 saw seemingly every decent-sized paper in the country adopt daily deals — either Groupon or one of its clones — as a revenue stream, and they provided newspapers with different results. One paper said deals made up 55 percent of digital revenue — but the average across papers was only 5 percent.

There was one universal truth, and it’s a depressing one: Mobile isn’t big money yet. More than half the papers surveyed told Pew they generated zero ad dollars on mobile platforms in 2011. At least the trend line’s moving in the right direction: Mobile increased from 0.1 percent of digital revenue in late 2010 to 0.9 percent in late 2011. (At least newspapers aren’t alone in struggling to make money from mobile ads.)

One thing the survey does is back up the other recent Pew report that found banner ads make up the bulk of advertising on news websites. What this new study tells us is the reason why: It’s what the ad staff is pushing hardest. Of the papers surveyed, 92 percent said digital display and banner ads were a “major focus” of their sales, versus 40 percent for targeted advertising and zero percent for video advertising. And as much as executives talk about retooling their ad departments, their staffing tells a different story:

On average, papers deployed the largest percentage of their sales staffers, about half of them, to sell both traditional and digital advertising. About a third of the sales staff primarily sold print ads. The fewest number of reps, about one-tenth of the sales staff, were primarily selling digital. On average, of the papers studied, papers had one digital ad rep for every three print ad representatives.

The thread that runs through the report is culture change within newspapers. The executives Pew spoke with offer a kind of dissonance, advocating the virtues of the digital game while bemoaning the state of their staffs. Another excerpt:

The core cultural issue, executives told us, is the tension between the old ways and the new ways — and some of that stems from newspaper leadership that came of age in the days of monopoly newspapers and 20% profit margins. “We haven’t needed innovative people,” explained one executive. “So you get what you need. The kind of people that came into this industry were more operationally focused, executors instead of innovator risk takers.”

Or this:

Another executive described much the same problem this way: His company had too many publishers with “ink in their blood” and too many sales directors steeped in the old days. He added that the newspaper business had changed substantially and that companies had to adjust their traditional ways of thinking. “You’ve got monopolies that are no longer monopolies.”

The report ends on a decidedly gray note, asking executives to look ahead five years. Some predict cutbacks on home delivery days; one said papers would “limp along” and predicted doom if another recession comes. It’s on the second to last page where the report turns shockingly blunt: “Still others said that at this point, they just didn’t know what the revenue structure would look like going forward.”

POSTED     March 5, 2012, 8:30 a.m.
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