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A five-part series on traditional media in a new marketing
environment.
Theodore Levitt's famous Harvard Business Review "Marketing
Myopia" article observed that some companies define their businesses
by product or service rather than consumer need. One
example was long-haul passenger railroads, which didn't realize
they weren't in the
railroad
business, but rather the
transportation
business until airlines made them obsolete.
Part 3:
Newspapers can't paper over their problems much longer
 If
the late Professor Levitt were still here
and writing today, newspapers might well be his prime example of an
industry focused on its present product rather than the consumer
need that product serves.
(Our posting
Newspapers: Going under
or going strong? also looked at
newspapers' future. See it in the article archive.)
Newspapers have two sets of customers. The readers who buy them and the advertisers who pay to get their
messages in front of those readers.
They're losing on both fronts.
Local daily newspaper circulation is dropping by 2-3% a year, and
the pace of decline is accelerating.
Much of that decline is a self-inflicted wound. The papers give away
their content online, then wonder why people won't pay to read it
the next day. The trend is especially prevalent among younger
potential audiences. Newspaper readership declines dramatically
among younger age groups. It's virtually non-existent among 18-24's.
And the non-readers aren't picking up the habit as they age into the
next cohort. They get their information sooner, in a form they
prefer – and free – online. And it's the newspapers who are giving
it to them!
Local newspaper web sites now have 56,086,000 unique monthly
visitors. That's more than the 53,345,043 daily circulation – and
even the 55,270,381Sunday circulation – of all U.S. papers.
Doesn't that mean local newspapers dominate the local
news/information site niche? And won't that make up the revenue loss
from people who never become paid subscribers?
No on both
counts.
First, newspapers' dominance of local news/information web sites is
shaky.
Local TV station web sites are starting to beat newspapers at their
own game. Three of the five highest-penetration local news web sites
in Editor & Publisher's survey belonged to
TV stations.
And newspapers' dominance of local news/information websites may
soon take a major hit from national players. CNN is concluding a
deal with Internet Broadcasting for content from 70 local TV
stations' news/information sites. And MSNBC, Google and Yahoo now
offer local news from the Associated Press! The exclamation mark is
there because AP is owned by the newspaper industry. Lenin famously
said, "When it becomes time to hang the capitalists, they will sell
us the rope." Didn't work out that way for Communism, but newspapers
seem to be having a rope sale right now.
Newspapers' share of online advertising revenues dropped 8.2% over
the last two years according to a Borrell Associates survey.
Second, even if newspapers could hold on to dominance of local
news/information sites, it wouldn't be enough to save them. Because
newspapers can't support themselves on their web income.
Each newspaper print subscriber generates $500 to $900 a year in
subscription and advertising revenue. Each free online reader
generates just $5 or $10 a year through on-line advertising.
According to a recent Wall Street Journal article, web income
for newspapers and newspaper holding companies ranges from 1.7% to
10.7% of total revenues. That won't pay for gathering and publishing
the news. Newspapers typically spend around 12% of revenues on their
news and editorial operations.
OK, circulation is headed south and newspapers are giving their
departing subscribers a map and packing them a lunch for the trip.
But what about advertisers? They're the ones who actually pay for
newspapers. They've kept paying higher and higher space rates for
lower and lower circulation for years. Are they going to wise up
now?
Apparently they are.
May's revenues were down 8.5% at the 18 New York Times Company
newspapers, and off 14.9% at Media General's 25 dailies.
Advertisers are increasingly restive over declining circulation and
increasing space rates. Newspapers' print advertising revenues were
down 6.2% in the first quarter of 2007.
Most publishers response? Don't talk about circulation. Push
readership. A claimed national average of 2.3 readers per weekday
copy. So: Mom, dad and the goldfish?
Unfortunately, major advertisers aren't buying it. When Anne
McDonald was Macy's CMO she spent $830,000,000 a year in newspapers.
At the recent Newspaper Association of America conference she went
on record to insist that circulation is the metric that matters. Her
blunt message to publishers: "You need to be winning in the
marketplace."
Even circulation may be a seriously inflated number. Because there's
not a single section of the paper that's seen by all subscribers –
or, for that matter, by all readers. Here are percentages of total readers each section reaches
according to Scarborough's Top 50 Market Report:
Main news: 84%
Local news: 83%
Entertainment:
62%
Sports:
58%
Comics:
57%
Food or cooking:
55%
Classified: 55%
Business: 53%
TV listings: 51%
So the most reach a newspaper ad can achieve is 84% of circulation
if it's in main news. And it will only reach 51% of total
circulation in the TV listings. But most newspaper rate cards don't
discount the low-readership sections (though many now demand a
premium for main news placement).
For most of their history newspapers were the only mass-reach game
in town. That led to some attitudes and practices that don't work
well now that digital media have given advertisers many more
options. Those practices will almost certainly have to change to
attract new advertisers who can help newspapers survive and,
possibly, even thrive.
The local price/time-driven advertising -- 50% off today only! --
which has been newspapers' mainstay since at least Benjamin
Franklin's day is all going to the web. Key classified categories
have begun a mass migration away from newspapers: real estate
classified revenues fell 14.3%; recruitment dropped 14.3%;
automotive was down 20.1%.
So far retail is just down 2.2%, but before long supermarket chains
could realize that newspapers' more affluent demographic may not be
the ideal target for the weekly 5¢ off special on cantaloupe.
(Although newspapers' older demographic does tend to be frugal.)
The area which we believe offers the greatest potential for
newspapers is national brand advertising. The up-market demographic
of newspaper readers makes the medium a natural for branding luxury
cars, financial services, health insurance and more.
Happens all the time in papers like the Wall Street Journal.
No reason it couldn't work for local papers with three improvements:
§ Hurry
up and get a national newspaper sales clearing house or conglomerate
in place. No one at MediaVest or Carat wants to deal with a hundred
separate papers to stitch together a national buy.
§ Bring
back the Standard Advertising Units that – briefly – simplified
production and pricing of national newspaper buys twenty-five years
ago. Yes, that means newspaper pages have to be a standard size.
§ Stop
driving national advertisers away with two-tier rate cards
apparently designed to make national buys really unattractive.
Newspapers certainly have strengths.
§ Newspaper
readers actually look for the ads. (In one survey we've seen ads
were the most popular part of the paper.)
§ Newspapers'
demographic is old, but it's also upscale.
§ Although
newspapers' local web presence is under attack, it's still strong.
First quarter web revenues increased $20 million in 2007. If
newspapers cut off the AP spigot to the national web portals they
could recapture the momentum in an area which is the only bright
spot in the industry right now.
Some newspapers will survive:
§ Newspapers
which use the web as a business tool rather than as an implement of
self-immolation. Like The
Arkansas Democrat-Gazette which generates $60 a year in revenue
from each of its paid web subscribers, as opposed to the $5 to $10
that papers giving it away get. (And prevented circulation loss in the
process.) Or The Wall Street Journal, with almost $100
million in online subscription revenue.
§ The
ones that become the trophy toys of billionaires who can afford to
subsidize their pet papers' on-going losses.
§ Papers
which are sustained by profits from parent companies' other
divisions. At least as long as the corporate managements and
stockholders are willing to continue the subsidies.
But many others are going to disappear. Because in this era of hyper
accountability, plummeting circulation, low section readership
numbers and punitive pricing practices – and, of course, the
internet – will relegate them to irrelevance as an advertising
medium.
Part 1: TV's picture isn't
as bright as it used to be.
Part 2: Radio isn't
generating a lot of buzz, but the signals are strong.
Next week:
Magazines still slick, but they may be losing some of their gloss.
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