"New Reality" For Newspaper Publishers Forces Search for New Revenue Streams to Tap Into

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As traditional print media continues its steep declines in advertising sales and circulation, publishers are struggling to come up with new and creative ways to generate revenue.

Ad revenues in the newspaper industry plunged 16.7% last year to $37.8 million, according to the Newspaper Association of America (NAA). The 2009 take is estimated to fall another 17.3% to $31.6 billion according to Alan Mutter, a Silicon Valley executive who once lead the newsrooms of the Chicago Sun-Times and San Francisco Chronicle and now writes a blog titled “Reflections of a Newsosaur.”

Mutter’s estimate would put ad revenues at their lowest levels since 1965, when the industry took in $4.42 billion, or $30.22 billion when adjusted for inflation, the Columbia Journalism Review (CJR) reported.

While the worst economic downturn since World War II has eviscerated the fortunes of print media companies like The New York Times Co. (NYSE: NYT), The Washington Post Co. (NYSE: WPO) and Gannett Co. Inc. (NYSE: GCI), publishers will see secular decline in revenue even after the financial crisis subsides.

“Think, for instance, the classified ads business of newspapers, which has been walloped by eBay and craigslist (with a final indignity provided by the cyclical collapse of the housing bubble),” the CJR said. “Most of those revenues aren’t coming back. That’s a secular decline.”

The result of this decline means a “new reality” for publishers as they transition from the printed page to digital content. All the major publishers are online and have been for some time.

The New York Times’ Web site began in 1995, when the Internet was just starting to enter consumers’ homes. Ten years later in 2005, The Times tried its hand at a subscription-based model for its Web site, known as TimesSelect, a service that charged readers without subscriptions $50 a year for online access to editorial content.

According to The Times Co., TimesSelect had about 227,000 paying subscribers by August 2007. However, accessing the content for free were an additional 471,200 home delivery readers, as well as another 89,200 college students.

But the estimated 13 million readers who accessed the site that month, according to Nielsen/NetRatings reports, dwarfed those subscriber-users. The following month, the Times Co. gave up on TimesSelect and made the Web site free for all users in September 2007.

Since then, nytimes.com has soared to become the most visited newspaper site in the United States, with roughly 20 million unique visitors per month as of March. But The Times and other publishers are still trying to figure out how to generate revenue and turn a profit, especially now that the recession is cutting into advertisers’ budgets.

“As we continue our transition from a company focused primarily on print to one that is increasingly digital in focus and multiplatform delivery, online advertising revenues are a more important part of our mix,” said The Times Co. President and Chief Executive Officer Janet Robinson. “They made up 21% of our ad revenues in the quarter, up from 18% in the same period a year ago.”

Print and online ad revenue for U.S. newspaper publishers fell 29% in the second quarter from $9.6 billion to $6.82 billion, according to the NAA. Part of this stems from a cyclical decline in spending, while the rest comes from the “new reality” that people aren’t reading as many printed newspapers as they used to.

“This data represents a rearview mirror perspective on what we all know was a terrible stretch of bad road,” said NAA Chief Executive Officer John Sturm.

And the data comes even as online news audiences are growing: The latest data from the NAA shows online newspaper readership was 73.3 million users in the first quarter, a 10.5% increase from the 66.4 million the year before.

A Financial Fork in the Road

Publishers are hoping the decline in online ad spending is cyclical, but some aren’t waiting for the recovery to take advantage of the growing information-hungry audience and what they hope is an inevitable upswing in ad revenue.

News Corp. (Nasdaq: NWS) Chairman and CEO Rupert Murdoch has vowed to charge for all of the online content of his newspapers and television news channels, including The Wall Street Journal, the New York Post and Fox News.

Much of the content on The Journal’s Web site is available only through a paid subscription of $1.99 per week, and is one of the few newspapers to successfully charge for its content, in spite of a backdoor to view articles for free via Google Inc.’s (Nasdaq: GOOG) popular search engine.

If successful, we’ll be followed by all media,” Murdoch told the Financial Times.

Murdock predicts “significant revenues” from charging for differentiated news online.

But differentiated news isn’t enough for people to pay for it, according to Google CEO Eric Schmidt.

"In general these models have not worked for general public consumption because there are enough free sources that the marginal value of paying is not justified based on the incremental value of quantity," he said to a group of British broadcasting executives.

Murdoch is hoping The Journal’s online success will carry over to its mobile applications for devices like Research in Motion Ltd.’s (Nasdaq: RIMM) BlackBerry and Apple Inc.’s (Nasdaq: AAPL) iPhone. His company will start charging consumers to read stories via those apps “in one to two months,” he told Reuters last week.

Several news outlets already have either ad-supported mobile news sites or device-specific applications. The Times and The Journal have the No. 2 and No. 5-most downloaded apps in Apple’s App Store for iPhone, respectively. NPR News is the most popular app.

A “Digital Vampire” Becomes a Partner to Some Publishers

Google News, which aggregates stories from the all over the Internet, currently generates ad revenue from news searches and doesn’t share any of it with the news sites – a business model that clearly doesn’t sit well with publishers.

Earlier this summer, Les Hinton, chief executive officer of Dow Jones and publisher of The Journal described Google as a “digital vampire.”

Speaking at the annual PricewaterhouseCoopers LLP Entertainment and Media Outlook event, Hinton accused Google of “sucking the blood” out of the newspaper business, and vowed new developments would level the playing field.

“There is a charitable view of the history of Google,” Hinton said. “[It] didn’t actually begin life in a cave as a digital vampire per se.”

Instead, by offering content free on the Web, the newspaper industry “gave Google’s fangs a great place to bite,” he said. “We will never know what might have happened had newspapers taken a different approach.”

Now, Google is trying a new way to share its take and possibly change the way people read news on the Web with its “Fast Flip” experiment, unveiled last week.

The idea behind Fast Flip is to present newspaper and magazine Web sites like a print publication, and users can quickly “flip” top stories in a selected category or specific topic found via Google’s search.

Google will share revenue with publishers such as The Times. Co. and The Post Co., but specific percentages were not given.

“The publishing industry faces many challenges today, and there is no magic bullet,” said Google News researcher Krishna Bharat in a blog posting. “However, we believe that encouraging readers to read more news is a necessary part of the solution. We think Fast Flip could be one way to help, and we're looking to find other ways to help as well in the near future.”

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  1. Busy Man Fitness | September 21, 2009

    The newspaper industry has been a walking zombie for a while now.

    It's just another example of how companies that ignore technology eventually become extinct…and they should!

    That's business…that's capitalism.

    They had the money to become active on the net from early on and they thought they could beat the trend.

    The same will happen with high cost education programs.

    They too will make the transition to online and become cheeper.

    Wikipedia now offers a Harvard equivalent if you actually have the discipline to sit and read.

  2. david whetsell | September 21, 2009

    If all the socialist news media printed the truth instead of lies. They are no better than the Prava in Russia or the peoples news in most comminist countries. They only print what the socialist government wants and it is all propaganda with NO TRUTH. They need to go broke but obama the village idiot will bail them out as he does not need to own them they follow is every word like all idiots.

  3. The Thinking Dan | September 23, 2009

    The online audiences are already large and growing…and they have accepted advertising as part of their internet experience. Why not more revenue? A core issue is where will the ad spending come from? Print is the obvious source. This will be a really hard sell to media planners.

    A new revenue sourcing model will reguire the more effective integration of online and offline particularly for the consumer disposables/consumables segments. Who should lead this effort? The very media that are bemoaning the slow growth of advertising revenues…the print publishers.

  4. Print Advertising | October 6, 2009

    In addition to monetizing digital editions, newspapers should think about how they can adapt their print advertising sales models to meet the demands of advertisers. We have had success at our company creating a performance-based payment model for advertisers in print publications. Advertisers are so used to paying for advertising online on a performance basis – many large advertisers are willing to try print if offered a risk-free payment structure – AND publications receive additional revenue.

  5. June Peterson | December 21, 2009

    With all the hand-wringing over the decline of newspapers, it's easy to forget that the best way to boost revenues is to prove to businesses the value of print advertising. Per-inquiry ad programs, such as those offered at websites like mediabids.com offer a way for advertisers and newspapers to actually measure results of an ad.

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