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org ideas April 2011 page 5

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An industry check-up:

Prescribing a cure for what ails newspapers

THE LONG-TERM HEALTH OF NEWS COMPANIES depends on audience loyalty, non-advertising marketing solutions, and the changing dynamics of where media revenues lie. This likely means non-daily publishing, new revenue streams, and paid content. by Jim Chisholm

Ive had a perfectly wonderful time. This wasnt it. Groucho Marx

ome years ago, I went for medical tests for a problem that dignity precludes me from sharing with you. I was tested, x-rayed, and had things inserted in places I didnt realise could be inserted into. Were not talking loose leaf here. At the end of it all, I went so see the medical consultant for his conclusions. The conversation went as follows: Im sorry, Mr. Chisholm, Ive got some bad news for you. What do you mean? Well I cant find anything wrong with you. Hows that bad news? Well, if I cant find anything wrong, I cant fix it. A perfect philosophical solution for a highly paid, under-empathetic physician. But no solution for me! I might have said: What if you were in my position? But Id already learned that that wasnt !!" !

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[author]
Jim Chisholm is a newspaper/media consultant and analyst based in Lille, France. Chisholm advises many of the worlds leading news media organisations on strategy and development in business and practice. Current projects include: advising publishers on traditional and digital strategy development, examining the impact of digital models on traditional media, and price-optimisation modeling across print and digital channels. He has undertaken more than 30 international studies on the future of the newspaper industry, including two for the Newspaper Association of America. He can be reached at jim@ jimchisholm.net.

the question to ask. I took away the symptoms and solved the problem myself. I was unfit, living the life of a greedy lunatic, eating rubbish, and not facing up to my own problems. Read: the newspaper industry. How many people have you encountered who are offering doomsday prognosis, backed up by dodgy examination, and offering wrong advice? Consultants are giving doctors a bad name. Lets take four steps: symptoms, causes, recovery, and long-term prognosis. SYMPTOMS. In mature markets, we all accept that print circulations are in decline. But these are nothing compared with the decline in news consumption in broadcast media. Its interesting that everyone focuses on print, but not news. Why? Because newspaper reporters have ready access to circulation audits and plenty of space to wrongly write about it. Broadcast measurements are far more difficult to access, and, of course, broadcast news has no room for this kind of detail. It was the ever-prescient Dean Singleton, CEO of MediaNews Group in the United States, who said that the fastest way for newspapers to increase stock market value and reduce costs was to sack their media reporter. In addition, while average issue readership is declining, overall newspaper readership the people who choose to read a newspaper from time to time is falling very slowly. We are not losing readership; we are losing habit. This is an important pointer to cure. Circulation may be declining, but in most markets I observe, average readerships are declining less so and total readerships are declining very little. People are still attached to their newspapers, and with the Internet, overall engagement is probably increasing, though this is difficult to confirm statistically on a global basis. Sorry, digital evangelists. In most markets globally, more than 80% of the revenues for our business will still come from print for the next five years. Hoping for the current digital strategies to kick in isnt going to happen any time soon. CAUSES. Every numerically challenged commentator, soothsayer, and crank is blaming the Internet for the decline in circulation. The truth is that the correlation between global warming and circulation is significantly greater. In the United States, newspaper readership is significantly lower in hot places than cold places, which could be interpreted as cause and effect. If we spent more time blaming the weather than the Internet, we might be getting somewhere. When I was a circulation director, the classic excuse was to blame the weather! It was a laugh then, and blaming the Internet is a laugh now. The real cause is simply time. We are all busier.

We may be more work- or consumer-focused, but critically we are more communication-focused. The fact is the richer and more educated we are, the less time we have, the more we demand choice of opinion, and, therefore, the less loyalty we have to any one medium be it print, broadcast, internet, or the Ouija board. Overall, this is best measured in declines in reading time and, critically, that of reading on the Web (see chart on page 7). The world has changed. No longer do we sit around coal fires, playing cribbage, and listening to our children playing three-part sonatas. Is that so bad? So I would argue that the key cause of our predicament is our unwillingness to change. I am the classic example. I wrote my first report on the impact of the Internet on newspapers in 1995. Today it reads like a Marx brothers script (or maybe slightly older). RECOVERY. The key here is to understand the path to good health. The first issue? Looking after ourselves and those we depend on. The biggest victim of our avaricious past, and recent ill health, is our customer loyalty. We are losing readers and advertisers because they feel ignored. As I said above, we are not losing readers; we are losing reading intensity. Hardly surprising, since as an industry we spend well less than one-fifth of what other fastmoving consumer goods (FMCG) industries spend on marketing to their customers and branding. FMCG companies spend more than 2% of turnover on research and development, which is consistently shown as an asset on their balance sheets as a value statement. I cant find one publisher who presents R&D investment. Yet our profit ratios remain equally as high as other FMCG companies. We are losing readers not because we dont write for them, but because we dont speak to them and we dont invest in understanding them. My estimates are that newspaper companies have lost between one-third and one-half of our advertisers in the last five years. Advertising sales is !!" !

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print vs. digital news consumption (USA)

Print World Average daily reading time (minutes) Reach of population (%) Average pages read Times read per month Average number of legitimate sources Uniques per visit
Sources: Chisholm, ComScore, NAA

Digital World 3.8 12.0 4.6 8.5 4.0 2.3

30.0 45.0 40.0 20.0 1.2 1.5

an investment in future health not a cost today. We need to focus on our advertisers objectives and not our own needs and targets. Another issue is the ludicrous notion of converged advertising sales. I sit in countless conferences listening to people explain how we should adopt converged selling. I guarantee that 90% of them havent researched what advertisers want. I have. They want different solutions for different objectives not some drummed-up package of nonsense because it fits on a target board. Advertisers, and in particular their media agencies, do not buy cross-media. Have you ever met a converged advertiser? Or a converged consumer for that matter? Whether a multi-national conglomerate or a local car dealer, advertisers buy media by channels to support specific marketing goals. And the idea that newspapers can sell their Web sites along with their newspapers runs completely contrary to how marketing and communications work. It is actually damaging our ability to grow in the future world. If you suddenly hear of the arrest of a fat Scottish consultant at a media event somewhere in the world, it will be because I have assassinated one or several of the many nave advocates of cross-media selling. We also need to refocus our sales staff on the components of revenue and simply the revenue target itself. This encourages them to think about their advertisers objectives and how they are translated into revenue for the company. Meanwhile our muscle power in terms of resources has been cut away. In editorial, publishers are rightly focusing on long-required savings in editorial production while retaining creativity. But in advertising, during the three economic downturns in the last 30 years, resources are permanently cut in the slump of the cycle, inhibiting growth in the recovery. It was about 20 years ago that I was told the creative services department,

which created and produced solutions for advertising, was being moved from the advertising department, which I ran, to production. I wasnt happy then, and Im less happy now. I dont think these services exist any more. We are only now realising the future is not the same as the past. Advertising is only 20% of the marketing economy, and most of the growth in digital is coming from the other 80%. The days of newspapers focusing on transference of advertising from print to digital are over. Classified has collapsed in favour of more direct forms of communication. Get over it and move to where the money is. We should be focusing on the ongoing revolution in direct, below-the-line communication that is transferring from analogue to digital. This is the only clear way for publishers to maintain their share of the digital world, which is currently falling faster than their share of the declining analogue world. We need to focus on how the market is changing in the future not on how our revenues were generated in the past. The reason I forecast that 80% of revenues will still be in print in five years is because our strategies are not moving fast enough into these new worlds. And all the trends both macro-national and from micro-observation of client behaviour of the last five years support this. Long-term health must focus on three things: 1. The issue of audience loyalty in print, digital, and other channels. Geometry says that if newspapers could get readers to read one more issue a week, and get them to visit their Web site one more time month and look at one more page, their sellable online inventory would at least triple. Such a geometric model is easy to understand and easy for publishers to implement. 2. The 80% of marketing investment we have ignored. Here are some examples. !!"In the United States, Inland Press Association data suggests that smaller newspaper companies generate 40% of their profits from nonnewspaper activities. !!"In Europe, one major publisher told me recently that their target is to generate 30% of !!" !

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newspaper revenues and forecast (USA)

($Billions)

Print ads

Circulation

Online

revenues from non-newspaper activities, such as retailing, travel, and games, in five years time. In this case, this is several hundred million dollars. !!"Magazine groups regularly make more (or often all) profit from their database and/or event activities. !!"Another client has a goal to offset all their subscription fulfilment and marketing costs from alternative revenue streams. 3. The changing dynamics of where media revenues lie content, communication, and the relative relationship between the two. LONG-TERM PROGNOSIS. To inevitably quote Darwin, It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is the most adaptable to change. What companies like The New York Times, Telegraph Media Group, and Schibsted all show is an ability to put the past behind them and innovate moving forward: !!"The Telegraph has a considerable business in alternative revenue streams, originally driven by a realisation that it could exploit its subscriber database for retailing opportunities and its in-newspaper crossword and fantasy game activities. !!"Schibsted has developed what is arguably the most innovative newspaper digital strategy worldwide. !!"The New York Times has benefitted from its geographical expansion, both in the United States and from its international audience. From discussions with thought leaders and clients, three themes are emerging: The first is a likely shift from daily to non-daily publishing; a concept which, on paper at least, looks financially quite attractive providing newspapers can retain their major advertising platforms and

convert their audiences into new forms of revenue digital and direct. A number of newspapers in the United States have followed this path, and the Newspaper Association of America produced an excellent report on the subject last year. In the short-term, the idea looks very attractive; but in the long-term, as classifieds continue to dilute, it is dependent on building the online-to-print component, which so far has been a tricky ratio to achieve. The second is the value that can be created from converting the news opportunity into a revenue opportunity through alternative marketing solutions. As I say above, small newspaper companies in the United States derive 40% of their profits from this. The third issue is the relationship between content and communication revenues. This was once a taboo subject, but reality focuses. At a conference of editors I attended awhile back, there was a lengthy debate among advertisers, agencies, and editors about how this will happen. In the magazine industry, it is widespread. In television, regulations are changing fast. In newspapers, the adoption of quality paid content solutions can add value for readers and the bottom line. My average prognosis is that newspapers in mature markets should more or less maintain their revenues over the next five years with an ongoing shift of communications revenues from print to digital, and, ironically, an increasing reliance on circulation revenue. But averages are misleading. Those newspapers that adopt a Darwinian approach, and go where the market is going, could easily see their revenues and profits increase by 50%. This is a target I regularly set for clients during business development projects, and it is interesting how a goal that targets 50% growth by 2017 and is then worked backward into solutions concentrates the mind! For the rest, those stuck in the past or think that converged selling is the future, Im afraid things are fairly bleak. As someone once said, whether you believe you can or cant, youre probably right. !