The Inksniffer

I hate to say I told you so. Why newspaper web advertising revenue is just as small as it ever was

2008-03-31T11:31:44Z

Last week's numbers on online advertising revenue made grim reading, though some spinning might have left you thinking that things are going entirely to plan.

Web Newspaper Advertising Up 19 Percent as AP put it sounds like quite good news. The fact that online has increased its share of total revenues at newspapers by 31.5% (up from 5.7% to 7.5% of total revenue) isn't much to brag about. The scale of that rise reflects the decline in other revenues. The number is inconveniently close to what I predicted the optimistic increase in ad revenue for newspapers would be back in July 2007. Back then though I was using it to show that online revenue in its entirety wouldn't even cover the cost of 50% of current staff by 2015. It's starting from such a low base that it just can't make up for the decline of print intime for any kind of orderly transformation. And here we are.

If you don't believe in newspapers then you just shrug and say that there isn't any choice. And if you could harness the shrugging going on in newspaper boardrooms right now for peaceful purposes you could power a nice new Goss Universal for a year. If you don't believe it's possible to halt the decline of print sales, then you don't believe in any future for newspapers as we know them. You won't able to fund the original content you produce now, so what do you become? One of a hundred other local content providers with nothing but an increasingly tarnished brand to trade off. As an industry we have to make print work. Or we won't be an industry for long.

On the other hand.... Maybe the 1c newspaper is a good thing

2008-03-24T13:40:05Z

In order to work in newspapers and believe in them you have to be an optimist. I am definitely an optimist. I can tell you how England will win the World Cup in 2010. And I am just waiting for an early-season excuse to believe that the Tampa Bay Rays might win the World Series this year.

But in examining the ABC's recent proposed changes I was instantly sure it was a bad thing. The optimist in me has regained control now though and I think that maybe it could have something to be said for it.

The first thing to be said for it is that at least it will be disruptive. Anything that disrupts newspapers from their current charge over the online cliff and makes them think about print circulation strategies is a good thing. In fact it strikes me that a smart newspaper could well use the change to reinvent the American newspaper and innovate in the sort of way that could bring us closer to what consumers actually want from print.

The biggest asset American newspapers have is their distribution networks. Journalists will try to point to quality content, but the value of that has diminished massively in the face of the online information revolution. There are plenty of other sources of local content now. But I can't think of any other local product capable of being manufactured and distributed to someone's door within an hour every single day. The salvation of newspapers will be found in that network.

Maybe the 1c paper finally opens the door to a more sophisticated use of that network. Could we slim the main section of the paper down to a tabloid summation of the news and deliver it widely to as many people as possible for 1c (or 5c or whatever) a day, only supplying sports sections to people who want them (and adding 10c a day to the bill). And the same for Business. And for a hyperlocal section. And a nice magazine or two at the weekend.

It wouldn't be an entirely personal paper for consumers but it would give advertisers the sort of local penetration they want (via the news section, whose circulation will increase if it's smaller and at a lower cost). It would make consumers who like sports pay for a vastly improved section (improved with the cash saved from printing fewer copies) and give the newspaper an incentive to improve circulation for print sections. I've been banging on about this for some time now and I am no less convinced by its possibilities than I was back in in July and in August too.

Technically, each section could now have its own ABC enabling newspapers to sell advertising on penetration in certain sections and engagement at lower circulations in others. It could allow us to expand print offerings where there was a continuing point to them. And close them where our purpose is gone (stock prices are still in far too many papers though I don't see the point any more.)

It would connect us to consumers and give us a reason to really give them what they demand from print and support it with what they demand online.

The problem of course is that we've spent a lot of time contracting away our control of the distribution network. Many of our distributors just won't want to do more than throw papers at a house they know from memory gets the paper. There's a whole lot can go wrong if people are getting different papers. But humanity wouldn't make much progress if we only ever tried to tackle problems with obvious solutions. It's worth at least thinking about. Does anyone think it could be made to work?

Maybe less is more in the future of newspapers?

2008-03-21T11:05:00Z

I love a good list. Especially one from Ryan Sholin, my favorite online evangelist. His latest output explored the reasons why he reads newspapers now and how that should impact on what newspapers put online and what they should concede is now done better online by others.

A point he made but didn't explore was the ease of searching a newspaper if it happens to be in front of you. If I wanted to know a local movie time I would look in the newspaper first if it was right next to me, but I'd search the Muvico site if it wasn't. So Ryan's right, a newspaper is wasting its time putting movie times on their site for me. But actually so is the printed newspaper. I'm not going to subscribe to the newspaper on the off chance that maybe one day I'll need to know a movie time either. The newspaper used to be competing with the telephone (I could always ring up the cinema). Now it's competing with the web. It's not a fair fight.

Ryan doesn't explore what now does and doesn't work in print. Fair enough - I suspect his primary job is stopping newspapers just loading their newspaper online. But it raises an interesting question. What do I want in a newspaper? How do I read it now? And when?

That was a theme picked up by Gainesville's finest: Mindy McAdams (if Ryan is my favorite evangelist, Mindy is the digital Monsignor) MIndy contributed her own list. That led her to conclude that she doesn't really read the paper much any more because she spends so much time in front of a computer and can graze the news whenever she wants. Which I suspect is not an uncommon experience, as does she.

So what are newspapers good for?

The when of newspaper reading for me personally is straightforward. I read it in the morning with the TV on and a mouthful of Frosties.

The how? I go to the stuff I know I want to read. Mainly sports and anything about Florida's property tax and our idiot politicians. That's kind of it. When I was in the UK I had a list of things from the 2 papers I subscribed to (Daily Telegraph and FT). Sport, Lucy Kellaway, Alex cartoon, political gossip, media business news, more Lucy Kellaway, flick through news section to see if anything grabbed me. And away...

It makes me feel that papers need to have less in them to become better.

The old broad church theory was that we had to put enough material in every newspaper for a large constituency to construct their own paper out of what we give them. But I'm really reading no more than a par or two of most news stories and I think that's a common experience. I'm using the paper to tell me what the agenda is, because it's easier to search a printed page than online. But I'm digging down into what I'm actually interested in online or on TV.

I would still go to a columnist I liked in the morning and wouldn't mind paying 25c just for that. (C'mon Lucy Kellaway, come and work for the Tampa Tribune!). Funny still works in print (it's just that many of the people who do it well are working in TV or online). Big news works well in newspapers still. But it's not an everyday event.

Newspapers are terrified that there isn't enough in the paper that isn't anywhere else. Maybe it doesn't matter as long as what still works in print is worth the cover price. Maybe.

Newspapers don't need to be thick to be useful. I would take my papers at half their current size and twice their current price if they ditched the stuff that doesn't interest me or which I can get easily somewhere else. In fact if my local paper gave me an A4 news magazine each day (think a local daily Newsweek, improved newsprint inside, heavier cover) with a summary of most news, a couple of meaty features, business and a bunch of smart and funny opinions and observations bundled with a full-color sports magazine (same improved newsprint, think Sports Illustrated meets Observer Sports Monthly) that always had a spread about the Bucs, I'd be happy as Larry. It used to be an impossible dream because of deadlines: it isn't any more. It's expensive (probably new presses?), but it's not impossible.

Is it just me? Ask yourself what or who you would need in your paper for it to be worth the cover price? My guess is you'll be surprised how little it is.

Prepare for war: Why ABC rule change will mean big changes for US papers.

2008-03-21T09:23:31Z

Quietly and without much fuss, ABC, the Audit Bureau of Circulations, just killed itself. And it may well take newspapers with it. An agreed proposal at ABC's March meeting means that publishers can now charge as little as 1c for their newspaper and still count them towards paid circulation. And they can opt in weekend subscribers to the daily edition without permission, as long as there is some way to opt out if the householder actually doesn't want it (how thoughtful!). Previously anything less than 25% of a declared full price just didn't count and subscribers had to actually want more newspapers in order to receive them. With newspapers thus able to distribute at an effectively free price (from next April), the value of a paid copy versus a free copy just disappeared. And with it so did the point of the ABC.

Now some change makes sense. The byzantine ABC rules which utilize a full armoury of reference, cross-reference and double-cross-reference to create rules, regulations, exceptions and allowances with a bunch of Roman numerals thrown in just in case you weren't confused already, have become a messy network of laws by which newspaper circulation departments must live and (News)die. And the fussy way ABC forces the classifying of sales looks silly next to the internet's broad brush stroke approach to reporting.

Newspapers have looked on with righteous envy as online circulation measurement services changed their rules at the request of their customers to make themselves look better. When the industry looked small, it was all about page impressions which made it look bigger than it was. When that started to look so big it was attracting skepticism, it was changed to unique monthly users, though what that measured was inconsistent and not entirely trustworthy. Now that video works online, time spent is being factored in. All the while newspapers were tied in knots filling in forms for the ABC and getting crucified for the odd innocent "exaggeration" here and there.

But newspapers probably needed to be protected from themselves by ABC rules. The reliability and dependability of ABC was the rock on which we sold our advertising story. And it has proved a very effective foundation for our business.

The rules are not final yet and are to be reviewed in July before implementation. But our industry has a history of short sighted self destruction. The legacy of numerous city cover price wars is still evident today in most American cities with a single surviving title exerting an unchallenged monopoly over the market, a monopoly which has allowed newspaper titles to ossify and avoid expensive innovation because, well, where else can our readers go? Now that they have plenty of places to go, the money that would have enabled real newsprint innovation is disappearing from our business and we haven't got the imagination or the cash to really make it happen.

Does it matter? Well, it will do when any circulation department in need of few thousand readers runs an absurd discount program to bump up its numbers. And then they do it the next month too so it doesn't look bad. And so on. The best circulation departments have spent the past few years kicking this sort of addiction to quick meaningless circulation boosts. Now they are going to come under growing pressure from head office to put it all back in place.

So newspapers will drop prices to lower and lower levels, the ABC numbers will become meaningless to all major advertisers, and while we watch circulations rise again, and with them the cost of printing we will rail against advertisers who refuse to pay for access to our newly expanded audience because they don't trust our numbers any more because at 1c a copy they don't know who is and isn't actually reading the paper. Extra readers + extra cost + no new revenue = bankrupt PDQ.

Competition creates better newspapers. But price wars don't. They improve newspaper sales temporarily but in the UK it was the Guardian, who refused to play ball with Rupert Murdoch's Times price war, and who instead invested in imaginative editorial-driven ways to serve advertiser segments, who came out of the war in best financial and readership shape when Murdoch finally gave up, many millions of wasted pounds later.

The industry most needs to be investing in smart new ways to emphasize the strengths of print. Instead, from next April when the rules come into play, we look set to spend our money printing more copies of the same newspaper and convincing ourselves that we have therefore magically become more popular. No one but us will be fooled.

The $1 billion lottery and the Jet Blue flight out of Tampa that buys you a share of my ticket

2007-09-12T17:33:36Z

The news on advertising revenue is very very grim. If you haven't already poured yourself a large one, please do so and have a look at the latest figures on US ad revenue in newspapers. We're looking at 15-20% annual declines in revenue in cars, homes, jobs and classified. Ad revenue for newspapers online up about $100m and slowing in growth. Ad revenue in print down about $1,000m and gathering pace.. Please don't tell me any more how online revenue is going to save the newspaper business ever. If you believe that you are about to kill your newspaper.

There are two courses of action. The first one is to give up and say that newspapers are dead. They may not be actually saying it, but if actions speak louder than words then that is pretty much what the major newspaper chains in the US are thinking. Point me to one imaginative print or distribution initiative going on right now? We need a hundred going on to have any chance of finding the one that works. McClatchy, Gannett, et al are sitting in their boardrooms watching the industry bleed and are apparently devoid of any ideas on how to save the industry. If they haven't given up on print, they have a funny way of showing it.

The other course of action is to imagine and execute dramatically better newspapers which, given the existence and growth of online advertising probably will also mean shifting more of the cost of production from advertisers to readers in some way. This will, obviously, be difficult and expensive: whereas fiddling whilst $1 billion of revenue drifts away is easy. The thing is that one road holds out the possibility of a future for newspapers and the other just doesn't.

Those of you who have followed this blog will know that I've tried to make this point several times over the past few months, here, here, and all over the place. I hope you'll indulge me again... If newspapers want to survive you have to recognize that your biggest asset is your distribution network and that your journalism is actually on the whole rather low calibre and largely commoditised, probably as a result of arrogance or neglect. Salvation will come from innovating in distribution and editorial, allowing the delivery of "flexible" newspapers that give people more of what they want (and tempting them to pay for it) and less of what they don't (allowing you to save a lot of money on paper). It's entirely practical and simple.

But first we have to stop thinking that the internet is a great way to cut costs (paper) from our business and realize that once you remove that great big metal barrier to entry that newspapers own, online local information supply and the associated advertising is going to be a commodity business and prices will decline to a point where we can't afford journalism any more. You can only stop this by raising barriers to entry again. The only way I can see to do this is high-quality high-volume editorial on issues that interest people distributed in a way that adds some value to it for readers and advertisers. Our business has always been attracting readers and selling their attention to advertisers. It's still a viable model: we just have to be more sophisticated at both parts of the equation.

There's $1 billion at stake. For the price of a plane fare I'll be with you in a week and getting your newspaper team thinking about newspaper innovation for a change. What can you possibly lose...? Email Me

If newspapers are dying why do they cost so much to buy?

2008-04-15T08:53:36Z

Being a big believer in the power of markets to expose the truths behind people's words, I thought I'd dig a little and work out how much it would cost me to buy a newspaper title from a group that really ought to sell it to me. That would be groups who believe that the future is digital in some way, who have no other synergistic newspapers in the same area and who could use the money. The New York Times and McClatchy have titles that fit into all those categories.

I also thought I'd pick two newspapers close to home, so I'd know whether there was a specific premium related to them being good newspapers. I chose the Bradenton Herald and the Sarasota Herald Tribune. Neither is particularly good, or outrageously troubled. The SH-T is dull and lifeless but that is hardly extraordinary. It is a lazy monopolist with few ideas and no feel for its community. Again, not outstanding in any way. If there was a prize for being mediocre and average, the SH-T would win so often that it would get to keep the trophy.

First a declaration of interests: I have done and am doing work for a rival newspaper in this area, the excellent Sarasota Observer, a weekly hyperlocal with a slightly lower weekly circulation to the SH-T's daily one and which recently attempted to launch in Bradenton (before my time working with them) and pulled out when real estate advertising went south.

A bit of desk research. I can't help loving the aggression of Gatehouse Media, who have been snapping up newspaper properties in the past year or so like newspapers were going out of fashion, which, of course, everyone says they are. Their strategy appears to be to purchase small locally focussed properties and consolidate around hubs where possible, though even they haven't been as disciplined as their strategy would suggest if you look at their business map.

They are betting that if you can control an area in print with a number of small nimble hyperlocal and hyperuseful newspapers and sites, you can still make good money in newspapers. Risky but it makes more sense than owning one huge metro title and hoping it can hang on to all that local revenue as if it were your birthright.

They have been busy. According to their Q2 filings Gatehouse spent about $800 million on purchases this year. They bought Copley Press for $380 million and snapped up another four dailies from Gannett for $410m.
That's a lot of money to be throwing at a dying industry. So what sort of values are being put on newspapers if these deals are typical.

The Gatehouse release about the Copley Press deal says that "the 9 publications are comprised of 7 daily and 2 weekly newspapers organized in 3 clusters around Springfield, IL, Peoria, IL and Canton, OH. The total combined daily circulation of these papers is 241,060. The 2 weekly newspapers have a combined circulation of 34,918." So if you divide the weeklies by seven and add them to the daily total Gatehouse have bought 246,048 daily readers. Which adds up to $3,251 per daily reader.

The Gannett deal? The papers have 165,000 readers each day. Those readers cost Gatehouse $410m. So each daily reader is worth $2,484. A bargain.

So the Bradenton Herald with a circulation, according to McClatchy of 41,000 during the week and 48,000 on Sunday would be worth between $104m to $136 million. The Sarasota Herald Tribune with a circulation of about 110,000 would be worth $273m to $357 million.

Now that seems staggering to me. The SH-T is overpriced for advertisers and it's a poor excuse for an editorial product. It isn't worth 357m Turkish lira let alone US dollars. You could nearly buy the Chicago White Sox for that, according to Forbes magazine..

Maybe Gatehouse are just big payers. Or maybe there's something I'm missing.

So I thought I'd go to the Knight Ridder deal and see if I could work out sensible multiples. McClatchy sold the Star-Tribune in 2007 for $530m. It has a circulation of 378,000 according to this company presentation about the Knight Ridder purchase, call it 420,000 including Sunday That would make it worth a mere $1,261 a reader. That would put the SH-T at $138m and the BH at $54.2 million. That sounds a bit more like it but it still seems a lot, maybe a multiple of 10x profit, which isn't the sort of multiple you'd expect from a "dying" business.

Now I am aware that multiples vary from industry to industry and business to business (oh yes, that LBS MBA really comes in handy) but what's kind of normal? My first Google attempt threw up this piece which suggests a five times EBIT (Earnings before interest and tax) as a maximum. as a benchmark, and it's a number I've heard before. It's hard to know EBIT at newspapers that are part of groups. But McClatchy say that Bradenton's total revenues are $38 million. Average margin at the K-R papers retained by McClatchy was 30%. So operating cash flow of $12m at a 5x multiple puts the Bradenton Herald value at about $60m. Now that is starting to get a bit more realistic.

Reversing back the value per reader suggests that each of the 43,000 readers of the Bradenton Herald is worth $1,395 per reader. I wonder if they know it.

I don't have the data to do the maths on the SH-T because it's wrapped in NYTCO's numbers. But at the same reader multiples as the Star-Tribune it's worth $138 million. Still a lot.

But what about our friendly overpayers Gatehouse? Do they sell as high as they buy? They also sold the Herald Dispatch recently to Champion for $77m. The paper has a daily circulation, according to this site, of 29,000. That is a value per reader of $2,655. So they aren't the only ones with faith in small titles.

So apart from finding some use for the very large business valuation tomes I have in my office, what is the point of all this?

Well I think it suggests that smaller titles have a higher relative value than larger ones at the moment. Gatehouse have paid through the nose for small geographical titles that are close together. But the price per reader was higher than for the Minneapolis Star Tribune. It suggests that the market has definitely bought the idea that smaller local papers can survive in an internet world though it has doubts about larger ones.

Secondly it emphasises the market's view that newspapers are not a dying business. Multiples in dying industries are starkly different to anything you find in newspapers.

It also makes me think that I'd like to start a newspaper and attack some comfy metro incumbents. If you believe that you can enter the market of a top 100 newspaper, create a daily rival with a paid circulation of 29,000 and get Gatehouse to pay you $77 million for it then I think you could earn a great return on investment.

You've got the email address if you need any help.

Core blimey: How to make US newspapers unstoppable

2007-08-14T14:12:03Z

I'm still doing the two-hour drive three days a week so I've been exploring a few other podcasts to check whether
the spoken written word is out there yet, and whether current media providers are typically seeing the podcast opportunity as a chance to take radio formats online.
It isn't. They are.

Among the toe curling badness of most professional podcasting, the Harvard Business Review's IdeaCast is a nice simple idea. It's not much more than a chance for authors of recent business books to talk about their ideas and it's none the worse for that. As you'd expect, some of it is faddish (charismatic outsiders are out, hardworking insiders are in) and MBArassiingly obvious (Hold the front page: you need to be able to think of things in more than one way to succeed), but there's some great stuff too.

One interview that particualy grabbed me was with Chris Zook. He's just produced a book called Unstoppable: Finding Hidden Assets to Renew the Core and Fuel Profitable Growth. Zook heads Bain's Global Strategy Practice and his high experience, low bullshit approach makes the book eminently readable. Zook has certainly followed his own prescription having written first a book about profiting from the core (his own core idea), then a book about expanding it (an expansion of his core idea) and now a book about how to find something within your core to allow you to continue to grow (a renewal of his core idea). He can at least claim to be walking the walk. For newspaper managers who would value a coherent framework for thinking about our current business disruption it's the best book you'll read this year. Not entirely cheery, but very very good.

"It is a lot easier to win in poker," says Zook in the intro, "if you know you already hold a few aces than if you are relying on the dealer for a whole new set of cards." This is potentially a classic bit of business book bullshit. Sounds great, definitely true, but not necessarily a very good metaphor for anything. But he gets a pass on this one, because it's a great metaphor for the newspaper industry's response to the internet disruption of the past 10 years. We have looked at the smiles on the faces of internet entrepreneurs around our poker table and are being conned into folding a perfectly good hand without even considering the possibility that they are bluffing or that we might have the skills to play this hand to victory.

Zook also gets a pass because he goes on to back up what he says with a lengthy list of examples and statistics that support his idea that the most effective way to reinvent a company is by finding something valuable that already exists within it. Zook is also honest enough to emphasise how difficult this actually is.

Zook knows that newspapers are a good example of a business that needs reinventing and identifies the New York Times as being at the stage where it needs to redefine its business but frustratingly he doesn't use newspaper examples in the rest of the book. Which means you have to either think it out for yourself (exhausting) or hire Bain to do it for you (expensive). So spotting a gap, here is my cheap and easy way to use Zook's framework to think about the newspaper business.

His basic finding, that moving from unsustainable to (temporarily) unstoppable occurs more often in companies who use assets they already have at hand rather than those who attempt to make great leaps forward into new technology, echoes many of the ideas you will have found on Inksniffer.

Zook divides hidden assets into three categories: undervalued business platforms, untapped customer insights, and underutilized capabilities. Sometimes they are difficult to distinguish, but here's a few ideas that came to my mind.

1. Undervalued business platforms. The distribution network of local newspapers and the connectivity we have to consumers is a massive hidden asset that we should be developing and expanding, not only to allow us to innovate in our core product but as a profit center in its own right. Timely early delivery of products to people's homes is a potentially huge new business for us and yet far from developing it and getting control of it we have contracted it out to small independent operators to save some money. Few businesses beyond USPS have our ability to get goods on a daily basis into people's hands. Unlocking the value of our distribution network is, as I've said before, the key to our future survival. Taking this element of our business as a serious potential future core could transform us.

Another undervalued platform is weekend inserts. Journalists hate to think of people buying newspapers for coupons and the supermarket's weekly adverts. But it seems to be an important driver of readers and advertisers here in the US, so logically newspapers should embrace it. Yet the inserts are delivered in a big ugly misshapen pile that tips all over the floor when you pick up the paper. Why is the joy of shopping and bargain hunting ignored editorially and presented so badly if both readers and advertisers see it as part of a newspaper's role? Why can't we have a shopping section that brings all this stuff together, is engaging editorially and (maybe over time) lets us get this stuff bound in to the section or printed ROP so it ceases to irritate those who don't want it? The delivery of bargains to our readers ought to be executed better than this.

2. Untapped customer insights. We have two sets of customers. Our business starts with attracting readers and our readers allow us to sell their attention to advertisers. So our insights should probably start with readers. Metro had an untapped customer insight. "People might read a paper if you could get it into their hands at a time when they had nothing else to do at no cost to them and packaged in a way they could easily consume in that short space of time." You could argue that newspapers' potential to produce spoken versions of their titles (see my last post) and get them to people on their phone/MP3 players in a skippable format resembling an aural newspaper might be a similar insight: "Readers might be prepared to consume newspapers and pay for them if they didn't have to carry them around, didn't have to physically buy them every day, could listen rather than read and skip past stories they found uninteresting".

But our insights shouldn't end with readers. Currently we asssume that we sell the attention of all our readers to all our advertisers and our segmenting of them is largely based on what they sell rather than which of our readers buy what. We claim that to be inevitable but that's a big lazy lie. The most egregious example of this is job adverts. Jobseekers are not one segment, seeking any job on every page. Yet in most US papers I've seen all the job adverts appear together in one big messy illegible smudge on the page with minimal help as to which kinds of jobs might be interesting to me. I wouldn't go there if I wasn't looking for a job so we offer employers only access to our unemployed readers. Who make up a fractin of the readers our advertisers actually want to talk to.

I'm not surprised this segment is disappearing from US newspapers. If I'm a health worker why can't you give me a section to read that speaks to health workers and put ads for new relevant jobs in there. Then I might see them when I'm not actually looking for a new job - ie I might be the sort of candidate an advertiser really wants to find. The internet cannot compete in giving advertisers access to people who already have jobs and aren't looking. Yet our ability to draw in readers with editorial content means that we can own them. But criminally in the US we don't and hence the appeal of Craigslist and online job sites. They are rubbish, but we're no better. If you see active jobseekers as the market for job ads rather than all professionals in that field then you are doomed.

How much do we really know about the process by which our readers buy, say, a car or a home? Or how they choose a retailer? What part of the process are we? And for which groups? How does that affect who we sell to and the price we charge? If we are selling space on a page instead of the right attention of the right people, we are not actually selling what the customer actually wants to buy, we're just selling a proxy for it. In those circumstances we are obviously vulnerable to competitors selling a better proxy or something closer to what the customer actually wants to buy ie response. Can we carry on selling penetration as a proxy for response in these circumstances. Probably not.

Zook calls it segment blindness. We've seen our customers and their needs the same way for so long that we can't imagine selling what we sell any differently from how we sell it now until it's too late and someone else has stolen them from us.

3. Underutilized capabilities. This is a whole exercise on its own. What are the capabilities that a newspaper has that makes it a superior medium for readers and advertisers? We have become so obsessed with the advantages of online and the possibility of migrating our revenue there that we've belittled our own medium in the eyes of our customers. But print is a great, if underinnovated medium. What are we good at? Portable, easily searchable, low-cost, throwaway information? The ability to select, order and present information in a way that readers trust? The ability to take an advertising message into a high proportion of homes within a given geography? Distribution? Zook contends that most managers in most businesses have surprisngly poor answers to these questions and need better ones. We are no exception.

Sadly Zook's excellent work is not yet available as an audiobook but maybe Harvard Business School Press will find inspiration in Zook's work and soon publish their titles in audio versions at the same time as in print. Of all the people to exploit a hidden asset, the publishers of Chris Zook's books should be first in the queue.

Big audio dynamite: How newspapers can kill the radio star (or how to read your newspaper while driving to work)

2007-08-07T09:12:53Z

The reason for the recent silence of this blog is nothing to do with the Murdoch takeover of the WSJ. I just give the guy a sofa to sleep on when he's in South West Florida, that's it..

In fact it's the fault of a much more interesting client of mine, whose offices are a two-hour drive from my home. This means that I have been spending four hours a day in my car, which really cuts into my alone time with my keyboard.

The good news is that it's given me a new optimism about the future of the newspaper. Now I can see how we get some of our revenue and readers back. We get them to read their newspapers in the car.

Now I don't for a imnute advocate popping the newspaper on your steering wheel and trying to take in a coruscating editorial about North Korea whilst negotiating a tough intersection on the way to work. Though here in Florida it would hardly make people drive more badly.

But while everyone dutifully parrots the mantra of platform neutrality it is perhaps odd that no one has yet thought how newspapers might disrupt the radio business.

I have always subscribed to the Economist magazine. I love it because it ignores many of the pompous norms of newspaper journalism. The main one is that important news stories have to be long to be intelligent. The second is that people want to know who is writing a story: all the Economist's stories are unbylined. Thirdly, that news must be unbiased to be credible. I trust the Economist's news judgment despite an obvious bias. Fourthly, visual design is the key to presenting information in a way people will read. The Economist has a layout and pictures so simple that you could typeset it on Lintotype hot-metal if you had to.

Anyway, the Economist have just launched an audio edition. Old news, I hear you say. Every media outlet in the known world is doing a podcast. True, but The Economist audio edition is different in a way that hints at a potentially seismic change, one that could work out to the benefit of newspapers if we're quick and smart.

The Economist audio edition is not a podcast. It is the complete version of the Economist read out aloud word for word by four or five posh sounding British newscasters. Subscribers to the print issue can download it as a folder of MP3 files from Talking Issues. You can then create an iTunes playlist, import the files there and sync it with your iPod.

So why is this so revolutionary? Because it means that I can press the forward button and skip any story I want and move to the next one. It's rather like reading a newspaper in your car - you start most of the stories but you skip quickly past the stuff that doesn't grab you in the first few seconds until you get to something that does.

This is revolutionary because of the way it undermines radio. Radio is a terribly flawed medium in the car. Because of the terror of listeners deserting to another channel, all radio stations have clustered around the same common denominators. They shout loud, talk fast and move on quick because they daren't let your attention wander for a second. TV news has done the same thing for the same reasons. Now CNN are claiming with pride to have the most stories per hour as if that were a badge of pride.

What "iPod News Radio" in this form does is make radio into a something that feels like a newspaper. Stories can be as long as is required, because the listener can choose to move on from them while staying within the "program". Sample and choose. And if the writer can engage you with a great first paragraph, or a well written tease, then maybe you'll stay for a story that otherwise you didn't think you were interested in. These are newspaper skills, not radio, TV or online ones.

The other things that interested me were just how compelling the written word is when spoken. I listened to some podcasts following my Economist experience and mostly they are attempts to mimic the style of radio and transfer it online - much as we all once thought that newspaper writing online was obviously what the internet wanted. But with "iPod News Radio" you don't have radio's problems. Immediacy doesn't matter as much. Brevity doesn't matter as much. The middle ground doesn't matter as much. The listener has a simple way of deciding what to listen to. Your job as the broadcaster is to put it in front of them in a manageable, navigable format.

There's more. I read my printed Economist fitfully despite loving it. Sometimes my daughter is watching Dora the Explorer and I try and grab 15 minutes to skim through a few articles. Maybe at Starbucks on my way somewhere else. Maybe over a sandwich at lunchtime. But I would guess I give it a maximum of 30 minutes a week.

The audio version? I listened to it in the car for eight hours in total last week. I listened to stories that I would have skipped instantly in print.

It made me realize that my reading habits are deeply affected by how much time I think I have at work and at home and that as time in both locations is increasingly squeezed, so is my desire to read newspapers and magazines, however much I enjoy them. Newspaper pros, paid to read a lot, often don't get this. But those who have launched free dailies aimed at a younger audience are appealing to this reality very successfully with print products. They say: if people have less time, let's give that section of people a smaller newspaper that they do have time for. Let's make it shorter and let's make the topics more interesting to the time pressed group. (I'm puzzled that young people are supposedly more time pressed than parents, but that's for another day).

But there's a second approach. How can we turn time that is currently unavailable for newspaper reading into newspaper time. This is what the Economist audio edition has done to my driving time.

This is why the internet is the wrong avenue. It's a zero sum game competing for time at work and home. If we improve our websites we limit time available for our newspapers. We can't make money from the internet - have a look at Editor and Publisher's data page this month if you dont believe me..The internet, as a generally static visual medium is a competitor for time with newspapers, at work and at home.

But newspapers attacking radio? This I like. Firstly we do not currently compete in this space and therefore have nothing to lose. Secondly it is a medium that will never become visual, which keeps TV companies out. Thirdly the incumbent will struggle to respond to a disruption because while the new radio looks the same, it's completely different from what they currently do. Fourthly competition here costs us almost nothing but puts a premium on something that is quite expensive - large supplies of high quality content. Fifthly there's ad revenue here. I am surprised that the Economist doesn't do ads on its audio edition. I am much more willing to tolerate short smart ads on a system where I can skip the ones that bore me.

What makes this a real new media rather than an interesting little diversion is what probably happens next. At the moment a newspaper on my iPod constructed as I've outlined above is too fiddly for the mass market. If you have to sit down and move files around and then sync something, a few of us will do it but not many.

But what if your iPod and phone increasingly became the same machine? What if I could download "iPod News Radio" to my phone, let's call it an iPhone, the nice one that I have installed in my car, at the press of a widget and could be charged for it accordingly. Well, then I wouldn't listen to news on my radio ever again.

In terms of immediacy it would be "good enough", - 360 days of the year there is no real breaking news story that needs to be updated every five minutes. But in terms of ease of use it would outclass existing offerings in a way that consumers would love. This is value innovation and it's a well trodden strategic path to growth. When was the last time one of those was offered to a newspaper....?

It won't happen for a while, maybe 12 months. Download speeds are still a little slow - the Economist is 130mb and would take 25 minutes at real speeds to download to a phone. But that will improve. When it hits the five minute barrier and when legislators start pressuring motorists to install more hands-free phone kits, newspapers may be ready for a leap across a chasm for a change rather than a blind rush into one.

The price is wrong: Why newspapers have to learn how to get more from readers for what they do

2007-07-25T11:43:07Z

You will I'm sure have heard about Media General's terrible numbers. Profit down by 28.7%, ad revenues down by 11% on 2006. This is meltdown territory.

I'll spare you another run through the reasons why the internet cannot be our only future. (Media General's 8% interactive division is pleased by 61% growth though its revenue only just covers interest payments on two new TV stations the company acquired).

But let's be clear: there's no positive spin to be spun on these numbers. The fact of declining revenues is very real and while it can, I believe, be halted, it probably can't be bounced all the way back. And if we want a future rather than a slight extension of the present, we have to do something about this decline other than cut costs. So if that something isn't gambling blindly on online growth what is it?

There are only two sources of revenue we understand: advertisers and readers. If advertisers are deserting us, then we either lose money or we ask readers to pay more. Happily I've seen that approach work.

Can consumers be convinced to pay more for US newspapers? Well, the good news is that newspapers in the US are currently very cheap, and largely for reasons that are not inevitable.

The first reason they're cheap is that the desire for the network effects of being the biggest print presence locally has always forced an emphasis on volume - and anyone who's ever drawn a price curve will tell you that lowering of price leads to an increase in volume of sales. (They can't tell you how steep the curve is though, and that's where the real fun is).

It's been a sound model for many years. The cheaper the newspaper the more people will find enough value in it to buy it. The more people buy it, the more reach you have, particularly if you've seen off any print competition. The more reach you have, the more you can charge for advertising.

The second reason newspapers here have been historically cheap is the way they're sold: in three, six and 12-month blocks. When I buy a single copy I compare the opportunity cost of 25c at that moment of purchase and it seems a minuscule amount of money that buys me almost nothing else worth having. So I buy without caring whether the newspaper is very good or not. It doesn't have to be very appealing to be worth 25c.

But when I'm sold a subscription I'm asking myself what else I could spend $80-$150 on this year, and that's a very different question. It turns a newspaper into a big ticket item instead of a trival one. I wonder how much coffee I would buy at Starbucks if they made me buy my coffee in six-month batches - they would be asking me for $400 instead of $4.85 (tall latte and a double chocolate loafcake since you ask).

So a price is arrived at that minimizes the expensive sounding cost of a subscription (80% of sales) rather than maximising the price of a single copy (20% of sales)

Thirdly, I'm guessing that single-copy prices have stabilized at 25c in my area because refitting machines is expensive and especially so if they have to be fitted to take new coins. That has probably made the question always one of doubling the price or increasing it by more than 40% in one go, which strikes terror into every newspaper person I've ever met.

So the price of a copy of the newspaper is less than it could be, largely because of the way we choose to sell it.

How do we get around it? In an nicely counter-intuitive way, I think the best way to get people to pay more for newspapers is to make some parts of them free.

Here's the conundrum: newspapers chase readers to sell some of their attention to advertisers. So you want as many people reading your newspaper as possible so that their aggregated attention is more valuable. But advertisers tend to want to be in the main news section and often steer clear of other sections. But despite that, you still have to produce a high volume of those other sections like sport and business because everyone gets one Model T paper. It doesn't serve readers, it doesn't serve advertisers. It's a waste. With fewer advertisers to subsidize the waste, we now have an incentive to stop.

Let's use sport as an example. The interesting thing is that much of a consumer's sense of the value of the paper may well be tied up in sections that advertisers don't value, like sport. Personally I like Gary Shelton in the St Pete Times more than I like most of the main news section. Sport may only interest 35% of a title's readership, but that 35% love it. So an efficient paper would have a high-volume, free-to-readers news section and a low-volume, high-caliber, charge-to-readers sports section.

To make it work you have to produce a compelling sports section that's worth money. But I can imagine inspiring a team to do that if I was prepared to invest in it. Currently I as a publisher don't see any immediate return from investing in journalism because it's so diluted across the product, it's invisible to readers (on the whole) and they won't all pay for it because they don't all value it the same. So in classic pricing terms, I can incrtease the benefits or features of the product but it has no impact on price. Ergo, no one actually has any incentive to invest in the product and it declines in quality over time.

In my new imaginary world, I as publisher, can listen to my sports editor and measure whether his investment in talent is paying off or not in increased sales for his section. I can have a marketing plan that takes advantage of cheap niche marketing on the web. The potential for virtuous circles of investment in journalism is there.

The other good part of this approach is that it aligns our online and print strategies. We put ourselves firmly back in the business of generating and presenting compelling exclusive content where it's still achievable, and participating in the information commodity market where where it isn't. This is actually the essence of the NYT Select scheme which is snootily disregarded by click counters but is a serviceable alternative business model for newspapers who want to fight on content rather than search engine optimization.

Second we have to be flexible and imaginative about how we charge readers. It will involve asking them to perceive the price differently. An example: how much would a Monday sports section be worth to me during the football season in Tampa. Would I pay a buck a week? Yes. Would I pay $20 for 20 weeks. Hmmmm, I probably would, even though I grumble at paying $60 for 365 copies of the whole Tampa Tribune.

Why do I think differently? Because the price comparison that came first to my mind is the cost of a three beers at one Bucs game. Or the cost of parking at the stadium. I wouldn't compare the cost of the whole newspaper to those things, and the cost of a newspaper subscription would dwarf those things anyway. But when a newspaper is charged as a valued sports item, in a smaller package, with a price that is reasonable in context it's worth more.

Some newspapers already vaguely understand this approach. In the UK we used to occasionally give away cds of three songs from big music stars. Circulation would always surge by 10-20%, depending on the popularity of the artiste and would invariably disappear the following week. The price comparison for a consumer was the cost of a cd, to which our price compared favorably and therefore it would appeal to non-readers for whom the value of the newspaper was close to zero but the value of the cd was above the cover price. Because we had to give the cd to all readers it was an absurdly expensive way to gain 40,000 readers for one week. But if you offered a token to get the cd from a record shop, the uplift in sales wasn't anything like as good.

The psychology of pricing is something every newspaper publisher should get to grips with, though many have only a rudimentary grasp of its possibilities. I would recommend the clearly written "Price Advantage" by Marn, Roegner and Zawada (which has its own price advantage of being a cheap way to get a McKinsey opinion on pricing).

I have a feeling that most US newspaper publishers do not believe that consumers can be convinced to pay more for their newspapers. They believe that the market sets the price somehow and it's low because that's how people see newspapers. There's also a sense that at a time when titles are being attacked by free newspapers and free information on the internet, raising prices is suicidally silly. And it certainly would be if it came without distribution innovation and product unbundling. But as I've said before, once we can deliver different papers to different people we'll be up and running as an industry again.

Ten years ago I wouldn't have believed I'd pay $3 for a coffee every day even when there's a free pot of acceptable quality stuff at work. But I do. I pay more for a hybrid car even though I know I won't save the extra money I spent on gas for 10 years. Choice, environment, product quality, passion, belief: there are all sorts of axes along which we can move to shift our price upwards.

Once we start taking distribution innovation seriously.

8% of our revenue: 100% of our innovation effort: Why print people need to get to grip with the shocking numbers at the heart of the online newspaper con

2007-07-19T13:08:39Z

I thought I was going to hate Jon Fine's Business Week piece about which newspaper would be the first to go all digital. I know that the blogging tradition dictates I'm obliged to get very angry and attack the guy because I completely disagree with the proposition he is exploring, but in the end I think Fine's piece was articulate, thought provoking and useful. Everything a column should be.

More importantly, he's started the conversation about what is probably going to be the central question of the next stage of newspapers on the internet and that's a good thing too.

You should read the original but I'll try and sum it up honestly for those who can't bear to leave Inksniffer for even five minutes. It says: US newspapers are currently losing a lot of money. They may have the worst revenue decline ever in 2007. At some point even the most profitable newspapers are going to be losing money. The least profitable are already deep in the ditch. Although there isn't enough online revenue to sustain the current levels of staff and content, maybe if the presses were ditched now and a paper like the San Francisco Chronicle went online only, that commitment would be rewarded by local advertisers and generate enough revenue to the web to maintain what you'd recognize as a newspaper online.

First of all Fine's piece exposes just how literally petrified one newspaper has been by the challenge of the internet. He quotes a statement showing that the San Francisco Chronicle have lost an average $1 million a week for the past six years. What on earth have Hearst been doing to stop that? A few cuts, a little belt tightening and not much real innovation on print, distribution or journalism. No smaller easier format. No thoughts about new flexible forms of delivery. It actually makes me quite angry. Newspapers that just sit there and hemorrhage cash while complaining about how little they can do about it deserve everything they get. I love print, but newspapers don't merit any different treatment from our customers than anything else they buy. We either respond to failure by improving how we serve them in a way they value or we go and do something else. (I'd love to help the Chronicle though in any way at all. Lots of potential. Call me.)

But the main thrust of the piece is about newspaper and online economics. So let's run some numbers..

The cost side of the equation is enticing: no presses, no distribution, no paper. The revenue side not so much.

People won't pay for it I'm told, so bye-bye circulation revenue, maybe 15% of your total.

Advertising revenue is growing moderately from a small base. The environment is competitive: advertisers have multiple suppliers to choose from and advertising is becoming a commodity where the marginal cost of production for the lowest cost producers is zero. That's already hitting home for newspapers, according to the the Wall Street Journal. I'm no economist but I'm sensing a lowering of the price over time. Broadband penetration is already high so there aren't many new consumers coming online either.

But te sun's shining so we'll take forecats at face value. Let's assume that online ad revenue will in fact continue to grow. As 50% of online ad revenue is search according to the IAB, it's likely that around 50% of future growth in the short term will be search, which newspapers won't get a sniff of. And the other 50% is being fought over by everyone who owns a local TV station, a national vertical site, pure players, or a neighbourhood blog ... and everyone in between. But let's ignore all that too and shoot for 20% annual growth in newspaper online ad revenue.

Let's look at how the numbers on a pure online venture would look to McClatchy. Here are some figures dotted around their 2006 Form 10-K filing - the boring stuff that would confuse the shareholders if they put it in the glossy annual report. The numbers I use are all pro forma - ie it assumes that McClatchy had owned the Knight Ridder titles all year.

"Online retail advertising increased $6.5 million in 2006 or 62.8% from fiscal 2005"

That sounds impressive. It puts online retail ads at $10.35m the previous year and $16.85m this. In the same report it says that 43% of ad revenue for McClatchy is retail. So retail advertising is worth $891 million to McClatchy and the online bit of it is worth $16.85m. Which is 1.89%.

In classified the online revenues are bigger. I calculate them at $111m from the 10-K numbers. There are documented industry concerns about whether this is inflated by including web ads for free for the customer whether they want it or not and booking some revenue to the web. I don't know if McClatchy do this, so let's assume they don't. That $111m, as far as I can tell, includes $32.3m, $16m and $2m from Careerbuilder, Classified Ventures and ShopLocal which aren't actually "newspaper websites" as such. Should we include that revenue? I think so. If McClatchy stopped print operations the money might still be there, though I suspect much of that $32.3m is "upsold" newspaper ads. So $111m of online classified revenue compares to print classified revenues of $825m. Which means that online classified, an area of the business which everyone will tell you is now owned by online, provides McClatchy 13.5% of the revenue that print classified does. Geez, it doesn't seem like print classified is entirely dead yet.

Of the total $2.09bn McClatchy ad revenue, online provides $60.3m or 7.65% of the total.

But hey maybe the cost savings of print, paper and distribution make this thing work.

It gets fiddly here but the audited combined accounts say that McClatchy spent 45% of revenue on "compensation". Translating that to the pro forma accounts it suggests that even with economies McClatchy's compensation bill will be somewhere around the $1 billion mark this year.

So online ad revenue is $160m. Staff expenditures are $1bn. All of which means that online ad revenues for newspapers would have to grow 20% every year for 10 years to pay for staff costs alone. assuming that staff costs didn't grow at all for 10 years. But let's be brutal (after all we're losing $840 million a year!). If the newspapers closed tomorrow you could cut a lot of jobs. Let's pull 50% out of the hat as a big dramatic number (I'm open to suggestions on alternative numbers). But even after that cut, the remaining staff costs will still rise for salary increases and new hires. If "compensation" increased at 5% a year after after a 50% cut in 2007, and online advertising revenue grew by 20% a year every year, then it's 2015 before compensation costs are covered. And this is assuming that there are no costs other than staff to putting out the website. No buildings. No hardware. No software. No paperclips. Nothing else.

So to recap: even if you assume 20% growth in revenue every year, and cut your staff by 50% you probably can't even cover your payroll until 2015. And that's under the most generous competitive environment I can imagine.

It might work I guess. All I'm saying is that it might be better for us to invest in real print innovation before we decide to get into the dog of a business that the internet is going to be for us. Print still has a lot of revenue, a good base form which to redevlop our products and fight back. That's great news, because the path down which newspaper companies are being led right now just leads to layoffs and bankruptcy.

How far will goodwill carry McClatchy?

2007-07-11T11:23:10Z

Thanks to Romenesko for pointing me at this very fine piece of business journalism from Bloomberg's Jonathan Weil.

I don't agree with his characterization of newspapers as "fish-wrapping" but the article is still a cogent analysis of an impending implosion at McClatchy by someone who plainly knows their way around a balance sheet.

He points to the huge amount of "goodwill" - which basically reflects how much you paid for a business beyond its actual assets - remaining on McClatchy's balance sheet from the Knight Ridder purchase, and suggests that this amount of goodwill is unsustainable in the short term. The consequences of writing down this goodwill would likely be grave for McClatchy's share price, though with a 31% discount to the share price at the time of the piurchase the market may already have accounted for it.

If you were a VC looking for some risk with a big potential upside in hidden assets (that distribution network and customer base again!) and waste (paper costs from overlarge newspapers) from an underperforming unfashionable business then I'd be starting to get very interested in McClatchy in a few months if some of this goodwill is written off and the shares collapse further.

I wonder if the political value of entering the US newspaper market might appeal to a Chinese investor with dollars to burn.

Any intrigued VCs who want to know how to unlock the value of these assets, well, you have my email address and Inksniffer's forthcoming Mandarin RSS feed.

ABC is not our BFF: Why our former ally is now the enemy of newspaper innovation. Time to ditch it.

2007-07-11T15:02:37Z

I think the time has come for newspapers to abandon the ABC.

I don't currently see any other way that we can fight back against the power of the free market in metrics that exists online. Our metric - provided by the ABC, measuring the copies in circulation - is static, consistent, inflexible and old fashioned based as it is on sales or proven delivery. Theirs - page impressions, unique users, provided by a number of competing firms - has bigger numbers despite actually being smaller, changes when the content producers want it to, is inconsistent from one metrics supplier to another, and adapts as consumer habits change.

If you can't beat 'em, join 'em.

Web ad departments are masterful at creating numbers that make them look good and of propagandising them internally and externally. And if technology changes to make the numbers look less good, they work with the metric companies to change the metric. Brilliant.

Here's a good example. Thanks to my friend Eriq at streetrodding.com (the guy sniffs ink and motor oil) I came across this piece about Nielsen deciding to measure the amount of time spent on a site rather than mere page impressions. AJAX technology takes activity away from servers? No problem, we'll change the metric to something that reflects that. Video is popular but it only registers a single page impression? Fine, lets measure the time spent watching the video and use it to demonstrate "engagement".

The Nielsen change is actually a sensible one, aimed at reflecting how people use websites in the face of changing technology. My beef on this isn't that the number is fake, it's that we newspapers are so poor at moving on like this. We are hypnotised by ABC numbers in a way that is starting to restrict our ability to compete.

Don't get me wrong, ABC is a legitimate measurement, thoroughly reliable and accepted by all. But that, in many ways, is its problem.

One of the big lessons of the growth of the internet so far has been that centralized dependable information is nothing like as valuable as it once was. The opinions of many, the wisdom of crowds, the explosion of choice among many sources for information, the free market in credibility and opinion, is at the heart of the web's growth. ABC on the other hand is centralized and reliable and designed for an era when it was the only way we could expose our data to any kind of scrutiny. That's just not true any more.

The ABC's strength of the past is its weakness now. The rules have changed, the competition has changed. The ABC and how it projects our reach hasn't.

Another problem is that the single metric we use forces us to think about one target only. We try to convince advertisers about readership or market penetration but internally we really only care about our ABC. The people who watch us only care about our ABC too, and so therefore do our ad customers.

That means our business is geared to adding ABC qualified sales and there is little motivation to innovate around anything that doesn't add sales. The ABC's culture tends to restrict any kind of distribution innovation. I'll give you an example. The ABC's growling over multiple copies makes such distributions suspicious in the minds of the same advertisers and commentators who are happy to drool about the "reach" of the internet. So our own metric ends up hampering us against online, where reach is celebrated and whether someone paid money to read something or not is irrelevant.

When I was at the Observer a large portion of our multiples went to airlines for in-flight use. They were probably the most thoroughly read copies of the paper we had. But the ABC rules make us separate them from everything else like they were somehow shameful or less valuable. Our ABC certificate didn't give us much of a way to make that point.

I think the restriction on innovation that ABC causes is real everywhere, but I think it's particularly pernicious in the US. Part of the reason UK newspapers are more bold and colorful is that at least there it is possible to see the results of efforts to lift sales on any given day. If you obtain (or buy in) a good story, it can have an impact on that day's sales and therefore on an ABC number. But in the subscription-dominated US, the sale of a title was probably made on the phone several months ago and the uplift from single copy sales is limited by restricted supply. So the "sales" team focus on what works for ABC purposes ie subscription sales: a high volume of sales calls, a good CRM system and a very low price.

Contrast that with the online world. For internet sites, every good idea they have can translate to some improvement in their metrics. A great story that gets linked to by one of the key aggregators or opinion leaders has an immediate impact. And the online media owners are proactive about insisting on a change in metrics if new technology or new habits make the existing metrics stall. It allows them to cash in quickly on the adaptiveness of their medium and it gives them the incentive to keep adapting and responding to individual consumers.

Meanwhile we don't innnovate in print (a new modern print plant? a flexible product? a new niche product?) as much as we should because it's hard to see any short-term benefit to our beloved ABCs and it involves major capital outlay. The hurdle for newspaper investment is always therefore very high.

What would a world without ABC numbers look like? At first it would be a very dangerous place. It would require more work and thought by advertisers and agencies at the start and that's not usually good. But most of our core advertisers know what they're buying, and are happy buying it now. Unless they currently believe the ABC is fake there isn't any reason to imagine they will desert overnight. I don't believe we should stop producing a circulation number measured under existing rules, I just don't think it should have the portentous seal of the ABC on it. Let's get the data online for all to see, with supporting documents. Let's make the case for our multiple copies there. Let's track our other data there too. But please let's try to wean our customers off ABC over time.

The other thing ABC does is segment our industry in an irrelevant way. We as an industry may have a keen sense of the social rank of daily newspapers, weekly newspapers, free newspapers, paid fors, shoppers, alternative weeklies. But actually none of our consumers care as much as we do. Our advertisers don't buy an advert they buy the attention of a potential customer. Is attention dependent on frequency or cover price or size of staff? I don't believe it matters to them and therefore in a battle to strengthen our media's postion and reputation against other media it shouldn't matter to us.

Our readers don't care about ABC. My guess is that they like newspapers as a medium for a variety of reasons and they like some more than others. They want a convenient portable easy-to-handle reliable source of locally and nationally important information selected by professionals. If they have to pay to get what they want they will, if they don't they don't. They have certain expectations of content from certain formats but its our medium that's needs to compete better as much as any individual part of it. Yet we don't really measure newspapers as a whole. Why? Because the ABC rules are different. And there's the problem?

The ABC has served a valuable purpose in the history of our industry, giving us a reliable metric with which to compete in the past against various other traditional media and keeping that metric credible. But it measures something that the world has moved on from and in a way that the internet has rendered irrelevant. Nowadays we could very easily open our sales data up in a standard way to the public to check for themselves online, or appoint an advertisers ombudsman to address any queries over all our metrics claims.

Life will get easier as Nielsen or another metrics company comes along and helps us offer other data. Page impressions (pages read for newspapers) would be interesting. Time spent with newspapers would be another. Ad recall or direct purchases made would help our customers. These are all things that many newspapers already know about but use sparingly if at all.

I want two things from the new metrics: something that allows a more direct comparison with our biggest new competitor, the internet, and secondly something that reflects our superior reach and engagement in our market. Our world doesn't require accurate measurement of sales and circulation any more, it requires comparable data. But we won't get anyone to start listening to comparative data until we've stopped our own relentless focus on ABCs.

Picture perfect Perez: What would the CEO of Kodak do with US newspapers?

2007-07-09T19:26:48Z

(Photo: Dan Farber)

Having concluded a couple of weeks back that Kodak's experience with digital disruption didn't have a huge number of lessons for newspapers, I was forced to think again by a blog post by Kodak CEO Antonio Perez, which I found on AllThingsD, via Amy Gahran on Poynter.

Perez (seen above without tie) is talking about the circumstances in which disruptive innovations tend to occur (and also taking the opportunity to plug Kodak's inkjet technology). He picks out something he calls the "notorious decadence" of an industry as the key ingredient in industries that are ripe for disruption. He says..

"We all know that there is at least one dark side to success. One tends first to get comfortable, then complacent and finally sloppy. What starts as a vision whose only objective is satisfying customer needs becomes an entity by itself and, if successful, an integral part of your way of life as a company or an industry. The more successful you become, the more interdependence gets created with the rest of the company. You develop strong self-defense antibodies, and the continuous evolution and improvement of the original vision begins to conflict with maintaining the status quo.

Thousands of examples abound, both with companies as with individuals and nations. It is not that you don’t realize that it is going on, it’s that the only real solution conflicts severely with the very core of your present, comfortable existence. To make it more complicated, there are many constituencies who will be judging you in the process."

This is interesting if not groundbreaking. it's a good solid explanation for why newspapers were ripe for disruption. I guess his words are inspired by his experience at Kodak, but he could as easily be talking about us.

Perez cites four factors that drive disruption:

1. Meaningful technology breakthrough
2. Significant supply chain management improvement
3. Valuable business model innovation.
4. Main ingredient: Notorious decadence.

(photo: 1000nerds.kodak.com)

Those who foresee the death of newspapers will point to this and say that the internet provides the technology breakthrough, the absence of paper and printing is about as significant a supply-chain improvement as you could wish for, and the business model innovation is the smashing of geography as the definition of customers, both readers and advertisers, and the provision of information on demand for free.

And they'd be right. Only a fool would argue that the internet hasn't been a disruptive force for a newspaper business model. The question though is how should we respond?

What Perez doesn't mention is that consideration of the near future of revenues and likely future competition might be a useful aid to decision making. Perez successfully moved Kodak into digital cameras before realizing that there wasn't any money in it. Perez was smart enough move on quickly after realizing the digital camera business was "crappy".

Now Kodak has focussed on using its technology and licensing it to others, putting its chips in other people's cameras as well as a number of other bets that establish Kodak in different parts of the Image business. What does hold true though is that Kodak is still selling something concrete to people who want to buy it. Kodak hasn't been foolish enough to try and be in the pixel business.

What we need as newspapers is for us to disrupt our own business before everyone else takes it piece by piece. When the Kodak film business collapsed, the company was saved by its hidden strengths, its ability to innovate in chemistry and electronics, a brand that could extend beyond film and paper. What are US newspapers' strengths? A large named daily customer base and distribution system! A credible brand that people broadly trust! An ability to select, edit and order information to make it easier to consume!

Do all these strengths point to a digital only future? Some do, but by no means all.

And unless you're excited by a world of inifinite competition for finite ad revenue, I'd always look at print innovation first if you can. Especially if the choice is between that and praying that my readers will gather en masse at my newspaper's website in an orderly fashion.

Newspapers as a primarily web business, to me, is the equivalent of Kodak's "crappy" digital camera business. We might be able to execute it brilliantly - as Kodak did with EasyShare - but even if we did, it cannot be our future.

So what should we be doing? WWPD? (What Would Perez Do?).

1. Meaningful technology breakthrough. Perez would look for a printing technology that dramatically reduces costs, something like the rejuvenated electric arc furnace that enabled mini steel mills to disrupt big steel. I haven't seen it yet, but it may not be traditional offset print manufacturers who come up with it. I wonder where there might be cheap spare printing capacity or technology that could be upgraded and adapted for newspaper production. Are we looking hard enough?
2. Supply chain improvement. Essentially this is about cutting out waste. I want to see us printing smaller newspapers with more that people want to read and less that they don't. This means breaking out of the one-size-fits-all model. Maybe we shift some of our capital costs to the consumer? We could talk to, well, Kodak about a free-to-the-customer home printer that produces a 16-page folded A3 newspaper every morning and for which they have to buy the newsprint and ink.
3. Valuable business model innovation. We've had free newspapers that lean more heavily on reach and advertising. Maybe the next model is highly restricted fixed-position advertising sold at low cost via the internet in auctions. Maybe we look for upgrades to our print and distribution systems so that advertisers can bid on specific consumers. I've had magazine ads directly addressed to me, I wonder how far we can personalize advertising to give better value to advertisers. I would even be happy with a paperless future if we were aggressively driving the adoption of "electronic paper", supplying the kit to customers, doing deals with cellphone companies to connect them up, offering them our newspapers and charging magazines and others to get access (a cable company business model?).

All of these ideas are flawed, but that's what you'd expect. There's something in all of them that a room full of our best people could explore interestingly if we didn't have them tuned in to the siren call of internet migration.

Nielsen Schmielsen: Come on feel the quals

2007-07-06T16:41:37Z

Just when I thought I was becoming part of the internet metrics solution, I be3came part of the problem. I was just putting a WTF for the last blog posting on to Technorati and up popped a Nielsen NetRatings questionnaire. I filled it in. So now I'm a number somewhere being used to justify something.

What it reminded me was how the psychology of lengthy questionaires tends to work. By the time I got to the end of the process I was thoroughly bored with the whole thing and ticking boxes without thinking too hard. Ever done that? In fact on one crucial one for newspapers that included questions about what I'd been reading, it took me a few moments to realize that the question was talking about what I'd read online.

There seems to me to be a big gap between the thought that goes into an answer on this sort of questionnaire and the perceived importance of the information that comes out the other end. Although the less a participant thinks, the better their answers may, I suppose, turn out to be.

I've seen the opposite problem in Qual focus groups for new newspaper products where people take an unnatural amount of time thinking about your product in a way that just isn't the same as they would in a shop. They start talking like marketers or trying to work out what other people might or might not like instead of giving their own response in the 1.3 seconds they will have to make a decision the next time they are shopping.

That's one reason why I think quals are useless for newspapers, other than to confirm something as a total non-starter or a total no-brainer.

The other reason I learned to dislike them is that in my experience one of your decision-making team fixates on the opinions of a single participant, often the one who best represents their existing opinion, and will base their decision on what that one person says. The very expensive Quant you just did is now a waste of time because an attractive lady from Canterbury expressed herself quite well in the Qual.

Market reseacrh is after all only as good as the rubbish that goes in one end, the rubbish that comes out the other and the rubbish that's talked about it by the client. That does seem like a lot of rubbish.

Hurrah for the Inksniffers: If you think I'm mad, you should see what the Daily Mail are up to

2007-07-06T15:57:55Z

I have no doubt that sometimes it must seem as if I'm something of a madman. What kind of idiot thinks that newspapers should be investing in printing plants, building local businesses around print products, experimenting broadly with new uncharted businesses on the net. Well, for those people who think I'm a bit batty I have a pithy two-word riposte: Daily Mail.

Well, three words I guess. The Daily Mail is a fine newspaper for those who love it. I'm not a Mail reader but as David Sullivan pointed out here this week, newspapering isn't about producing titles for journalists. The Mail is aggressive, tenaciously in touch with its readers, aggressive about its competition and ruthless in recruiting and retaining the best journalism talent for what it wants to do. I admire them editorially and commercially.

So it was very interesting to read yesterday about the Daily Mail's regional newspaper division purchasing 25 local newspapers in the UK from its struggling rival Trinity Mirror. Northcliffe Media, the division of Daily Mail General Trust, that manages its local newspapers, paid just short of 2x revenue for the titles.

"Over the last year the transformation of Northcliffe has been dramatic," said Northcliffe MD Michael Pelosi. "We believe that the division has an excellent future as a provider of high quality local media content and services. Today's acquisitions strengthen our publishing reach in a region demonstrating strong economic growth where digital opportunities are particularly attractive. We are acquiring strong products which are at the heart of their local communities and are looking forward to working with our new colleagues".

It's typical Mail stuff. They only have two gears: passive and aggressive. They were passive on local papers not six months ago and put their titles on the block. Having failed to find bidders they switched to aggressive and have swallowed up someone else's. So Northcliffe.

It made me have a look back at what Northcliffe and DMGT have been doing over the past couple of years to see what might be their cunning plan.

What I found suggests that some of my missives about the future of print would strike a chord with Viscount Rothermere and his boys. This is how I see their approach...

1. Keep investing in core print. DMGT, Northcliffe's parent, is building a new print plant in Oxford at a cost of $150m to give its national newspaper products full color on every page. Why not? The national newspaper division's first-half figures suggest that operating profits are up a little (to $3.4m per week) and operating margins have doubled (mainly due to a cover price rise). Display advertising is flat and classified advertising is a little down (dragged there by Motors).

2. Don't panic about classified. The Mail have pioneered a very interesting way of separating structural and cyclical declines for their recruitment advertising. They compare revenues to the unemployment rate and under that comparison you can see that swings that you might otherwise have regarded as disastrous portents of internet domination are partly cyclical reflections of demand for employees. I hope someone is doing the same graph for US newspapers.

3. Don't be complacent about classified. The company is making a few online bets too (see below).

4. Get out of old-style defensive online investments. The Trinity Mirror purchase was the first I'd heard that Northcliffe were out of the Fish4 consortium, a group of regional publishers in the UK producing a classified site under the Fish4 brand. This was a very quiet sale, but it marks a seismic shift in their attitude to the web. Instead of big single bets focussed on the defense of old revenues, Northcliffe are placing a number of smaller bets on the table, buying small companies with potential and launching others from scratch. I can't help thinking of the parallels with Careerbuilder in the US, which may eventually come to be seen as a very old-school business, as I suggested a couple of weeks ago. Northcliffe now have "Find a Property", Prime Location and they've launched a start-up motors portal which they then supplemented with Auto Exposure, a niche dealers' site. For jobs they have bought out Jobsite as well as picking up some niche sites like Interbase, The Appointment, Top Consultant, Office Recruit. They've also bought SimplySwitch, which helps consumers compare utility providers, and VillaRenters, which is a web site for managing villa bookings and a host of other small investments.

The Mail's digital plan looks like aggressive experimentation around a core idea, rather than a terrified defense of old classified markets.

4. Buy niche information businesses in defensible print and online positions. The purchase of Metal Bulletin (to sit alongside DMGT's Euromoney) looks a bargain compared to the purchase of American Lawyer by APAX and Incisive Media, both UK venture capitalist and its publisher "arm".

5. Invest in solid bricks-and-mortar information businesses even if they aren't print. The Mail's exhibition and trade show business remains highly lucrative and they've picked up a couple of nice add-ons to that too.

The lessons for publishers in the US? Spend some money on improving your print products, start experimenting with small online information businesses that work locally to reinforce your advertising penetration locally, try to own your geography online through acquisition at an early stage of interesting new ventures, don't defend old revenues, attack them as if they were new ones, and if you can't innovate, acquire businesses that can quickly and often.

All of which sounds quite familiar.

A convenient untruth: Just because TV news people say they're bigger than newspapers isn't any reason to believe them.

2007-07-05T14:17:38Z

I like Al Gore. I liked An Inconvenient Truth. As a Floridian it scared the crap out of me and doubled the size of my recycling bin, but I liked it. I groaned though when I read the excerpt in Time magazine from his book The Assault on Reason. In it Gore writes about the news media and what he believes has gone wrong in American society and he's particularly harsh about the degree to which television has polluted US news culture.

I appreciate Gore's environmentally friendly approach to information - he recycled this chapter from a speech to We Media in 2005, which is fine by me. But I'm disappointed that a man who has spent so much time debunking statistical misconceptions about global warming and attacking popular misconceptions based on faulty data should be so lax about checking the popular myths he uses as the basis for an argument about the news media. Gore writes:

"And yet today, almost 45 years have passed since the majority of Americans received their news and information from the printed word. Newspapers are haemorrhaging readers. Reading itself is in decline. The Republic of Letters has been invaded and occupied by the empire of television."

So is anything in that paragraph true?

He points to 1963 as the date when TV overtook newspapers "to become the dominant source of information". But this piece by Allan R Andrews from 1995, almost a fossilised relic in internet terms, puts forward the theory that newspapers were actually suckered into believing this message by flawed data and mistakes in the gathering of market research. And it was our own fault for falling for it, not challenging it and therefore letting everyone, including Al Gore, think it was true. How interestingly familiar.

But that's just one guy's opinion from 12 years ago. Are there any more up-to-date supporting facts that we can use? In the Time excerpt Gore uses Nielsen's data for 2004 to suggest that Americans watch TV for an average of four hours and 28 minutes per day. The Nielsen figure has since increased. This is where I want to press my Tivo pause button for a reality check. An average of over four and a half hours? Does that chime with the experience of anyone out there reading this?

That number has never seemed very plausible to me especially when you realize that the numbers are actually lowered by the below-average TV watching of teenagers and kids compared to adults. Really?

Then I found a Bureau of Labor Statistics survey that suggests that TV viewing is nearer to two hours a day for most people and varies according to whether you have kids or not and whether you have a job. Only men with no job and no kids (the lucky devils) get to watch more than four hours a day. All of which makes more sense to me. Another reason I find the survey more compelling is that its methodology requires people to account for a full day and therefore it's much harder to exaggerate a single activity. It's more likely to measure someone watching TV than simply having it on.

That's still a lot more time spent watching TV than reading the newspaper, but TV, I'm told, runs a lot of other stuff. So how much of that TV viewing is news?

Program ratings for the main news shows are available. Evening news shows from all the networks were watched by 29.3 million people in 2003, down from 40.7m ten years earlier. Morning news viewership is up to 14.6 million from 13.6m. That adds up to 43.9 million people, some of whom are likely to be duplicated. Compare that to the number of daily newspapers sold in 2003 of 55.185 million. So unless you believe there is an army of people buying newspapers but not reading the news in them or there are thousands of papers being Yelvingtoned ("vb: to manoeuvre a vehicle over a newspaper on your driveway with the intention of distorting readership statistics"), about 25% more people read a newspaper than watch network TV news in the morning and evening.

This matters. We have got to stop killing our own industry by taking the "convenient untruths" of rival media at face value. First TV conned us into feeling unloved, now the internet is doing it too. We allowed the former lie to convince us that convergence with local TV stations would make us stronger and it didn't. We are allowing the latter to make us think that giving information away online to a third of our print audience in a commoditised ad environment is the future of our business. I don't believe that one either.