Five predictions: 1. 85% of newspapers will be dead by 2011

Written by John Duncan

Monday, 23 March 2009 17:20

It pains me to say this because it wasn’t inevitable as recently as two years ago. But it is now. The math and the market pretty much guarantee it.

The math first. If we assume that about 15% of newspaper revenue comes from online and that 50% of costs are tied up in printing and distribution then that leaves an 85% revenue reduction to pay for a 50% cost reduction. Who believes that this adds up to a successful future? Most businesses are simply not able to economically switch to an internet-only model as their newsprint products become cashflow negative. They have to choose between print and death. That will delay the inevitable but it won’t make it evitable.

The math is simple (though obviously relies on some hefty assumptions). Take Tampa, only because it’s my doorstep. The current monthly online audience of the Tampa Tribune’s TBO.com is 11.6 million. At a randomly selected rate of $10 per 1000 impressions, that means revenue of $116,000 each month or $1.4 million a year. So let’s play fantasy online newspapers.

First let’s have a skeleton staff that isn’t even half the size of the current sports department. Let’s keep 10 journalists at $50k each; two copy editors at $40k; a commissioning editor at $80k; a coding team of another 3 at $60k each; a team of three at $35k each to pay bills and chase cash. We also need an advertising sales staff of five at $50k. And hey presto I just spent all my revenue on staff - this all adds up to about $1.4m with employment costs.

Ken Doctor at Content Bridges did some similar thinking in an excellent piece about the P-I and came up with a staff of 22 journalists with no mention of anyone else. I think the beer-mat math suggests that this is a pipe dream.

Think about what it takes to produce a news site. I haven’t paid for my building. I haven’t paid for bandwidth or servers. I haven’t got a picture budget. I have no travel budget. I have no office equipment. I have no AP feed. I have no marketing or promotion budget. All I have is a pretty thin staff and a legacy audience that has come to expect the vast output that the newspaper used to subsidise and which I can no longer produce.

And this is assuming that my entire audience stays with me. In reality my output with 10 journalists cannot have the same depth or breadth as I currently provide and it’s a foolish assumption. In fact audiences for many news websites are pretty flat right now even with the content resources of a print product feeding them. I would guess that audiences will decline massively in the medium term.

If the math sticks the knife in, the market twists it. The problem here is competition. There are no serious barriers to entry online. If you make a success of the model then it can be duplicated instantly by someone else in a way that a printed newspaper couldn’t. You are the top-heavy legacy player in a market of low-cost specialist producers. The steel, coal and shipbuilding industries give us a clue as to how that story ends.

If this is the size of operation that you can now afford, you are fighting against the main dynamic of web information - which incentivises content producers to cover in depth and let search engines and aggregators bring the audience to them. This new operation will inevitably be covering too much with too little. As a result, the new newspaper website will be destroyed by local microsites who can specialize in hard-to-obtain information at great depth and in some cases charge for it. Their sports audience is going to disappear to either ESPN or the local sports teams’ blogs. Their local politics audience is going to disappear to a local paid-for Politico with a staff of five that charges for the inside scoop that politicians and policy wonks just have to have. Their local news coverage will probably be aggregated by someone from low-cost hyperlocals. Their business news will be taken by a local business news site. The world news and US news audience will go to the New York Times, the BBC or the Guardian. This audience is not going to grow, it is going to disappear.

The dynamics of the current market are entirely against legacy news sites. Advertisers are getting more and more sophisticated about choosing the audiences they want to reach. The per capita value of mass market advertising diminishes every month. Traditional newspaper advertisers who didn’t want to switch away to save money now have to because they are themselves going bust. Audiences are able to aggregate news from a variety of sources and they value the ease of selection above the source of the content. So this new news website has fewer advertisers, a smaller audience and a content strategy that relies on what the web has already destroyed. And it doesn’t have any newspaper revenue to prop up this dismal business model.

As a result of this logic a lot of news companies will simply have to give up. The ones burdened with huge debts will give up first (McClatchy, Gannett, Medinews, Tribune). They will be closely followed by the companies whose other businesses need attention and might be saved (Hearst, Media General, Advance, Cablevision). Then will come the companies who would like to tough it out but don’t have cashflow from other businesses to sustain them (most Independents, Pulitzer, Copley, Blade,).

So the uncomfortable truth is that the death of the newspaper in print probably means the death of most newspapers online too. Well, 85% of the biggest newspapers anyway.

So who will survive and what will the new online news landscape look like? Tune in for tomorrow’s next thrilling installment.

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