One would have to be professionally medicated to ignore all of the bad news concerning the newspaper business. There have been well-chronicled declines in subscriptions, circulation, display ad revenues and classified ad revenues. Despite the fact that newspaper internet sites generate many more readers (it has been estimated that at least 20 times more people read the online version versus the print version), the online revenue is insufficient to make the newspapers profitable. As a result, industry layoffs continue and many newspapers have written their own obituaries.
Many media experts have fixed the blame for the traditional newspaper's decline on the changing tastes of readers - especially younger readers- favoring the internet. This is, of course, part of the problem, but there are several other, more complicated reasons, for the depressed state of the industry.
The technology that led to a fragmentation of all media and concurrent competition for the limited time of readers have made the daily newspaper more of a relic and less of a resource. The grim reality for newspapers and broadcast networks is that with cable, the internet and mobile media, there is no dominant mass media and there hasn't been for many years.
However, this change in media habits is not the only reason for the demise of the daily printed newspaper. That sound of howling that's coming from the fourth or fifth generation of wealthy newspaper scions is the result of a self-inflicted shot in the foot.
Stop the Presses!
A recent report by John Puchalla, a debt analyst for "Moody's," highlighted some antiquated allocation of operating funds on the part of companies that own daily newspapers. His report noted that just 14 percent of cash operating costs, on average, are devoted to content creation while about 70 percent of costs support the print distribution model and corporate functions. The other 16 percent is allocated to advertising sales, which is critical task that drives the majority of the newspaper's revenues.
It doesn't take Tim Geithner to figure out that this allocation of capital is insanity masquerading as a business plan. Readers buy newspapers for the content, not for super jazzy, high-speed printing presses and paper. Plus, nobody gets paid - including the writers, photographers, secretaries and the poor Schlemiels who invested in the newspaper company - unless some silver-tongued ad sales person brings home a lot of full-page ads.
One fundamental way for newspaper to survive is to change this operating structure. There should be more resources expended for brilliant, compelling content that is deftly edited and less for the maintenance of in-house printing presses. Out-sourcing or sharing this printing function with other companies would help in this reorganization of operating costs. Allocating more resources for business development - sales- would also lead to increased revenues necessary to pay for this stellar content.
Unfortunately, even this re-allocation of the operating funds is not enough to save the daily newspapers.
Music Publishers Have the Right Idea
Excellent news organizations such as the "Wall Street Journal," the "New York Times" and the "Associated Press" allocate substantial resources to create exemplary content. Unfortunately, the proliferation of news aggregation websites has resulted in this content being used without payment to the organization that developed it.
If this sounds like stealing, it is. And it is part of the reason newspapers have been unable to realize revenue from their investment in content creation. This challenge has already been solved by another industry - the music publishing industry.
Any commercial venue where music is played is a revenue source for song writers and their publishers. From the dingiest, smoke-filled bar on the side of the road in Los Alamos to the opulent stage of "American Idol" in Los Angeles, if there is recorded or live music song being played as a part of the "entertainment," the person who wrote that song is getting a small percentage of the revenue that is being generated from it.
Having a hit song that is played on every rock radio station in the country will yield more revenue (in the form of royalties) for the writer than a song that is played once a year on a juke box. However, the critical component of this arrangement is that the content creators are being compensated for their work and the enforcement of this procedure comes from a third party licensing organization.
In the case of the music industry, a venue or media outlet that wants to use a songwriter's work can purchase a yearly license from the organizations that control the public performance rights to the compositions. The two largest organizations that manage this process for the music industry are the "American Society of Composers, Authors and Publishers" (ASCAP) and "Broadcast Music Incorporated" (BMI).
Legal experts have noted a potential problem for this "intermediary" collection agency for newspapers. If there is only one intermediary enforcement agency, there is the potential for regulators to see this as a "price fixing" scenario. This same situation was the impetus for the formation of BMI after ASCAP had been in business for thirty years. Newspapers can avoid this potential problem by not granting exclusive rights to the licensing agency and by allowing websites to purchase the content directly from the source.
All the News That Fits
Every newspaper is scrambling to integrate its print product into an internet format. Unfortunately, the execution of this strategy often comes across as grandpa trying to figure out that new fangled typewriter called a computer. A verbatim version of a newspaper's story that is run on its website is not integration of the two media. This is simply running a story twice in two different media. In order to earn readers and make money, newspapers will be forced to deal with the 24/7 news cycle and update stories hourly.
Ironically, the "Wall Street Journal," now being led by one of the most traditional, old-school newspaper owners, Rupert Murdoch, has turned the corner on getting print and internet integration correct. Once the print story has gone to bed and the newspapers are sitting on hundreds of thousands of front lawns, the "Journal" has begun sending periodic updates on those stories via opt-in, emailed "News Updates."
While these updates do not have banner ads accompanying them YET, Murdoch did not become a billionaire by giving away his content. The WSJ Updates will no doubt soon be sponsored and these banners will have links back to the sponsors' websites where the willing reader will be given the opportunity to purchase something else.
Daily newspapers can also learn and thing or two from the search engine business - "Google" in particular. Readers have changed from being passive consumers of news and entertainment to being more proactive and "search" oriented. Most newspapers have not grasped the importance of this concept. Enhancing search function the newspapers digital media would help keep the multi-tasking "searcher" engaged.
The ad model of "Google" is also something that the old-school newspapers could benefit from. The company's "Ad Words" program which allows advertisers to bid on key words and establish a daily or weekly budget, based on performance of the ad, not the traditional flat rate, has made Google the most successful media property on the planet. Some of these billions of dollars could find their way into the coffers of the newspaper companies if they applied this same performance-based strategy.
And That's the News
Since the invention of the printing press, newspapers in one form or another have played a critical role in the development of civilization. They have had a hand in electing world leaders, starting and ending wars, acting as governmental watchdogs and building enormous wealth for the families and individuals who control them.
As was the case with the silent movies when the "talkies" began appearing on screens, newspapers are now experiencing the pain of irrelevance. The old ways of producing and delivering compelling content are not acceptable anymore. The public's tastes have forever changed and it will be up to the leaders of these media companies to adapt to these new opportunities or risk becoming another dusty display in some media museum.