GUEST POSTING: Despite Murdoch’s woes, shifting from print to web won’t save newspapers
An over-reliance in advertising is just one of the reasons for newspapers’ problems, says Stephen Quinn
News Corp’s announcement on Friday that earnings will fall 30 per cent this year because of depressed advertising demand reflects the continuing problems that media companies face, especially those based in the United States. Rupert Murdoch’s company suffered a huge second-quarter operating loss of $US7.6 billion ($A11.6 billion).
For more than half a century, newspapers and commercial broadcasters have relied too heavily on advertising for their revenues. By the end of the twentieth century, for example, America’s newspapers derived 80 percent of their total funds from advertising.
Classified advertising, which produced 40 per cent of the industry’s revenues and more than 40 per cent of its profits in 2000, generated only 23 per cent of newspaper revenues in the first nine months of 2008, according to the Newspaper Association of America.
Until the global recession started to bite, media companies have managed to weather various economic cycles relatively well. But economic, technical and cultural factors have brought about a “perfect storm” that has savaged media companies. Shell-shocked broadcast companies and newspapers have cut costs to try to survive.
Newsprint continues to rise in price and it costs big money to distribute newspapers. Paper, printing and distribution count for about 60 per cent of the total cost of a newspaper. For managers, the only real area to cut is staff.
Chairman and chief executive Rupert Murdoch said the News Corp result reflected the tough economic times, adding that News Corp would cut costs and jobs. “We are implementing rigorous cost-cutting across all operations and reducing head count where appropriate.”
Cost-cutting is an understandable reaction from any business in tough times. But quality journalism, the very product that differentiates great media, suffers because of staff cuts.
News is expensive to produce. But audiences have been trained to expect it for free. Indeed, we give it away every weekday at the railway stations, and on the radio and television, and online.
As broadband and mobile wireless technologies developed and spread, audiences came to expect that free content to be delivered even more quickly.
Ironically, distribution mechanisms like telecommunications companies and ISPs continue to make money while the content producers have suffered.
At this point someone usually says: Why not shut down printing presses and sell off the trucks that distribute newspapers? Think of the trees that would be saved if all publishing were digital. This simplistic approach ignores the reality of media production around the world.
The vast bulk of online revenues at most newspaper companies comes from print advertisers who are “upsold” to the web when purchasing a print schedule. Alan Mutter, managing partner of Silicon-Valley based Tapit Partners who writes the Newsosaur blog, said it would require a huge leap of faith to believe the people who bought print advertising would continue to spend equal or greater sums on web advertising if the publisher eliminated the medium that attracted them in the first place.
The $US 3.1 billion of online revenues the newspaper industry booked in 2007 was a mere 7 per cent of over-all advertising sales in the United States, Mutter said. “While it is possible the industry may have generated up to 10 per cent of its sales on the web in 2008, this is because print has been shrinking so rapidly that the online component has become proportionately larger.”
The web site of The New York Times gets 20 million unique visitors a day, the highest of any newspaper company. Revenues from web-based advertising would only pay about a fifth of the cost of the newsgathering budget at The New York Times (which totals about $US 200 million a year).
A December 2008 research report from Sanford C. Bernstein & Company said it was “idiotic” to expect web revenues to pay for quality journalism. “The notion that the enormous cost of real news-gathering might be supported by the ad load of display advertising down the side of the page, or by the revenue share from having a Google search box in the corner of the page, or even by a 15-second teaser … prior to a news clip, is idiotic on its face,” the report said.
In a world of data smog where everyone chooses their own sources of information online, the implications for democracy and citizenship are severe if newspapers shrink or disappear. Without quality journalism, democracy and society suffer.
Which leads us, as TS Eliot used to say, to the overwhelming question: How can journalism pay for itself? Journalism needs new business models, and it also needs to revisit some old ones.
But that needs to be the subject of another article.
Stephen Quinn is associate professor of journalism, at Deakin University.
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Mr Stephen, very clarifying article.
I understand all the problems on the migration of the business from one channel to another and the negative financial outcome.
Your approach on this is all about fresh news – breaking news, and I agree with your position. It’s not easy to migrate people from their rituals.
I think most of the printed news media is trying to identify where and how they are/will be using the technologies that make up web2.0.
We created a culture of Free information with Web, however I believe (and theres a lot of discussion on it) that revenues still can be made.
How about the massive inventory from the news papers?
How about upsell/crossell products as Research p.e.?
Product Life Cycle it will hit everyone unless you hit it first.
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http://futureobservatory.dyndns.org/9435.htm
Lucio Ribeiro
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Stephen, you fail to discuss the other key revenue stream for major paid-for newspapers: circulation.
In marketing speak, this is the ‘P’ for price in the marketing mix. In my opinion, newspapers represent great value – typically a dollar or so for a comprehensive package of news and entertainment.
Maybe Crikey’s Eric Beecher is right: perhaps the longer-term future of some newspapers might require more expensive cover prices in order to offset the declining (classifed?) ad revenues.
Price elasticity is an obvious factor to consider here – at what point the paper is perceived as ‘not worth it’. Which all comes back to the content …
In this context, my question to you is: how can jounalism drive a business model where consumers are willing to pay a premium for a printed newspaper?
How can journalists like yourself convince readers that a higher cover price is still a small price to pay for your collective work?
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Adam makes a really good point. Why is it that people will pay three or four bucks for a capuccino, yet the Australian can only charge half that.
For the reader, a newspaper is tremendous value – I actually can’t think of another product where you get more for less.
Given the choice between a coffee or a paper, I know which one I’d take to a desert island.
Maybe the biggest challenge isn’t the changing business dynamics, but simply one of persuading punters to pay a fair price.
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While I agree with most of what was written – particularly the comment that a large proportion of online revenues are from up-sells – I’d like to add a fact that wasn’t covered.
According to MediaPost (Thu Feb 5 2009), the Q2 09 News Corp loss was USD $6.4b. However, incorporated in this was a USD $8.4b write-down an assets.
Doesn’t this mean that operationally there was a USD $2b profit wiped out by the CFOs’ asset write-down? That is, even though there have been undeniable decline in ad revenues (TV and print in particular) that if there was no asset revision things would have looked pretty darned good! So, the CFO takes the hit for past mistakes in one tranches – look for good Q0309 results from News Corp.
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Hi JG,
As the Fin points out today, Murdoch has played a blinder in the PR game – far fewer of those nasty headlines about job cuts than Fairfax. And things are certainly set up for headlines about News’ magnificent recovery after one tough quarter. Much better to get all the accounting pain out of the way at once.
That said, I’m aware that there are those among the troops at News Ltd who feel frustrated that they haven’t been told straight what’s going on.
I guess it comes down to a choice on which is the more important audience – external or internal.
I was also thinking over the weekend about the analysts who complained a few days before that News Corp was lacking strategic direction.
I wonder if Murdoch didn’t give some of that away on Friday. To be sitting on a bigger pile of cash than rivals, so when the pain is over, the company is poised to pounce. It’s a simp,e strategy, but suddenly it’s looking quite smart.
Cheers,
Tim – Mumbrella
There is massive waste in duplication when every media company sends reporters and crews to locations to report news. Why don’t they cut costs by sharing on the ground resources? On the online side, local bloggers are undermining the advertising business model of commercial sites by providing content for free. Not for profit bloggers are efficient bad competitors and will destroy the commercial value of information while increasing its intrinsic value through abundance and contextual relevance. Advertising as a business model is dead.
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