What didn’t work: newspapers

What I’m listening to while I type: Sea Sew

I’m not saying that newspapers are dead: individual newspapers will continue as businesses as long as the ratio between cost and revenue makes sense for the owner. But as a business model, we really are looking at the endgame.

Last week, Newsweek announced it was to end its print edition and go online-only in a bid to cut “legacy costs” attached to producing the printed product. Reports suggested $40m annual losses (one day I’ll do a chart showing how $40m/£40m is the default for stories mentioning newspaper losses), although other writers suggested it was that Newsweek just wasn’t good enough.

The same week, Guardian editor Alan Rusbridger was spitting bricks over a Telegraph story suggesting he was fighting to save The Guardian’s print edition against pressure to switch to online-only. It’s a story that surfaces periodically, not least because media commentators don’t believe The Guardian can turn around its £40m (yup) annual losses before the business runs out of money entirely.

The issue is that the cost of producing a newspaper has outstripped earnings from newspaper sales since the 1880s. Since when, the business model has become almost entirely dependent on the delivery of an audience to advertisers – and the valuing of that audience according to both demographic and size.

But the problem the business model now faces is that the assumption that equated size of audience to share of advertising revenue has been overturned by the shift to digital. Online audiences don’t deliver sufficient revenue because the advertising industry pays less for digital ads compared to print. The usual quote is that $100 advert offline = $10 on the web = $1 in mobile.

While 43 percent of Guardian News and Media’s readership is online, the company makes only one fifth of its income from digital. The Daily Mail is the most popular newspaper website in the whole wide world yet raises just 2.6 percent from online advertising. In May this year, the Daily Mail was selling 1.9m newspapers a day, but had 5.6m web visits a day. Despite web audience trouncing print, the Group’s news websites earned just £12m against £171m for newspaper advertising.

As Rusbridger tweeted in response to the Telegraph story: “Numbers for going digital only & junking print just don’t add up”.

It’s not just about newspapers having a business model dependent on (falling) advertising, but having a business model that separates product from sales. News is not the product that newspapers sell. News is an attractor: the attention attracted by news is what’s being sold.

 

nestle

In the next village to me is a big Nestle factory. When I walk the dogs, I smell the coffee. Nestle makes Nescafe, KitKats, pizza, icecream, petfood, babyfood…The branding is in the products, the quality is in the products. You know what to expect from a Yorkie; you know whether you like Dolce Gusto coffee.

The business model is that you buy the Nestle products you like, and 130 years ago that was the business model for newspapers. You don’t pay a monthly subscription to drink Nescafe. Shopkeepers don’t give you free KitKats in the hope that you’ll read the advert for insurance on the wrapper.

(I’m making the assumption here that it costs less to make a KitKat than Nestle sell it for. Unlike newspapers).

For newspapers to survive people have to want to read a newspaper. Whether you’re selling adverts or newspapers, you still need readers. But just how many newspapers you have to sell also relates to the size of the business you’re trying to support. The problem isn’t just with the newspaper sales model, but with the scale of the companies that run newspapers.

Newspapers are increasingly a by-product of the global corporations that run media businesses alongside successful insurance risk services (DMGT); contract printing (Trinity Mirror); TV stations, websites, magazines and nursing services (Gannett); TV, Hulu, publishing, Australian rugby league (News Corporation).

If all you need is to make enough money to pay a handful of staff and the print and distribution contracts, you don’t have to sell a lot of newspapers. It’s a model that still works at small-scale or local. But share dividends, company cars, pension schemes, city offices, ad campaigns, a $33m salary for the boss, well it adds up.

Am I saying newspapers can’t be big business? Yes, I am. But I’m not saying that newspapers can’t make money.

I am also saying that you can’t have a business branded by a newspaper but make your money selling insurance and running care homes. Eventually, the insurance-sellers are in charge and the loss-makers are cut or axed.

More importantly perhaps is that you can’t be a big, global, multi-purpose company and still expect to dance like a butterfly and sting like a bee when you’ve got a fight on your hands. As newspapers have now. As tech-VC Fred Destin puts it:

Most corporations are defined by the quality of their planning processes, which in turn become objectives against which execution happens and achievements are measured. Corporate behemoths, faced with change, stumble and fall. In fluid markets where everything can be priced and exchanged dynamically, startups thrive. They are the elemental unit of a cloud economy, highly adaptable and insanely good at one thing. But large corporations cannot adapt at the speed necessary to remain best of breed in all aspects of their business.

Here’s what I think we do with newspapers: we forget what we know about selling newspapers and look at what we’ve learned from the web.

The web is incomprehensibly massive and global yet personal. It’s like driving a car – we shut the door and think we’re the only ones on the road. It doesn’t matter how big the web is (or how few companies are running it); we travel around it according to our personal roadmap of interests.

A couple of weeks ago I challenged my entrepreneurial journalism students to come up with something they didn’t like about the news – a problem that needed changing. Each problem they raised came back to one thing – the news wasn’t personal.

It wasn’t that they only wanted to read the news that interested them, it was that they couldn’t easily access news they might be interested in.

The profession of journalism has been based on how to deliver news that most people would want to know. But most on the web is most products, most choices, most information, most of our friends, most people like us, or most like the thing we’re searching for – ie most of the things one person wants, in one place.

Apply that to news and you get most of the news that interests me, and some of my friends, and some people with the same interests as me – without me having to look for it. Does that sound like a newspaper to you? And then there’s that other bit – the things I don’t know that I might want to know.

So, given another run at investor funding , here’s what I’d do instead of launch a newspaper: I’d build what Facebook could have become on April 6th, 2005.