Internet Changes Everything: Newspapers

The News Broadsheet was a pivotal element of the 1776 American Revolution, eventually becoming enshrined in the First Amendment to the US Constitution.

Newspapers were integral to the Twentieth Century rise and evolution of Western Democracies. Without "frank and fearless" reporting (and an engaged electorate), governments can quickly spiral out of control.

We're now 15+ years into the "Internet Revolution", so where are Newspapers in their journey on-line? Significantly, nobody seems to have discovered a "secret sauce" to generally monetise News and the work of Journalists in the way that Amazon and Google etc have monetised books and on-line ads. Those who make money from writing seem to do so from direct subscriptions - the on-line form of "newsletters".

In my first job, there was a direct and obvious connection between the 5g +/- 0.01g of sugar being analysed and 'the business': Our analyses determined payments for 500 or 1,000 tonne lots. Getting it wrong wasn't an option. My place in the scheme of things was self evident.

The world of Software and I.T., even after 60 years, still doesn't have that direct & obvious link.
I.T. shares many traits with Journalism:
  • Both are "Performance Disciplines", like Music, Art, Surgery and Gymnastics.
  • "Effortless Performances" (as in 'making it look easy') take a lot of skill and experience. The public and more often now, management, have little appreciation of the process & skills.
  • Input Effort and Results bear no discernible relationship.
  • Quality is Everything, but seems impossible to measure.
  • Although both are central and necessary to the businesses they support, they are managed as "Cost Centres", with seemingly no attempts at connecting outputs with Profit.
  • Both deal in intangible and invisible "stuff" - information. Often with tight deadlines and very fast decay in product "usefulness".
  • Both share a central problem: Effort/Inputs are decoupled from Income/Results.
To research this, I chose "Fairfax Media" (ASX:FXJ), a major Australian player, because some of their "Mastheads" are over 100 years and "The Sydney Morning Herald" used to be legendary - known worldwide for its "Rivers of Gold".

Getting even rough numbers to judge demand and price-points seems very hard.
For any on-line business to succeed, revenues have to support costs. While serving bit-streams may be considerably cheaper than printing & shipping paper, what will people pay for it and how do you get money off them? How do you draw in more subscribers - what are your Marketing & Sales channels?

Newsagents keep the full "cover price" of most newspapers. For magazines and most other products, the publisher gets half with the distributor & newspaper splitting the rest.

The content of newspaper, News etc, is why people buy newspapers.
The price people are willing to pay for the whole paper indicates the "ultility" they get.
But how do you arrive at a value-in-use of just the News component?
Are there synergist effects in operation?

The output of Journalists, "News", is essentially a "Free Good" to both consumers and the business. To the publisher, each newspaper printed is only a cost - which they actively attempt to minimise, whilst revenues are from advertising and independent of pages printed. The connection is the "rate card" - people will pay more in advertising for wider circulation & readership. The connection is anything but direct and immediate. Meanwhile, "content" (& "classified" adverts) brings in readers, but the supply-demand curve is generally unknown.

Makes the economics of "free" community publications more obvious. The distribution costs are only slightly more than to newsagents and the claimed readership is maximised.

It also says why businesses are so very happy with "advertising only" publications, like "Trading Post". Pure profit and no content producers to wrangle! These business translate on-line very well - but lose all "display advertising" to corporates like retailers looking for mass market advertising.

Audited Circulation figures aren't too hard to come by and "The Press Council" publish a good snapshot of the whole Print Media scene, but there are only tangential references to journalist "head counts". Fairfax journalists feel pressured by staff cuts and are taking action.

To come up with viable business models for on-line News, especially when competing with "Free" on-line services like Google or Free-To-Air broadcasts (radio & TV), you need both sides of the Accounting Equation:

Profit = Revenues - Expenses.

Other marketing data is needed to determine whether Size Matters (only one global Google and Amazon) or Little & Local works or some combination in between...

Whatever the result, there is one guaranteed loser: newsagents.
They are the traditional Marketing & Sales Channel for newspaper.
What becomes of them in an on-line world?
Can their access to "passing trade" and existing business relationships be leveraged?

What we do know is that people are very happy with "Free" on-line content: using search engines to point to unbilled on-line newspaper articles.
Newspapers initially tried to force reader registration, even though content was "free" people went elsewhere. Fees were charged to access "archives" or additional material made available to paid subscribers.
News Ltd's upcoming experiment in charging for on-line content will be watched very carefully throughout the industry.

What would it cost to run an adequate newsroom? Do the 15 journos of brisbanetimes.com.au reported by the Press Council provide adequate local coverage? Various sources suggest major metropolitan news have 200-300 journalists, while the national broadcaster, the ABC, have 700 people in their "News Division" (which is how many journalists?).

Any 24/7 operation requires shift-work. To provide a minimum staffing of 2 people, needs a team of ~12. Numbers build very quickly as more sections & coverage is needed.

Fairfax's Annual Report (2007) says they made a profit of ~A$500M ($447M EBITDA) on A$2.3B sales.
Around one third of sales were from New Zealand. Overseas and non-print revenues were unclear.
The Australian Digital operation made A$37M on sales of $137M.

Their ~10,000 employees were their largest single expense: A$700M.
Paper and ink came in second at A$270M.
Sales and Promotions were A$88M.
Communications: A$17.5M
I.T.: A$15M and
News services: A$12M

Fairfax reports $8B of Assets - $6B of which is "intangibles" - "goodwill" and "value of mastheads". They've around A$850M in Property, Plant & Equipment - the physical assets needed to produce newspapers.

But how many journalists were there and what does a single "high-quality" newsroom cost to run? That's not going to change for an on-line News service.

What will an average subscriber pay for an on-line News service?
What additional content are needed, and what synergies exist?
How many on-line subscribers will sign-up for each different offering?
Can the existing subscribers be converted to on-line subscribers? What would help in the transition?
What are the different attributes that subscribers value and what premiums will they pay?

This says that monetising on-line News services may be hard and their general lack says solutions are still not obvious.

Other comments, observations and relevant factoids:

Newspapers serve important subsidiary functions, like being "the paper of record" for Births, Deaths and Marriages as well as public events, political speeches and disasters, crises and more.
"Public Notices" of many types are published - from bankrupts to probate on wills to personals.

Newspapers have come to be the definitive textual mass-communication device.
There appears to not yet be any on-line equivalent.
In the USA, recent failures of long-running mastheads says there isn't that much time left to find a good answer.

The SMH sells ~212,000 copies Mon-Fri (@ $1.40), 364,000 on Sat ($2.40) and [Sun-Herald] 505,000 on Sun. ($1.80). It has increased circulation in recent years. No figures available for pages of advertising sold.
The Melbourne Age has comparable sales figures, though Sunday sales are roughly half the SMH.

'Readership' of the SMH is estimated at 853,000 Mon-Fri and 1,116,000 Sat.
Papers are shared around.

These figures suggest that newsagents & supermarkets make around $1.5M/week for Mon-Fri sales and the same again on weekends. Removing that income stream would leave a very unhappy sales channel...

Payments and Subscriptions types:
  • Pre-paid or billed subscriptions. Like Home Delivery
  • On-demand use: Ad-hoc or occasional purchase
  • Prepaid access to articles.
  • Business or family sharing. Limited copies shared between many.
  • Public access - libraries.
  • "Media Monitors" - clipping services across many sources relevant to a business.

What do Newspapers do?
  • Inform
  • Educate
  • Entertain, and
  • Surprise and Delight.
Newspapers tell you things you need to know, especially things you didn't realise you needed to know.

What comprises 'stories'?
  • facts
  • expert analysis
  • commentary
  • opinion, and
  • interviews
Professional journalism brings brevity and precision. Stories are {complete, correct, concise} and hopefully {consistent}.

The value to the reader is collection and pre-screening: reducing a mountain of data and facts to quickly and easily accessible information. Journalists classify and prioritise stories, letting the reader minimise time used and maximise information found.

This "Usability" principle extends to presentation, layout and story structure.
The fonts and columns widths are chosen to best suit human factors.
Modern printing added pictures to text - an important aid to readers and writers alike.
The use of white space, headlines and graphics/pictures increase readability & accessibility.
Stories follow the "inverted pyramid" - the most important facts first, tailing off. It means readers can quickly scan articles and find the most relevant/useful to them, and sub-editors can easily trim articles to fit by removing trailing paragraphs.

It is instructive to read a 100-yo paper without these modern features - they look dense and impenetrable. The small number of pages would've been a blessing.

Professional Journalists bring special factors to collecting stories:
  • access to people & organisations, like police, politicians, CEO's, ...
  • funding for travel, communication and fees - like FOI requests or corporate data.
  • Researchers, archives and access to expensive subscription services.

The users of News services look for many different benefits and uses:
  • text, images, audio and video
  • Mobile access
  • Alerts and "Instantaneous news items" (the latest stories)
  • Distraction, Relaxation and passing-time (as in commuting)
  • Social settings - Cafe and Brunch
  • Search and information: Browsing classified and focused searches
On-line challenges:
  • distribution format. PDF's or HTML?
    How do I read it on the train?
    Does it read well on a laptop or iPhone?
  • enforcing DRM. How to limit copying? What to do if copied illegally?
  • on-going subscription rights:
    If I've bought a "paper" once, do I have permanent access to it, even after my subscription ends?
  • Competing with Free-To-Net services. Seems hard, have to provide additional value.
  • Catering for local community news
  • Accepting input from the general public.
  • The Blogosphere and non-professional writers. They can't be held to journalistic standards and ethics, can't be reprimanded or censured and will publish/repeat unsubstantiated gossip and rumour.

"non-News" Newspaper functions that Online services may need to duplicate:
  • "paper of record" function: Public Notices, Births-Deaths-Marriages
  • Mass-market display advertising.
  • Marketing and Sales channels. How to grow new business?
  • Access to Printed copies - eg. weekly summaries.
  • Searchable service provider directories and classified adverts.
    Implies RSS-style alerts & monitoring.
On-line service challenges:
  • Monetisation. Advertising, subscription or sponsor based? Other?
  • Niche marketing. By location, interest, community, employment sector.
  • Tiered Subscriptions: free, basic, premium, target area, search tools, ...
    Profits can be maximised by segmenting services with multiple price-points.
  • Organisational access.