The New Business Model For Newspapers: Make The Online Sale First With Print Being The Add-On?

Philip M. Stone December 5, 2007

The basic view for the newspaper industry in 2008 as given at UBS Media week presentations Tuesday is that newspaper print advertising revenue will continue to fall, that newspaper internet revenue will continue to climb, that combined the total revenue will still continue to decrease, and the only real question is by how much?

And it is getting to the point where publishers have to seriously consider a new business model of making the online sale first and offering print as an add-on. Now that’s a serious pill to swallow because print still brings in 90% or more of a newspaper’s revenue, but there are very few people out there who do not believe that in time, a matter of years but how many few forecasters are willing to say, a newspaper’s print and Internet revenues will come closer together and eventually Internet will overtake print.

So in those intervening years the really big question becomes whether to speed that process along by prioritizing the Internet sale, with the newspaper as an add-on, even though Internet ads individually bring in far less revenue than a print ad, or whether to continue emphasizing where the big advertising money still is – in print? Most now opt to make the print sale and try to get the Internet sale as an add-on.

Even the Newspaper Association of America (NAA), the trade group for US newspapers, admitted in its presentation that 2008 will continue to be a down print year. It conservatively forecasted that total US newspaper revenues would drop 1.2% next year, but it got to that figure by estimating that print revenues would fall by 2.9% while digital revenues would increase by 22% giving the net effect of down 1.2%

Trouble with that, of course, is that based on what has happened so far this year, and the NAA’s own outlook for the economy for next year, that print down of just 2.9% does not really seem to be in the ball park, let alone off a bit.

NAA’s speaker, Jim Conaghan, VP of business analysis and research, admitted that the economy’s outlook for next year, even assuming no recession, doesn’t look bright. “Consumers will continue to be challenged by housing, the credit crunch, energy prices,” he warned and he also admitted, as a further woe, that auto sales will probably drop in 2008 which will hit hard the advertising by local dealers.

And there is nothing to indicate that Q4 is going to be a sparkling lead-in for 2008. He pointed to extraneous signs – lower FedEx shipments, less goods arriving at American ports, and the like that Q4 is not shaping up to be a great retail quarter and by correlation not a great advertising quarter. And the October figures from some newspaper groups – Gannett, McClatchy etc., already have shown that October, if anything, is worse than Q3 months. The latest quarterly results available are for Q3 and they were pretty much a disaster -- print advertising off 9% from a year ago while digital increased 21% from a year ago for an overall dip of 7.4%.

So it seems hard to understand why the NAA forecast for 2008 shows only a print decrease of 2.9% when there seems to be no good news out to show the economy picking up any, therefore advertising picking up. Yes, there are the Olympics and the elections, but most of that money is going to flow to TV.

For a change newspaper circulation figures will likely improve somewhat next year, which might prompt more advertising, but in effect it’s really a fudge. The Audit Bureau of Circulation has said it will allow newspapers to count bulk sales as paid sales and the NAA is putting out the word that research shows that readers of bulk sale newspapers are almost as attentive as regular subscribers. As an advertiser you going to buy into that?

With that kind of background the presentation by Belo took on an added interest. Belo, you might recall, surprised the US newspaper world in October by announcing it was splitting itself into two separate companies – one for newspapers and the other for television.

Robert W. Deckherd, Belo’s chairman and CEO who will run the newspaper company,  pointed out in his presentation that through the first nine months of this year Belo’s TV revenue was up 2.2% over the year before,  but for newspapers it was down 9%. The two divisions did have one thing in common – very strong and increasing digital revenues. At television the Internet revenues were up 40% over a year before and now represent 3.5% of television’s total revenue compared to the 2.6% a year before.  And at the newspaper division, Internet revenue was up 21% over the year before and made up 8.9% of total newspaper revenue through the nine months compared to 6.6% for last year. And digital seems to be on a roll making up 9.4% of Q3 revenue. The unanswered question is how much of that is actual digital growth as compared to lower print revenues?  

And what’s driving digital? Deckherd said that in the first nine months of 2006, there were 145,000 video streaming requests and yet in the first nine months of 2007 it was 2.2 million video requests. Anyone out there still doubting the necessity for newspaper web sites to go heavy on video?

And where does he see print’s future? He belongs to the school that says circulation numbers for a newspaper should really be total reach numbers. He said the Belo newspapers are experiencing “growth in total audience reach in readership when ancillary niche products and our web sites are included. We must, and will, do a better job in marketing this reach to advertisers and customers in order to monetize the value of the audiences.”

And as far as the value of newspapers to readers he made clear that no one can cover local news like a newspaper. All age groups want news, and the only real issue is the platform on which they access that news. “Our challenge is that we are monetizing the right demographic audience through the right platforms, wherever, however they want it.” So cell phones, iPods and the like are all in play.

As one example in Dallas the HS Game Time Site covering high school sports has proven a huge success in drawing in the young by using video and news from both the newspaper and television station. An agreement is being drawn up so that when the newspaper and television divisions become separate companies that they will continue to contribute and run the site.

If there was one word that Deckherd seemed to use the most often it was “monetize” – basically to get the most value out of what the company, soon to be companies, does. Hard to argue with that business philosophy.

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