August 28, 2003

Newspapers Disrupted

Irony defined: I have been trying to write about "disruptive technology" and newspapers but have been continually disrupted by my anti-virus software, which has for reasons unknown has ceased to work.

"Disruptive technology" - an emergent mechanism that eventually replaces or marginalizes an existing industry: steamboats vs. sailing ships, PCs vs. mainframes, HMOs. vs. traditional health insurance, blogware vs. content management systems (some day) - lies at the heart of a presentation by Borrell Associates analyst Peter Krasilovsky to a group of Knight fellows about the issue of newspapers charging for online content. The Online Journalism Review posted part of the discussion.

Krasilovsky applies the disruptive technology concept to newspapers vs. the Internet and defines three stages of a disrupted business cycle: Innocence on the part of the established business; emergence of competition from the new business; panic by the old business ("When you realize this newfangled thing is stealing your business, and you aren't sure how to get it back.").

The news media, in general, says Krasilovsky, is in stage two, but newspaper classifieds - which the NAA says generated 40.3 percent of the industry's revenue in 2000 - are approaching what he calls the "no return" morbidity of stage three. Specifically, he says:

"It's where you don't want to be, it's where we think the newspaper business is today in areas like recruitment. Monster.com has their fingernails in there and there's such price pressure newspapers may not be able to recover."

Compare the prices. The San Francisco Chronicle charges $310.95 for a four-line, two-day help-wanted ad. Additional lines cost $27.75 each. Monster.com charges $335 for a 60-day ad of unlimited length. Craigslist, located in San Francisco, charges $75 for 30 days.

The newspaper classifieds - as a communications technology - have already been disrupted.

For the most part, Krasilovsky believes a pay-to-read online strategy is not workable for newspapers' general editorial content. "I am against tollgates, but I am for the niche content that you can charge for, he says, referring to moneymakers such as the New York Times crossword or the Belo company's football site, Cowboysplus.com.

Krasilovsky does not ignore paid-content successes such as the Wall Street Journal or non-journalistic entertainment products such as the RealOne Super Pass, but he urges newspaper companies to concentrate on identifying audience instead of seeking short-term revenue opportunities that add little to the bottom line. ("Fewer than 3 percent of the print circulation base pays for Web access when they are not already print subscribers. So if you have this newspaper with a circulation of 300,000, we are talking about being able to attract 9,000 people at the most.")

In the long term, in other words when the disruptive technology (Internet) surpasses the established technology (print) as an information source, the accumulation of audience will result in the bigger payoff. Says Krasilovsky:

"Paid sites are at their infancy right now. It is very important that instead of focusing on charging for the short term, we find out who the users are. Most TV and newspaper stations certainly have no idea who their user base is or the demographics. It is better to register them and form a gateway into the paid content world that we know is emerging as technology improves."

Industry watchers foresee a continuing decline in newspaper use in favor of the Internet.

An annual overview report on the communications industry by media banker Veronis Suhler Stevenson concludes that consumers in coming years will spend less time using advertising supported media and more on "paid" media - cable TV, home video, games, music and Internet. Newspapers and magazines will take the biggest hit in readership. Reports MediaDaily News:

"In 1997, the benchmark year for this year's report, U.S. consumers spent two-thirds of their time (66.1%) with ad-supported media. By 2002, advertising share had eroded to 57.8% and by 2007 the banker predicts it will fall to nearly half (55.4%). In other words, by 2007 consumers will be spending nearly 27 minutes of ever hour spent with media on media that are not supported by advertising."

Audience erosion and advertising loss are self-reinforcing. Lose the first, the latter flees as well. PriceWaterhouseCoopers forecasts that by the year 2007 aging demographics and growth of other media will cost newspapers local advertising share.

All signs point to disruption of newspapers as a mass market industry. What remains unknown is how the industry, i.e., its leadership, will respond.

Harvard Business School professor Clayton Christensen coined the term disruptive technology in his bestselling book "The Innovator's Dilemma," which should be required reading for every newspaper manager - from the publisher to the overnight ACE.

Christensen advises managers, especially those who work for successful companies, that there at times, such as when the market is being eroded by demographic or competitive forces, "at which is right not to listen to customers, right to invest in developing lower-performance products that promise lower margins, and right to aggressively pursue small, rather than substantial, markets."

When good companies fail, says Christensen - and let's avoid the journalistic argument about whether newspaper companies fit that definition; they do in terms of returning quarter-to-quarter shareholder value - "it often is because managers ignored these principles or chose to fight them."

In the end, innovation equals thinking. And investment, monetary and human.

When the Sunday Times of London decides to publish a new monthly section for youth - on an inserted CD instead of paper - that's innovation. [Read: Newspaper's Newest Section: A CD ]

When the New York Times tiers its content by popularity and date - today's news free, last week's paid, crosswords for a price - that's innovation.

When Louis Border starts selling an all-you-can read smorgasbord of newspaper and magazine articles by the month at KeepMedia - that's innovation.

Krasilovsky talks about ventures such as KeepMedia:

"This is kind of interesting to me, as editorial people we tend to think we have to create new content all the time, but maybe this is more about technology, maybe it is really a matter of charging people for anytime-anywhere access to the different types of content that you want to provide. If that is what the business is all about, we need to do some new thinking."

The Knight Foundation is spending a lot of money on a big training initiative aimed at changing newsroom culture that contains a component called the Learning Newsroom. [ Read: American Journalism Review's report on newsroom culture ]

I like the idea - anything that moves newsrooms out of their passive/defensive posture is a good thing [ Read: Time for a Leadership Tune-up ] - but I prefer the term "Thinking Newsroom." More thinking and less reacting and newspapers might not find themselves disrupted out of existence.

Links
 Online Journalism Review Newspapers Want to Charge for Content, but Will Readers Pay?

Posted by Tim Porter at August 28, 2003 02:01 PM
Comments

I wonder what effect registrations have on readership, especially on papers that may not be considered must-reads, like the NY Times. I find it very annoying to not be able to access the LA Times, for example, if I'm away from my regular computer and I don't remember my user name and passcode. And frankly, it's often just as easy for me to turn away and find the same or similar information elsewhere. I understand the desire to capture that reader demographic information, but at what cost?

Posted by: Michael B. on August 28, 2003 03:36 PM

I agree with Michael, and i actually refuse to register for sites like the Dallas Morning News and LAT on principle. I can get the same or better content at Yahoo News or some other site. The only site I have registered for is the NYT.

Posted by: Bryan on August 28, 2003 08:28 PM
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