February 08, 2005

Reading the Vanishing Newspaper, 3: How Advertisers Make Decisions

Whatever the Poynter Institute is paying Jim Romenesko, it's not enough.

In the third chapter of Philip Meyer's new book, the Vanishing Newspaper, the University of North Carolina journalism professor uses Poynter's "acquisition" of Romenesko in 2000 to illustrate how content that is powerful - in this case meaning attractive to a target audience of journalists - can create influence. (Remember, it is influence that Meyer argues can save good journalism and, possibly, newspapers. Read: Reading the Vanishing Newspaper, I: The Influence Model.) Meyer explains (all emphasis throughout is mine):

"Before Romenesko came aboard in 2000, the Poynter site was generating around 10,000 page views per weekday. By 2003, it was up to 160,000 a day, with spikes to 250,000 when there was a big story such as the departure of Howell Raines from the New York Times. By 2002, PoynterOnline was the trade publication most read by journalists, beating both the slick paper publications, American Journalism Review and Columbia Journalism Review."

At times while reading this section of the book, I felt Meyer needed Ben Bradlee to tell him what he grumbled at Woodward and Bernstein in "All the President's Men" when the two reporters turned in a particularly delicate story, "You haven't got it."

Meyer tries hard to draw a connection between a newspaper's credibility - his proxy for influence - and its advertising draw, but after a baffling (at least to liberal-arts-major me) regression analysis he concludes that "much more data collection" and a "better measure of influence" is needed to establish credibility as a predicator of advertising power.

Since this is the core thesis Meyer is trying to prove in the book (good journalism = credibility = readership = profit), I'm left wondering where he goes from here.

Unable to connect these dots, Meyer turns to diagramming the market-making capacity of the Internet and its incursion on newspaper's second-largest bloc of revenue: Classifieds.

Newspapers once owned the classified market because they were the dominant medium in a given region and, as Meyer states, "buyers and sellers alike tend to converge on the spot where they are most likely to find one another," a principle of self-fulfilling circularity most exemplified by the success of eBay.

Beyond any particular online marketplace, Meyer characterizes the Internet as a "perpetual catalog" accessible to exploration, and commerce, via the power of search, i.e., Google et al. A marketplace that is cheaper than newspapers, more fixed than broadcast and possesses both the cataloging capability of the former and the illustrative power of the latter not only threatens the newspaper business model, but also the journalism that model supports. Meyer puts it this way:

"Technology can separate advertising from its traditional role of supporting useful editorial content."

Journalism and advertising operate symbiotically. Without either - regardless of the quality of the journalism - the traditional publishing model collapses. Unfortunately, Meyer cannot prove quality newspaper journalism can attract sufficient advertising to fund its current printed platform - a proposition that is becoming increasing problematic given the inherent economic advantages online publishing has over print. Meyer explains:

"Newspapers suffer from the historic fact that they are a manufacturing business. They buy raw materials, ink and paper, and add value with news and information and advertising. The trouble with a manufacturing business is that its mains costs are variable, not fixed. What this means is that every new customer means a proportional added cost in raw materials and transportation. Double your customers, double the newsprint."

A variable-cost business model means some new customers aren't worth the price of securing and serving them. This is why some newspapers in recent years have killed off suburban editions or cut off subscribers on the rim of their circulation areas - the costs of selling readers those newspapers outweighed the revenue the additional circulation generated. In Chapter 1, for example, Meyer tells the tale of the Wichita Eagle, whose former editor was ordered in the mid-1990s by the paper's owner, Knight Ridder, to increase the operating margin to 23.5 percent. The editor, W. Davis Merritt, describes how the paper did it:

"We looked and looked, and the only way we could do that was to cut 10,000 circulation, reducing all out commitment anywhere west of Wichita. We had to tell 10,000 people who were buying and reading our paper, 'we're not going to let you buy our paper anymore.'" (Remember yesterday's example of how newspapers use "aggression against their customers" to maintain profit.)

By comparison, the Internet operates on a broadcasting model. Its costs are mostly fixed. If 10 million people search Google every hour (and more than that do), it doesn't cost the company significantly more than if only 9 million people searched in the same time period.

It's hard not to get the feeling that Meyer believes, despite all he might wish otherwise, that come some day in the not-too-distant future newspapers are not going to be the primary platform for daily journalism.

In Chapter 2, Meyer makes a good case that newspapers will persist because the collapsing business model will attract entrepreneurs who will create substitute publications and be satisfied to earn 6 or 7 percent on their investments (the national norm across all industries) instead of the 20 to 40 percent to which current newspaper companies are accustomed.

In this chapter, though, Meyer crosses the threshold of imagining good journalism - in its traditional watchdog, civil society sense - without newspapers. The underwriters of this journalism could arise from the nascent online world. Meyer writes:

"If the new media barons of the future make large investments in creating trusted editorial products that will attract and influence citizens and buyers, newspapers will be in trouble, but society will be served."

Is this transition inevitable? Not, says Meyer, if the industry can do what he has so far been unable to do in this book: Find a way to measure the influence of a newspaper and establish a clear connection between that influence and the value of its advertising.

Meyer asks and answers the next question: What if newspapers can't do that? Then "it will soon be time to think about vehicles other than advertising-supported media to fulfill the social responsibility functions that newspapers have historically provided."

Is that the right answer? Non-profit journalism already exists in traditional forms like NPR and newer configurations like the Center for Public Integrity and some newspapers, like the St. Petersburg Times, are owned by non-profit entities. Will good journalism become a non-profit venture, reliant on the largesse of funders or the deep pockets of an elite level of subscribers? What beyond advertising might support citizen journalism and other emerging forms of journalism?

Like Meyer, I don't know. I do know that newspaper companies and newsrooms need to be asking these questions and looking for answers.

ENDNOTE: Read Alan Mutter on the erosion of national advertising in newspapers. He reports on findings by Merrill Lynch media analyst Lauren Fine, who says "the majority of national advertisers are 'shifting from print and TV towards cable and the Internet.'"

Why? Just as Meyer pointed out: Those media are not only cheaper, they also better enable advertisers to measure influence (effectiveness) of their ad buys. Fine says:

"As advertising shifts from an investment to an expense within organizations, the need to measure returns and/or lower costs has heightened. This has pushed marketers more toward the Internet, direct marketing, sales promotion and branded entertainment [product placement]."

Mutter concludes: "If the newspaper industry thinks it is controlling ad erosion, it is suffering from a profound case of self-denial. There's just no denying it."

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Posted by Tim Porter at February 8, 2005 09:46 AM
Comments

History is full of obsolete industries. (Ever heard of the city horse-stables? The guy who came and emptied your lavatories? The religious-relic salesmen? All gone.)

Here's the skinny, dudes: traditional newspapers are doomed. History. Gone. They just haven't accepted it yet.

And I think that their "replacement" (the wrong term, but you get the picture) will NOT emerge from former newspaper organizations, but from the Internet.

But then again, what do I know? I'm just a lowly former newspaper reader... one of the many who will never, ever again buy a traditional newspaper... not counting the many more who never even grew up with the habit.

-A.R.Yngve
http://yngve.bravehost.com

Posted by: A.R.Yngve on February 8, 2005 11:57 AM
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