The Print Cannibalization Issue Revisited

By: Steve Outing

It was back in 1993 (ancient history in "Internet years") while employed at the San Francisco Chronicle that I first realized the potential for the newspaper industry to profit by moving into the online services arena, and the importance that moving into new media ventures held for the long-term health of the industry. In those early days, for newspapers going online, news executives were fond of saying that the online services they had just announced were "supplemental" to the print product. They were careful to design their online services so as not to pose the possibility that parts of the print product might be cannibalized by existence of the new online venture.

Today, many publishers are still guided by that principal -- which I now believe is out of date. Designing a new media product while carefully ensuring that no component of it will have a detrimental effect on the print product is a strategy that will bite you in the long term (and maybe the medium term, too).

Publishers who get it

I can now cite some examples of newspaper publishers seemingly who have gotten that message. The Wall Street Journal, for example, last week launched its Web site that offers a full digital version of the paper on the Web for $49 per year. That's a great price, compared to the print edition. While it's not just an online duplicaton of the printed Journal, of course, it can be used that way. I've subscribed to the printed Journal in the past, but dropped it because I didn't have time to read it every day, and for what I used it for (mostly just skimming it to pull out the technology coverage), it cost too much. Now $49 a year for access to the online edition appeals to me; I'll likely purchase a Web subscription. Because this service is now offered, the Journal will probably never get me to be a (higher paying) print subscriber again.

Has the Journal done itself a disservice? Of course not. In my case, it will probably get more money out of me in the long run than if I had occasionally subscribed to the paper edition, only to drop the subscription due to price or time factors. More importantly, it has opened up a larger, worldwide market of computer users who may subscribe online but don't have the option of receiving the printed Journal because it's not delivered to their part of the world. Most of its readers who are within its print distribution range will continue to favor the paper edition, but over time an increasing number will migrate to the online version.

The Los Angeles Times (and it certainly has company in this) with its recently launched Web site also has put the full breadth of the printed paper online -- all without charging a usage fee. The Times' Web site could easily replace the print edition for those willing to receive news on a computer screen. It also could replace the newspaper as the primary guide to Los Angeles area entertainment events listings.

And then there's Rupert Murdoch's News Ltd. in Australia, which recently launched a free-access classifieds database that will contain ads from all of its newspapers -- more than 100 across Australia. The architect for this project told me in an interview (published in this column a few weeks ago) that the intent of this project is in large part to prevent competitors who, by operating in the low-barriers-to-entry Internet environment, could chip away at their well-entrenched classified ads franchise. Yes, this strategy could hurt the individual newspapers if many people begin to go to the Web to search for classified ads instead of picking up a newspaper. But Murdoch's organization sees that it has no choice but to compete with itself.

Competing with yourself: Personal ads as an example

Anyone who follows developments in the Internet publishing world knows that the pace of development and innovation is frenetic. Not only are traditional publishers in the race to create news services and products online, but so are entrepreneurs and major non-news companies that want to get a piece of the online news and publishing business. Consider this example:

Electric Classifieds is a San Francisco company that operates Match.com, a personals ad service on the World Wide Web which has been getting a lot of good press and a lot of traffic at its site. The ads on Match.com are generated from the Web; they do not come from existing print publications that run personals.

Should you feel threatened by Match.com if you have a healthy personals section in your print edition? You bet. While Match.com is a (U.S.) national service, its ads and the online communities it creates from its subscribers and users are broken down into major metro markets. A Seattle component of Match.com, for instance, competes in the online world with personals published in that city's alternative newsweeklies. (Match.com has even held get-togethers for singles in Seattle who use its service).

Over time, Match.com could take away personal ads that otherwise might be placed in the alternative papers. This is likely to be modest today, but in two more years alternative newsweeklies -- which in most U.S. cities have a lock on the personals ad business -- could see a noticable drop in the number of print ads. Some of their customers will migrate to placing and reading ads online.

The obvious answer is for the alternative papers to develop their own online services where their relationship ads can migrate to the Web. So far, only a handful have done so; the majority of alternative newsweekly publishers have not fully addressed this issue. And the longer they wait before introducing their own online personals services for their local markets, the longer Electric Classifieds has to become entrenched as the leader in online personals. The longer local publishers wait, the more advantage they cede to entrepreneurial competitors like EC.

Why would alternative newsweekly publishers hesitate to respond to this threat to their personals ad franchise? Partly it may be fear of cannibalizing their print editions. Partly, it may be because they don't believe that online personals pose a true threat. A CEO of a major U.S. city's dominant alternative newsweekly told me recently that studies of customers who placed relationship ads in his publication showed they were reticent to put their ads in a medium where they will be distributed widely; they feel a sense of safety by only having their ads placed on a locally distributed print product. But if that finding turns out to be wrong, or when relationship ad customers come to accept online ads as "safe," that publisher's bottom line will be hit unless he's positioned his publication to publish online ads as well. He will have ceded his business to an entrepreneurial competitor.

If the issue for these papers is whether or not to compete with themselves -- whether to potentially hurt their print ad franchise by putting personals online -- there is only one logical answer. You have to compete with yourself, even if it means damaging the print side of your business. The price you'll pay for trying to protect your print franchise in an area where there is a strong upstart online competitor is to write off the chance to dominate that area in the online environment. By the time you've figured out, for example, that online indeed is a lucrative marketplace for relationship ads, your non-traditional competitors have already taken away some of your traditional customer base and you may never catch up.

(A final word about Electric Classifieds, since I've been using it as an example: You can't consider this company to be only a competitor. Match.com is meant, partly, to demonstrate EC's online classifieds technology, which it hopes to sell to other publishers. As is often the case in the Internet world, a competitor may also be an ally. If you don't want Match.com to compete against your printed personals, talk to the company's executives about being part of its plans).

Entertainment: Another vulnerable area

Another area that I see as troublesome in this regard is entertainment listings. A number of companies are developing city entertainment/culture/events guides on the Web; these include Microsoft (with its upcoming "CityScape" ventures in various U.S. cities), Metrobeat and CitySearch. Telecom and cable TV companies may try to do the same thing. These are serious competitive threats to those newspapers that want to extend their dominance as their cities' primary entertainment guides to the Internet.

Newspaper publishers absolutely must commit to a strategy that carries over their entertainment-guide print dominance to the Web if they expect to compete with the likes of these companies -- some of them extremely well funded. If you as a publisher are still wringing your hands about creating an online entertainment guide that might cause fewer people to pick up your printed entertainment section, you may have already lost the fight in the online entertainment battlefield. At best, you might find yourself merely in a "content provider" role for a company that's currently devoting substantial resources to creating an online service that will pull readers away from your print product over time. The time for cannibalization squeamishness is over.

And to echo the thought above about Electric Classifieds, also consider the companies mentioned above as potential partners or allies. Some of them are expressly seeking out media partners in cities they plan to enter with Web-based metro guides. It may make more sense to cooperate with one of these companies than to try to compete with them.

'Inside the Tornado'

If you need more convincing of the wisdom of creating online services that have the potential of taking customers away from your core print product, simply ask yourself this question: Would I rather that outside competitors on the Internet take away my customers, or would I rather take my own customers away from my established product and steer them to my own new media products?

An insightful book that deals with some of these issues is "Inside the Tornado: Marketing Strategies from Silicon Valley's Cutting Edge," by Geoffrey Moore. I highly recommend this book to anyone in the online news business. Moore makes the case of how successful companies have failed by holding on to their old, very successful product line for too long -- ignoring new competitors with cutting-edge technologies until it became obvious that the newcomers were having an impact on the companies' bottom line. By the time these companies are spurred into action, competitors are already entrenched as the market leaders in the new market and the formerly successful company becomes a has-been, never able to catch up.

Also, a discussion taking place during the last week on the online-news Internet mailing list has dealt with some of these issues. Look for a thread about online employment classified services, in which several people make the case that the newspaper industry is in mortal danger of losing its dominant position in employment advertising to new online competitors. (In particular, look for comments by Bob Wyman, who has posted some articulate messages on this topic.)

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This column is written by Steve Outing and underwritten by Editor & Publisher magazine. Tips, letters and feedback can be sent to Steve at outings@netcom.com