What Newspapers Need to Do -- To Survive

By: John Rung The debate rages on: Is the newspaper industry on the throes of ruin, or is this simply another cyclical downturn in our business? Will the onslaught of new media wipe us out, or will we survive and prosper as we did in the 20th century against the threat of radio and television?

After thorough consideration and contemplation, I believe the obvious answer is, "Yes."

In some ways this threat is very much like the advent of television and radio. We lost a good number of readers over the years, but we continued to do what we did well, and we survived.

In other ways this threat is different. It has attacked our life-blood: our most profitable categories of revenue. And the real danger is that newspaper companies might sacrifice the development of audience in order to show sustained levels of profits. And then it would become a self-fulfilling prophecy. Without audience, we are doomed.

And isn't that exactly what we've seen happen? There's not enough revenue, but Wall Street or ownership must see the profit, so we lay off and cut back. The layoffs and cutbacks hurt the product, circulation dips lower, more articles appear that detail how the Internet is killing the newspaper industry, advertisers feel they must find alternatives, it becomes harder to sell advertising, revenue dips even lower. It has become a vicious cycle with no end in sight.

The real danger is not fragmentation of audience -- although that's the part journalists understand, so that is what they write about. The real danger is the attack on our revenue. We've been dealing with fragmentation of audience forever. The entire media industry is dealing with the issue.

We all love to talk about the days when "everybody read a newspaper." But in those days, how many newspapers were in existence? Would you rather be the only newspaper in town and have 40% of the people in town reading your newspaper, or be one of 20 newspapers in town with a combined 80% reading a newspaper? Duh.

If we are going to continue to write about the demise of our own industry, let's at least get it right: Reduced circulation is not causing the revenue slide; the revenue slide is causing even lower circulation.

The true threat to our industry is that nimble companies are concentrating on certain segments of newspaper revenue and they are doing it better and cheaper than we are. When that happens -- and it is happening all over -- we lose revenue, which ignites the aforementioned vicious cycle.

The virtual monopoly we enjoyed on certain categories of classified is over. Finito. Finished. Dead. And it ain't coming back. Those awful commercials you see that make fun of people who search for cars through the newspaper should be taken seriously. Our competitors have offered a cheaper, more effective way to shop for certain items. It's clear that some ships in our classified armada have sailed -- or sunk.

So what can we do?

First off, we have to continue to invest in our products. We must understand that we will ultimately win the war as long as we are the preferred information sources in our communities. And if that sounds like jargon, let me rephrase it: If our publications and Web sites have a lot of readership, advertisers will be willing to pay to reach our readers and viewers. How much they are willing to pay, and what they expect from us, will change. But the basic tenet that advertisers will pay for audience will not change.

Secondly, we must aggressively find ways to replace the revenue that is gone. Partnerships with the big Internet players are probably a good thing. Those partnerships will not completely replace the lost revenue, but they may well slow the bleeding while we discover new and distinct ways to connect businesses to consumers.

According to Belden Research, in the typical market, 70%-90% of local businesses do not use the newspaper to advertise. Those businesses would seem to be a great place to start mining for new revenue streams. We need to find out what those businesses need, and find a way to help them get it.

I believe it can be done. If you are a non-believer, consider this query: In 1890, how many newspaper publishers would have predicted that in 100 years, fully 25% of their total revenue would come from help wanted ads? The answer is obvious: absolutely none. Newspapers stumbled on to a huge bundle of money for one simple reason: They offered businesses a large audience from which they could recruit employees.

What else can we do? Simplify. Go to Southwest Airlines' site and price a flight. Then go to United Airlines' site and do the same thing. That's all you need to know about the two companies. Be Southwest, not United. Our rate cards are ridiculous. Make them simple. Better yet, throw out rate cards for local businesses and devise custom packages based on the needs of specific advertisers.

We have to break the cycle. We cannot continue to cut at the core of our business simply to feed an irrational need for high margins. We must grow revenue, and we won't do that by slashing expenses. Rational cost controls are a must -- we clearly must manage our way through the downturn -- but we should not cut into the core. And let's face it: Aren't most newspaper companies already pretty darn effective at controlling costs? Our focus has to shift almost entirely to developing audience and revenue.

Only the strong will survive. Those operating on razor-thin margins may well be doomed. And those with hefty margins are simply going to have to be willing to give up some of that margin as they continually experiment to find ways to build revenue.


Our mission is clear:

-- Step up efforts to build audience.

-- Aggressively seek ways to replace the revenue that has disappeared.

-- Simplify.

-- Give the 70%-90% of businesses that do not advertise a reason to come
onboard.

We are at a crossroads. This may be the death knell for newspapers, or it may simply be another challenge to overcome. The choice is ours.