Wednesday, July 03, 2013

How I killed newspapers: Part One

Found myself in a lively Twitter exchange today about the future of newspapers, sparked in part by Postmedia’s grisly quarterly report.
Things look bleak for most newspapers. Postmedia is Canada's largest newspaper company. Its report set out the problem. Revenue - ads and circulation and digital - was down 9.4 per cent on the previous year. Expenses were down 9.1 per cent, thanks to a big cost-cutting drive. Based on those numbers alone, next year’s financial performance will be worse, and the next year worse still.
Circulation - the number of newspapers sold - is down by 14 per cent in the quarter. Some of the decline reflects the decision to kill Sunday papers in Ottawa, Edmonton and Calgary, which were judged money-losers. But that’s still a huge loss in readers.
Postmedia newspapers have been losing about five per cent of their subscribers a year. Which means a paper can shed 25 per cent of its customers in a little over four years.
Newspapers once sold themselves as mass media. Buy one ad, in the 1990s, and you had a chance of being seen by more than two-thirds of the adults in a mid-size city. (Numbers were higher in small communities, lower in big ones.) Now an ad might reach 50 per cent of the population in a mid-size city. Advertisers will pay much less - or find a more targeted media.
When everyone read the paper - or it seemed that way - there was pressure to subscribe. Otherwise, you might not be in on the next day’s conversation at coffee break.
And, of course, fewer readers means less circulation revenue.
Paywalls and digital subscriptions were supposed to help address the problem. It’s not a bad short-term strategy to pull in some revenue. But the early evidence is that - for almost all newspapers - the hope that people’s payments for online content will come close to covering the bills is delusional. (Which is the subject for another blog post.)
Postmedia has tested paywalls and introduced them in all its papers. The quarterly reported noted 100,000 people had signed up as digital subscribers. But it didn’t disclose how many were existing print subscribers, who would pay nothing, and how many were real, new, revenue-producing online readers. Which means there were not that many paying customers. Companies like to share successes.
Overall digital revenues - online ads and subscriptions - were up 2.2 per cent for the quarter. 
That’s not good. The corporation lost $21 million in ‘traditional’ revenues, and gained $500,000 in new digital revenues. Postmedia management has been pitching a “digital first” strategy, counting on double-digit revenue growth to help offset print declines. It hasn’t happened.
That’s a fairly bleak look at the industry. 
But we haven’t even got to one of the big problems.
Michael Brown, then the slightly scary head of the Thomson Corporation, talked about the virtuous circle. Newspapers would invest in the product and get more readers and advertisers, and use some of that revenue to make the paper even better, and on and on. (Brown made the decision to sell off Thomson's newspapers in the mid-90s.)
Now, the focus is on cutting costs. And the chosen approach involves reducing the quality of the newspapers, which will mean fewer people will buy them and more cost reductions will be necessary. The opposite of Brown’s virtuous circle is the death spiral. Why start paying for a newspaper as it cuts content?
Doom and disaster aren’t the inevitable outcomes. 
But they aren’t a bad bet. It was hard to see anything in the Postmedia report to shareholders that hinted at a strategy to build a sustainable business based on providing news and information in Canadian cities. 
Many Postmedia papers - like the two in Vancouver - are still operating with crushing cost structures. The  contracts were freely negotiated by both sides in the good old days. But paying a semi-skilled mailroom employee $90,000 a year, as the business crumbles, is folly. 
It’s not a pretty picture. But there is a powerful argument for the importance of newspapers, or at least news organizations that pay competent, trained people to report what’s going on, and offer commentary. That is not a slag on bloggers and citizen journalists. (I am one.) But there is value in having a paper that will stand behind you when you are sued, or come up with a cheque every week while you check out stories and gain understanding of issues. 
But the industry isn’t responding in a way that shows it understands the crisis. That is consistent with at least 30 years of failure in responding to change. 
That’s tomorrow’s blog post. (The post title - How I killed newspapers - is tongue in cheek. But I did work in the biz during the years of decline, for many of them as a manager. It's hard not to feel some blame is in order.)


Anonymous said...

Take my VanSun digital subscription dollars. Stop printing a newspaper. Is that workable?

Unknown said...

A brutal but (as always) accurate so very sad it has come to this.

Norm Farrell said...

"Now an ad might reach 50 per cent of the population in a mid-size city."

Vancouver Sun daily circulation is about 150,000 and Metro Vancouver population about 2.2 million.

That's pretty impressive reach if one ad gets exposure to a million people but I suspect it does not.

Similar difficulties exist in over-the-air TV broadcasting. Viewer counts are are down because so many many alternative places exist for us to cast our eyes. The death spiral spreads throughout the information industry. There is no answer.

Only the best properties and the ones most involved with their communities will survive. That doesn't describe Postmedia IMO.

Anonymous said...

The title says you killed newspapers. How do you figure that?

Anonymous said...

Vancouver could be an interesting experiment for Postmedia. Kill the paper version of the Sun and continue it online while keeping the commuter friendly paper Province and its web site.

How are the Seattle P-I and The Seattle Times doing since they ended their joint agreement and the P-I went web only?

Anonymous said...

and let's not forget that now that the media is corporate controlled they mostly just unquestionably cut-N-paste press releases and actively suppress dissent

Sarah said...

Interesting post... two thoughts.
1. The payment models for online newspaper content SUCK. Seriously, they are confusing, inconvenient and the options are not appealing. I don't want to subscribe to the Globe for $20/month. I want to one-click buy access to a story when I go over my monthly limit and it should be cheap - like a buck a story. If I end up spending more than $20/month, then I'll consider a monthly subscription. Sometimes I like the good old fashioned paper from the convenient store. Not paying for both.
Why don't papers hook up with iTunes and make this happen? We love to consume & buy but only when it's easy and familiar.

2. The lack of creativity, diversity and new blood in newsrooms (especially at the upper levels) is affecting our product - both in delivery and appeal.

RossK said...

Sarah's point #1, above is a solid one.

I pay for a lot of stuff online, including info...But most online subscription stuff for newspapers is indecipherable or, worse, just sketchy enough to make you wonder (low, low today, gouged tomorrow).

And if that feeling of wondering lasts for more than about half a second it's usually back to the Googleplex for me to find an alternative source.

paul said...

Anon 8:54: Online only Seattle PI is struggling. Down to a newsroom of about a dozen,
Sarah and RossK: Agreed on the paywall mechanics. Paywall companies offer by-the-article options. What's striking to me is that Postmedia wouldn't try that model in one market, just to see if it worked. There's a lack of easy experimentation.
Sarah's second point is interesting. Not to over-generalize or be unkind, but an industry in this kind of trouble might not be able to attract the very people it needs as new employees.

Sean Holman said...

On the issue of Postmedia's paywalls, one thing that doesn't seem to have been mentioned is how easy they can be circumvented. So I'm not sure how sustainable the business model created by those walls is going to be.

In addition, the cutbacks being made by Postmedia are inevitably going to compromise the content - reducing the chance people will pay for it. And that chance is further reduced by the chain continued tendency to produce commodity news as opposed to enterprise reporting.

By all means Postmedia, repeat the story the public has already seen in a press release or on the evening news. Just don't expect them to pay for it.

Why the chain's leaders can't see the problem this creates is beyond me. But they've had more than enough time to figure it out - and they still haven't.

Anonymous said...

NeI now live in Kits, about 45 units in the building. Roughly half are couples (lets say about 65 tenants). Most under 35 years old. Only one retired person gets the Globe delivered, need I say more?

Unknown said...

Great (if somewhat bleak) post, Paul. I wrote a slightly more optimistic post - although not on the future of newspapers but the need for great journalism regardless of the channel. Like the music industry and other industries left in the dust by technological change, the news business needs to find a way to make news profitable again - because the need for credible professional journalism as never been greater.

Unknown said...

One thing we don't seem to have much data on is exactly how much news is consumed by the 'average reader/citizen' any more. If we look, say, at the recent election turnout, there is great disengagement with, well, with damned near everything. Nuanced issues are ignored in the rush to judge and get the adrenaline hit of social media thumbs up, likes, or whatever.

Unknown said...

One other thing that we haven't examined (though I haven't been to part 2) - is that mobile is killing the web as surely as the web killed print. And that is an unbelievably difficult medium to monetize.

Ray Blessin said...

Samuel Clemens: "If you don't read newspapers, you are uninformed. If you do read newspapers, you are misinformed." I stopped reading newspapers 25 years ago and I consider myself much better informed!