Wednesday, July 10, 2013

How to save newspapers

I’ve painted a grim future for newspapers in the last few posts.
So what can be done?
One option for companies is to cash out. Cut costs, raise rates, make as much as possible for and then sell the assets and walk away. 
But let’s assume owners see value in the brands. Postmedia took in $830 million last year and generated positive cash flow. If newspapers can slow the revenue decline, trim expenses to fit a new model and find new audiences, they might have a viable, though much smaller, future.
First, newspaper managers have to admit they’re in big trouble and the business model is broken. Denial and delay kill companies. 
That means planning for a future without a printed product. Postmedia likely spent about $210 million last year printing and distributing newspapers - about one-third of operating expenses. The same information could be delivered online or through mobile devices for a tiny fraction of that amount. Maybe print papers will survive. But I doubt it, and it’s foolish not prepare for the alternative.
And that also means planning for a future with much less revenue. Newspapers, in their heyday, faced limited competition and benefited from barriers to entry.
But in the online world there are countless competitors and new ones emerging every day. Revenues are going to be lower. That means coming up with a new business with a much smaller cost base. (The Seattle PI, online-only for three years, has a 12-person newsroom.)
Second, newspapers have to figure out the distinct things they can offer to attract and retain readers. Newspaper websites are still a grab bag of content, at their base not much different from the print versions of two decades ago. A little entertainment, a little world news, a lot of local coverage organized along traditional lines.
But there are lots of great entertainment sites, and fine places to get world news. There is no reason for readers to go to their local newspaper website.
If newspapers don’t figure out what they want to offer, they can’t cut costs intelligently and ensure their most valuable coverage is protected.
Third, they need to experiment. When I left the Times Colonist for Honduras in 2011, we had the traditional newsroom cake and I got to offer advice. What we’re doing isn’t working, I said, which gives a great freedom to test bold, new experiments. There is little to lose. Try wild things.
Where are those experiments? Lay copies of Canadian daily newspapers from today and 15 years ago down side-by-side and they are eerily similar, despite the dramatic loss of readers. Look at newspaper websites across the country and you find sameness. 
There are small interesting efforts. The Vancouver Sun has developed useful information databases as way to be more valuable to readers. The National Post has decided opinion and analysis are its strengths.
But mostly newspapers have continued with a uniform model that has been in trouble for at least 15 years. Postmedia’s 10 newspapers could test different content, or ways of getting people to pay. They don’t.
What experiments are worth trying?
• A truly overwhelming emphasis on key local content is an obvious approach to test. That would mean making sure all resources are focused on community coverage that matters most to readers. Anything else just wouldn’t get done.
  • Focusing on context and commentary, while creating stars, is worth trying. If a newspaper has the best political columnist, or a specialized reporter, then he or she needs to be promoted as a big reason to read. Newspapers have done a lousy job of selling the quality of their people. And when news is shared in Twitter within minutes of it happening, maybe context and commentary are things people will pay for.
  • It would be good to see a newspaper experiment with being a deep information resource. Report the political news, but also post the videos of the scrums and the tapes of interviews, the key documents and the Hansard transcripts and comments from other media. Put the city council agendas and the video feed of the school board meeting online. Create crime maps. See if people value more raw material.
  • Some paper should try the celebrity/scandal/outrage model, although I’m not sure it would work in Canada.
  • La Presse’s experiment in planning for a paperless future is worth watching. It’s spending $40 million to develop a totally new product for tablets. There is a separate newsroom with about 100 people working on the project. 
  • A newspaper based on reader-generated content would be a good experiment. One of my old employers is launching four community newspapers in Liverpool, and content will come almost entirely from readers. Trinity Mirror has hired 20 community content curators for its papers to handle readers’ photos and stories. People spend time reading each other’s work on Facebook; why not on a newspaper website. (Especially edited and properly presented.)
  • Someone should try a premium product - a brand extension - at an extra cost. Promise special information, hire a staff and charge readers. (Crikey, an interesting Australian experiment, offers news and analysis and has found a niche, with some 16,000 paying customers.)
I’d bet on local, commentary, stars and reader-generated content and make determined spending cuts on anything that didn’t support those areas.
But what’s needed are dozens of experiments, driven by a mix of desperation and hope. And not just in content in presentation and delivery.
The clock is ticking. 
Footnote: Aaron Kushner’s experiment with the Orange County Register is one of the boldest. He bought the paper and has spent heavily adding newsroom staff and content, counting on readers to pay much more for the paper. The experiment is not likely to be duplicated in Canada.

Sunday, July 07, 2013

How I killed newspapers, Part Three: The bad news

Newspapers will find a way out of these bleak times, some journalists maintain.
Here’s hoping. But the situation is grim and there’s no clear path to a viable future. 
I like newspapers and believe they’re important on many levels. 
But they are in big trouble.
Two years ago, RBC Capital Markets started “following” Postmedia, Canada’s largest newspaper company, and issuing reports for investors. 
RBC’s first report set a target share price of $14. That valued the company at $635 million, much less than the $1.1 billion Postmedia paid a year earlier for the newspapers from Canwest, then in bankruptcy protection.
Last week, RBC knocked its target price down to 75 cents. That values Postmedia at $34 million - barely one-twentieth of the value the bank set two years ago. 
One good question is how RBC’s researchers could have been so spectacularly wrong. Any investors who relied on the bank’s advice two years ago would have lost a lot of money.
But the main point is that RBC’s analyst has decided Postmedia faces a bleak future and has no convincing plan to turn things around. It’s valuing the 10 daily newspapers, on an operating basis, at about $3.5 million each. (That doesn’t include balance sheet items like real estate.)
All newspapers face similar challenges. They are shedding circulation and revenue at alarming rates. Postmedia, as a true newspaper company, happens to provide public reports that offer a good look at the industry’s core issues.
Postmedia’s strategy is to cut costs, try to get more revenue from readers and hope some better approach to the business will be found. (Or at least that’s my translation of CEO Paul Godfrey’s statement on the quarterly report: “We will continue on this path, transforming a traditional media company into one that leverages future opportunities with a structure that supports a new model.”)
It’s a reasonable short-term strategy. But RBC is probably right not to see it as a solution.
For starters, it’s hard to cut costs fast enough these days. Postmedia, like other newspaper companies, is reducing staff, chopping publication days, centralizing production and looking for savings in every area of operation. It launched a “transformation” program last fall that aims to cut expenses by 15 to 20 per cent by 2015.
But revenue fell 7.4 per cent last year, and is down 9.3 per cent in the first three quarters of the current fiscal year. Those losses wipe out the gains of the transformation program. 
And last month, PwC forecast the Canadian newspaper would see a continuing revenue losses of almost 20 per cent over the next four years. The cost-cutting targets are already much too small.
Getting readers to pay more is a reasonable goal. North American dailies kept newspapers’ cost low, because more readers made advertisers happy. In 2005, a Statscan study found, circulation provided only 17 per cent of revenue for Canadian newspapers. Postmedia hopes it will be 50 per cent in future, compared with 25 per cent today. (One way to reach that percentage is through falling ad revenues.)
Paywalls - ways of making readers pay for online content - are a key part of the strategy for Postmedia and other newspapers. Online readers will get a few free articles each month, then be forced to pay a subscription fee or be cut off.
It’s a good way to buy some time and bring in a little extra revenue. For some newspapers, it’s a sound strategy. The New York Times or Wall Street Journal offer unique content to an audience that’s willing to pay. (In part because people aren’t paying - they are charging their online subscriptions to their employers.)
But after years of free information, why would people be willing to pay for the content of most newspapers? What would convince people it’s worth paying for a local newspaper website? How much would they pay, and how - by the article, or by month, or on a contribution basis? (Postmedia’s approach has been disappointing. With 10 papers, the corporation could try different paywall approaches, including pay-per-article, or different levels of access. Instead, it has imposed a common model.)
So far, paywall revenue is not enough to fix the business model. And there is the obvious problem in reducing costs and content just when you’re asking people to pay for what was once free. 
The Vancouver Sun, for example, just cut about 15 per cent of staff through buyouts. There is no arguing with the need to cut costs. But the departures include David Baines, the skilled, experienced reporter who exposed investment scams and regulatory incompetence, Scott Simpson, an exceptionally knowledgeable energy reporter, and Craig McInnes, whose columns were smart, fact-based and untainted by conventional wisdom or cheap contrariness. 
It’s hard to ask people to pay more when you are giving them less.
Or when you haven’t thought through what you are selling. Postmedia wants to save money by sharing content on things like fashion across the papers.
But there are scads of good fashion sites, local and global. If there is no local element, why spend money on fashion coverage at all? Why would any reader pay for a generic fashion coverage from a Canadian newspaper group?
The hopefulness of newspaper stalwarts is heartening. But it is also a bit reminiscent of the Black Knight in Monty Python and the Holy Grail, insisting his chopped off arm is “but a scratch.”
What can be done? Next, enough with the gloom and at least some ideas.