NQ Logic

Technology | Strategy | Consulting

The Pressing Pressure on the Press

Last month, for the first time, the internet has surpassed newspapers as a primary way for Americans to get news.

The demise of the newspaper business has been happening steadily since the rise of the internet, but the public rapid-fire exchange between the two industries started perhaps on Nov 09, 2009 when Rupert Murdoch, Chairman and CEO of News Corp., the world's second largest media conglomerate across newspapers, magazines, TV, radio, music, suggested that his company will start charging web readers for all of their news content, and will remove that same content from showing up in search results of Google and other news aggregators [full length video].

A few days later Eric Schmidt, Chairman and CEO of Google, responded that Google sends "online news publishers a billion clicks a month from Google News" [Dec 01, 2009]. But still Google updated its First Click Free program, capping the number of free picks a web reader could do on Google News at any given day, in an effort to appease the growing insurgency of newspapers around the world against itself for allowing excerpts of subscription-based content to show up in its search results ("Hamburg Declaration on Intellectual Property Rights").

Rupert Murdoch toughened his message stating that "quality content is not free" and aggregators are free riders who capture too much from the ever-shrinking advertising revenue pie.

"Producing journalism is expensive. We invest tremendous resources in our project from technology to our salaries. To aggregate stories is not fair use. To be impolite, it is theft." — Rupert Murdoch, News Corp. Chairman and CEO [Dec 01, 2009]

And heavily encouraged by the success of Hulu, a group of five publishers (News Corp., Condé Nast, Hearst, Meredith and Time Inc.) announced plans to establish a new, open standard-based digital storefront for their content. Initially, the new service would provide subscribers digital magazine content compatible for playback on any portable devices, such as smartphones, e-readers, laptops and tablet PCs.

Independently the New York Times announced that it will also charge their frequent readers for its online content starting early 2011 [Jan 20, 2010].

It will not be the first time that this "Gray Lady" has erected a wall between her content and her 20 million unique readers a month, but the previous attempt called TimesSelect was abandoned after a two-year experiment because their top columnists behind the for-pay wall protested and also because there were many other free, viable news alternatives. During the early months of 2010, The New York Times also toyed with different user interfaces and applications such as the now defunct Living Stories, the Times Skimmer or the iPad application with various and limited results.

On the side, News Corp. has also reportedly been in talks with Microsoft’s Bing (Google's closest competitor in search) over an unlikely deal in which the Microsoft would pay News Corp. for the privilege to index and display its news content in their search results. News Corp. has also been experimenting with a pay wall requiring registration for its various news properties around the world. The Times in UK was the first to lock up its content behind a pay wall in early July 2010, registering a 90% drop in traffic.

All the while the US Federal Trade Commission (FTC) held two workshops in Dec 2009 and Mar 2010 to explore how the internet has affected journalism. The resulting 47-page document is a compilation of facts about the current state of the failing newspaper industry and a mere effort to defend the status quo [Jun 15, 2010].

"Whether you're offering your content for free or selling it, it's crucial that people find it." — Josh Cohen, Senior Business Product Manager, Google News [Dec 01, 2009]

In response to the FTC, Google released its own 20-page document [Jul 20, 2010] defending its fair use of content under the Copyright Act, its willingness to use a content licensing agreement with news publishers, and its intent to not tax its customers for online content. Google is clearly positioning itself at the center of the monetization of any content on the internet by being the de facto advertising/monetization platform for all digital information with web users.

With the introduction of Apple's iPad early this year, major media organizations such as the New York Times and Condé Nast thought that this new consumer electronic gadget could be the next frontier of digital content monetization, and developed iPad formats of their content. But these companies quickly realized that the most important relationship (the one with the customer for ad placement) was in reality fully outsourced to Apple without any compensation or alternative.

But most recently, Wikileaks.org in coordination with The New York Times, The Guardian and Der Spiegel, posted online 92,201 internal and classified "Secret" records of actions by the US military in Afghanistan between 2004 and 2009 [Jul 25, 2010].

With the goal of bringing better transparency to government activities and illuminating "unethical behavior" by governments and corporations around the world, the now Icelandic organization has attracted much spotlight in recent months. Julian Paul Assange, the man behind the Wikileaks.org has established the first online source for verified, valuable yet anonymous information. This digital "Deep Throat", with previous leaks such as the "Collateral Murder" video and the "Reykjavik13" documents about the banking crisis in Iceland earlier this year, has managed to rock the world of investigative journalism and the media.

Will Wikileaks be a lasting supplier of verified and free data for the world? Will it keep protecting anonymous source from governments and corporations? Will it put national security at risk rather than bringing about more accountability in governments? How will it handle law suits? What ethics is Wikileaks based on? Should Wikileaks code of conduct be transparent or crowd sourced? All remains to be seen in this early stage, but the dynamics of investigative journalism will certainly shift.

These different industry discussions and developments put together in the right context present an interesting picture to what the future of the news industry will be like.

The Truth in Advertising 'Numbers'

The US market, with a significant and mature press industry, shows the extreme scenarios of the industry shrinking. According to Paper Cuts, there have been over 35,000 job losses or buyouts in the US newspaper industry since March 2007. Newsrooms have simply shrunk by 25% in the last three years. And 166 US newspapers have either shut down or stopped putting out a print edition since 2008.

Advertising Revenue in the US News Industry
Source: NAA, NQLogic [2010]

The US newspaper industry experienced a severe decline in advertising revenue in 2008 (-17.7%), and saw a further decline (-27.2% drop from 2008) with a loss of U$7.5 billion in advertising revenue in 2009 alone.

For most newspapers, about 80% of revenues come from advertising and 20% from subscribers. Newspapers’ revenues from advertising have fallen approximately 45% since 2000. One example is in the print classified ads, where revenues fell from U$19.6 billion in 2000 to an estimated U$6 billion in 2009, a steep decline of 70% to competitors like Monster, Craigslist and Google.

On the other hand the number of online real estate related to news exploded in the past decade not only in terms of page consulted online but also in terms of unique visitors. Unfortunately the advertising revenue associated with online news is at a fraction of the print industry (10% on average), and has also contracted in the past two years.

Online Traffic of the US News Industry
Source: Newspaper Association of America, NQLogic [2010]

And not all online news readers are worth the same. According to the American Press Institute online visitors could be classified in three different categories The "Fly-by's" (54%) who visit once a month, the "incidental loyalists" (21%) who come 1-3 days a month and 1-2 times per day and the "core loyalists" (25%) who come 20 days per month and 2-3 times per day. The latest category represents in general 86% of all online traffic. The same survey across various online news companies in the US found that online readership is 10 times more than the printed one, corresponds to 1.3 times the local population, and has an average of 2.5 pages consulted per month.

US Online News Consumer Segmentation
Source: American Press Institute, NQLogic [2010]

Although US households spend only 5% of their information time reading newspapers, magazines and books (continuous declined in readership over the last fifty years), people are increasingly turning away from printed news but would want them to be delivered digitally, in vast amount and for free. News readers are moving away from print edition to read their favorite news online.

Sad News for the News

In a desperate move, newspapers are trying to capture as much revenue as possible from their online "core-loyalist" subscribers by building online "pay walls". Ultimately news organizations will suffer from decreased revenue from advertising (less visits and visitors) as well as subscription (customers will find free news elsewhere).

Even though newspapers could move to online-only and reduce between 50% and 75% of their costs on printing and distribution, such a move would not make economic sense today since many newspapers still receive approximately 90% of their advertising revenues from print advertising, with somewhat less than 10% coming from online advertising.

Readers on the other hand do not wish to pay for online news. Although 50% saying that they are ready to pay for news only based on a micro-payment format where they are charged for reading the news and not for the entire newspaper [Nielsen], recent experiments demonstrate a predicable dramatic drop in visits (down to 80%) of global (Newsday) or even local (Sun Chronicle) online newspaper sites with a low conversion subscription rate, and a modest conversion rate for specialists (FT or The Wall Street Journal).

"If Mr. Gutenberg had come up with the Internet instead of movable type back in the late 15th century, and for 400 years we had used the Internet for news and all types of entertainment and all kinds of everything else, and I came along one day and said "I have got this wonderful idea: we are going to chop down some trees up in Canada and ship them to a paper mill which will cost us a fortune to run through and deliver newsprint and then we’ll ship that down to some newspaper and we’ll have a whole bunch of people staying up all night writing up things and then we’ll send a bunch of kids out the next day all over town delivering this thing and we are going to really wipe out the Internet with this"… It ain’t going to happen" — Warren Buffet, [May 4, 2009]

In this classic case of distribution channel conflict, the news industry is cannibalizing its own advertising revenue. The current defensive tactics we are witnessing today will not delay the inevitable digital revolution that must occur in order to be sustainable as a business.

In a world of abundance, the demand side is always in the driving seat. Consumers have voted with their clicks that they want to see news for free online, and mainly the older baby boomer generation is nowadays willing to pay for outdated (by a night), printed news. Majority of consumers today expect news to be free, digital and in real time and they are ready to find a way to keep it that way. Suppliers have no option but to adapt or to shut.

Bright Future for the New News

Ironically consumers have never been so enthusiastic and hungry for news, and information in general around the world. News is consumed everywhere, all the time and on every possible device, whether it is a breaking news, lifestyle content or real time sports updates.

The new news industry must be built to the following consumer dynamics and needs:
  • With limited resources (time and money) but with unlimited choices, consumers will drive what the future of news will be. What once was a protected industry with high barriers to entry has crashed into a million newsrooms on everybody’s laptop. Through blogs, social networks, bookmarking sites, etc. news has become decentralized in consumers' minds and is now where amateurs, bloggers and even friends are competing with professionals for truth, persuasion and attention.
  • News of the future must be perfectly consumer-centric. They need to be personalized (dedicated to a single individual's preferences), interactive, real time, multi-format (video, audio and text), multi-devices (PC, laptop, tablet, phone…), specialized (business, technology, politics, international affairs, sports…) and unit based (per article) - tailored to the point where defection is unthinkable.
  • Most of the mass market news will be consumed digitally for obvious convenience and cost concerns by consumers but, some will survive in print with less frequency than today, moving slowly to weekly or monthly coverage with deeper research. Paper publishing is now deemed too slow when compared to digital publishing in our real-time society [See Twitter and the Information Velocity].
  • Consumers will perceive news as being of just two values, either very high when scarce and zero when a commodity. Monetization of the news will follow this principle where a vast majority of the new news organizations will be ad-supported with a lean team, and set dynamic pricing on their content. A minority of news organizations will be subscription-based on narrow and extremely specialized content.

To become successful as a business in this bright, digital world, new news organizations will likely operate in the following manners:
  • News organization will concentrate their activities around two major brand assets to build loyalty. The first one is around the trust between a brand and its consumers, and the second is proposing a compelling point of view that would attract a particular readership base.
  • Their brand (and therefore their revenue) will depend on how accurately they can decipher the truth from the noise (signal-to-noise ratio) and how effectively they elaborate the right from the wrong in their viewpoints.

The New News Industry Landscape
Source: NQLogic [2010]
  • The current news organizations will gravitate towards one of three brand types: [1] Buzz Brand, attracting the mass audience on hot news delivered through and influenced by social media; [2] Personal Brand, writers or independent bloggers dedicated to a particular theme and; [3] Public Brand, or news organizations where current journalism resides.
  • The new news industry will outsource non-core processes to reduce costs and focus more efforts on brand building and content generation. In the future, process will be separated from the content, leaving third parties to manage the manufacturing and distribution process, and the news organization to create the content. This divestment will operate not only vertically but also horizontally.
  • The entire newspaper production model will be decomposed into processes that can be independently optimized, reproduced and replicated over the internet. For example, Wikileaks.org has already established itself as the anonymous yet dependable source for the news industry. Other newspaper processes can be further improved and replicated (Editing, Publishing, Distribution, Measurement, etc.).

The Decomposed New News Model
Source: NQLogic [2010]
  • Experiments around crowd-sourced writing, editing and publishing will flourish in the next years with various success and interest depending on trust and point of view.
  • The current editor's role will be split. Copy editing will remain, but content and topic selecting will be overseen by tracking companies (buzz metrics), friends and/or professional experts.
  • New services will emerge based on how to discover new stories written by e-journalists (newspaper journalists, crow-sourced journalists, citizen journalists or avid bloggers).

3T Paradigm of the New News Industry

Once held by a small number of powerful people with public interest at heart and sometimes close connections to governments, the news industry clearly has been disrupted by the internet in the last decade.

News organizations are experiencing a shift where previous scarcity of content and suppliers is being replaced by abundance of information at near-zero marginal cost of distribution. News are becoming a dialogue between readers and providers. At the same time consumers are discovering online what they never had on print before: news they can customize as opposed to news they are forced to read.

The internet has forced news organizations to position themselves along the dimensions of the three T's: Truth, Time and Topic.

The most successful in each dimension will survive and establish a lasting brand that will capture a global market in which most news will be free (or very cheap), local, multilingual and on the device of choice. It will be their duty to then monetize their readership (not before). Only at that point will this Fourth Pillar of the Democracy achieve what it was invented for in the first place by mindkin: an independent power with a mission to enlighten people around the world about the world.

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