(Slide 1)
There’s a book out now by Charles Madigan called -30- For those
of you not familiar with this particular graphic, it is used by
journalists and wire services to designate the end of a story. The
book, which is subtitled “the collapse of the Great American
newspaper” is a series of essays from commentators and
practitioners. I haven’t finished it yet, but based on the few essays
I’ve read, I would recommend it highly.
The topic today is the changing media landscape. While I’m sure
there is an expectation that I will make a lot of predictions about
the future, there’s less of a chance that I’ll come away looking like
a fool if I talk about the past, so I’m going to spend the bulk of my
time up here analyzing history, which I think is more exciting
anyway.
It’s probably no secret to any of you that the newspaper industry is
in real trouble.
(Slide 2)
Just yesterday in the NY Times, there was a story about this year
being the worst on record for American newspaper companies. Ad
revenue fell 8% in 2007 and 14% in the first quarter of this year.
The declines are expected to get worse before they get better.
(Slide 3)
In a recent speech in Sweden, Dean Singleton, CEO of Media
News Group, posited that 19 of the top 50 Metro newspapers are
losing money today and that the number will continue to grow.
These declines are only partially a result of the sinking economy—
they are mainly due to trends in media habits that have been going
on for the past decade or more.
There is a lot of talk these days about the death of the newspaper,
but it’s really nothing new. People have been predicting the end of
the newspaper since the advent of radio and then again when
television made its debut. In 1980, five years after I started in this
business as an advertising salesman for the Clarksville LeafChronicle, Ted Turner launched CNN and boldly predicted that the
24-hour news service was going to put daily newspapers out of
business. Instead of predicting the demise of the daily newspaper,
he probably should have been anticipating the advent of Fox News.
And of course that kind of talk really heated up in the mid-90’s
when Marc Andreesen created Mosiac, the first web browser to
bring a graphic interface to the world wide web and effectively
making the internet a tool for the masses.
And indeed throughout the 90’s circulation and readership losses
for American daily newspapers were significant. But equally
significant were newspaper company profits. The 1990’s were one
of the most lucrative periods in the history of the industry.
Newspapers brought in record profits and sold for multiples of
cash flow that were unheard of
But like so many businesses, they concerned themselves too much
with the short term and not enough with the long. Instead of
investing profits in research and development and thereby putting
themselves ahead of the curve, they just got fatter and happier.
Then along came a guy named Craig.
(slide 4)
In 1998 Craig Newmark started an internet bulletin board of sorts
in San Francisco, which he called craigsslist.org. You’re probably
all familiar with it. Note the dotorg domain name—it’s dotorg
instead of dotcom because the service is non-profit. At the time
only the most prescient of us in the business—and I’m not
including myself among that group—had any idea of the impact it
would have on newspapers. Only when Craig started introducing
his service in other markets did it become clearly evident that
craigslist was a major threat.
(Show craigslist.org home page and the Nashville home page)
For those of you who aren’t familiar with craigslist, this is the
home page for Craigslist.org—you can see the number of cities
they’re in around the world, some 450 now, and here is the
Nashville home page. Let’s just go to one category here and see
what it looks like. Very basic. Not organized entirely well. But
you can see from the number of postings—just today—in this one
category that there is a ton of stuff here for sale, for rent for
whatever. I’m a cyclist so I always go to the bike listings to see
what’s for sale there. I can promise you there haven’t been this
many listings for bikes for sale in the City Paper—or the
Tennessean for that matter, in years.
And the amazing thing is that craig started this from a cheap office
in San Francisco pretty much all by himself. He now has about 2530 employees--a staff a fraction of the size of the typical daily
newspaper classified advertising department—but with that small
staff he has garnered
(slide 5)
(You’re probably curious to know how craig pays himself and his
staff and the answer is that in certain communities he charges for
certain ad classifications. Employment in SF; real estate, I believe
in NY) It’s been estimated that that $25 million in revenue
represents less than 5% of what the company could be earning if he
cared about “monetizing” the service fully. But unlike most
internet pioneers he has no interest in that—his intentions are
entirely altruistic. He believes the internet exists for the betterment
of mankind—and shouldn’t be used for profit.
I’ll finish this discussion of craigslist with an anecdotal story that
will give you an idea of the financial impact craigslist has had on
the industry.
In 2000 our little newspaper the Nashville Scene somewhat
fortuitously found ourselves part of an investment group that
bought a much larger publishing entity, Stern Publishing in New
York. Our flagship paper, the Village Voice, had an absolute lock
on apartment rentals in New York. In the 90’s if you were under
the age of 30 and just moved to New York and were in need of an
inexpensive apartment, or if you were a landlord or management
company looking for tenants, there was only one place to go. That
was the Village Voice. Coming out only once a week on Tuesday,
we would have people outside our offices lined up to get a copy of
the paper to try to be the first to make a phone call to a landlord
advertising an apartment for rent, which in New York were and
still are very scarce. That franchise was so strong that we were one
of the first newspapers of any type in the country to figure out a
way to monetize the internet. We sold early notification packages
to readers searching for apartments. You could go online tell us
what kind of apartment you were looking for –1 br, studio—the
price range, location, etc. and for a fee we would notify you of an
apartment listing fitting your needs before the ad was actually
published in the newspaper.
Then in mid-2000 Craig came to town. That year we did about $4
million in revenue in that one single category. The next year, as a
result of Craig, it dropped in half. My guess is that now it’s
probably non-existent.
Now…It used to be that when newspapers whined about tough
times, that meant that their profit margins had dropped to the low
to mid-teens from the typical 20-30% range they were accustomed
to. Historically the newspaper industry has been extremely
profitable. It’s never been an industry with a tremendous amount
of top-line growth, but throughout the 80’s and 90’s those margins
were very attractive to Wall Street
Before I go any farther, I should probably point out that. I’m
talking here about traditional paid daily newspapers like the
Tennessean, the vast majority of which operate as monopolies in
the markets they serve. I’m not talking about free dailies, free
weeklies or community weeklies. Nor am I talking about national
newspapers like the New York Times, the Wall Street Journal or
USA Today. While they are feeling the impact of the changing
media landscape they’re not nearly as affected as large paid dailies.
So, is this just another case of newspapers whining? I don’t think
so. For all practical purposes, Wall Street considers the newspaper
industry DOA.
As a whole newspaper companies lost 42% of their market value
from the beginning of 2005 to the end of 2007. And they’re still
losing it. The slide here shows some publicly traded newspaper
stocks
(slide 6.)
There are probably a lot of you in the audience are wondering why
I haven’t talked about the quality aspect and thinking to yourself
“well, if they were doing a better job of reporting what’s going on
in their communities, I bet they wouldn’t be suffering all these
circulation and revenue losses.” There is a certain amount of truth
to that, but the reality is that if “mass media” still exists, local
newspapers are the closest thing to it. Where else can a advertiser
looking to reach as many people as they possibly can in a given
market turn? The last time I checked the daily audience of the
Tennessean was larger than the 6:00pm newscasts of WSMV,
WTVF and WDCN COMBINED. It wasn’t very long ago that an
advertiser could reach as many as 60% of a market with one ad in a
single edition of a daily newspaper. And some markets readership
was significantly higher. In a world of increasing media
fragmentation, this is impressive. But it represents its own set of
problems.
In order for daily newspapers to try to hold on to their positions as
“mass media” which is what the K-Marts and the Sears and other
major retailers expected of them, they dumbed the news down.
Now I happen to believe that this was a wrongheaded strategy
given that the amount of celebrity news and gossip you see in the
typical paid daily has actually turned many higher-income, better
educated readers away. But believe me, if the Tennessean all of
sudden became the New York Times, they’d lose even more
circulation than they already have. The sad fact is that the average
American these days just isn’t that interested in the important
things going on in the world. That’s why Beverly Keel occupies
page 3 of the Tennessean every day.
One more point—and this happens to be a sore spot for me. I’ve
been selling newspaper advertising for over 30 years and I can tell
you that there are few advertisers out there who give a damn about
the quality of the product they’re buying. The bank presidents and
business owners who tell me what a great job we’re doing at the
City Paper are often the same ones that turn their media buying
decisions over to 20-somethings at advertising agencies based in
Atlanta or New York or wherever. They don’t have a clue about
who actually reads what in a market and they really don’t care to
know. It never ceases to amaze me how corporations who spend
millions and millions of dollars on advertising can give a 22-year
old fresh out of college power over where that money is spent. So,
yes, I hold some of you out there responsible for the quality of
your daily newspaper. You love to complain about it, but you keep
on supporting it with your ad dollars. Sometimes we get what we
deserve.
So, remember our friend Craig
(slide 7)
You might be wondering how one guy giving away ads can have
such massive impact. Let’s look at some quick and dirty
newspaper economics
(slide 8).
As you can see the historically the typical daily newspaper—and
again I’m talking about your typical monopoly daily—counts on
classified revenue for about 40-45% of their total revenue. The
rest comes from what we call ROP (run-of-press) and inserts. But
classified advertising has historically counted for about 65% of
newspaper profits. If any of you have ever placed employment ads
in the Tennessean, you understand what I’m talking about here.
They have been able to get away with those ridiculous prices
because of the lack of competition, which until craig and the
internet came along was almost non-existent. But these
“franchises” have virtually disappeared and with them, a lot of the
inherent profitability of being a monopoly daily.
So what does all this portend? Or why did the City Paper choose
to cut our frequency from five days per week to two?
The short answer is that this is where the world is going.
Here are some trends:
(Slide 8)
(Slide 9)
(Slide 10)
This last slide is probably the most disturbing. Not only do these
young people represent the demographic that most advertisers want
to reach, but today’s 22-year old is going to be right smack dab in
the midde of that demographic group in five years.
Let’s look at some more trends…
(slide 11)
Most of the online advertising growth has been national but local is
the next great frontier. And I believe newspapers, if they’re smart,
are in the absolute best position to capitalize on this growth.
That’s why Yahoo and Google and other pureplay internet sites are
partnering with newspapers and why Gannett owns
careerbuilder.com and cars.com. . Yahoo tried to get in the local
advertising business a few years back. They set up offices in
major markets hoping to eventually have local news and ad sales
operations in the top 50 markets. Microsoft actually started first
with City Search. They opened up shop here in 1998 and had a
staff of 30-35 folks. I’m not even sure they still have a local office.
So the good news for newspapers is that they have the
relationships with local advertisers that yahoo and google don’t
have and probably never will. The better news is that newspaper
websites are typically the most heavily trafficked local websites in
their communities and in 2006 they garnered 35% of local online
ad spending. The bad news is that that market share of local online
spending is fast declining. Why?
(slide 12)
Internet advertising in the U.S. will jump to the third largest
category of ad spending this year, behind TV and newspapers but
ahead of radio.
(slide 13)
(slide 14)
(slide 15)
While online advertising is growing exponentially, it’s still a
challenge. The most common response I get from advertisers
when talking to them about online advertising is “I don’t even have
a website.” Well you don’t necessarily need one. Online
advertising will drive bricks and mortar business. Brands will be
built and customers will respond to banner ads, overlays on video
ads, and pre-rolls (those are the short commercials that you have to
view before watching some videos on the internet) in much the
same way as they do with traditional media today.
Speaking of video, I want to point out that the newspaper industry
is not the only one that’s feeling the impact of the internet. Major
newspapers are greatly expanding their video capability—many
are even outfitting reporters with video cameras. Think about the
impact of this on the local television business. I really don’t think
my 21-year old daughter is ever going to sit in front of her
television, subject herself to back-to-back commercials featuring
screaming car dealers, and waste 30 minutes to an hour of her time
to get caught up on the “news.” Think about it--in the typical 30minute newscast there might be 5 minutes of news that the average
viewer even cares about. She is going to go to her computer and
pick and choose the videos available that report the news that
interests her. That way she can spend more time getting a lot more
news she wants or spend less time getting the minimum that she
needs.
Now, the typical daily newspaper has 10-15 times the number of
reporters that a local tv station has. If newspapers are smart, they
will be the ones to win the internet video news wars.
Point is that it’s not just newspapers, it’s all media. Yellow Pages?
Phone directories? I work in an office of people mostly in their
20’s and 30’s. When they come to deliver the phone books, they
sit in the office until we toss them in the recycling bin. (I’ve been
known to challenge the 20-somethings in my office to see if they
can find a phone number faster online than I can in the phone
book. Most of the time I win, but it doesn’t matter. Their habits
are formed to search online just like ours are to look the number up
in a book.
I told you that I wasn’t going to make a fool of myself trying to
predict the future, so I’ll quote someone else.
(slide 16)
(slide 17)
So, if you believe Jeffrey, by the time I’m dead—and maybe even
before-- no one is going to be walking out to the end of the
driveway in the morning to get his newspaper. They’ll brew their
coffee, log on, pick and choose what they want to read about or
watch. Or most likely do it at work. Daily print products might
just disappear altogether only to be replaced by weeklies or twice-
weeklies. The really good news is that this will represent huge
savings as printing and distribution are the largest cost components
of putting out a daily newspaper. Hopefully, some of those
savings will go toward delivering communities across America
with better news coverage—cause God knows, our democracy
depends on it.
Thank you.