Newspapers, Transform Yourselves Or Die
Commentary By Vince Giuliano
Copyright 2000, all rights reserved
Daily newspapers - in long-term decline
What is going on in the $50 billion newspaper industry?
Here are some recent headlines: UTAH DAILY STOPS THE PRESSES AND GOES ELECTRONIC, THOMPSON TO SELL 30 NEWSPAPERS AND CONCENTRATE ON ELECTRONIC SERVICES, THE STAR-BULLETIN OF HONOULU SHUTTING DOWN.
In this Commentary, I characterize the long-term decline of the daily newspaper industry, the reasons for this decline, and what I believe the daily newspaper industry has to do in order to survive and thrive into the next century.
The US newspaper industry has been in slow but inexorable decline for 20 or more years now. The segment of the industry most imploding is daily papers, particularly big-city papers, and it is happening in the developing countries of Europe as well as in the US. The decline of the industry can be seen in terms of several trends:
- Declining readership. Newspaper circulation has been falling for over 12 years in the US and Germany, for 36 years in Britain and 31 years in France. According to the 1998 Media Usage Study by the Newspaper Association of America and the American Society of Newspaper Editors, 67% of the population read a daily paper regularly in 1977. By 1997, the figure had fallen to 51%. TV was the big competitor for reader attention. Now it is also Internet.
- Declining market share of advertising. The decline in the US was from about 50% of all advertising in 1930 to 29% in 1970 to 21.5% in 1998, mainly as a result of competition from TV and Direct Mail. Since 1998, new Cable TV channels and, especially Internet, are leading to a steeper rate of decline. Fortunately for newspapers, the decline in percentage has been masked by economic good times in the last few years. No medium, not even network television, suffered a bigger drop.
- Newspaper readers are growing older. Readership is lowest among 18-24 year olds and peaks out well over 50. Compared to TV or Internet, newspapers no longer offer the best demographics for advertisers who want to reach the young and affluent.
- Declining numbers of major newspapers. About 210 U.S. daily papers have died since 1970. Among deaths in recent years have been The Baltimore Evening Sun and New York Newsday. When I was young, big US cities had 3 or more vibrant competing daily newspapers. Now, most US cities either have only one major daily left, or perhaps two run by the same company. Afternoon papers have been hardest hit.
- Declining attention from the public. In 1989, average hours per year of reading newspapers was 175, and now the figure is down to 152 hours. But television-watching now on the average consumes 1,645 hours per year, and average Internet usage is even higher among those who are seriously taking to it. A recent study found that newspaper reading of regular Internet users decreased 30 percent, and that other groups also reported up to 20% decline in newspaper reading because of the Internet.
New challenges to newspapers
The above pattern of decline is also being experienced to a greater or lesser extent in all countries of Western Europe. Daily newspapers are growing in circulation and importance only in developing countries where literacy is increasing, such as in Latin America and China. in some of the former East-block countries where freedom of the press is relatively new.
Newspapers fall into several specialized market segments, such a big and small city dailies, and several different kinds of weeklies. Not all US newspaper segments are equally suffering from these trends. The segment consisting of Alternative Weeklies, for example, is growing in importance.
The oldest traditional competitors to newspapers were of course radio and then TV. Then, starting in the 70s, direct mail became an increasingly important siphon taking advertiser dollars away. In the 80s and early 90s, multiple-channels in cable TV begun to exercise their affects, leading to the marked circulation shrinkage starting around 1987. Now, daily newspapers are now facing even more serious challenges than in the past. These challenges are coming from new Internet-based services that offer more value-added than existing newspapers and that are at the same time less-expensive to operate. Strong new competitors are offering online classified ads for jobs, housing and real estate and offer more information and communications services than possible with newspaper classifieds. They don't just advertise; they provide the market for selling. Typically, classifieds make up 30% of daily newspaper revenues. Most newspapers would find it impossible to survive without the classified ad revenues. So far, newspaper Internet efforts to protect this market through their own online activities have been been either half-hearted or belated. The leading Internet sites in each of the three top areas of newspaper classifieds (real estate, cars, and employment) are not newspaper-affiliated, and most newspapers do not participate in the new hot area of auctions.
Newspaper responses - too little and not enough
Newspaper company responses to these challenges have been:
Until a year or two ago, the above patterns were repeated without a lot of variation, because the newspaper industry tended to be a closed universe, at least insofar as adapting innovations was concerned. Newspaper executives talked mostly with other newspaper executives about how to manage their companies and how to develop their businesses. They wanted to hear from other newspaper people that something worked has before trying it on their own. They tended not to look at or discount what is happening in other media, even though those media were the major sources of newspaper competition. So, there was a lot more interest in newspaper page redesign or a new inking system than in adapting to new better ways of meeting the customer needs once best satisfied by newspapers.
- Not to worry about it. Also known as "Let the good times roll." The newspaper business tends to by cyclical, and general economic times have never been better than in the last few years. So even newspapers with steadily declining circulation and share of advertising may be making money now and feeling no pain. Newspaper panic tend to occur in times of business downturns, and what is for sure is that many now-complacent newspapers will suffer and that some will die if and when we see another major business slackening-off.
- Reduce costs of newspaper operations through downsizing and better use of production technology. Newspapers have been doing this since about 1985. The Los Angeles times had thousands more employees then than now. One approach to reducing cost is to make the paper smaller. The Washington Post and The Denver Post decided to narrow the width of their broadsheet pages to 121/2 inches, a move that allows them to use less newsprint and publish more cheaply. Now, hundreds of other dailys have followed suit. The good reason: "Make the paper size more convenient for readers." The more-real reason: save paper and handling costs. However, but because of large fixed capital, manufacturing and distribution costs, a newspaper can only be downsized so much. After that, if the newspaper continues to lose money, the only option is to shut the paper down. That is why papers which immense readerships are simply shut down after they lose money for a while, like the New York Newsday which had 400,00 or so readers.
- Diversify by investing in other media. A few big newspaper combines have invested in radio, TV stations and cable systems in the past Bucking this trend, Times Mirror sold off those kinds of properties in recent years to focus on its "core" newspaper business. A few companies like Cox Communications have instead moved to increase their electronic communications holdings. In most cases, the approach is that of a holding company, where there is little or no synergy between the newspapers and other services owned. The problems of the newspapers themselves are not helped by this approach.
- Improve the quality of the newspaper product and try to make it attractive to younger people. Newspaper companies spent billions on new color presses in the 1980s and 1990s to make themselves more contemporary and competitive with TV. Newspaper redesign has been a main approach, with more graphics and use of icons. Even the staid New York Times recently decided to go to color. Instead of websites looking like newspaper pages, some newspaper pages, like in USA today, look more and more like web pages. Another approach is to try and make newspaper content more relevant to people's daily lives, and to bundle with the newspaper more specialized sections designed to appeal to younger and more affluent people. The New York Times is also among the many newspapers vigorously pursuing this strategy. While possibly being a successful approach for some newspapers like the Times (which like the Wall Street Journal and USA Today are national newspapers), these approaches can go only so far in making newspapers competitive with newer media.
- Implement ancillary services to support the newspaper. The idea going back to the mid 80s was to add "extensions" to the print paper designed to protect its "franchise." Audiotex services (weather and information call-in lines) became popular starting in the late 80s. Taking a lesson from the alternative press, daily newspapers found they could make money using voice-personal 900 numbers tied to personal classified advertising. Newspaper web services were also added in the same spirit. What I can say here is that if these activities are viewed only as extensions of the printed newspaper, they will not assure survival of the paper. They are like putting power winches on sailing ships a century ago to try to make existing sail boats competitive with steamships. If online activities are pursued vigorously by the newspaper, on the other hand, they could provide the entry to the evolutionary path most newspapers need to pursue. Right now, only a few newspapers of the thousands having websites are following this second approach.
Now, I believe there is a shift of awareness among the magagers of large papers about a necessity for evolution. Later, I say what I believe that evolution must be. And it is important to comment that there are now a few notable and promising exceptions to the above bleak generalizations,where newspaper companies are striving to integrate operations across media. For example, the Tribune Company is integrating its newspaper, TV and Internet newsroom activities. And yes, there can be a role in this evolutionalry process for the traditional approaches like cost-conservation, and improving editorial quality. Most daily papers are still making money, in some cases very good money. That is why the SimVenture models are designed to provide a thorough model of the conventional business as well as the possible new electronic businesses. The issue is not one of abandoning the old business to build a new one; it is one of creating an evolutionary path that preserves profitability at every point but yet is one of metamorphosis.
Newspapers - 19th Century Manufacturing Organizations
The fundamental problem is that big newspapers combine two radically different kinds of activities, one appropriate to the end of this century, another left over from the last century. On the one hand, newspaper editorial activities place them as being among the knowledge industries. On the other hand, big newspapers are capital-intensive manufacturing organizations following the classical 19th century model for manufacturing. Presses and assembly machinery costing hundreds of millions of dollars consume whole forests of paper every night, the rumble of the presses is presided over by hard-hats, and ink is delivered in tank trucks. Fleets of hundreds of delivery trucks fan out early in the AM to distribute the manufactured products to drop off points, from which they are distributed to hundreds of thousands of destinations. A modern newspaper press is a machine a city block long and five stories high, and big city dailies have to own several to print the paper in time. Newsprint alone can represent up to 35% of operating cost.
This heavy industrial-era "tail" too-often wags the knowledge-factory "dog," in that it imposes the major capital and operating costs of a newspaper, and the major source of headaches and problems. Any of several industrial unions can bring a typical big newspaper to paralysis. One of the many problems facing the industry has been whether the IRS is willing to certify newspaper carriers as independent contractors or whether they have to be treated as employees. Five decades or so back, bread, milk, ice and newspapers were delivered daily door-to-door. Today, only newspapers are still so-delivered.
So, to evolve a newspaper company it is necessary to combine industrial-era thinking with new information-age thinking. An important intention of the SimVenture tools is to bridge that gap.
Newspaper company transformation and renewal
What would it take for newspaper companies to survive and thrive in the competitive electronic media market of the coming decades? I believe the answer lies in looking at the transformations other industries have been going through to assure their competitiveness. I am talking about the changes in our manufacturing, consumer product and technology industries, changes necessary for these companies to function in the world marketplace. I am talking about new business cultures that aave already been established in such companies as Caterpillar, Harley Davidson, Ford Motor, Motorola and Intel to name just a few, Many of the companies that have been undergoing business culture transformation are long-established manufacturing companies, ones only recently just as conservative as are big newspapers. To illustrate this point, I start by listing characteristics of traditional industrial companies (Table 1), and then compare these to characteristics of successful new companies and traditional companies that have fundamentally restructured themselves to take into account the conditions of the current times (Table 2).
Table 1: Traditional industrial companies' typical pattern
- Appeal to mass markets
- Make standard products that do not change
- Have rigid hierarchical organizations
- Focus on manufacturing
- Work on a production line basis
- Think in terms of their products instead of the needs their products meet
- Change very slowly - are reactive rather than proactive
- Rarely examine themselves or what they were doing
- Do not fully empower their employees
- Focus on cost reduction
- Tend to appeal to older users
- Are losing market share to competition
- See their competition as coming from traditional competitors, when it is really coming from new forms of competition that meet the customer needs. For example:
- Internet services are competing with newspapers
- Internet services are competing with retail stores
- Virtual corporations on the Internet are competing with traditional companies
It is not difficult to see that big newspapers more or less fit the above pattern. This pattern also used to (and in some cases still does) apply to our big industrial companies, including auto companies, telephone companies, electrical utilities, and our consumer appliance and products industries. But, unlike newspaper companies, in recent years many of our leading companies have been struggling to get away from it. The struggle has to some extent been successful, as attested by the steady productivity improvements that are allowing us to have low inflation and high employment at the same time.
During the last 15 years and especially recently, more and more companies fitting in the above pattern have found themselves losing market share and/or profitability ? sometimes to foreign competitors, sometimes to more-nimble domestic competitors, and sometimes because the markets for the products they make are declining as users shift to newer products and services. There is a 20-foot long bookshelf in my nearest Barnes and Nobel bookstore with books on how companies fitting this kind of pattern have more-or-less successfully set out to re-invent themselves. But newspapers have by-and-large not been among those companies.
The processes used for corporate renewal, usually promoted by large consulting companies like Booze Allen, BCG, McKinsey and Arthur D. Little, have gone under many different names, including Total Quality Management, Process Re-Engineering, Vision Management, Innovation Management, Enterprise Integration, Agile Corporation Restructuring, and application of Knowledge Management. Whatever the name, the directions of renewal tend to be the same, as described in the following table:
Table 2: Typical characteristics of highly competitive new or renewed organizations
- Have systematically pursued techniques for renewal, such as Total Quality Management, Process Re-Engineering, Enterprise Integration, and Knowledge Management.
- Consciously focus on Vision, Core Values, Mission and development of Core Assets
- Are knowledge-focused
- Are customer-centered rather than product or process-centered
- Are aimed at specialized and changing markets
- Focus on providing services and information as well as physical products
- Make customer-specific products
- Make small products lots or customize each one for a customer's desires
- Listen very carefully to their customers
- Have flatter organizational structures that empower employees and are flexible
- Are accustomed and welcome rapid change
- Have flexible production organizations
- Use the latest technologies
- Are constantly in a process of examining themselves, learning, improving, evolving
- Are proactive, and often create their own markets
- Carefully track social and societal changes
- Focused on adding value instead of cost reduction
- Appealed to younger affluent users
- Are highly successful
- Work on the basis of multiple alliances, even with competitors
- See their competition as coming from other developments, not in their own industries
- Are highly competitive and making money
This kind of shift, I believe, is exactly the kind newspaper companies need to make to be competitive in the future environment, and the shift is a profound one. Until some 18 months ago, Few newspaper companies have even started the process of making such a shift. Instead, they have tended to invest heavily in "protecting the core property" while under-investing in any real long-term future.
Shifts for survival
Here are the shifts I believe newspaper companies have to make to survive in the coming decades. These closely parallel the shifts leading companies are making to assure their competitiveness, as described in Tables 1 and 2.
Table 3: Making the change
- Focus on the newspaper product; making and distributing it
- Develop Mission Statements and then pay no attention to them
- The newspaper gives voice to the opinions and views of the newspaper owners and editors
- Readers and advertisers
- Want to change only when necessary
- Tries to provide one package that has a little for everybody
- One product - everything special is wrapped up in the newspaper bundle
- Uses the conventional print newspaper medium
- Capabilities of the single medium dominates services that can be provided
- News, advertising, features
- Economics of newspaper manufacturing and distribution dominates everything
- 70% an industrial-era manufacturing and distribution company
- Newspaper content and activities based on market forecasts
- Newspaper company stands alone
- Standard uniform physical products
- Very cheap product
- One-way communication: editors to readers
- Markets and communities served are local
- Makes most money from advertising, a little from subscriptions
- Most intellectual activity focused in one building
- Content originated in newspaper or wire services
- Hierarchy - the Chief Editor knows best
- Passive workers
- Highly centralized control
- Industrial-capital intensive. Newspaper owns its presses and trucks
- Identity: A newspaper company
Knowledge-focused media company
- Focus on the community served by the company and the customer-participants in that community
- Identify their core values and develop their vision for the community they serve in concert with employees and the community itself
- The company gives voice and expression to the values of the community it serves
- Community Participants
- Stress flexibility and willingness to evolve as do community needs
- Great concern for the differentiated needs of its community constituencies
- Multiple products and services, using multiple media
- Uses multiple media: newspapers, Web, live events, telephone services, wireless services, fax, Interactive TV, etc.
- Services that are provided depend on community and participant needs; choice of medium is secondar to meeting needs
- Information practically useful in people's lives
- Economics of services to the community dominates everything
- 95% a knowledge-centered company
- Products and services based on knowledge of specific customer needs and preferences
- Works on the basis of multiple community alliances
- Highly differentiated service/physical products
- High value-added services
- Multi-party communication in the community
- Markets and communities can be local, national or international; are defined by values rather than location
- Makes money from traditional sources, plus selling and transactions, sponsoring events, and multiple specialized services provided participants
- Intellectual activity can be distributed geographically, using electronic links
- Large portion of content originated by participants outside the media company organization
- Smaller flatter organizational structures; community participants know best
- Motivated and empowered workers
- Widely distributed authority and responsibility
- Human-capital intensive. Printing and other uses of capital-intensive equipment are outsourced
- Identity: A knowledge-focused community-oriented communications company
How many newspapers will make this kind of transition, and how many will simply shrivel and die in the face of new-media competition? That is hard to say. Historically speaking, the chances for a company to survive a basic change in technology are not good. The companies that used to make horse-drawn carriages did not evolve to becoming the automobile companies. The companies that made candles and gas lamps did not evolve to being the companies involved in electrical lighting. The companies that used to make and distribute ice in cities did not evolve into making electrical refrigerators. More recently, most of the companies that thrived making minicomputers either did not successfully survive the transition to personal computers, or survived in stunted form. Remember Data General, Prime and Wang? And now, the mighty Digital Equipment is just a part of Compaq, a PC company.
On the other hand, if big industrial giants like GE, ABB and Caterpillar could make the necessary shifts, then why not newspapers? Intellectuals and consultants have been refining the technologies of organizational transformation for three decades now - and they work. I believe the main issue is that newspapers need to wake up to the need and to the possibility.
What can be done?
How can a transformation such as the one described above be effected?
A good question which can be approached many different ways, including:
- Hire hot new top management with e-commerce experience. (OK if you can do it. But its tough to get successful creators of new media companies to their lot in with slow-moving dinasaurs. Also you have to give him free-hand in the organization which could cause rebellions in staff or on the parts of key stockholders.)
- Kick-off an intense internal planning-for-renewal process involving key leaders from different newspaper functional areas. (Only works with strong topside support)
- Engage a big consulting company to swarm over the organization for a year and create a good enterprise strategy and kick off the internal process of transformation. (Could be a good step, but could cost millions. Also, the knowledge built up in the consultants leaves when they do.)
- Encourage staff innovation, such as increased editorial use of Internet and wait for the innovation to percolate through the organization. (An excellent thing to do, but likely to take far too long for survival of the organization.)
- Spin off the fast-growing new media organization from the newspaper, finance it with an IPO, and let the old newspaper property fend for itself. (OK. Gives up on the future of the newspaper itself as a community-service enterprise. Says the organization is too old and tired to renew itself.)
Some combination of the first four steps could be the best approach, and to that, especially to empower the second approach, I would suggest addopting the best tools you can for planning and communications. Specifically, consider building an intranet for the planning process, one that allows sharing of veiws and perceptions.
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