Craigslist is just the beginning of newspapers' technological torment

"I think the publishers are making efforts to shift their business models, and they recognize that the Internet is more and more important. The challenge is to get paid for it." This quote from media analyst Jim Goss in an article on SmartMoney about the effects of the free-classifieds website Craigslist, sums up the the newspaper industry's woes in adjusting to the Web. Newspapers, used to high profit margins and local monopolies, are being attacked on all fronts by technology. Craigslist's free advertising has already ravaged newspaper classified revenues to the tune of 75% by some estimates (see previous posting). Worse still, it doesn't appear that newspapers will ever be able to regain that income which makes up 35-40% of American paper advertising revenue. Some publishers have begun to adopt strategies that echo the Craigslist model such as Knight Ridder which now offers readers free classified ads on the majority of its papers' websites and the San Diego Union Tribune which affords individuals selling items for less than USD 5,000 three lines in the printed paper free of charge. Other papers have signed on to a program called Click-n-Buy Classifieds that enables newspapers to establish online ads with photos and sound on their websites (see previous posting). But Rick Summers, technology analyst, warns newspapers that it is still "too early to say that Craigslist is the model to be emulated or that it's really the clear winner." However, in almost the same breath he says "When things are free, it's hard to provide someone with an incentive to switch," thus Craig may have hit the bulls eye after all and newspapers, if they are to remain in the classified business, will have to follow suit.

Free classified advertising may just be the tip of the technology iceberg that newspapers have run into head-first.

Although print advertising revenues are still considerably high, new types of promotions that previously would have been scoffed at such as selling a front page to an advertiser (see previous posting), printing "shadow ads" (see previous posting) or reserving ads of an entire edition for one company (as the New Yorker recently did), are becoming more common. Sure, the online advertising market is booming, and is predicted to grow at over 10% during the next few years. But a study done by the consulting firm McKinsey showed that ads on the Web bring in up to 75% less revenue than print promotions, not exactly compensating newspapers for their loss of print readership.

Apart from the gap in advertising revenue, newspapers have had trouble charging for content on the Internet. Unless a paper provides specialized news such as the Wall Street Journal or Financial Times, consumers don't seem to be willing to subscribe even to their preferred paper to get the news that they can just as easily get from a plethora off other sources on the Web. But newspapers are still willing to test pay models, as the New York Times is poised to do in the next couple of weeks, charging for its columnists and certain features and providing different pay packages for its archives through a service called TimesSelect (see previous posting). Furthermore, a recently published study found through Cyberjournalist by Matthew Gentzkow, an economist at the University of Chicago, apart from concluding that newspaper online editions are complements of the print version as opposed to substitutes, hypothesizes that papers could feasibly charge 20 cents a day for their online versions in order to maximize profits. The benefits of charging a small subscription fee would outweigh the losses of the online readership which refuses to pay. This conclusion, however, seems a bit farfetched as Internet news surfers are accustomed to reading news from a number of sources, a freedom which would be severely impeded if even the slightest of paywalls was erected by any one newspaper.

Other technologies are also providing different platforms through which newspapers can distribute their content, but through which the results remain to be determined. The most prominent is the mobile phone. Several news organizations now shoot feeds over wireless networks that paid subscribers can consult throughout the day wherever they may be. These services provide a definite stream of income for newspapers but the financial results of mobile news feeds are not yet known and it is not clear how high the consumer demand for such services is. However, one idea that would most likely sell is mobile stock quotes, a service that internet giants such as Google have already started. A few papers have even stopped printing stock quotes in their newspapers to save money because watching stocks online is much more effective seeing as they are in real time. If newspapers could break into such a service, they are sure to profit.

Another idea recently launched in Norway is to provide editions downloadable to portable video game players (see previous posting). This strategy may not only bring in additional revenue, but could also ensure the loyalty of young readers for a newspaper brand in the future. The only problem is, young people are already used to receiving their news for free and would more than likely hesitate to pay to read static news in lieu of the entertaining video games and movies they are used to watching on their portable screens. Thus, the demand for such a product also remains to be determined.

Another seemingly futuristic yet nonetheless actual view of newspaper business models is offered by Jeff Mignon, CEO of the New York based media consulting firm 5-W Mignon Media. In a short essay of what his ideal newspaper would look like, Mignon starts by clarifying that it's not a 'paper' but an A4-sized flexible plastic screen. He skips nicely through the criteria that the screen should feature including color, video and sound capabilities, Internet connection as well as Wi-Fi and mobile phone compatibility, infrared keyboard and electric pen, etc. Essentially, he describes a PC you can role up and throw in your pocket. But here's the real kicker: this screen is provided to the consumer free of charge by a major newspaper! Mignon uses the example of the New York Times. He says that the Times would ultimately profit from such a move because it would eliminate fees for paper, ink and physical distribution. Of course, since the New York Times would hand out the screen, its news would be prioritized. But the Times must allow RSS feeds from thousands of other papers and blogs, giving readers easy access to other channels just like the Internet does. And certainly, banner ads would be prevalent, but they would be personalized, allowing readers to choose the topics of advertisements they would like to see. Payment for this service? A mere monthly fee tacked on to your mobile phone bill allowing for unlimited access to content.

When reflecting upon the above visions and present problems, it is clear that newspaper business models will have to change. But in changing, newspapers (and their stockholders) are going to have to be patient, experimenting with various ideas through multiple channels as the digital revolution, which is causing a newspaper renaissance, unfolds.

Keep your eyes open for our upcoming posting which will argue that the key to newspapers' success in the digital dilemma is content.

Sources: SmartMoney, CyberJournalist, Media Cafe (in French)