Where Did The Money Go?

    This is one of a series of posts to lay out some ideas and perspectives on the state of the alt-weekly business as discussed during the 2007 AAN convention in Portland.  I gave a short presentation on creating context for decision-making in these rapidly changing times.  That will be broken up and presented in these posts.

    I think it's instructive to take a historical view of media and print in particular to better comprehend what is happening now.  [See an earlier post on the specifics.]  Newspapers and magazines were born and experienced explosive growth coincidental to the surge of the industrial revolution, primarily from 1873 to 1910.  Almost all of the innovations required to make this happen were around manufacturing and related technologies.  Other than those, mass literacy as a result of a rapidly growing education system and rapid population growth fueled the social condition to support mass circulation.  Joseph Pulitzer's innovation of mass advertising in the New York World added to economic power to support exponential growth.  Hearst's contribution of newspaper chain development leveraged the economic powers, and for good or bad it fueled even more systematic growth for newspapers and magazines.

Like most industries, the early and intermediate development stages exhibit fierce competition among a crowded field of competitors.  Grand successes and failures dot the landscape; as well do the mergers, acquisitions and consolidations.  Sound familiar to what's happening in the web world?

    Print remained the dominant advertising and audience medium for nearly a century.  That started changing after 1955.  The introduction of other forms of media, news and entertainment slowly eroded print's dominant stranglehold.  The great social divide of 1968—73 combined with advancing technologies of competing media, segmented database marketing and demographic impact of baby boomers introduced a new era.  Think of this as the information age emerging and the industrial age declining in influence.  Alt-weeklies exploited these changes to start and flourish.  Nevertheless, daily newspapers alone lost nearly $43 billion per year (2005 vs. 1955) in relative economic status in ad sales.  If the alt-weekly segment picked up $550 million (1.25%), where did the rest go?

The answer of course is that competing media, both within and without the print world, lapped it up like thirsty dogs.  Direct mail has surpassed newspaper's annual ad sales by 10% (it barely existed before the 1960's).  The impact of entertainment media, film and music, while feeding the ad coffers of news media, also fragmented audience attention to the long-term detriment of newspapers.

Think of everything before the late 1990's as Media 1.0.

In the Media 1.0 universe, audience attention was relatively cheap and abundant. Blockbuster movie and record sales are proof of this in entertainment media.  It was cheaper and easier to achieve economies of scale in production and distribution to invest into marketing to grow sales through acquisition of audience attention than it was to spend on quality (production link in value chain).  Alt-weeklies exploited cheap and abundant attention by using free circulation (distribution economies of scale) and clever guerilla marketing to get readers.  Demographic and psychographic segmentation (target trend-setting 18-34 year olds) exploited the trend toward consumer segmentation in marketing.  It was even evident in consumer products like toothpaste or cereal, where a new product could be launched and incredibly successful based solely on the quality of advertising and not on product quality.  (Captain Crunch was developed by an ad agency and then became a product.)

The Media 2.0 world inverts the value chain equation.  Audience attention, which translates into circulation/readership for newspapers and engagement with readers, is rapidly becoming scarce and thus more expensive and elusive.  The web enables pure play competitors to leverage relatively cheap and abundant production and distribution (scarce in Media 1.0) to snag these attention fragments.  The effect ripples across all media and disrupts the economics for traditional media companies.  Dominant media players in Media 1.0 who were in the fat head of the audience reach scale are now pushed into the long tail with millions of other competitors for attention and ad dollars.

So, what's a newspaper to do?

Several folks at the recent convention have asked me what I think about Hal Smith's presentation in which he advocated greater focus on newspapering and less on the consumer web application.  He mentioned that the disruptive effect of the web has forced publishers to ask what business they are in, to which the common refrain has been, "“we are in information content business".  His answer is "we're in the newspaper business".

I guess I view it as a false dichotomy.  Of course you're in the newspaper business if you publish a newspaper from which you derive the majority of your income and so you damn well better do it well and pay attention to the details.  But the second question you have to ask yourself is "what is it that a newspaper does?"  The answer to that resembles the other choice, "we gather and organize information about community news and events, cultural and lifestyle issues, etc. fashion it into a stylized content presentation which we give to consumers and sell their attention to advertisers".

The biggest problem I have with the framing is that it's a supply-side question, which means there's hardly a wrong answer to it.  The implication in the subtle difference between the two choices is that you may be spending too much time on non-core business function and too little on your newspapers.  The two ways to prove that is to ask demand-side questions first and to accurately measure your performance in operations against the best success standards.  The latter is important under any circumstance and the former is the new question of the day and where the disruption is occurring.

I'll address the performance standards in a subsequent post, but for now let's stick with the demand-side questioning.  Here's the short list for consumers.

• What information do consumers want?
• What does that information accomplish for them, i.e. how do they derive value from it?
• How do they get it, i.e. what is their favorite way of obtaining it?
• Are their preferences for what they want and how they get it changing, and if so in what ways?

    The knowledge you derive from the answers to those questions is critical to the supply-side questions and answers.  In other words, if you start with supply-side questions and answers that merely point out the obvious by picking gnat shit out of pepper, you'll have the false sense of actually having done something important.  What you'll miss is where you really need to allocate resources based on demand-side reality.

    Remember, media operates in a two-sided market as shown in the chart below.

    The reality for newspapers as pointed out in the first part of this post is that consumer demand has been shifting for over fifty years, both in what they want and how they want to get it.  Fundamentally, they still do many of the same things as before, but new generations have different preferences and thanks to expanded choices introduced by electronic media including the web and mobile, older generations are shifting too.

Just in the ways that print dominated in the heyday of the industrial age, electronic media dominates in the information age.  As a matter of fact, a recent Universal McCann study revealed that among 18-34 year olds who are heavy web users that the medium they would most miss if taken away was television (web and email followed).  My guess is they're not talking about the major networks, but about cable.  Newspapers and magazines were fifth on the list below radio.  For the 35-49 year old crowd, newspapers tied for fourth place with radio.

    You could certainly pursue a newspaper-only strategy even in light of the changes and decreasing demand.  After all, it's probable that given the legacy of print and the largess of current ad spending in print that there are a good many years left for clever publishers.  The newspaper that focuses and perfects that product by exploiting other links in the value chain could perhaps pick up market share relinquished by the number of failures likely to occur in the next decade.  The product(s) better be remarkable though, and it probably will barely resemble what you're publishing now.  As a TV metaphor, think HBO quality programming versus CBS, NBC, ABC or Fox.  For folks who love print, are able to passionately innovate and don't have a taste for web or mobile, this might be the best route.  Additionally, your organizational management better be exceptional too.

    The risks assumptions with the single-dominant print strategy are that:

1. Consumers will want what you offer.
2. There is growth potential greater than inflationary gains.
3. You can achieve impeccable business management.
4. Advertisers will want what you have to offer and be willing to pay more than what it costs you to produce it.

    If you pursue a web strategy in tandem with a print strategy, the print strategy has to be the same as described above—aimed at leadership in the field.  The same for web although the development curve can be much longer and incremental.  By that I mean start with simple and single-minded focus on key areas that you can establish leadership in your market with customers and non-customers and grow upstream from there.  More on that later...

Comments

[Elaine Clisham]

This parallels exactly the Newspaper Next concept of "jobs to be done" -- instead of being worried about product enhancements, we need to get back to focusing on the things consumers "hire" our products to do, and the information "jobs" consumers need done for which we could provide good solutions. Obviously that's not an either-or decision for consumers; they need print products, Web products, mobile solutions, etc., each to do different "jobs," and if we're truly going to be the trusted local information source, we need to be able to deliver all those things.

The same is true for local businesses. Here at Newspaper Next we've stopped using the word "advertiser" to denote any business that wants to spend money with a newspaper, since there are so many other possible solutions to get their marketing "jobs" done -- lead generation, local paid search, usage and demographic targeting, direct marketing, etc. Businesses are spending money on all these things now, but not with newspapers. We need to stop creating more advertising products and trying turn all those businesses into advertisers ("when all you have is a hammer, you tend to see everything as a nail"), and instead we need to start learning how to deliver additional solutions, including but not limited to advertising, in order to get more of the marketing jobs done of local business customers.