November 20th, 2008

Should Newspaper Companies Get Out Of The Newspaper Business?

by

Forget the bailout. I have a great new business model for Detroit automakers. Sell Toyotas and Hondas. Detroit already has the dealer networks. There’s great demand for Japanese cars. In fact, Detroit could retool all of their manufacturing plants to make Toyotas and Hondas.

That proposal is similar to one put forth for newspaper companies by API’s Newspaper Next project. Says managing director Stephen Gray:

“[Newspapers] should become the leading local Internet ad agency, which goes against ancient newspaper instinct of not ever helping anyone who is your competitor,” he said. “But the fact is that audiences have split in a million directions, so here we are in a local market and our job is to help businesses in our local market succeed. If that means we are placing ads on Google and Facebook for local businesses, so what? That’s what it takes to succeed and ad agencies have been making a living off doing that for some time.”

It’s a actually not a bad idea (and I’ve seen some newspapers do it successfully). Except it seems to be tantamount to recommending that newspapers get out of the newspaper business. And if they become ad agencies, then newspapers really aren’t newspapers anymore, are they? And then there isn’t really a need for all that expensive journalism anymore, is there?

This is the problem with the idea of coming up with a “new business model” for newspapers. If you have a new business model, then you’re not in the same business anymore. But you hear it discussed as if newspapers and journalism can remain fundamentally what they are, just with a new “business model” plugged in. Like a toy car that just needs new batteries to keep running.

It’s the same type of thinking that leads to statements like this from the API CEO Summit:

The summit conference was a constructive dialog among senior industry leaders, serving as a catalyst for continuing conversation and efforts at reversing declining revenue and profit trends.

“Reversing declining revenue and profit trends” — I just love that phrase. To continue the car analogy: Is your business going in the wrong direction? Oops, you must have it in the wrong gear. Just throw it into reverse.

Look, I’m not saying that media companies shouldn’t offer marketing services — they’ve been doing so for decades (e.g. custom publishing). And as brands increasingly want to provide content directly to consumers, marketing services may be a big growth area for media companies.

The problem is that once you cross the line to selling other companies’ media because it’s more valuable than your own, then you face a fundamental question about why you’re going to the expense of producing your own.

Follow the logic here:

What’s not being done is realizing that in your community — say, a 50,000 person community, you have 1,500 or 2,000 active advertisers but there are 8,000 businesses that serve consumers in your market. So three-quarters of them are not your customer. The difficult part is helping newspapers understand that if they want new business they need to get a new job done for businesses that they’re not serving.

It’s not that we don’t know what that is. Some of what they want is: a one-to-one relationship with customers; a way to respond to what’s going on in customers’ lives; make sure they hear about me when they make a choice. The traditional product built on that job is the Yellow Pages, but I just read an article saying the Yellow Pages are expected to lose 39% of revenues in the next four years. Increasingly if we want to find something, we don’t go to the Yellow Pages, we go online, and Google doesn’t always work well.

Google isn’t doing it all that well yet, and the Yellow Pages aren’t doing it that well, so we’re saying, ‘Look this is where you [newspapers] should be.’ It’s very hard for ad staffs and management at newspapers to get their minds around the fact that not everyone wants mass reach, and once you understand the needs, you take the technology available today and use them to get the job done.

So newspaper should sell ads on Google because there is more value there for more businesses. That makes sense on the face of it. But what happens when those 1,500-2,000 newspaper advertisers also decide there’s more value on a highly targeted Google search result page then in the mass medium of the newspaper?

Again, I’m not saying that newspaper companies shouldn’t try to transform their businesses — most of them will have to in order to survive.  But companies that reinvent their business models typically find themselves in very different businesses, with very different products.

Just look at IBM. They used to sell mainframe computers — big pieces of enterprise hardware. Now they sell “solutions.” IBM transformed itself into a services company. Their business is no longer principally about hardware.

Newspaper companies could conceivably transform into local marketing services companies.

But if that happens, will their business still be principally about newspapers?

Will there be a place for journalism in a local ad agency?

  • Newspapers have 2 assets that can propel them into a future biz model;
    1.) local sales teams that have roots into solid client bases
    2.) reporting on a local level with voices that are credible
    As national news becomes more and more of a commodity, newspapers should cash in on the local opportunity in both coverage and sales efforts. To add additional options into local marketing packages is wise. However the sales talent must have the capacity to "open" up to options and strategies that are beyond print and banner ads. This culture change may be the biggest hurdle.

  • Wes

    PS Those are genuine questions, not backhanded passive-aggressive ramblings... but I think they came across that way.

  • Wes

    Scott, you write, "Newspaper companies could conceivably transform into local marketing services companies. ... But if that happens, will their business still be principally about newspapers?"

    But didn't newspapers originate as a local marketing service? Yes, they informed and offered thought. And that service was valuable and sought by most people. And because that was sought by most people, advertisers could use the newspaper as a local marketing service. And newspaper's needed that money to stay afloat.

    And so the necessary evil of newspaper advertising began. Editorial and advertising were always kept as separate departments to keep one from influencing the other. For that reason, advertising on the Op-Ed sections just isn't done. But without advertising revenue, newspapers can't sustain themselves.

    So if a newspaper changes it's business model for selling ads, becoming a Media Buying Service, then what's the problem? The newspaper's just trying to find a new way to stay profitable so it can get back to the work journalists actually care about: journalism.

  • Seriously, I couldn't agree more. Newspapers have tons of value for local businesses, but they are way out of line on pricing for their perfect customer. Fix your product, serve your customer and right yourselves.

  • Yeah, I think newspapers selling ads in online publications is a bad idea. It is a different business model, *too* different. I think newspapers should still aim to excel at journalism and just move that journalism online.

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