Tuesday, November 18, 2008

The bottom line: how it fares when you nuke your newspaper

To undertake the Manhattan Project for newpapers, there’s no need to sequester anyone in Alamogordo (or to wait six months to meet again). We are already reinventing the industry by way of ongoing dispersed collaboration, and there has been no lack of conferences on the subject (if you're hankering for another one, you might check out Bill Densmore’s Information Valet Project gathering, happening in a couple of weeks in Columbia, Missouri—I'll be there). A Manhattan Project wiki would be nice, too (are you listening, Matt Thompson?)

Anyway, one of the questions that arises from time to time in this process is: If a newspaper were to just drop its print edition today, what percentage of its expenses is eliminated, and how close would it be to breaking even on just online revenue?

Let me try to address that. First of all, no newspaper could or would make that transition all at once, so the question should be rephrased. As noted in one of my Six Theses, print is not actually dead, so let’s not be too quick to kill it. There’s still a lot of revenue in print, even though it seems to be dropping like a stone.

Let’s agree that the Christian Science Monitor's planned departure from daily print is really a one-of-a-kind outlier. Apart from that, there are a few papers tinkering with dropping Monday editions and rearranging sections, but those are cost-cutting moves, not bold attempts to blow things up and start over. So if we owned a newspaper and wanted to consider a nice nuclear blast to position themselves for the future, today or soon, what would the aftermath look like?

Here's my suggestion: drop Monday and Tuesday, consolidate Wednesday and Thursday (for delivery Wednesday), drop Friday, and consolidate Saturday and Sunday (for delivery Saturday). So, a twice-weekly Wednesday and Saturday paper.

(This presupposes, of course, a completely kickass 24/7 online news operation, and a staff that totally gets that online comes first. The web operation should have plenty of blogs, plenty of databased local information, a wiki, social networking features, Twitter feeds, you name it. And it should be ready to evolve and adapt as even more tools and features come along.)

(And, the right solution for the print side will be different for every market. Tim Windsor proposed a different one last week, but we agree about the online presence.)

What’s lost, what’s gained, and how’s the bottom line in our web plus twice-weekly model ? Here you go:

Lost:
  1. Print readership five days a week. But readership of those big Wednesday and Saturday packages would probably spill into Thursday, Friday, Sunday and other days, and might exceed the current daily average.
  2. Some portion of the print revenue. But we're eliminating the weakest days for advertising sales. With some shifting and smart selling, the paper could keep as much as 80 percent of print revenue. There’s plenty of advertising that still wants to be in print, and it will take the days you've got.
  3. Printing and distribution expenses five days a week. To become a truly digital enterprise, we could cut a lot of brick, mortar and steel overhead by outsourcing all production and most distribution, saving about half the production expense. And we'd lose maybe a quarter of the newsprint cost because of the frequency change. (Or if we keep our press, we've freed up a lot of time for commercial printing.)
  4. Some circulation revenue, since people won’t pay as much for a two-day paper as they do for seven days. But each edition would have a sales shelf life of several days. I’m guessing only one-third of circ revenue would disappear.
Gained:
  1. A lot of traffic from younger demographics, if the online content is right. Many folks who are print-only readers would be nudged online because of the change, as well.
  2. More online revenue, which would follow the eyeballs, although perhaps not immediately. But it would not be unreasonable to target a doubling, or more, of online revenue over the next five years.
  3. More print readers, including younger ones, if the Wednesday and Sunday packages are carried out with a lot of pizzazz. Check Alan Jacobson’s blog for ideas.
  4. A stronger brand, because in reality, two fat newspapers each week and a robust web platform will have more impact than five or six skinny papers and a site that’s not foremost in the newsroom’s mind.
  5. Strategic positioning to take advantage of any new online or digital opportunity.
And the bottom line? I’ll spare you the spreadsheets, but I constructed a model of a hypothetical medium sized newspaper using industry averages for various revenue and expense categories. Before nuking itself, it has a bottom line operating profit of 17 percent. Projecting out five years, it’s in the red, with no prospect of revival, because print advertising and readership continue to shrivel, it has downsized below critical mass, and has no financial resources left to maneuver with.

After reinventing itself as described, an optimistic five-year projection shows operating profit about 20 percent below pre-blast levels, actually at a slightly higher margin on sales. Pessimistically, the drop is 50 percent, but either way, that’s better than complete oblivion under the status-quo projection.

This means that post-Manhattan Project, the Business Formerly Known as Newspapers will be smaller, in terms of revenue, both in the aggregate and in any particular market. But for the companies that figure out how to make the leap into the digital/print hybrid future, there will be plenty of opportunities to grow by moving into the markets of newspapers that failed to adapt.
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Update: Marsha Ducey, a journalism prof at Canisius College, asked her students today to contribute ideas for a Manhattan Project to reinvent the newspaper business. Here's what they came up with. I like “A web site for the ‘Manhattan Project’ where innovative and ‘young’ journalists can collaborate and voice their opinions.”

3 comments:

Beth Lawton, NAA said...

Actually, I think a number of us would be interested in seeing the spreadsheets. Can you post them? Thanks.

bentleycl said...

Although there are a number of challenges to any "all digital" plan, what disturbs me most is the current inability to produce online ads that work for both the retailer and the news organization.

I don't think at this point we can assume ads will follow eyeballs to the Web. Internet marketing works well, but stand-alone Web marketing seems to have a better return for the merchandiser than ads supporting editorial. They don't need us.

Ask any member of the Web generation if they click on ads. Most will tell you they not only don't, they find ads irritating. Facing that attitude gives me heartburn.

Clyde

David said...

Most interesting idea. I think the idea of going once/twice/thrice weekly could be adapted in different ways. There could be a different focus of the print edition depending on the day of the week. e.g. a Monday edition could focus on the past weekend's sports results, Wednesday on business news and Friday on culture, lifestyle and things happening on the coming weekend.