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Can newspapers still deliver?

PRINT ADS FADING

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But the most troubling news of all for daily newspapers is their continuing dependence on print advertising, a marketing option that is fading fast. Between 2005 and 2012, eMarketer projects that newspaper ad revenue will decline from $49.4 billion to $28.4 billion, a plunge of 42.5%. Research firm Outsell estimates that digital sources contribute about 8% of newspapers' total revenue. Meanwhile, the overall information industry generates about 49% of its revenue from digital products and services. “Just three [newspaper] companies—Dow Jones, New York Times Co. and Washington Post Co.—earn more than 10% of revenue from digital,” wrote Outsell analyst Ken Doctor. Since the rise of the Internet, newspapers have lost help-wanted ads to Monster.com and classified ads to Craigslist. Now the severe downturn in consumer spending has decimated display ads from formerly reliable newspaper marketers such as department stores and car dealers. “When this deep recession came along, they [newspapers] were already wounded,” Doctor said. Outsell projects that industry revenue will contract by a 4.7% compound annual growth rate between 2008 and 2011. Barclays anticipates that newspaper print ad revenue will decline by 17% this year and 7.5% in 2010. So do these grim prospects mean that b-to-b advertisers will not have newspapers to advertise in five years from now? Most observers believe that the large national newspapers, such as The Wall Street Journal and The New York Times, will continue to be viable businesses and b-to-b advertising vehicles. “I've been impressed with The Wall Street Journal,” said Sarah Fay, CEO of Aegis Media North America. “They've been very dynamic. They've invested in the right places and making decisions, all with an eye to continuing to serve the market needs.” The Journal brand has strong footholds in print, online, radio, and on mobile devices and television. The newspaper, which is struggling with diminished print ad revenue, sees the current situation as an opportunity, according to Michael Rooney, Dow Jones' chief revenue officer. “Do we have a future? We don't ask ourselves that question. We have a bright future, and we're very confident,” he said. With increased international and political coverage, the Journal has picked a fight with The New York Times. “We want to be the national newspaper of record,” Rooney said. “We want to be the only daily newspaper you need to read.” The New York Times is also making changes. It now offers front-page display advertising. It also is embracing news aggregation on its Web site. According to comScore Media Metrix, New York Times Digital properties attracted 47.4 million unique visitors in November, when it was the No. 16-ranked property on the Web. While many readers have lost their appetite for newspapers, they remain voracious consumers of news online. With that migration, aggregator sites such as Yahoo and Google are now offering newspapers more tools to be successful online. Yahoo's Newspaper Consortium Partnership includes an online advertising network, Yahoo HotJobs, and the ability of member newspapers to implement Yahoo's paid search technology on their sites. The partnership now includes 796 newspapers, the company said. Lem Lloyd, VP-U.S. partnerships at Yahoo, explained that the sales staffs of participating newspapers act as salespeople not only for the newspapers they represent but for Yahoo's inventory as well. As a result, newspapers have the opportunity to extend their reach and their revenue. “I will tell you that a 33,000 circulation newspaper sold over $300,000 in Yahoo inventory in one week during a sales blitz in December,” Lloyd said. Google.com offers GoogleNews, which aggregates newspaper content from around the country and the world. Google also offers its AdSense program and tools, such as GoogleMaps, to online newspaper sites. Google CEO Eric Schmidt, who was instrumental in launching GoogleNews, has said he wants Google to search for more ways to help newspapers reap online rewards for the essential content they create. A loss of newspapers would be a blow to democracy, he said in a recent interview with Fortune. “To me [the demise of newspapers] presents a real tragedy in the sense that journalism is a central part of democracy,” Schmidt told Fortune. “And if it can't be funded because of these business problems, then that's a real loss in terms of voices and diversity. And I don't think bloggers make up the difference. The historic model of investigative journalists in any industry is something that is very fundamental. So the question is, what can you do about this? And a fair statement is, we're still looking for the right answer.” It seems inevitable that the business model of newspapers will change fundamentally in the next decade. “I wouldn't be surprised if there were a shakeout of some kind,” Fay said. Many big city newspapers may find themselves redundant. “I think there's a better future for community newspapers than metropolitan newspapers,” said Lon Williams, managing director at media investment bank DeSilva & Phillips. “Local digital advertising is really going to be the next wave of the future,” Fay said. “It's already happened in search. ... Newspapers can play in that space.” It's conceivable that local newspaper sites, with the right technology, can open up niche-oriented advertising opportunities for such local b-to-b businesses as contractors, plumbers and architects. But for the time being at least, local newspapers are not immune from the trouble hitting the entire industry. “The economic downturn is hurting smaller papers fairly hard as well,” Doctor said. If newspapers of any sort do survive, they will likely have to rely on a new model. A recent article in the Atlantic contemplating the future of The New York Times suggested that the online newspapers of the future may resemble the Huffington Post. “In this scenario, nytimes.com would begin to resemble a bigger, better and less partisan version of the Huffington Post, which, until someone smarter or more deep-pocketed comes along, is the prototype for the future of journalism: a healthy dose of aggregation, a wide range of contributors and a growing offering of original reporting,” wrote Michael Hirschorn. One thing is clear, if newspapers want to be around to continue ferreting out the “bad guys” in business and government, as Williams puts it, they will have to figure out how to make money online. “Online revenue is the best barometer of growth in the newspaper industry,” Doctor wrote in a recent report. “It is the industry's only hope of digging out of its deepening hole.” M
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