NEW YORK (AdAge.com) -- Devices like Apple's iPad may help newspapers and traditional publishers, but only significant evolution will save them, Google's chief economist, Hal Varian, said in a talk with journalism students at UC Berkeley.
"The future of news may lie in harnessing these kinds of devices," Mr. Varian said at UC's Graduate School of Journalism. "Users will likely engage with the tablet during peak leisure hours, and you would imagine that's very attractive to publishers."
But given the music industry's uneasy relationship with iTunes, which wrenched control over packaging and pricing away from the record labels, should publishers think twice before jumping into bed with Apple?
"We know there will be eventual competition from other devices, like the Kindle," he said, "and of course there's still the whole web. I don't think the tablet should be viewed as the be-all and end-all of distribution."
Mr. Varian said he has been studying data on news publishing, ad revenue and circulation figures from the Newspaper Association of America, the Pew Research Center and other sources. His conclusion: Digital distribution will be a boon to newspaper publishers if they can also radically redefine their product and means of reaching consumers.
Typically, 53% of newspaper spending goes to traditional printing for distribution -- costs eliminated through digital distribution -- compared with 35% on what the Google exec called the "core" functions of news gathering, editorial and administration.
The trouble is the audience for news has been declining. Newspaper circulation has been slipping since 1990 and has plummeted in the past five years. Online, only 39% of internet users surveyed by Pew said they spent time online looking for news.
The opportunity with new devices such as the iPad is to capture more readers during more hours of the day. "The good news is online information can reach people where they weren't accessible before -- at their work desks," Mr. Varian said. "The bad news is they don't have much time there to read it."
And what's worse, search-query data show that online readers aren't visiting news sites for content that advertisers favored in the print era, such as home and garden, travel and automotive, depriving publishers of a cash cow in the offline world. Rather, they're visiting Amazon, Bing Travel and Edmunds.com.
"The verticals that drive traffic are things like sports, weather and current news, but the money is in things like travel and shopping," says Mr. Varian. "Pure news is the unique product that newspapers provide, but it is very hard to monetize."
Currently, he said, online ads bring in only 5% of newspaper ad revenue.
Using data to grow
Google wants to help publishers use web technology to grow, Mr. Varian said. "I think papers could better exploit the data they have. They need better contextual targeting and ad-effectiveness measurement."
Mr. Varian said Google advises some publishers from the Google News roster on ad targeting and engagement. But not all of the newspaper world sees the search giant as a friend; last spring, News Corp. boss Rupert Murdoch accused the company of trampling copyrights by displaying snippets of new stories and selling advertising against them, taking money out of publishers' pockets. And last week, digital marketing firm Outsell released a report claiming that 44% of Google News users don't click through to the original sites.
Mr. Varian dismissed Outsells's report, claiming the survey design is "not very impressive," and a Google spokesperson said Google sends more than 4 billion clicks to publishers worldwide each month. "It's a symbiotic relationship," Mr. Varian said. "As a search engine, we want rich content out there for our users to find."
Pay walls won't work
Mr. Varian's list of suggestions doesn't include pay walls, such as the New York Times' plan for a metered approach to charging users. "It's too easy to bypass," he says.
Instead, publishers should be looking at platforms such as the iPad to lure in readers during non-work hours, when they could presumably spend more time on individual news sites if they wanted to. "The challenge is, how can we make newspaper reading a leisure-time activity again? We know reading the news is valuable to our customers, but they don't spend much time doing it."