Six years ago I saw the writing on the wall: Print media was in decline, digital media was ascendant. After 16 years as editor and then publisher of Virginia Business magazine, I didn’t foresee a happy future for print media.(1) It was far from clear what cyberspace held in store, but I knew it was time to jump ship.
And jump I did, launching the Bacon’s Rebellion e-zine, followed by a blog, and dabbling in a half dozen other small-scale publishing experiments. I’ve experienced some disappointments in the digital publishing arena, enjoyed some successes and learned a lot. While I can’t say that I have it all figured out yet — the emerging shape of online media and news creation remains frustratingly fuzzy — the broad outlines are coming into focus.
My hunch about the decline of regional print media has proven all too true. As recently as the mid-1990s, newspapers were phenomenally profitable, generating margins of 10 percent to 20 percent of revenue (as compared, say, to Exxon’s “obscene” 8.5 percent profits margins in the most recent quarter). Today sales and profits are in freefall. As the Associated Press reported in July:
Regional and national newspaper publishers, already staggering with a drop in ad revenue more severe than the industry has seen since the Great Depression, say the second half of 2008 may be even worse.
The situation has grown so dire that it’s not too far-fetched to ask the questions: Can newspapers survive in their current form, or are they the buggy whip manufacturers of the digital economy? If there is no future for newspapers, is there a future for journalism? Who will report the news?
The bear’s case for the newspaper industry is simply stated: Print circulation is eroding, and advertising revenues are plummeting. There is no obvious bottom in sight.
In 1965, according to the Pew Research Center for the People & the Press, a Gallup survey found that 71 percent of all respondents had a read a newspaper the previous day. By 1994, readership of print newspapers declined to about 50 percent of the population. By 2006, the number tumbled to an estimated 38 percent, and there was every indication that readership would continue its death spiral: Young people weren’t reading print newspapers at all. Readership, limited to older age cohorts, was literally dying off.(2)
And that’s the good news. At current rates of readership decline, newspapers can console themselves that it will take two or three decades before they give up the ghost. Here’s the bad news: The collapse of advertising revenues will kill them a lot sooner. This year, revenues are in an unprecedented freefall: Many newspaper chains are reporting a revenue decline of 15 percent or more.
These trends are mirrored in Virginia publications. Media General’s Virginia newspaper group, which includes the Richmond Times-Dispatch as well as papers in Charlottesville, Lynchburg, Danville, Bristol and other locations, saw month-to-month revenues plunge 17 percent in July. While Media General reported a nominal loss in the second quarter, the once-formidable Washington Post Company racked up a $2.7 million loss, reflecting $133 million in early retirement write-offs for the Washington newspaper and Newsweek magazine. Print advertising revenues at the newspaper sank 22 percent. Privately owned Landmark Communications does not report its financial results, but the fact that the Virginian-Pilot and Roanoke Times are still for sale after months and months on the market suggests that they aren’t faring much better.
Once upon a time, there was a rule of thumb that classified advertising accounted for 50 percent of newspaper profits. Those fat profits have been hunted down and devoured by a succession of ever more potent competitors: weekly tabloids, auto shoppers, real estate pubs, job websites like Monster.com, and auto-sales websites like Cars.com. Not only have monopoly margins disappeared, newspapers have to share the spoils with a host of national, regional and local scavengers. Once lost, this business will never return.
Meanwhile, display advertising is migrating en masse to the Internet. Static newspaper ads are giving way to flash graphics and rich media that combine text, images, animation, audio and video — with the added advantage that advertisers can track readership precisely and adjust ad campaigns on an ongoing basis. The only category where newspapers enjoy a competitive advantage, it seems, is in delivering advertising inserts. It turns out they can still out-hustle the U.S. Post Office in delivering junk mail.
Sadly, the story doesn’t end there. Newspaper enterprises are slow, asset-heavy leviathans. They require expensive printing presses in a factory-like building. They maintain large, dedicated news staffs (often unionized), sales staffs, accounting departments, H.R. personnel and corporate staffs. They’ve built up bureaucratic policies and systems that are not easily dismantled. They literally cannot downsize fast enough to keep pace with shrinking revenues. Many media enterprises face the prospect of losses.
The great hope of the newspaper industry, of course, is to shift readers and advertisers to the Internet. Every newspaper in the country now has an affiliated website to which it feeds its news stories. Many newspapers are shifting to a 24/7 model of reporting news as soon as it breaks. As a result, total newspaper readership — defined as print advertising plus Internet advertising — seems to be holding its own.
But it’s a delusion to think that websites will save the newspapers. First, print revenues are falling faster than website revenues are rising. There is massive leakage of advertising revenue to national players like Yahoo! and Google that are capable of competing for regional and local advertising, as well as to a multitude of community websites and blogs. Second, as newspapers slash newsroom staffs and cut news holes, they produce less content — their main competitive advantage. Fewer stories = fewer clicks = fewer eyeballs = smaller revenues.
There may be a future for national newspapers like USA Today, the Wall Street Journal and the New York Times. But for regional newspapers, the end game is a business model as an online publication… a publication with lean staffs and paper-thin profit margins… a publication that produces a small fraction of the news content that it did in its heyday. The prospect that such publications can cover the full range of news — state politics, courthouse politics, business, sports, culture, lifestyles, opinion — with any authority, much less recreate the glory days of in-depth, investigative journalism, is problematic.
If newspapers are imploding, who will produce the news? This is the Knowledge Economy, after all. The demand for information is insatiable.
I wish I knew the answer. If I did, I’d be picking out my 100-foot cabin cruiser right now. But digital media are evolving too fast to say for certain. Yahoo! and its Internet “portal” are yesterday’s buzz. YouTube and FaceBook are hot today, but who knows what’s coming next? Twitter? Sounds daffy, but who knows? All we can safely say is that each new generation of digital media/communications will cannibalize the previous generation just as surely as it undermines traditional print and broadcast media.
Making the analysis more difficult is that the new players in regional and community media are small and privately owned, which means they don’t report their profits. My sense is that profitability is modest at best. If someone did devise an earnings powerhouse, you can be sure they would shop it to a venture capitalist to replicate the model nationally. I haven’t seen any sign of such a phenomenon.
Despite the uncertainty, I am willing to hazard a few predictions. Here are the forces shaping content creation in the future:
Gurus and paid content. People will pay for content of a highly specialized nature that is crucial for the conduct of their business. Industry newsletters will proliferate. Analysts will provide market intelligence. Contract research for business intelligence will flourish.
Locally, a fascinating example is the Boomer Project. Operating out of Richmond, a second-tier business center, marketing mavens Matt Thornhill and John Martin have leveraged a blog, a book and a newspaper column into national renown as experts on selling to Baby Boomers. That has led to a lucrative speaking fees and consulting engagements with clients across the country, including several Fortune 500 companies. As gurus in the field, Thornhill and Martin hope to cantilever those relationships into value-added content delivered digitally. (Full disclosure: I have done free-lance work for the Boomer Project.)
Public relations. Enterprises will push self-promoting content into cyberspace. We’re seeing this already with “press releases” pushed through BusinessWire and PR Newswire, which are republished unedited in a multitude of news aggregators and show up in search engine results. As this trend blossoms, groups likely will produce Web-based micro-publications that create journalism-style content for distribution in electronic newsletters and for pick-up by the search engines. (This is the model for publications like Richmond Biosynthesis that I produce for the Greater Richmond Partnership.)
As traditional media decline into senescence, public relations firms will spend more time developing these alternative models for distributing their story lines. The drawback for consumers of this information, of course, is that the content creator has an agenda that may not always be obvious.
News aggregators. As online content proliferates, independent news aggregators tailored to the needs of niche markets and constituencies will arise to scoop up, digest and comment upon information from any source they can find — newspaper websites, broadcast websites, YouTube, blogs, press releases. (This is what I do for the R’Biz business channel at Richmond.com.) Occasionally, these aggregators may create their own content, but such efforts will limited by scarce resources. For the most part, the aggregators will be low-overhead operations running on tight margins.
Superstars. As digital technology allows people to download video content directly to their PCs, televisions and hand-held devices, people will access the content where they want, when they want. The logic behind national broadcast networks and local broadcast franchises will dissolve. News operations, dramas, comedies, talk shows, whatever, eventually will reside on the Internet and be accessible for download whenever the viewer wants it.
Inevitably, the advantages of bundling shows in television or cable “channel” line-ups will disappear. Advertisers will migrate to proven products like Oprah Winfrey, Rush Limbaugh or Keith Olberman or to niche shows that deliver precise demographics. The gurus and superstars will capture the value now commanded by the networks and broadcast stations, and will extend their brands to magazines, as Winfrey has done with “O”, or newsletters as Limbaugh has with the “Limbaugh Letter.” If you think Oprah and Limbaugh are wealthy now, just wait.
Thanks to the Internet, the barriers to entry will be incredibly low. Competition will intensify. Media will become more fragmented and fluid than ever. Profit margins for traditional business models will deteriorate, and new winners will emerge. The great challenge will be breaking through the cacophony of voices.
The Internet has demolished a 60-year epoch of newspaper monopolies and broadcast networks. Whether the old dinosaurs can evolve into fleet-footed digital mammals is questionable. Creative destruction will cull the old species and give rise to new ones. The only thing for certain is that the media landscape — and the journalistic profession it supported — will be unrecognizable a generation from now.
— September 8, 2008
(1). I’m happy to report that Virginia Business is still alive, kicking and, to all outward appearances, still doing fine.
(2). Some of the circulation decline may be due to newspapers’ editorial policies. As Ed Risse argues in his “Estates Matrix” series, newspapers have largely abandoned their “fourth estate” role as independent observers providing impartial information to their readers and become apologists for Business As Usual politics favored by the real estate interests that constitute a pillar of their shrinking advertising base. Many readers are seeking alternate sources of news and information.
James A. Bacon is the author of “Boomergeddon” and publishes the Bacon’s Rebellion blog at www. Baconsrebellion.com.