If you follow the journalism industry publications and blogosphere, then you’ve probably witnessed an industry doing it’s finest fiddling while Rome burns. Everyone’s talking ad nauseam about the problems with newspapers and the industry.
Everyone is wondering, “What is killing newspapers?”
Here’s your answer: “A lack of money.” Yes, it’s really that simple.
It’s not the loss of social currency, it’s not about why newspapers can’t reinvent the news industry. Time shouldn’t be wasted with blaming the economy and technology for the downfall of newspapers. Nor should time be wasted with journalists blaming themselves. At this point, who gives a damn?
The focus should no longer be about the details, but instead about the big picture: The loss of advertising dollars. This is the immediate problem journalism faces. The bread and butter revenue stream is about to hit new lows and there is no solution to replace that money right now.
Forget everything else. This should be priority number one. And here’s why.
Early warnings of a newspaper advertising drop
At the beginning of 2008, the American Journalism Review wondered if the salvation of newspapers could be found in online advertising. I want to emphasize the need for you to read the entire article if you truly want a full understanding of what online revenue means to newspapers, especially to get a picture of what the situation was before this economic crisis happened.
It offers some early warnings about how the vast supply of content online drives prices down and how most mid-to-small sized newspapers are seeing audiences flatten, meaning stagnant revenue instead of growing revenue from traffic.
But this particular section offered a chilling prediction that should sound alarms in everyone’s heads:
But even if the newspaper industry continued to lose about 8 percent of its print ad revenue a year and online revenue continued to grow at 20 percent a year – the pace of the first half of 2007 – it would take more than a decade for online revenue to catch up to print.
Journalists, or indeed anyone with an interest in journalism, had better pray that doesn’t happen. Because online revenue is still relatively small and will remain so even at its current pace, this scenario implies years of financial decline for the newspaper industry. Even a 5 percent decline in print revenue year after year might look something like Armageddon.
I bring up this particular article from nearly a year ago because within the past week or so, I’ve seen a growing number of articles about online advertising’s immediate future because of Wall Street’s troubles.
Putting it simply: it looks bleak. Better get ready for that Armageddon.
Here comes the hurt in newspaper advertising
Forget a 5 percent plunge in print revenues, try 17.68 percent freefall in print advertising, according to Alan Mutter at Reflections of a Newsosaur, a must read blog for anyone who wishes to understand the actual business of newspapers. Industry-wide, Mutter predicts a 16.5 percent drop, with a 1 percent drop in online advertising from the year prior.
If these projections are correct — or even close — then newspapers will truly be facing a financial crisis unlike any they’ve seen for quite some time, let alone planned for.
While Mutter has previously pointed out that it’s not simply just the economy and really also part of a larger trend, the economy will still act as an accelerator on the downslope.
Even in June of this year, The New York Times called said newspapers faced the worst year for advertising revenue. But at the end of the article was this nugget that offers much reason for fear:
The industry will not bottom out for another three or four years, analysts predict. The question, Mr. Appert of Goldman Sachs said, “is how far things will fall before then.”
In other words, there’s plenty of room for things to get worse — and it probably will.
Online advertising hopes fade from black to red
As for the possibility of an online advertising salvation, that won’t come anytime soon. No one can foresee a real winner in this climate (except maybe Google).
For quite some time, you couldn’t read a journalism blogger who wasn’t cheerleading all the Web 2.0 startups that gave power to “citizen media” and griped that newspapers just weren’t “getting it” when it came to the Internet and providing cool new tools for their readership. These startups were put on a pedestal and called revolutionary and it wasn’t an uncommon thought that newspapers ought to take their cues from technology companies.
I’ll admit I thought this, too. But, looking back, the praise was all about new types of content and new ways to share it. There was virtually no (or not enough) discussion about how any of this would make anyone a significant sum of money.
Even big social networks were hurting for advertising dollars before the economy went bust and it’s not going to get much easier for other Web 2.0 startups. Both The New York Times and Advertising Age reported how growth was slowing as CPMs were falling:
GigaOm reported on the UBS analysis of the future for online advertising, which was nothing short of bleak. Here’s the big takeaway:
“We see no business model based on advertising or consumer spending that will be immune to a downturn.”
And then Silicon Alley Insider gave its own in-depth look at the online advertising display advertising in 2009, predicting it could fall anywhere from 10 to 20 percent and even more in 2010:
Hundreds of startups counting on advertising as a business model will be flattened. Yahoo, CNET, AOL, and other big display-ad properties will get hammered. Legions of me-too video sites will croak. Ad networks, the “hey, let’s just start an Internet company!” flavor of this second dotcom boom, will get decimated.
If things are this bad for Silicon Valley and Alley, then imagine what newspapers — which don’t have a a hype-filled “cool” product for users to play with — have to look forward to.
Supply and demand: an enemy of newspapers
It turns out that online salvation will not come, according to The New York Times, where online display advertising for newspapers has slowed to a crawl, following the trend.
But the problem isn’t merely limited to just the economy itself, or the overarching trend of declining revenues for newspapers. A contributing factor continues to be the paradox of newspapers expanding online, only to find diminishing returns for their efforts.
As The New York Times article explains quite well, although it only focuses on it for the latter half, newspapers continue to expand the number of online offerings to their inventory for advertisers to buy. But this can cause problems.
On one hand, more pages with more content means — in theory — that more people will visit your site because you simply offer more. This drives traffic up and presents you with an advantage with advertisers.
But on the other hand, this can hurt you as well. You can end up with a lot of unsold advertising inventory, which means there’s simply no ads on those pages. Or you give the inventory over to “remnant” advertisers, which are basically trashy ads worth bottom-barrel rate CPMs.
As newspapers continue to create more, they add to an almost impossible to fill and infinitely growing inventory as a whole on the Internet. And the competition is absolutely fierce with the dawn of user-generated content Web sites that provide free content that’s also competing for attention, traffic and money.
In the end, you have prices per impression going lower and lower. And in a slumping advertising market, prices only get lower.
It’s the perfect example of the Long Tail Theory, coined by WIRED editor Chris Anderson (if you haven’t read his book, this Long Tail article provides a great primer). There will be a few winners, or “hits,” that get a bulk of the dollars, but there’s a very long tail of those who will get pennies (or parts of pennies). Odds are that most newspapers’ Web sites will be the tail, not the head.
And in the end, display advertising might be completely useless and something that advertisers abandon in the near future. GigaOm reported this shocking tidbit from Jakob Nielsen that users ignore display advertising online and have developed a sort of “blindness” to these types of ads. Imagine how tough an online sales rep’s job will get once that becomes common knowledge.
Everything is now on hold — unless it makes money
Newspapers won’t be around long enough to reinvent news, right now they need to reinvent how to make money — and here’s a hint in case you haven’t gotten it yet: advertising-only revenue streams aren’t the answer.
If you’re looking to change the news business, then start thinking about how to find new ways to make money from content or paid services that haven’t been done before in newspapers.
No longer does “building cool shit” count as worthwhile. The focus should be on “building cool revenue streams.”
What’s the point of doing webcasts, breaking news video, using Twitter, networking on Facebook, adding user comments, putting up photo galleries or whatever “cool shit” you just did if it’s not adding to the bottom line? At best, you’re building traffic, but that’s not a guaranteed way to increase revenue.
Innovation is a great thing, but right now you’re only draining one of your newspaper’s precious resources — your time — if it’s not helping keep the company ledger out of the red ink.
The bar’s been raised: develop ways that advance editorial and financial missions of the newspaper at the same time. Both sides need each other now more than ever and should be working in tandem. This means finding ways to diversify revenue streams and creating a product that is more efficient at fitting consumer demand.
The threat is immediate and there’s no bailout for the industry. If things don’t turn around fast, then we can look forward to more layoffs than ever before. Frankly, it’s time to fight to save your journalism job or get the hell out.
On that note, here’s “How to (voluntarily) become an ex-journalist” and a place to start to develop your Newspaper Escape Plan.
