Here’s What Newspapers Could Have Done

There have been lots of words written this week about the slow, painful demise of newspapers and whether it could have been prevented by a change in strategy. Namely, by remaining print-only instead of “giving away” newspaper content online.

Count me in the camp that thinks the current outcome was largely pre-ordained regardless of any rational move that newspaper companies could have made.

“Rational” excludes the possibility of going online-only cold turkey in the ‘90s or ‘00s and completely ceding what would have been about ~90% of enterprise value in the process. This is what makes disruptive innovation, the kind that is rocking the newspaper industry, so hard for incumbents to overcome: because it creates an entirely new but initially much smaller market that does not make economic sense for the big, bloated incumbents to fully pursue at the risk of cannibalizing and dramatically shrinking their business. By the time the realization sets in that the only path to survival is by going online-only, or digital-first (in the case of Kodak), or whatever, it’s too late for all but the strongest, savviest, most diversified and/or most focused existing players.

As someone who has been running online-only hyperlocal news websites for the past 6+ years, and as a fan of business case study what-if scenarios from my MBA days, I wanted to game out two potential strategies and see if either seems likely to have worked.

(Note that this is primarily focused on local papers, not national papers like NYT or WSJ.)

1. Go print-only

Let’s say it’s the 1990s, and this internet thing is showing some promise. You’re the CEO of a newspaper chain and you’re considering launching websites, or AOL channels, or both, to spread your journalism to anyone around the world who wants to read it.

But wait a second: it’s going to be really expensive to launch and maintain full-fledged newspaper websites, and there’s not much hope of making money on it, certainly not the kind of profits that selling ads in a print newspaper brings in. So instead you’re going to create websites which are primarily vehicles for selling and servicing subscriptions. And most of your peers in the industry follow your lead.

Here’s what I think would have happened:

• It works for awhile. Yes there’s online competition, but initially the competitors are more lifestyle-focused and can’t match the kind of daily hard news content and features that make an urban daily paper a must-read for a large portion of the population. And it’s way too early — the really early local online publications never find real audience or advertiser traction and end up fizzling away.
• The blogging revolution begins. In the early-to-mid 2000s individual bloggers begin trying their hand at creating local content. For some it’s news about their communities. For others it’s random musings. But readers enjoy the immediacy, the convenience of consumption and the unique voice provided by local bloggers. At the same time, local entrepreneurs begin to get the idea that there’s a void in online local publishing, since the paper is staying print-only and the bloggers don’t yet have a business model; they begin launching small for-profit local publications. Print newspapers, meanwhile, are continuing to gradually lose readership as a percentage of the population — that’s been happening for awhile, actually — but the declines don’t look as dramatic as they would have otherwise looked if readers could have just read the articles for free online. Google is making advertising inroads and Craigslist is still gaining in popularity, but the economic times are good and print newspaper employment remains steady.
• A robust local online ecosystem starts to take shape. The void in the market for online local news publications leads to more startups and innovation. While the Local Independent Online News Publishers group, of which I serve on the Board, currently includes many former newspaper reporters and editors, stronger newspaper employment and a more obvious business opportunity would have produced more startups run by those with business rather than journalism backgrounds. The recession of 2008 and 2009 culls the local online-only herd but emboldens survivors to out-price and out-flank their print-only newspaper competitors.
• The big decline starts. The online-only Lilliputians are starting to take away significant local advertising market share. Local advertisers may be a bit behind the curve, but ultimately they go where the audience is. Many readers prefer the convenience of reading their news online rather than getting two pounds of dead tree pulp and ink dropped on their front lawns. The iPhone and the iPad solve the problem of being tied to a desktop computer for your morning news fix. Plus most online local news sites are free and some have expanded from their humble origins to employ a small newsroom that can compete for scoops with the paper and with local TV stations. (Some subscription-only models may take hold, but the economics of online media competition favor free.) At the same time, Google, Facebook and Craigslist are applying the same pressure to traditional media that they’re applying today, in the real world, devaluing newspaper advertising that had maintained artificially high prices due to a virtual monopoly on certain types of local advertising.
• A scramble to survive among newspapers. Fast forward a few years. With revenue and readership in free fall — a bit later than it would have occurred had newspaper companies launched full-fledged websites — there are essentially two strategies that remain: continue to cut costs, milk print profits and merge as necessary to remain profitable; or, reverse course and invest heavily in online. For most, it’s too late to seriously consider going online only; it’s too big of a lift to catch up with the existing online players — where is the organizational competence to compete online in a print-only business? — while also struggling to survive. Most will live and die by print while lamenting not embracing the web earlier. Meanwhile, the online-only local publications will continue to grow and mature, although competition will be heated as more startups try to stake out their turf. Regional consolidation starts to take place as economies of scale are found and the competition becomes too expensive.
• The outcome. Print-only will delay the inevitable, but only so long. The biggest effect will be indirect — encouraging more innovation and entrepreneurship among online-only players. All told, it might have been a preferable outcome compared to what we have today, but it does not change the end result.

2. Spin off print

I’m actually surprised this didn’t happen, as it seems like the most realistic way to survive long-term. What we saw instead was large legacy media companies spinning off their more promising TV and digital businesses from the dying newspaper businesses.

Here’s what could have transpired…

• Everything happens as it happened through the mid-2000s. Newspaper companies launch websites, play around with web strategy but ultimately are dependent on print for most of their revenue.
• The endgame should have become clear by the late-2000s: newspapers were declining steadily and the web was a disruptive innovation that would eventually kill most of print as we know it.
• Media company leaders go to their boards of directors and make the case for what’s going to happen. It shouldn’t be too hard to understand, there have been numerous business that have been disrupted in a similar manner over the years. They propose the company split in two or three.
• One part of the company will be the new media division. This is the part of the company that will actually house most of the journalists and the digital media innovators, and will survive long term. It is legacy print production and distribution costs that make up the bulk of a newspaper company’s expenses, so this company should be able to support a sizable newsroom as long as the print side continues to bear much of the newsgathering costs (see next item.) The superior newsgathering ability of the publication (compared to TV stations and digital upstarts) and its brand identity are the most important assets to preserve.
• The other part of the company will be the legacy print side. Under a licensing deal, this company will pay the new media spin-off for the news articles its journalists produce and the paper publishes. The main mission of this company will be to lay out, print and distribute the newspapers and to sell the ads and subscriptions. As an added bonus, this company can house the executives and sales staffers who who aren’t prepared for the digital revolution, thus reducing overhead and institutional resistance to change at the new media spin-off.
• A third portion of the company, if applicable, is the broadcasting side. Spinning off broadcast was one of the smartest things large media companies have done recently. As someone who worked at Tribune during the brief Sam Zell era, I can tell you definitively that the vaunted synergies between broadcast and newspapers simply never materialized in any meaningful way.
• The outcome. I think this strategy would have had a shot at working. The print side could have gracefully managed decline without having to lay off journalists every year. The online side might not have been able to keep the newsroom at the size it inherited, but would have had a better shot at creating a business model around digital that could have finally stabilized editorial employment, boosting morale and growth prospects. Not having all the overhead of print and a legacy executive hierarchy on a P&L statement could have done wonders. Then again, maybe this would have been a house of cards that would have led to the same result we have now. Issues like excessive debt, uninspiring leadership and institutional inertia could have foiled even well-conceived and executed plans.

We’ll never really know what would have happened, as we’re past the point of this being feasible. We’re nearing the final death throes of newspapers in the U.S., with mass consolidation leading to a few major corporate players keeping a tight lid on costs and milking as much profit as possible until the inevitable. Here’s about where we are in the newspaper industry lifecycle…

The best hope we have is for new, truly digital-first local media companies to rise from the ashes. That’s what I and my LION colleagues are trying to do. We don’t have all the answers — no one does — but we’ll keep grinding and keep innovating. And the trend is encouraging: every year, at our annual conference in Chicago, there’s plenty of evidence that we’re making strides in growth and sustainability.

Rather than continuing to spend time lamenting the inevitable demise of newspapers, which is about as useful as lamenting the downfall of typewriters or buggy whips or 35mm film cameras, my suggestion to those who care about journalism is to focus on what comes next in local.