Wednesday, March 25, 2009

Role of Classified Advertising in Newspaper Downfall

In the March-April issue of Columbia Journalism Review, and in a subsequent letter to the New York Times, Steven Ross argues that "the recession, not Craigslist, is killing American newspapers."

Craiglist is a strawman, he says, and supports his thesis by pointing out that newspaper classified ad revenue in 1994, nationwide, was $12.5 billion, and increased to $14.2 Billion in 2007. But if he'd chosen a different starting year, you'd see a very different picture. He says he chose 1994 because that was when web advertising was first launched. But Craigslist and other online classified vehicles like didn't get going until years later. Between 1997 and 2006, newspaper classified ad revenues declined from $16.7 billion to $14.2 billion, according to the Newspaper Advertising Assn., the same source Ross used. That's a 15% decline. And between 2000 (when the online classified world was starting to take off), when the revenues had soared to $19.6 billion, and 2006, the decline is even more pronounced--a 28% decline.

There is no doubt that the recession is accelerating the demise of the newspaper business model, but it was going to happen anyway. Print products are losing both sets of customers, their readers and their advertisers.

Unlike magazines, classified revenue is an important revenue stream for newspapers, making up 20% to 40% of all revenues historically. And that's why newspapers are in more trouble than magazines at the moment. Newspapers have lost classified revenue, and will never get it back (the internet is just a much more efficient medium to find a job, a house, or a car), but they are also losing readers to the internet as well.

The demise of print is happening to newspapers first because of their revenue and profit structure. Not only are classified revenues a big piece of the pie, they are the most profitable portion of the pie, with profit margins as high as 80%. In the mid-nineties, the Los Angeles Times made more profit on its classified section alone, than the entire enterprise. Let me repeat that. The classified sections made money, everything else lost money--they were loss leaders for classified!

Trust me, when a third of your revenue pie is down 30% and continuing to head south, you can kiss that business model goodbye.

Thursday, March 19, 2009

Seattle PI Web Traffic--Correction

Well, I've heard from my old pal Roger Ogelsby, publisher of the Seatle PI, who says the traffic numbers I had for the site were all wrong. (There may be some subsites that have classified and other advertising that weren't counted by He's directed me to the Hearst press release, which claims:

"In January, Nielsen ranked among the top 30 newspaper Web sites with 1.8 million unique users. The site has an average of 4 million unique monthly visitors, according to internal Hearst tracking."

A hundred times better than the numbers I saw. If they can monetize those four million unique visitors at 25 cents per visitor per month, that would be a $1 million a month in revenues. And they'd have a real chance at profitability.

Roger seems quite confident that the online only operation can be a financial success.

We're all rooting for ya, Roger.

Wednesday, March 18, 2009


As the whole world knows by now, the Seattle Post Intelligencer bit the digital dust this week. It replaced its print edition with an online only version. See The New York Times and Wall Street Journal coverage.

Michelle Nicolosi, its "executive producer" (revealing title) explains the experiment this way: The creation of as a standalone digital news and information business is a great opportunity for us to try out many of the theories journalism professionals and academics have been throwing around for the past few years.


The topic is certainly the rage. I've gotten several emails in the last few days urging me to help start such ventures. And there is no doubt that the local news/local information category is still a wild frontier on the internet, with no one yet proving out a business model that is sustainable and can make long term sense.

Last week, Rick Wartzman, a former Los Angeles Times reporter and now director of the Drucker Institute at Claremont Graduate University, argued in a Business Week piece that renowned business scholar Peter Drucker would "have called for something that has, by and large, been missing from the scene: a genuine boldness and decisiveness of action by top management. To stop the red ink, newspapers need to get rid of the ink altogether. It's high time for online-only operations."

He goes on to say: The Web needs to be embraced much more fully than most papers have done. This means no more tentative, halfway initiatives. Dead-tree editions must immediately yield to all-Internet operations. The presses need to stop forever, with the delivery trucks shunted off to the scrapyard.

I generally agree with the thought, but I'm still worried about whether the numbers work.

Wartzman talked LA Times editor Russ Stanton into running the numbers for what a web only operation would look like at his newspaper. Stanton said that they'd need only about 275 total employees (and only 150 from the newsroom--I imagine that made a few of the 600 people left in the newsroom there a tad nervous) to run a profitable online operation. With 275 employees, total compensation costs including about 20% for taxes and benefits, would total around $23 million. If salary costs total half of total costs, and that's probably conservative for a web only operation, the online operation would only need $46 million in revenue to break even. And if the actual revenues for online operations at the newspaper are about $80 million, as some people have suggested, then you've got a nice profit margin, and $34 million of cash in your pocket. A good solid business, but nothing like what it was; it's a lot less than the $100 million in cash flow The Times probably made last year, and far less than the $250 million plus it had been making in years past.

But the real question is not whether a heavily trafficked site like, or could make money on their own--I have no doubt they can--the more challenging issue is whether the transition can work for a community newspaper. Many such newspapers--but not the Seattle PI which was losing money--routinely operated with a 30% profit margin.

I tried to recreate the Seatle PI's financial pro forma with the aid of a calculator and the back of an envelope. What I really needed was my old company CFO Stu Coppens (Stu where are you when I need you?)but the picture I came up with is pretty grim, if they just take the old fashioned approach of cpm (cost per thousand) based online banner advertising. Here are the numbers (and who knows if I am even close or even in the ballpark...)

The Seattle PI has said they will have 40 employees, 20 in the newsroom, and 20 selling ads. (They still need some management, and someone to do accounting, so I've added another 5 people). I estimate that total salary costs for those folks, including an 18% factor for taxes and benefits (less rich benefits than at the LA Times), will be around $3.5 million. (The ad sales folks get paid substantially more than the reporters, reflecting the real world.) So let's double that and say the total costs for the enterprise are $7 million ( and you could probably run it for less). Then in order to make any money, the new online web site has to generate at least $7 million.

That may be the hard part, unless the site changes and attracts a lot more page views, or there is a lot of creativity on the revenue generating side.

According to, total visits to the SeatlePI. com have been running about 140,000 visits a month with only 30,000 unique visitors. Average visit time is less than 30 seconds, and less than 1.5 pages are viewed. Not Good. At a $20 cpm, with three ads running on a page, and selling all the inventory, total revenues for the year will be less than $1.5 million, by my rough estimates. If my estimates are wrong, somebody tell me (especially old friend Roger Ogelsby who is the publisher), but if not it suggests that they've got to drive up the cpm to rates advertisers generally pay for targeted, niche communities (say over $60 a thousand), get real creative with sponsorship packages for microsites, promotional contests with advertisers who might be willing to pay for reader engagement, and the like. (Note: Roger did get in touch and my traffic stats were wrong. See correction in blog entry above.)

Remember, however,in this particular case, the Seattle's number two newspaper was already apparently losing $14 million a year for Hearst, so at least they may have reduced the losses, and given local news on the web a chance.

As all TV journalists love to say, "only time will tell" whether this experiment works. In the meantime, I'm very interested in any and all comments (especially from Roger and Stu)!

Saturday, March 14, 2009

The Business Model is Broken

Clay Shirkey has an excellent blog piece on the inevitable demise of newspapers as we know them, comparing the revolutionary impact of the internet age to the invention of the printing press. Here are a few selections, or read the entire blog.

“The Wall Street Journal has a paywall, so we can too!” (Financial information is one of the few kinds of information whose recipients don’t want to share.) “Micropayments work for iTunes, so they will work for us!” (Micropayments only work where the provider can avoid competitive business models.) “The New York Times should charge for content!” (They’ve tried, with QPass and later TimesSelect.) “Cook’s Illustrated and Consumer Reports are doing fine on subscriptions!” (Those publications forgo ad revenues; users are paying not just for content but for unimpeachability.) “We’ll form a cartel!” (…and hand a competitive advantage to every ad-supported media firm in the world.)

. . . .

Round and round this goes, with the people committed to saving newspapers demanding to know “If the old model is broken, what will work in its place?” To which the answer is: Nothing. Nothing will work. There is no general model for newspapers to replace the one the internet just broke.

. . . .

Print media does much of society’s heavy journalistic lifting, from flooding the zone — covering every angle of a huge story — to the daily grind of attending the City Council meeting, just in case. This coverage creates benefits even for people who aren’t newspaper readers, because the work of print journalists is used by everyone from politicians to talk radio hosts to bloggers. The newspaper people often note that newspapers benefit society as a whole. This is true, but irrelevant to the problem at hand; “You’re gonna miss us when we’re gone!” has never been much of a business model. So who covers all that news if some significant fraction of the currently employed newspaper people lose their jobs?

. . . .

Society doesn’t need newspapers. What we need is journalism. For a century, the imperatives to strengthen journalism and to strengthen newspapers have been so tightly wound as to be indistinguishable. That’s been a fine accident to have, but when that accident stops, as it is stopping before our eyes, we’re going to need lots of other ways to strengthen journalism instead."

Wednesday, March 11, 2009

15 years ago newspapers were just worried about competition from other newspapers

This 1993 promotional video explains how the Los Angeles Times Valley Edition was put together each day. And yes, that's me in there, a little younger, and sporting a moustache....

Monday, March 9, 2009

Pay for WHAAAT?

David Carr writes in the NY Times of his desire for all newspaper execs to come together (in violation of antitrust laws) and agree on "No More Free Content," and "No More Free Ride to Aggregators" among other naive solutions. Jeff Jarvis correctly describes Carr's presciptions as a "medley of old songs about old newspaper business models in a new world." Rod Overton, a former TV executive, comments that even if newspapers move to the pay for content model, then local TV stations will sweep in and start delivering online local news (heavily promoted by their on-air personalities). Hard to believe that local TV would compete with local newspapers,in reporting real news, but probably true.

But some of the most perceptive comments come from Kathy E. Gill, in WiredPenn:

"I think that if I hear another newspaper person utter this phrase — no more free content — I will scream. It’s either that or shoot the guy. (It’s almost always a guy.)"

She correctly notes that paid content is a myth. "when you buy a subscription to a newspaper, are you 'paying for the content'? No. You are paying for the delivery of the content. Maybe."

When I was in charge of the circulation department at the LA Times ten years ago, the revenue we earned from subscriptions and street sale copies didn't come close to covering the cost of ink, paper, manufacture, and distribution. The newsstand and subscription price has come up a lot since then and the costs have gone down (much smaller circulation means less paper, fewer delivery trucks, more efficient printing) but I'm sure that circulation revenues don't cover much, if any, of the cost of the newsroom. So what you are paying for the newspaper is really paying for the "convenience" of having it delivered to you or available outside your favorite coffee shop. Not the content.

The real dilemma is that print advertising dollars translate into digital advertising nickels. The cost per thousand is much lower on the web, where ad inventory is huge, and competition for readers is worldwide, rather than limited to a specific geographic boundary, and measurement of advertising impact is much more meaningful. And this is not just a problem for newspapers, but particularly for the Television industry. Several years ago, an IBM research study framed it correctly in its study: "The end of advertising as we know it." (Based on interviews with 2400 consumers and 80 advertising experts.)

Instead of whining about giving away their content for free (most of which is based on wire service reports and available on countless web sites), newspapers should be thinking about different revenue opportunities. They should take a cue from the B2B publishing industry, which developed and monetized lead generation tools, white papers, webinars, trade shows, email newsletters and the like. Check out the comments of B2B web innovator Colin Crawford on this

Saturday, March 7, 2009

More on newspapers' self-inflicted wounds

The comments from blogger, newspaper editor Gina Chen on my post about the demise of newspaper are worth repeating. Her insights come from being in the trenches, in the newsroom:

"My take: I’m not so sure newspaper execs saw the Web coming, though they should have. And I’m utterly convinced they didn’t try everything they could. Why? Because they are still not trying everything they could.

I think newspapers were a bit like teenagers. They saw themselves as invincible. That big bad Web can’t hurt me. So with blinders on they kept doing the same ol’, same ol’ even as circulation continued to drop.

Sure, they tried small tweaks.

I remember when putting a graphic with your story was going to save journalism, and all the reporters complained just like they do now about social media or blogging. And then it was writing stories with bullets like a big list. Or using a narrative voice. Or skipping the story completely, and just running a graphic.

But there was no dramatic shift in thinking.

When the Web seemed a force to be reckoned with, newspapers threw up Web sites that looked just like the newspapers — but online. At first some charged for content, but most abandoned that.

But they didn’t study the Web or understand its power of interaction. They didn’t invent ways to reach readers online or figure out how readers were using the Web. They didn’t charge their smartest employees with coming up with ways to make money on the Internet. They shrugged it off because though circulation declines had been going on for years, they were still making money the old-fashioned way, in print."

Thursday, March 5, 2009

Twitter Frenzy

It sure seems to me that the mainstream media have gone twitter crazy. Turn on the TV day or night, and some CNN Anchor or political pundit is talking up "twittering." I thought maybe it was only my perception, like when you buy a new car. You buy a Toyota Camry and then all you see on the road are other Toyota Camry's, somehow confirming your purchase decision. I started twittering about a month ago and saw twitter everywhere I turned. But I guess, it was not only my imagination. Even Jon Stewart is making fun of all the ruckus. Oh, and even though Twitter has no revenue model yet, it's already raising tens of millions of dollars in venture money.

And I'm still trying to figure out what it means to twitter. And whether it's worth my time or not. (Of course, I will link my tweet to this blog post.)

Wednesday, March 4, 2009

PET PEEVE: Local TV News "Live Shots"

I don't watch much local TV News anymore. It's simply not relevant, and there are better ways of getting information. (The future of the business model--Local TV News has always been a cash cow--is a subject for another blog, however).

Nevertheless, it does amaze me that the local newscast has hardly changed in the face of changing habits and technology.

My biggest pet peeve is this constant effort to "go live." Enough with the "live" shots already. A celebrity is admitted to a hospital at 10 AM. So on the 10 PM News, there is some idiotic reporter standing outside the hospital in the dark reporting on what happened there 12 hours earlier. Do TV News Directors really think that the audience somehow feels "closer" to this story because they sent a reporter to stand out on a street corner where some event took place hours before?

Just because we have the technology to deliver "live" news doesn't mean we should be excessive about using it. Use it when it makes sense. When the story really is live. Instead of wasting time on the live shot, use your reporting resources to actually report, and then come back to the studio and tell us about it.

The local newscast has got to change. More later.

More on the future of Newspapers

From the San Diego Transcript

By Elizabeth Malloy,

"With the closure of Denver’s Rocky Mountain News on Friday, a long predicted scenario appeared closer than ever to becoming a reality: the extinction of the big city newspaper.

Journalists bemoan the death of metropolitan papers because, they argue, it saps the citizenry of an objective source of news about the world around them. That, and these papers take hundreds of jobs with them to the grave.

But it’s not just the information landscape that changes when a big paper collapses; it’s also the world of marketing. Once inseparably intertwined, some experts are predicting that the world of news reporting and advertising might be parting ways.

“It’s not really a crisis of journalism,” said Geneva Overholser, the director of the school of journalism at the University of Southern California’s Annenberg School for Communication. “It’s a crisis of what is effective for advertisers.”

Newspapers traditionally generate the vast majority of their revenue from ads. The price subscribers and other readers pay for the paper only covers about 20 percent of the cost, according to Overholser, a former editor of the Des Moines Register who also worked for the Washington Post and The New York Times.

... the state of newspapers brings to mind an old advertising term: marketing myopia. That’s when an organization’s vision of what it wants to do for a business is too narrow. In wanting to simply deliver news and inform, she said, newspapers kept their scope too small.

Maria Kniazeva, an assistant professor of marketing who teaches graduate courses at the University of San Diego, however, said most advertisers haven’t yet harnessed the full power of the Internet.


She said not enough advertisers have fully realized the drastic change of reading habits that have occurred in the last 10, even five years. The large captive audience of a newspaper is gone.

“We snack on information,” she said. “We are not committed.”

...Overholser, the director of USC’s school of journalism, said she still worries about general news finding the support it needs in an environment that is so driven by specific interests.

“General news has a way of not being very advertiser friendly. What kind of ads do you put next to a story about a fire?” she said. “I do have confidence in this: That is, nobody has figured out yet in the journalism world how to pay for general content, and no one in the advertising world has figured out what the next model is.”

Jeff Klein, an adjunct professor at the Annenberg School at USC, pointed out that so far, the newspapers that have closed or could potentially close soon are in regions with two papers. Denver still has the Denver Post, which was larger than the Rocky Mountain News even before the close. The Bay Area has several papers. The Seattle Post-Intelligencer is struggling, but it has always been smaller than the Seattle Times.

Though in San Diego, there is only one general interest daily, and The San Diego Union-Tribune has been for sale since last summer with no reported buyers.

Klein said ultimately, advertisers and news agencies just might not need each other any more.

Advertisers can go to direct marketing and Internet sites like the many social networking organizations. For people who still want to read good reporting, different models are springing up, he said.

He mentioned the new wave of nonprofit news organizations. He also spoke of a Web site in San Francisco called where people donate money in order to have specific stories written. For example, if you’d like to see an investigative report on the Oakland school system, you’d donate $20, and hope others would too, and a journalist will write it.

“There will still be reputable news organizations,” Klein said. “They just won’t be called newspapers.”

Monday, March 2, 2009

How about a Task Force?

Steven Swartz, President of Hearst Newspapers, in a staff memo:

"One inescapable conclusion of our study is that our cost base is significantly out of line with the revenue available in our business today. It is equally inescapable that during good times our industry developed business practices that were at best inefficient.

YA THINK? Ya had to have a study to figure that out?

Demise of Newspapers Inevitable?

Glenn Thrush of Politico writes that the demise of newspapers was inevitable, that nothing management could have done would have prevented it.

"Nobody who asserts that newspaper execs have been arrogant and stupid will ever print a retraction. But as a print refugee (Newsday), I can tell you management saw the Web threat coming for a long time and tried everything, too much, to cope -- all to no avail...
The problem is that nothing works, apart from bypassing the industry model and starting from scratch...
But the Web is killing papers, with or without the intervention of idiotic (or inspired) management."

He's only partly right. Newspapers as they currently exist may disappear, but newspaper companies didn't have to. Management has played a big part in the demise.

The challenge is taking an old media company (think record company) into a new world (think itunes). It is far easier to start from scratch, without legacy employees and ways of doing things, fears of cannibalization, or reluctance to change.

But lots of companies have remade themselves, just not newspaper companies. It's not easy and there is a serious risk of failure. Management has to throw out sacred cows, have a clear strategy, and then only keep the people on board who buy into it. And be relentless.

Newspapers had to stop thinking of themselves as the MASS MEDIA in a world of niche, targeted marketing and advertising. Newspapers had the content, just didn't use it wisely. Instead of thinking of the sports section as a mass media vehicle, think of it as a conglomeration of niche markets, those who are interested in golf, basketball, or football. Take all the content--you've got tons of it--in each area and reconfigure it for microsites and email newsletters on specific topics--then go after advertisers who never think of buying the newspaper, but would want to reach golfers to sell them clubs, or the specific demographic audience that likes soccer or baseball. And because the audience is targeted, you can charge a much higher CPM (cost per thousand).

I don't pretend to have all the answers. But I don't believe in inevitability.