...with analysis & insight...
News minus newspapers.
Once upon a time owning a newspaper was something to be admired as well as providing a route
to even more riches. So newspapers were nearly always exclusively owned by very wealthy men.
Rupert Murdoch is a good example of the old style media baron. He once famously called
newspaper classified advertising (the small personal and for sale ads) “rivers of gold” because,
although reasonably priced individually, there were so many of them that they continued to
increase his fortune handsomely. That was in an era before eBay and Gumtree.
Today only people of a certain vintage remember this period, as well as the newspaper print rooms
bustling with highly paid union members operating printing machinery that dated back to the turn
of the twentieth century. The Internet has almost destroyed this profitable business as it enables
virtually anybody to create and publish digital content for the world to read and discuss for very
little cost. As early as 2005 the prescient Rupert Murdoch was beginning to think the unthinkable
and he remarked: “sometimes rivers dry up.” And dry up they did at an alarming rate. As I wrote
back in March 2010: press classified advertising had shrunk by minus 37.3% in 2009. Yet despite
this setback print newspapers haven’t declined much in political influence as their opinions still get
amplified by television and radio programs like “What the Papers Say”. Although the BBC’s
influential program, Today, broadcast on Radio 4, now refers to what the papers “and news
The reason I remain interested in the decline of newspapers is that between 2004 and 2006 I was
consulted separately by two UK national newspapers on how to come to terms with the Internet.
As I explained here, in an article written in 2012, my clients simply couldn’t or wouldn’t accept that
their newspaper businesses were going into permanent decline, despite my evidence. I’d
developed some novel marketing research techniques, using my own software, and been able to
study people’s real online behaviour in depth. It was revelatory. I showed my newspaper clients
the results of that research and explained that they could chart the decline of their printed
newspapers by studying how fast three trends were growing. In that pre-smartphone era those
trends were all price related: broadband expansion, lower laptop costs, and the spread of home
wireless networks. At that time many people who had WiFi and a laptop quickly gave up buying
printed newspapers. As one women explained to me - before having WiFi only her husband could
read the news online. But WiFI enabled all the family members to share connection to the Internet,
and online news was a primary destination.
With the help of the chart above, using data supplied by OC&C Strategy Consultants, I can expand a
little more about the reasons behind the decline of newspapers. This is an aggregated view of the
entire U.K. newspaper industry and within this there are some specialist newspapers, such as the
Financial Times, who remain exceptions to the average.
This is a tale best understood by seeing it through the lens of atoms and bits, a concept I first came
across in 1995 reading the hardback book Being Digital, by Nicholas Negroponte. It helped shape
what I told those two U.K. newspaper companies a few years later. Rereading that book now, I’m
astounded at how much Negroponte had foreseen. Using the model of atoms and bits breaks the
world into two domains: atoms - the physical world e.g. printed newspapers, and bits - the digital
world of data and information. Printed newspapers necessarily have high fixed costs of
production. In fact, in hindsight we can see that these costs can only be paid for by expensive
advertising resulting from having a guaranteed high circulation. Whereas online news websites
exist in the world of bits and therefore can have comparatively low fixed production costs.
Nevertheless, in an era where virtually all the news you can eat is for free, even online news
websites are struggling to make money.
My thoughts about this, and hence this article, were triggered by the news that Mashable has just
been sold for $50 million, a fifth of the valuation set by the venture capital owners. Fresh
investment had dried up because profits seemed to be a long way into the future. If it has been
this tough for Mashable then what hope is there for existing printed newspapers struggling to
adapt to the Internet? I really like Mashable and to my mind they have done everything an online
news website can do to be successful. Mashable has adapted to the global nature of the Internet
by having international versions for the U.S., the U.K., France, India, Asia, and Australia, as well as
offices in all these locations. Small, efficient teams of people, spread across their offices, produce
the content for the different editions so the website is continually being refreshed. Mashable is
free to view, paid for by every form of advertising available online, including editorial sponsorship,
advertorials and affiliate links. Importantly they have their own video production facilities and
control their own video advertising, the most profitable type of online advertising, so they make the
money and not Google (which would if they used YouTube). Mashable was designed from scratch,
with no legacy structure dragging them back, so it is as fit for the online social media world of today
as it is possible for a news website to be. And everything on the site is mobile friendly because they
know that that’s how 60% of their visitors use the website. Yet, despite all these pluses, in 2016
Mashable made a loss of $10 million and the sale of the company for such a low price doesn’t bode
well for their financial results in 2017.
Up until now I always thought that a news website, properly adapted for the 21st Century, could be
profitable. Mashable proves that assumption to be totally wrong which means that legacy news
brands that are relying on online riches are in for a very rough future. Look at the chart above and
you can see that in the last eleven years the U.K. newspaper business overall has had to cope with a
near halving of its income. Although revenue from digital advertising and digital subscriptions has
grown, it is never going to make up for the loss of print subscriptions and print advertising for most
newspapers. And sadly, Mashable shows that even without vast investments in the atoms involved
in buying printing machinery and plant, an online news operation is not a route to gold but one of
huge potential losses.
Looking at the chart above now, I think my client recommendations, made well over a decade ago,
still hold. I basically said they should be prepared to manage decline and make money in bits and
pieces anywhere and anyhow they could. It really is a question of adapt or die. The newspaper
industry can never be as profitable or as large as it once was. Online the real money will be made
by Google as it directs the traffic and owns the software platform which runs the bulk of digital
advertising. As well as with Google, online newspaper advertising now has to be shared with
Facebook, which leaves even less for companies that don’t own an advertising platform.
U.K. newspaper groups haven’t been imaginative or bold enough in making money wherever they
can. I remember suggesting to one tabloid editor in 2004 that his newspaper could own football
online if they gave their website some serious investment, with all the opportunities for live events
and merchandising that that would eventually offer – but such ideas fell upon deaf ears. He
couldn’t see the extent of the tsunami that was about to hit his company. But other people have
been far more creative: In search of new opportunities presented by the Web, one Brazilian media
group has become the largest wine distributor in Latin America. How’s that for lateral thinking?
But despite what I have said so far, I would emphasise to all editors the importance of not giving up
on those people who still enjoy reading their printed newspapers - and there are many, many of
them. Some of this group may well be a declining breed but all them are still willing to pay for the
privilege of reading their papers, and they obviously find it acceptable to view printed advertising.
Such loyal readers should be treasured: they produce around four times the income that a digital
subscriber generates for most newspaper businesses. And in a world of bits and a fascination with
all things digital, it’s intriguing to note that unfashionable atoms can still make more money.