Changing The Rules (Again) to Save Newspapers

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Changing The Rules (Again) to Save Newspapers

Many people are very fed up with the idea of changing the rules to save favored institutions - TARP, the bailing out of AIG, Citibank, GM, Chrysler and underwater homeowners at the expense of the companies and people who played by the rules has infuriated millions. The problem with changing the rules of the game is you never know when you should stop. For example, now that everyone else has been bailed out, the states too who have spent beyond their means are being bailed out meaning if you live in a state where you elected fiscally conservative candidates who spent wisely, your tax liabilities still increase because the administration is being forced by bailout momentum to save states which are bankrupt.

And believe me I understand the incompetence of state politicians as Connecticut, my home state is about to face bankruptcy - we have a week's worth of cash.

With this set up, understand why many are concerned when they hear that some suggest that now we need to change the copyright laws to save newspapers. I refer to a recent article which was penned by Eric Clemons and Nehal Madhani, from the Wharton School.

The general idea in the article is that fair use doctrine emerged as a way to allow society to benefit from being allowed to photocopy copyrighted material for the purpose of commentary or instruction but it did not take into account the fact that the Internet would push this doctrine to the point where newspapers are becoming less relevant. For example, recently I pointed out a few stories in the New York Times and gave them attribution and links but this action which I believe helps the New York Times is looked upon by Dr. Clemons as something which is potentially harmful.

Here is an excerpt of the article which is of great interest:

Using aggregators like Google and others, I can access essentially in real time the lead paragraphs of almost any story from the New York Times, the Washington Post, or indeed any other major news service. Not surprisingly, traditional print media publications are dying, and not surprisingly their owners' online dotcom alternatives are generating far too little revenue to pick up the slack; why pay for any content when the essence of everything is available immediately, and free, elsewhere.

It is worth pointing out that this paragraph may have more real and implied factual errors than any other one I have ever read. I had so many alarm bells go off in my head after reading it that I literally had to get up and take a break.

Let's start with the basics. Any news source can tell search engines that they prefer not to be included in their indexes meaning if the problem facing newspapers is having search engines crawl their content then they can solve it in less time than it takes to read this post.

Let's further address this statement:

Not surprisingly, traditional print media publications are dying

So the implication is that search engines by linking to newspapers with snippets of text are impairing the revenue which newspapers receive.

Now of course there is a smidgen of accuracy here but let's look at the real culprits which are spelling doom for the traditional sources of revenue newspapers have received.

Craigslist: Back in the day, newspapers made massive amounts of money from classified ads. TMC used to drop thousands of dollars per week to run such ads. Now we run ads for new hires on Craigslist as well as specialty job search sites which didn't exist a decade ago. As a result, newspaper revenue has dropped to levels not seen in over 40 years. Understand that snippets or not, search engines or not, this revenue is gone forever.

Real Estate Sites: Zillow, Homes.com, Trulia... The list of real-estate competition goes on but people are using the Internet instead of newspapers to find homes and rentals. Ask any realtor and they will confirm this fact. Again, this revenue isn't ever coming back.

Local advertising competition: Search engines are increasingly finding ways to use the web to bypass newspapers to provide a geographically targeted audience at reasonable expense.

Google Adwords: In general, you can use Google, Facebook and Yahoo for advertising instead of newspapers. The prices are lower and the results are available instantly and infinitely configurable.

Measurability: Print advertising is less measurable than the Internet. That is a fact. You can be fired for approving an ad which you can't justify. If you have statistics and analytics to show page views, clicks, leads and conversions you can not only keep your job, you can move up the ladder.

Obamanomics: This strange brew of socialism, statism and the worst parts of communism wrapped into a slew of "demonize the successful" speeches and interviews being given by Barney Frank, Howard Dean and President Obama are keeping the wealthy from spending, investing and hiring and this in turn has major adverse consequences on employment and business. On top of that add the alternative minimum tax which will apply to just under 30 million people next year. Oh, and on top of that add increased healthcare taxes which by the way are responsible for increased healthcare insurance costs which have further crippled the economy. Who can you blame for helping to elect an administration which is the most unfriendly to business and employment most of us have seen?

The newspapers of course.

In total, 495 newspapers reaching 41 million people endorsed Obama compared to the 215 papers reaching 13 million who endorsed McCain. There is an expression which comes to mind; you've made your bed, now lie in it.

Oh my God, this one paragraph is the gift that keeps giving. I believe Dr. Clemons could spend a whole semester going over all the ways in which it is wrong.

not surprisingly their owners' online dotcom alternatives are generating far too little revenue to pick up the slack

Whoah - "not surprisingly?" Let's investigate this statement. According to comScore, newspapers were read by 123 million households this past May. That is 57% of the total US Internet audience. But I am confused... A university professor from a prestigious institution told us that online newspaper revenue is not picking up the slack and it isn't a surprise. The implication is that consumers don't need to pay for something they get for free. But here is the rub... Printing and delivering newspapers is generally an unprofitable business. You could pay $5 for a big Sunday newspaper which costs $25 dollars to print. For virtually all magazines and newspapers, printing and delivering loses money meaning the revenue from subscribers does not cover expenses which are paid to paper mills, printers and shipping companies and/or the post office. So for newspapers or anyone else to expect to make money up by charging people for subscriptions is lunacy. They should just be happy people are visiting their sites online in such large numbers and find ways to monetize these visits.

Of course this can be challenging and that is the big problem for all media companies. Consider that about ten years ago companies charged somewhere around 10 cents or more per ad viewed in print. Now, typical online ads go for about 0.25 cents per view. Ironically, newspapers can charge almost three times the Internet average at 0.7 cents per view.

So wait, almost 3 out of 5 US Internet readers visit newspaper sites and the newspaper companies are able to charge Porsche-like premiums - then why the "not surprisingly" comment?

The reality is there is something called margin compression going on meaning all companies need to find ways to pare expenses because selling products is less profitable than it used to be. After all, 15 years ago you couldn't use the web to research the lowest price - it took time and money to save a buck. Now the Internet does it for you and there are even Web sites such as Bing which tell you when to book a flight to pay the absolute lowest fare. Priceline is another margin compressing service worth mentioning.

Bottom line: There is less margin in sales and as a result there is less left over to share in marketing budgets.

The question worth asking - and one any sane newspaper business person should ask is what line extensions and new product launches have newspapers attempted to buck the trend of lower revenues? Why is the innovation coming from Google, Facebook, Twitter, Linkedin and others?

What gets me in this article is the abdication of personal responsibility which has become so prevalent in our society and endorsed by our government. As difficult as it is to swallow, each of us (including corporations) are responsible - for the most part - for our lot in life. Of course there are some exceptions - for example if a newspaper is located exclusively in Chicago or Las Vegas where the economy is extremely poor, you have a tougher situation on your hands.

The point? Every business has challenges at some point. There was a time we thought both IBM and Apple wouldn't make it but both companies transitioned themselves to success.

The article goes on to suggest a "hot news doctrine" which could not allow anyone to rereport a story for up to one week. So if something happens in the world, the first source to report on it will win.

Let's explore the stupidity of such a measure for a moment. A Russian weekly magazine reports on the drought in Russia which is severely affecting the wheat crop of the nation. Under this scenario it seems Bloomberg would not be able to report on the story and its implications on the wheat futures market meaning traders lose out. In addition, farm magazines could not alert US farmers that they need to order extra fertilizer to allow them to keep up with the likely increase in wheat demand. So what we have is a massive and instantaneous loss of perspective on news reporting.

Here is another potential pitfall... What if the majority of US readers are inclined to enjoy the news reporting of the Financial Times or BBC and this further erodes support for US newspapers who could potentially have a disadvantage in reporting European news which has been so in vogue as of late?

In other words we are trying to come up with a set of new laws to force people to rely on news sources they may not want to rely on. The law of unintended consequences could end up putting a stake in the heart of many a paper.

The Internet is a democracy - pure and simple. Five years ago the site Mashable did not exist and today it is ranked in the top 281 of all sites surpassing most newspapers. Nobody had to change the laws to make Mashable successful, the company brilliantly reported on the emerging trend of social media and rapidly became a crucial site which is turned to by millions.

What I have learned as a person who has transitioned a purely print media company to an integrated media organization is that the news reporting organization of the future must embrace not just excellent editorial but it must integrate solid content with state-of-the-art SEO optimized backend content management systems. Moreover, media companies must constantly evolve their product lines and provide customers with solutions they have budgets and a need for. Lately, SEO, social media and lead generation are areas many advertisers are focusing on. Where do newspapers stand in these areas? Do they provide products to match these budgets? Are they innovating? Can you honestly say they are experimenting with new media in areas where budgets exist or are they just following each other like lemmings as they provide tablet-versions of their content in the hopes that they will win media Lotto?

Dr. Clemons has a biography which explains he "focuses on helping clients anticipate the fundamental impacts information technology will have on the structure of their industries and on helping them develop a range of strategies to deal with the changes to their industry." One would imagine he should be teaching them the above survival and growth concepts and help them thrive. Instead it seems he has thrown in the towel saying all hope is lost and we need a government legislative bailout.

I remind my readers once again, this country and every newspaper in the US is here today because of the free market system which always allows the best and brightest to succeed. Yes, these companies now have to compete against a slew of hungry startups but the result is a win for consumers as the ensuing competition will continue to wipe out the newspapers who aren't web-savvy enough to have determined their Internet strategy by now.



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