Newspapers Lack Business Model for Digital Presence

A new report from the Pew Center’s Project for Excellence in Journalism (PEJ) tells a gloomy story. Its main point is that the search for a new business model to revive the newspaper industry is making extremely halting progress.  The most startling revelation is that, on average, for every dollar newspapers earn in digital advertising revenue, they lose $7 in print ad revenue.  This data is based on the PEJ’s survey of six companies that own 121 newspapers, which shared private data about some of their papers’ financial performances.

“Executives at the 13 companies involved in this report confirmed that closing the revenue gap remains an uphill and existential struggle,” said Tom Rosenstiel, the project’s director.  “The most optimistic projections saw digital gains overcoming print losses within a few years; the most pessimistic held that it would never occur.  A number of executives said they did not know when it might happen.  Of the 38 papers that provided detailed data about their operations, not all were achieving growth in digital revenue.  Seven of those studied suffered declines for the last year for which they had full data.  One stayed the same year to year.”

According to Rosenstiel “Some of those we talked to seem frustrated and even uncertain about how to proceed. But we also found signs that, if you can break out of old cultural patterns, there is another way.”  Those newspapers showing signs of success “are those that have pushed harder to change their sales staffs, have pushed digital even at the risk of putting less effort into the old categories that pay the bills, have taken more risks — have fought against the deep ‘inertia’ that many of the executives describe.”

Despite the once-rosy outlook for digital advertising, the study says that has not happened, and that “cultural inertia is a major factor” as most newspapers are just not prioritizing digital ad sales.  As many newspaper executives noted, it’s not easy to shift focus to the digital side, especially when print sales still comprise 92 percent of overall ad revenue.  In terms of the future of newspapers five years from now, the executives said still would be printed and delivered, only less frequently, perhaps even only on Sundays.  Newspapers also would continue to be “diluted” as more layoffs empty out newsrooms.

“In general, the shift to replace losses in print ad revenue with new digital revenue is taking longer and proving more difficult than executives want and at the current rate most newspapers continue to contract with alarming speed,” the report said.

The report, which was issued on the day that the Los Angeles Times put up a pay wall, is ironic.  Ken Doctor, a prominent news industry analyst, said that he thought 20 percent of daily newspapers would have pay walls in place by the end of the year.  By making paying users register, the papers have the ability to gather more information about the reader, better positioning them to target online advertising at a time when print advertising is at its lowest point in 60 years.

Pay wall success stories are few and far between, and the number of doubters is legion.  “The average newspaper might sell online subscriptions to the equivalent of two percent of its print subscribers,” said Alan Mutter, a professor at University of California at Berkeley’s Graduate School of Journalism and a former top editor at the San Francisco Chronicle.  “It’s not turning out to be a very significant revenue stream,” said Mutter, who agrees with the pay wall in general but doesn’t think it will save many newspapers.

Steve Ladurantaye, Media Reporter for the Globe and Mail, notes that “The industry is caught in a trap, the report states, where declining print revenues provide most of the money but digital revenue is the only category seeing growth.  It’s reflected in their sales forces – where print ad reps outnumber digital ad reps 3-to-1.  ‘The shift to replace losses in print ad revenue with new digital revenue is taking longer and proving more difficult than executives want and at the current rate most newspapers continue to contract with alarming speed,’ the report states, adding that the executives they interviewed considered replacing print revenue an ‘existential’ issue.  The biggest challenge is that managers are convinced the ‘old way’ of doing things will salvage what’s left of their ad bases.  ‘Newspaper executives described an industry still caught between the gravitational pull of the legacy tradition and the need to chart a faster digital course.  A number of them worried that their companies simply had too many people – whether it be in the newsroom, the boardroom or on the sales staff – who were too attached to the old way of doing things.