Industry, digital metamorphosis at mid-point

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Posted: Sunday, April 8, 2012 2:32 pm | Updated: 3:10 pm, Sun Apr 8, 2012.

The U.S. newspaper industry is in a battle that, if successfully waged, will mean the salvation of a business that has educated and informed readers for hundreds of years.

Win, and the industry’s economic fortunes are assured.

Lose, and well, the industry can’t afford to lose.

The fallout from the transformation, as industry observer and Outsell Inc. analyst Ken Doctor wrote in early March, is impossible to miss: “We’re not there yet, but publishers are starting to sense that the time when their business models become more about digital and less about print gets closer every day,” he said, adding that the transition to a “heavily digital/somewhat print” world means billions of dollars to content creators and distributors. “Get it right and you win the prize: America’s Next Top (Business) Model.”

Indeed, the clarion call to publishers to redefine their business strategies in the wake of the country’s embrace of digital communications has not gone unheeded. Almost every major U.S. newspaper, as well as hundreds of smaller ones, has a stable of mobile apps tailored to tablet and smartphone users. Schurz Communications, for instance has more than 40 mobile apps, said Mobile Director Sandy Martin, as the publisher of small and mid-sized dailies such as The South Bend (Ind.) Tribune and Imperial Valley Press in El Centro, Calif., extends its reach to multiple audiences.

At the same time, U.S. newspapers are launching a broad phalanx of digital subscriber initiatives, ranging from replica editions to Web content fees, in order to offset the loss of print subscriber revenues. More than 150 newspapers now charge consumers to read their online content, according to News & Tech research.

The New York Times and The Wall Street Journal each has hundreds of thousands of subscribers who pay for online access. It’s too early to tell how successful digital initiatives will be for other large metros such as The Dallas Morning News, Los Angeles Times and Chicago Sun-Times, but there is little question that the era of unfettered Web access has come to an end.

But making the journey from print-centric to digital-centric is not without risks. As Doctor writes, “How do publishers play the crossover game? If there were a magic formula, publishers would happily buy one. Yet, the crossover is so complex and so fast-moving that we are reminded of Einstein at the blackboard, and his observation: ‘We can’t solve problems by using the same kind of thinking we used when we created them.’

“A print-to-Web translation: Simply counting dollars, subscribers, pageviews, and unique visitors won’t get us to crossover.”

Neither will delivering the same type of content that papers now create, said Rick Stevens, an assistant professor of journalism and mass communication at the University of Colorado.

“Newspapers have to change how they cover events and retool the connection between content and their business,” he said. “I’m not sure if papers really understand the significance of the digital transformation. It’s rethinking the entire reporting and data collection model.”

The university, he said, is working with the Daily Camera in Boulder to refine how to the paper deals with coverage. The newspaper, part of Digital First Media’s group of publications, is undergoing its own transformation as DFM CEO John Paton pursues his company’s “digital-first” strategy.

“It’s a fundamental reconfiguration of how journalism is supposed to work, and how the business model works. It has to be smaller, flatter and more nimble.”

The debate occurs even as publishers find themselves remaining dependent on their print legacies. Despite the growth of digital advertising overall, the amount of digital dollars flowing to newspapers is still only a fraction what’s needed to sustain operations.

Diversify digital revenues

Despite the newspaper industry’s efforts to attract more digital advertising, in 2011 those revenues still only accounted for less than 15 percent of the $24 billion in ad sales the industry chalked up, according to the Newspaper Association of America.

That realization is forcing publishers to reconsider where and how digital ad sales fit within their overall strategies, and to determine where else digitally fueled revenues can take root and grow.

To a growing number of publishers, the next generation of digital revenues will flow from services, housed in-house agencies, designed to offer a wide range of website and marketing services to small and medium-sized businesses.

Gannett Co. Inc. and A. H. Belo, for example, in March said they would create organizations aimed at SMBs.

For its part, A. H. Belo will spend $3 million to create a new unit at The Dallas Morning News to target the business segment. The unit, called 508 Digital, will be staffed by 50 people who will sell Hearst Media Services’ LocalEdge suite of apps and services.

The publisher expects big things from the venture: revenues in excess of $20 million by 2014. The Morning News is the first non-Hearst property to use LocalEdge, joining papers such as the Houston Chronicle, San Francisco Chronicle and Times Union in Albany, N.Y.

Gannett said it expects its SMB initiative to generate up to $350 million in annual revenues by 2015.

GateHouse Media Inc., meantime, rolled out Propel Marketing, a unit separate from the newspaper operation, that’s also aimed at SMBs, said Kirk Davis, the publisher’s president and COO.

“This is where the market is growing,” he said at February’s Key Executives Mega Conference in San Antonio. “Fail to offer these types of services at your peril.”

Propel, based in Quincy, Mass., has a staff of 28 so far, but Davis said the unit will add more employees as it attracts more business.

In addition to Propel, GMI launched a private ad exchange, called AdHance Media, that’s geared to companies that want to transmit targeted ads to readers on newspapers’ websites.

“This reflects the power of advertising technology,” Davis said of the exchange, which is powered by software from Cascade Media. GMI also uses software from DataXu to permit it to custom ads to online readers, a process Davis said was key to the industry’s future. Generic, banner ads won’t sustain a newspaper’s operations, he said. “It’s dangerous to wait. Publishers have to be invested in these profoundly important ad technologies now; they have to be in it.”

Marshalling forces

It’s not just big groups and dailies exploiting the services business. Both The Kingsport (Tenn.) Times-News and The Elkhart (Ind.) Truth have launched initiatives aimed at getting revenues from operations that go well beyond selling digital ads. Times-News Publisher Keith Wilson said the paper’s Times Digital Services now has 60 clients.

“We expect to place more emphasis and more work in that area,” he said at the Mega Conference. “The competition is tough, but it is an area where the need is.”

In Elkhart, Truth Publishing created a company called Engage Michiana to sell businesses services that range from maximizing SEO to posting videos on YouTube, said Publisher Brandon Erlacher. “This gives advertisers a whole range of services that they might not be able to do themselves,” he said. “And it’s all tied into (the newspaper’s website) eTruth.”

The key to these initiatives: the ability to manage data and provide advertisers with the information they need to reach their customers. And if newspapers can get a handle on that, proponents say, the industry’s migration from print to digital might be much less bumpy.

Case in point: The Pittsburgh Post-Gazette, which recently retooled its website and also launched the second iteration of its self-service SEO product.

Pat Scanlon, the Post-Gazette’s director of digital strategy and business development, says RankRocket represents the next generation of digital services to be offered by the daily, which offers a stable of smartphone, tablet and niche-specific apps websites and video programming to its readers.

“We need to be solution providers, not just ad sellers,” Scanlon said of the offering, through which companies can measure the effectiveness of their websites. “Our greatest brand equity is trust, an effort like this meshes perfectly with our brand equity and what our customers need.”

The daily is also backing another digital initiative, this one aimed at smaller newspapers that can’t afford the mobile development technology needed to participate in national ad networks. The Block Entertainment News Network, Scanlon said, provides these newspapers with a CMS and other digital development platforms for smartphones and tablets they can use to attract the attention of larger advertisers.

Caught in bind

“The technology we have we paid for, but smaller papers are caught in a bind; they are geographically focused and technology moves quickly and is expensive,” he said.

BENN is offered to papers at no charge; the Post-Gazette shares any national ad revenues generated while the newspapers collect 100 percent of any local mobile ad revenues. The first group of BENN papers went online in March.

“The key is data first, not just digital first,” Scanlon said. “As a company, we have embraced that, and we as an industry need to get to our roots to exploit the data we have. It’s critical that we create businesses we can leverage.”

In the meantime, the agony that many newspaper publishers, editors and reporters are experiencing isn’t likely to go away soon. “It takes a generation to get technology through society,” said the University of Colorado’s Stevens. “What the industry is experiencing now (from the impact of the Internet and digital communications) is only half-way through the process, and a lot of the frustration publishers are experiencing is because they are in the middle.

“What I’m interested in seeing is what the newspaper industry will be like 15 years from now.”

Stevens, and everyone else.

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