mermigas on media

Newspapers will need natural Web transition

Consensus was voiced last week by leading executives from companies as far flung on the media spectrum as Google and Tribune Co. that the survival of newspapers depends on their ability to reinvent themselves online with new business models, the creation and execution of which continue to be lacking.

Behind last week's heady public remarks about the fate of what is perhaps the media world's most underestimated and challenged platform ? delivered at the World Economic Forum in Davos, Switzerland, as well as the Los Angeles Times newsroom ? is the brutal reality that these traditional companies must undergo the costly process of dismantling and replacing legacy operations and business models with those completely new and untried. They face greater, fatal risks if they do not.

Unfortunately, none of the media players sounding the charge for this immediate change quantified what's at stake, such as investment, revenue, profits and losses ? which are no small matters to publishing companies scrambling to bolster their shifting ledgers ? even though words, the most simple and universal of all media content, is their primary currency.

It is one thing to publicly concede that the Internet, in all of its awesome iterations, is the new industry standard that will come to be supported by all other forms of more traditional media, including newspapers' newsgathering and writing core. It is quite another thing to act on that new reality in ways that radically alter company business models, operations, mind-set, revenue and profits. The real story is how these new metrics and models are devised and play out.

A case in point: Tribune Co.'s James O'Shea, the new editor of its Los Angeles Times, has boldly offered an antidote for ailing newspapers everywhere: purge and merge print with Web operations, personnel and other overhead costs while it is still profitable (the L.A. Times made an estimated $240 million in pretax profits last year and is still recouping half of every $2 in revenue that print loses to its heavily trafficked Web site). O'Shea promises that the all-important financial and logistical details will follow.

That task is more formidable than it appears if you accept that print content of all origins will be viewed on a number of screens (computer, TV, cell phone, etc.) where they will fight with digital video for attention and support.

To that point, Google founders Sergey Brin and Larry Page, who would like to manage the pricing and sales of advertising on all media including newspapers and television, observed at Davos that newspapers' short-term competitive edge is one of style rather than substance: The printed word generally reads better on paper than on a computer screen.

On the other hand, it's not as if the Los Angeles Times, New York Times, Wall Street Journal or any traditional publisher can simply trash their inner workings to adopt the leaner and faster operating and financial structures of more nimble online competitors like Google and Craigslist, though some of it is occurring as a gradual migration to the Web. O'Shea characterized plans to fully integrate print and online as prioritizing "new standards for what we publish online that preserves our greatest asset ? the integrity of our newspaper," which will be "an effective backbone for Latimes.com." It sounds like every traditional publisher's call to arms.

The wild card is the economics and logistics of eliminating legacy costs and operations by making print a support for a core online businesses. The movement is being driven by the shared notion that having the most enlightened, enterprising print content doesn't matter if newspapers continue to be "Web stupid," as O'Shea calls it, or thinking they can simply transfer their increasingly challenged but still valuable content, advertising and marketing business models as is to the Web to accomplish even more in an interactive marketplace where different rules prevail.

Wall Street Journal managing editor Paul Steiger recently alluded to this transitional dilemma in Harvard University's Nieman Foundation Reports. "It is a blessing and a curse that because of the difference in advertising rates, a print reader is worth three times as much to a news organization as an online user," Steiger wrote. Dow Jones, the corporate parent of the Journal, has been fairly successful so far in its early effort to monetize readers in print and online and revamp its inner workings while gradually reducing its overall reliance on print by increasing its experimentation and mastery of the Web.

At its best, this is a learning process that goes beyond massive newspaper and other traditional media head count reductions and other cost cuts, which more than doubled last year from 2005 levels and are expected to continue climbing in 2007, according to job outplacement tracking firm Challenger, Gray & Christmas. It requires a complete makeover from the inside out, and from the bottom up. It requires a reinvention of the business, from the economics of content production and the creating and pricing of interactive advertising, to the exchange and application of video and data across all platforms and devices.

This is especially true of the newspaper business, which will top out at $72.5 billion spending by 2010, barely growing an average 1% annually, but still outsizing $50 billion Internet and mobile market spending by decade's end growing at 13% annually (half of it fueled by traditional media brand spending), according to Veronis Suhler Stevenson.

However, the interactive market remains so nascent and fractionalized that new business models can fizzle or diffuse before they generate distinctive new wealth. The Walt Disney Co.'s download arrangement with iTunes is worth less than $100 million of Disney's anticipated $700 million in interactive-related revenues in fiscal 2007, analysts say.

Newspaper companies still are in the earliest stages of contemplating public, private, local and even nonprofit ownership structures equally rooted in the unique characteristics of each: On one hand is the Web's speed, efficiency in providing virtually cost-free on-demand breaking news, transactional advertising, search and personalization, content storage and transfer; on the other is print's portability, support for contextual analysis, and serendipity, or the ability to scan and unexpectedly discover content users would not otherwise see.

Creating competitive interactive content, products and services requires not just a comprehensive understanding but an acceptance of and quick response to digital consumers' sophisticated curiosity, use of and interest in devices, platforms, content and transaction options. That alone will provide the foundation for constructing new, productive business models online. Despite last week's heightened public attention to the cause, there is not enough solid evidence of that occurring to support the promises and objectives of some of the world's most powerful newspaper empires.

Diane Mermigas can be reached at Dmermigas@aol.com.
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