Cash Cows or Entrec ô te: The Influence of Interdependency on Physical and Virtual Newspapers

1. Cash Cows or Entrecôte:The Influence of Interdependency on Physical and Virtual Newspapers Robert G. Picard Shorenstein Center, Harvard University Media Management and Transformation Centre Jönköping International Business School Jönköping University, Sweden

2. A Bit of Context Percentages of Total Global Value Created by Various Media PricewaterhouseCoopers, 2005

3. Newspapers are a mature industry • characterised by stagnant markets and cost concerns • newspaper markets are being disrupted by electronic media and new digital media • audience and advertiser behaviors toward these media are the driving forces of change in the newspaper industries • environment requires thought about how newspaper companies will survive and grow in the future

4. 5 most important trends/issues • erosion of the audience base • erosion of the advertising base • online and broadband capabilities (fixed and mobile) and digital television are creating changes in information and advertising choices • employee morale has eroded and stress is rising • owners of capital see more opportunities for asset growth and sustained profits in other industries

5. Factors Affecting Sustainability Protectionist Forces problems with substitutability customer resistance to change structural control of resources Production Forces availability of raw materials capital costs labour costs energy costs taxes transportation/distribution costs Market Forces consumer demand advertiser demand total revenue available demographic and psychographic changes competition Sustainability Social Forces environmental demands political/legal demands cultural/social demands Technological Forces availability of technology user adoption of technology Managerial Forces organizational effectiveness productivity financial control innovation responsiveness to change labour relations reinvestment

6. Biggest challenges come from newspaper audiences • audiences are at the heart of change in print media • audiences for print media are growing older • readers are reading fewer publications • readers are spending less time reading • income and education levels of print audiences are rising

7. Increasing choices and use patterns reduce time spent with newspapers • newspapers are just one of many choices for news/information and diversion/entertainment available • audiences increasingly view all media as having same functions • increased competition for audience attention • younger people use media differently than older persons

8. Readership used to be a function of age,now it is a function of generation Generational Reading Gap % reading 0 10 20 30 40 50

9. Newspaper readership over time How must the business model change to permit survival? television industrial revolution urbanisation literacy ? 1700 1800 1900 2000 2100

10. Advertiser choices are critical to newspaper industry developments • newspapers have one of the largest shares of advertising expenditures • In many developed nations it is still number one • newspaper share of total advertising is declining • real expenditures for newspapers are rising but have slow growth rates • the primary sources of newspaper advertising revenue are shifting --retail advertising is not as important as in the past --classified advertising is driving growth

11. Changes in Global Ad Expenditures 1995 and 2004

12. Global Online Advertising • About 3 percent of total advertising expenditures • Limited use by most traditional advertisers • 10 companies provide 74% of global Internet advertising • 50 companies provide 97% of global Internet advertising • Biggest use by computer and software firms, financial services firms, and direct mail retailers • Biggest users are not direct competitors to newspaper advertising • Migration of classified advertising is removing the source of growth for newspaper advertising • Especially employment, real estate, and automobile advertising

13. Strategic Choices in Changing Market Conditions High Market Growth growth management service quality management increased marketing product development Declining Market Share Increasing Market Share some newspapers majority of newspapers innovation/new product development diversification planning for market exit or capital withdrawal innovation strategic planning diversification Low or Negative Market Growth

14. Product Development Activities • improvement of existing products/services • redesigns, content changes • reposition existing products and services • brand development, features contrasted to television, online • additions to existing product/service lines • online newspapers, mobile services, cross media • establishment of new product/ service lines • free newspapers, speciality newspapers • market introduction of completely new product/service • syndication, advertising services, new distribution services

15. Protection Core Newspaper Readers are Not Migrating to Other Media • TV network news viewing is half what it was 20 years ago • Cable TV • Less than 10 percent of Internet use involves news and most news use involves reading headlines on portals • Core readers are supplementing print with online

16. Protection Primary Source of Advertising is Dependent Upon Newspapers • Retail advertising is the most important category of advertising • Retail advertising is linked to specific localities • Retail advertising messages require types of content not easily conveyed by other types of media

17. Protection News Production Globally is Dependent Upon Newspapers • Physical newspapers are the base of the business model for all news agencies • Newspapers are the primary provider of news and information for news agencies • Internet and mobile news is dependent on agency or newspaper provided news

18. New Understanding of Online, Mobile and Other Opportunities • Not longer seen as freestanding, competing news operations • Not seen as necessarily requiring profitability in short term • Not product extension as in creating a separate free standing product • Potential for new revenue stream • Limited, some advertising but not with potential of print, cross subsidized and consumer funded • Consumer funding requires more than mere mirroring of print content; requires some uniqueness and exclusivity • Trend toward blending of print and online newsroom operations • Creation of additional new online and mobile services not linked to the newspaper core • Usually not co-branded with the newspaper

19. Newspaper advertising shares are declining in developed nations • but the advertising pie is growing larger • patterns in nations with multiple commercial media indicate that average newspaper share of advertising will be less than 20 percent share in 20-25 years • current lack of additional television frequencies limits significant growth of TV advertising • growth of interactive advertising media • special threats from searchable online classifieds and notification services

20. New technologies are all threats to the newspaper industry • CD-ROMs • web publishing • information services • wireless applications • interactive television all provide substitutes for some communication functions of newspapers all are nibbling away at the reader and advertising bases

21. How soon will new media seriously harm the newspaper industry? • as soon as readers and advertisers switch in large numbers • numbers are not too damaging now but are increasing steadily • incremental changes in use and funding can be expected • no “sudden” shift • will require changes to newspaper company business models and strategies • changes need to begin now

22. Consumers are being asked to make new expenditures for media and ICT • hardware: DVD players, computers, Internet access, widescreen TVs, interactive digital television, digital audio broadcasting, mobile Internet, etc. • software: DVDs, software, ISP payments, pay-per-view, phone charges • to purchase the range of options currently available will require at least tripling household expenditures for media and ICT

23. Newspaper firms cannot “grow” out of the situation and must find transition strategies • need to adjust to the new environment • continuing defence of strong position as advertising providers • transition strategies • defensive movement into new media to keep others from dominating • offensive movement to seek new media business opportunities built upon the print core • gradual erosion of newspaper financial base can be replaced by growth in new media and ICT operations • transition time will be shorter for national and metropolitan newspapers than for smaller local newspapers

24. The key question for publishers How does one keep from sacrificing a firm that will produce revenue for many years by changing too rapidly into a firm that will produce limited results for many years

25. Calling in the butchera financial model revenue from combined operations costs from combined operations costs of the print operations revenue from new media operations revenue from print operations Conventional point for taking the cow to the abattoir

26. robert.picard@ihh.hj.se