Examining an uncertain future for newspapers

The Pew Research Centre’s Project for Excellence in Journalism has released a new study examining the business models of newspapers and how they are adapting to a digital world. Belinda Alzner examines its findings, the ways that newspapers in the U.S. are adjusting their methods accordingly (or not), and why Canadian newspapers may be faring better.

The Pew Research Centre’s Project for Excellence in Journalism has released a new study examining the business models of newspapers and how they are adapting to a digital world. Belinda Alzner examines its findings, the ways that newspapers in the U.S. are adjusting their methods accordingly (or not), and why Canadian newspapers may be faring better.

“Uncertainty” is the final word written in a new study from the Pew Research Centre’s Project for Excellence in Journalism. It’s a word that adequately sums up the sentiment of more than a dozen newspaper executives interviewed about the state of the newspaper industry in the United States and their search for a workable business model.

Nearly 20 years after news first began appearing online, executives still struggle to adapt to a changing industry. In this report, they identify two major issues that need to be addressed in an increasingly digital climate: changing the culture of news organizations and generating revenue, especially in the post-recession era.

The study does not purport to be scientific, and it is not without shortcomings that are worth identifying, if only to continue the conversation surrounding newspapers in a digital era.

Data from the report was compiled from 38 newspapers at six newspaper companies. Interviews were conducted with executives at seven further companies to get their take on whether the data provided by the other six reflected what was happening at their companies and what the numbers said about the current state of the industry and its future.

Combatting culture

The evidence gathered by the folks at Pew supports a hypothesis that has been widely discussed for some time: There is a resistance to changing the culture within news organizations.

Officials at 10 of the 13 companies said their biggest challenge was the continuing tension between people in their organizations who are advocating a more aggressive digital approach and those more aligned with the legacy tradition. In essence, they described a conflict between going faster and going slower.

The reason that culture change is so difficult in any company, one executive says, is because no one person truly has the power to change it.

“You can change CEOs, executive VPs, digital VPs. You can wave this magic wand all you want. But at the end of the day, the troops in the field hunker down. From our company, and I would venture for other organizations as well, the most difficult thing to do is change it. ”

Paul Knox, an associate professor at Ryerson University who has been in the industry for over 30 years, agrees with this statement, in part, saying that while it’s valuable that executives are noticing a challenge to change culture, their take on things is only part of the story. “If you’re going to talk about a culture change and you’re going to talk about what the culture is, you have to talk to the people who make up the bulk of that culture,” Knox says. For the purpose of this report, one which spends such a great deal of time lamenting an apparent resistance to change in the industry, perhaps the opinions of those who make up the industry would have been valuable to seek.

As for why it’s so hard for those people to change: Some of the leadership in newsrooms comes from those who were around in the heyday of news monopolies and 20 per cent profit margins, the report states. And those days are gone. As one executive explained: “We haven’t needed innovative people … you get what you need. The kind of people who came into this industry were more operationally focused, executors instead of innovator risk takers.”

Some of this resistance may be warranted in the eyes of some, the report finds, since print is still bringing in the vast majority of the revenue, despite an effort to go digital. As one executive put it: “We spend 90 per cent of our time talking about 10 per cent of our revenue.” Read: it is a lot of effort for little payoff – the report liberally uses terms popularized by Digital First Media CEO John Paton, namely “print dollars” and “digital dimes.” Knox says this is not encouraging the sales staff – who may work on a combination of salary and commission – to change.

The idea that people are resistant to change is one that Knox has trouble with in general, though. “If you go into any office and say to people: ‘is there anything around here you’d like to see changed?’ they would reply that there are a ton of things,” he says. “It’s not change they’re resistant to, but change they don’t understand … that they’re not supported with training and resources in the transition.

“It’s natural to resist in those circumstances because to roll over and accept it will have an impact on your [earnings]. And nobody is going to do that.”

On digital advertising

Of the newspapers interviewed by the Pew Center, 84 per cent said they had formal digital ad sales training programs in place, and executives agreed that their advertising sales staff needed to change.

One of the broadest findings in this research, indeed, is the degree to which all of the executives talked about the need to re-train and re-tool sales staff that had been trained to sell print advertising.

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The significance of these efforts cannot be overstated, according to the executives interviewed.

But even with the training, if the proper incentive programs to reach digital ad targets are not in place, salespeople will have a hard time changing their practices. “For ad guys, more than editorial, the culture change is going to have more of an impact on their take-home pay,” Knox says. And while some may take home mixed earnings of base pay and commission, “the portion that is commission is the difference between getting by and doing reasonably well,” he continued.

In the report, executives said they were still “trying to figure out how to best integrate digital-only sales people with their traditional sales personnel,” though many had mixed incentive programs in place where traditional print salespeople were not able to attain a maximum bonus without hitting a quota of digital sales as well. One explained that they used a much higher commission rate on digital sales than print (20 per cent versus 8 per cent).

But for advertisers, Knox says, digital ads in legacy media may pose a problem, because it has not yet been demonstrated that there is a payoff in the investment. “People are more attracted to investing in startups because there’s an idea that new money will be directed toward something new, rather than directed toward … cleaning up the messes left behind by history,” Knox says.

In the report, executives noted that they were also having trouble attracting talented digital ad salespeople due to the perceived state of the newspaper industry as being “deeply troubled.” Another issue that is prevalent in small markets for digital salespeople is that they have to do double the work: they must first explain digital advertising approaches to clients and then convince them that they’re worth trying. They are, according to the report, “tasked with selling both the concept and the product—at least until businesses become better acquainted with the new world.”

Small papers have had the hardest time adopting digital practices and developing alternative revenue streams, according to the Pew report. Knox says he has a hunch that for this small, local majority, going digital may not yet make sense for advertisers.

“You need a certain reach before digital starts to make a whole lot of sense [for advertisers],” Knox says. “Why would you invest a whole lot in a digital advertising campaign rather than a local newspaper that would probably reach more eyeballs?”

The two examples the study cites that did well in producing digital revenue were papers with large circulation in metropolitan areas — which is the opposite of most newspapers in the United States, which have a circulation under 25,000.

The report also notes that while sales staff may be trying to sell digital ads, they’re often sticking with selling the types of ads they’re familiar with: Display and classifieds — the kind that worked in print.

Sales representatives tend to sell what is familiar and what for now yields the largest returns. Yet those categories are not growing and have already proven to be insufficient to keep up with losses in print. And in the future, they are expected to be eclipsed by new categories, particularly targeted advertising.

Targeted advertising – or smart advertising, as it is also referred to as in the report – are customized based on consumer online behavior.

The data also show very little change or movement toward these newer categories. There was minimal change in the percentage of digital revenue coming from smart and video ads in 2011 compared with a year earlier, when on average, smart display once again accounted for 4% and video accounted for 1% of the overall digital revenues.

Two examples had success with this targeted ad approach – though it was unclear in the report if these two are different than the two companies having success with digital in general. One had almost as much digital revenue from targeted ads as from conventional display ads and was a larger paper that came close to closing the gap between print losses and digital gains. The other was also a large paper – nearly 250,000 circulation – in a major metro area. It was among the minority of papers that reported making a major effort to sell smart advertising. Or, as the report says, “In other words, its success in selling targeted ads was not an accident.”

But, once again, large newspapers in major metro areas are the exception in the United States – the majority of its papers are small, less than 25,000-circulation papers.

Some things that would be nice to know…

The report was commissioned under the fact it would provide newspaper companies with anonymity. However, one news executive who has often publicly spoke of the success in the digital realm for his newspaper chain is John Paton, CEO of Digital First Media, which operates The Journal Register Co. and Media News Group, and is the second-largest newspaper company in the U.S.

Knox says that knowing whether or not Paton was a participant in this survey would be telling in a number of ways.

The discourse of this study stresses the need for culture change in legacy news companies. If Paton was a participant in the study, then the data demonstrates a very different discourse from what he states publicly, Knox says. And if he wasn’t a participant, then there are a large number of newspapers whose voices could speak to digital success that are missing from this study, which has garnered buzz since its release on Monday.

The report also makes little to no mention of social media, and notes that there is still much unknown about mobile revenue. These are two areas that are becoming increasingly important and the topic of discussion when it comes to the business and ethics of journalism. The report may have benefited from an increased emphasis on these areas as a way to look forward into digital journalism.

Finally, it also does not examine paywalls, which as Mathew Ingram notes, many companies are now using to boost their bottom line. 

The picture in Canada

The study, of course, takes into account the current newspaper climate in the United States. Here in Canada, things are a bit different; it has been reported that our newspapers are faring a bit better.

A post published last May by Sandy MacLeod for the International Newsmedia Marketing Association laid out some of the subtle differences in business practices that may have helped Canadian newspapers.

MacLeod, who is the vice president of consumer marketing and strategy for the Toronto Star, points out first that the 2008 recession was like a “perfect storm” for U.S. newspapers. In Canada, we fared a bit better in general when it came to the recession. As well, the U.S. retail market was much larger in those 20 per cent profit margin “hey days” that the Pew report speaks of. With the consolidation effect of Wal-Mart and Macy’s, there are effectively less advertisers for the newspapers.

He also points out that a colleague who has worked in mid-size markets in both Canada and the U.S. noted that the increased competition in Canadian cities – having multiple major dailies instead of the one or two in the way U.S. cities do – forced him to be “more on his game.”

As well, Canadian newspapers use NADbank (Newspaper Audience Databank) data to measure their relative success. This success is measured by readership, not circulation, the way that legacy companies do in the U.S.

The 2010/2011 NADbank Fall readership study released in September of last year showed that readership in printed and online editions of newspapers was remaining steady and that at least 75 per cent of adults read either a printed or online edition of a daily newspaper each week in major cities.

To sum it up

It’s news to nobody that the nature of news is changing.

The report from the Pew Centre identifies two areas that need to be addressed, surely, but the manner in which they should be is still uncertain. As the report concludes:

The people who run the newspaper industry are unsure of where it is heading or what it will look like.

These executives stand on the front lines of a business that is also a civic institution, that has a larger purpose than making money, and that prospered for so long that its success was an impediment to innovation.

All that has been radically transformed in less in than a decade. The high water mark for newspaper employment and profitability came in 2000, a mere 12 years ago. The change since then is breathtaking by any measure, and it was hastened by the worst recession in 80 years, a recession that for newspapers has not eased.

Belinda Alzner