Mostly, people complain that newspaper content is available on the Internet for free, so subscribers need not subscribe any longer, even though in reality circulation revenues were usually not more than 20% of total revenues. Or, more importantly, that classified advertising, the largest profit contributor of any newspaper, has been outdone by the efficiency of transactional web sites for homes, autos and jobs. Then there was the retail consolidation of big box stores, who hardly advertise, and chain department stores (only one advertiser rather than three or four). And the many new alternative ways in which a local merchant can advertise — see Google, Facebook, and Bogopod, to name a few. (Disclosure: I am an investor in Bogopod). Still, what few realize is that most of the newspapers that have actually gone “belly up” have been afternoon papers or ones that were owned by overly leveraged companies.
But one of the underlying reasons of this massive change in “newspaperdom” doesn’t get enough attention: the demise of geographic exclusivity. In the good old days, when I was a newspaper executive at the Los Angeles Times, newspapers “owned” a market. What did that mean? It often meant we were “the only game in town” for both editorial content and advertising; which, in turn, meant, lots of cash flow and extraordinarily high profit margins. Newspapers are capital intensive entities. It takes a lot of cash to build a printing press, but once built, the barriers to entry for others were so very high, that you had a near geographic monopoly. Newspapers worried about competing in neighboring geographies, but not about someone from overseas or across the country invading their core territory.
So if you were a reader in Fresno, California, your only choice for local news was the McClatchy newspaper or the TV stations (which generally didn’t do a very good job on news other than car chases and crime).
And if you were a merchant in that same town, you had limited advertising choices, the newspaper which usually had the greatest reach, a TV or radio station, or perhaps direct mail. That was it. The newspaper “owned” the market.
The Internet ended geographic exclusivity. Now you can get news from all over the world. You don’t have to rely on the foreign correspondent of the Los Angeles Times stationed in Jerusalem or London, you can quickly find a more comprehensive take from the Jerusalem Post or the Financial Times, and have it brought directly to you on your iPad by Pulse, Flipboard, Trove, or StumbleUpon.
More important even than the readership problem, and, the real reason the local newspaper business model is dying is that advertisers from around the world can now reach you directly. They can advertise directly to you and deliver their product directly to you. I still remember department store executives marveling at how powerful the Los Angeles Times was in this era, they could promote a sweater on the pages of the paper, and they would sell out of sweaters the next day. The consumer had no other place to go…to hear about the sweater, to see it or to buy it. Now, the consumer can get to the sweater directly, on a multitude of web sites, use search to find it (and see advertising about it), see what other sweater owners think of it or even get a 10% off coupon by email.
Without geographic exclusivity, the newspaper business will never be the same. Advertising will simply not return to its rich levels. Newspapers may survive, but in a very different form, with less information, less frequency, and less impact. The challenge, of course, is to figure out new business models to support the important journalism that newspapers provide. Well, that’s for future posts. Got any ideas?