Whither press
in the ‘digilogue’ world?
The digital communications revolution has exploded exponentially over the last two decades. It has intimately entwined media within, around and beyond analogue components. The old debate of analogue versus digital as discrete, separate and parallel communications processes is no longer valid. This digital liberation from the analogue paradigm has had far-reaching and continuing effects on the way information is researched, created, shared, sold and consumed across time and space. News is no longer a product exclusively generated from established institutional constructs of press, TV and radio. Audiences are no longer waiting for time-programmed news updates as interpreted by and limited to, these channels. News is available FREE from global portals as a by-product of broadband and mobile phone subscriptions. General news has been commoditized. The supreme irony here is that newspapers are the primary source of free news offerings from the global portals! It was revealed by Cyril Pereira in his address to the 20th Asian Media Information and Communication Centre (AMIC) Conference 2011, held in Hyderabad, India on the UNESCO sponsored plenary panel. Excerpts.
Cyril Pereira
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What was the legacy of Press? For 250 years, press was the primary means of gathering, organizing and distributing to the citizenry, the previous day’s news. It was always a record of yesterday’s events. Press had more space and wider range for content beyond the restricted formats of Radio and TV. It had a physical reality which allowed referencing and sharing. By default, Press remained the primary medium of record for any society. It was the key tool of political influence. Mainstream news processing has a rigid hierarchy of filtering from news desk (gathering) to selection and length (sub-editing) to position (by section), constrained by page allocation to national, international, sport and social content. At the centre of the process was the editor as the final arbiter of what was newsworthy, how much prominence to give particular content and which items of news would be ‘buried’ or blocked out, whose photograph would get front page prominence, etc.
A ‘loyal’ press is not expected to give space to those who question the establishment. There is no concept of media accountability to citizens. The primary role of Press was to entrench incumbent power structures and advance their agendas. In jurisdictions of ‘managed media’ where competition is blocked off through license controls and other blunt tactics, favoured newspapers could be highly profitable while serving the power elite. That can prevail as long as alternatives to information flow are absent. Now many of these newspapers across developing countries are embarrassingly exposed where the internet, mobile communications and social networks are actively used for alternative news and views. They are confronted by a credibility crisis which they and their sponsors are struggling to deal with.
Addictive reading habit, wastage model for advertising
Generations of readers started their day with morning coffee and their daily news ‘fix’. It was an addictive relationship played out in homes throughout society and continued over the increasingly longer public transport commutes to work from suburbia. Advertisers found this addictive relationship and relatively longer exposure to commercial messages, cost-effective. The metric was the ‘cost-per-thousand’ or CPM in media-planning jargon. Newspapers with the largest circulations had the lowest CPMs. If they also had reader demographics with higher comparative purchasing power, they could charge premiums over competitors. Most metropolitan newspapers artificially lowered their cover price below cost of product, to grow circulation so they could ratchet-up their annual advertising rates. Dependence on advertising became the formula to make up the shortfall in product cost, overheads and yield handsome profits.
Advertisers largely targeted urban audiences as they were the primary consumers for supermarkets, department stores and branded products. As the driving advertising logic was widest reach at lowest cost, there was inherent wastage in the commercial messaging. To reach 15 percent of an audience who could afford premium cars, the advertiser was obliged to pay for 100 percent of the reach. A waste factor of 85 percent was thus built into the pricing model in the rate card. When digital targeting by email and social media platforms became possible, this ‘waste’ model of advertising has been hit by a migration of budgets to targeted channels. The digital mechanism is able to measure ‘click-throughs’ of potential consumers. A results-based payment scheme is possible. Advertisers find this logic far more acceptable than the ‘waste’ pricing model.
The heavily advertising-dependent metropolitan newspapers are experiencing revenue decline or stagnation in most parts of the world. They have legacy costs of overpaid and under-worked staff in all functions, usually heavily unionized. They carry multiple layers of richly remunerated executives with company cars, club memberships and expensive perks. It does not take more than a 30 percent decline in revenues to push most metropolitan newspapers into the red. Rural and community newspapers did not have that access to affluent consumers by geography. They had to ensure their cover price was affordable to their readers and covered their cost of product and overheads. That inevitably meant that their pagination was limited and content mostly focused on everyday local issues. They were the ‘poor cousins’ of the rich city newspapers. The saturation of advertising in cities has seen marketing initiatives for new consumers expand gradually into semi-urban and rural geographies. That is benefitting rural press. It has energized a scramble by metropolitan newspapers for the rural advertising stream, through buying-out community newspapers or launching new ones.
Digital disruption: loss of the ‘rivers of gold’
The single biggest and probably mortal blow, to metropolitan newspapers has been the loss of their exclusive classifieds franchise. Rupert Murdoch characterized classifieds revenue as “Rivers of Gold”. Most highly profitable metropolitan newspapers enjoyed an almost guaranteed and growing near-monopoly of city-based classifieds advertising placed by readers and small businesses for real estate, cars, jobs, dating and household services of plumber, painter, electrician, etc. Classifieds were the unglamorous but most significant component of metropolitan newspaper income, often near a 60:40 split of classifieds to display advertising revenues. Classifieds attracted a readership audience which ensured copy sales at retail for dominant classifieds newspapers. It was a virtuous-circle of revenue and readership.
The Internet classifieds challengers disrupted all that comprehensively. The barrier to entry was low. No professional journalistic staff was necessary. The entire mechanism of offer and response could be automated at very low transaction cost or inconvenience, to buyer and seller. The high rates of newspaper classifieds gave the digital upstarts plenty of room to severely undercut prices and turn a good profit. The digital alternative to newspaper classifieds had other advantages: buyers and sellers could search precisely for what they want without wading through pages of small type; it could be accessed from anywhere with digital connectivity; offerings could be updated in real-time; the rates were a fraction of what newspapers charged.
The loss of the classifieds franchise was not total but forced newspapers to lower their rates to save the business. They are not able anymore to play the trick of annual rate increases. Newspapers rushed to create parallel online classifieds for a token additional charge over their print versions. None of the defensive counter-measures have regained newspapers their pre-internet hold on the classifieds franchise. This has been the single biggest disruption on the newspaper business worldwide, apart from the diminishing value of news content.
Generational readership disconnecting from newspapers
Generations Y and Z grow up in a world that is digitally always-on and connected. They take naturally to screen based information search and social intercourse through Facebook, Twitter, Friendster and their national variants. Their smartphones are always with them. They are acquiring tablets for movies and games. The idea of sitting somewhere to turn a newspaper page is just so ‘un-cool’! Resultantly, the newspaper industry is becoming a sunset business. It is beset with stagnant circulations, migrating revenues and an ageing consumer profile which panics marketers. The industry is challenged to use its still substantial earnings to become strong players on digital platforms or perish.
Screen platforms to the rescue?
The iPad has pushed new hope for newspaper publishers, using a model which has subscription payment in-built. However, the uncompromising stranglehold of the Apple Store on 30 percent share of subscription revenue and its refusal to share reader data with publishers has caused major disputes with leading newspapers.
The Financial Times (FT), while continuing to offer iPAD downloads, has broadened its platform to include Android-driven tablets and alternative direct downloads. A key value of readership is to build databases which can be segmented by demographic and psychographic criteria, for better targeting of advertising campaigns. The FT is growing substantial revenues by monetizing its reader database as an additional revenue stream beyond newspaper subscriptions and space advertising. The FT expects its reader data analytics earnings to match its global advertising income by 2011!
Perhaps go ‘hyper-local’?
One direction for print, championed by newspaper industry research associations, is to become ‘hyper-local’ to connect with community and local business. Part of the logic is that these localities may also have limited broadband access. The hope is that the reporting depth of competent newspapers can make them dominate marketing communications in defined geographies under-served by public media. That has led several metropolitan newspapers to invest in local radio, in addition to a weekly or daily print product. This is still a work-in-progress.
Given that local community advertising revenues are meagre, a low-cost operational model and mindset has to prevail. Whether big-company thinking can work in the hyper-local environment is yet to be seen. Community reporting requires respected locals who are part of that social tradition. High flying urban newsmen parachuted into position may not be the most effective way to engage with local communities.
Digital ads and newspaper sites
Newspapers have scrambled to have a digital presence to share in the dynamic growth of online advertising. While the annual growth of online advertising averages 20-25 percent globally (from a very small base) newspaper websites are averaging 8-10 percent. Most of that is coming from package deals with existing print advertisers. In reality, the main thrust of online advertising investment is heading for true digital audiences with targeted interactivity. The dominant global portals vacuum the majority of that spend with contextual advertising. Google alone is estimated to pocket 65-70 percent of online advertising worldwide.
Where did Groupon and Facebook come from?
The discount formula is a post-WW II newspaper idea of offering coupons to be clipped and redeemed at participating stores. Newspapers abandoned that as too old fashioned and below their value of space.
Andrew Mason, 30 years old, refreshed that old newspaper idea of discount coupons with slick modern design, online transaction and daily listings of new products and services with time-limited redemption. It has taken off like a rocket across the world with local retailers. In a recession-threatened economy, savings such as these are highly attractive and appeal to everyone. It helps retailers clear excess stock. “I never wanted to be in this position. I just wanted to work on cool stuff,” said young Andrew at his ABC interview in Dec 2010. He is now crying all the way to an IPO. Google offered to buy Groupon at US$ 6 billion and was rejected. Groupon is preparing for an IPO touted at US$15-25 billion by promoters. Goldman Sachs which is seeking to IPO Facebook valued it at US$50 billion in Jan 2011. Now the valuations are reaching US$50-100 billion! Facebook searched for a long time to find an advertising logic and methodology. Its advertising mission is articulated to advertisers as: “Find a creative way. Facebook is not just an advertising platform but a way to transform a business”. To that end Facebook has set up a high profile ‘Client Council’ of 12 premier advertisers and advertising agency leaders to guide it on how best to position the platform to serve consumer engagement objectives.
The methodology includes sponsored stories and comment ads from opinion leaders and experts. The hope is to inspire user conversations within social networks. Do these stratospheric valuations hint at another tech bubble? Maybe. But they are way beyond anything that will be offered to the most profitable newspapers anywhere. What does that say about the future of the newspaper industry and the contrasting momentum of the digital economy?
In an interview with the Washington Post on June 05, 2008, Steve Ballmer predicted: “In the next 10 years the whole world of media, communications and advertising will be turned upside down. There will be no media consumption left in 10 years that is not delivered over an IP network. There will be no newspapers, no magazines that are delivered in paper form”. Will Steve Ballmer be proven right? All indicators of revenue flows, generational switch to screen devices and investor preference for digital entities, point to a diminishing window of survival for traditional print. Yet content skills are the defining excellence of great newspapers. An informed citizenry needs trusted reporting and analysis on issues of the day. Perhaps a new generation of newspaper leaders may frog-march the industry to harness digital channels effectively – without selling their souls to politicians and big business advertisers.
(Cyril Pereira is an independent media consultant based in Hong Kong with project contributions across ASEAN, China and India. He was newspaper operations director with the South China Morning Post for 15 years and publisher-director of the regional Asia Magazine for 12 years. Pereira served the Society of Publishers in Asia (SOPA), which grouped all the international media brands, as chairman for four terms. He initiated the annual Asian Publishing Convention in 2007.)
