The Global Media Weekly for executives and entrepreneurs

Look who’s coming to save daily newspapers…

Journalists like writing about newspapers in a “How-can-the-world-exist-without-us?” kind of way. Not even collapsing readership and advertising revenue can deter them from grasping at every half-reassuring whisper or hint of not-so-bad news about the future of newspapers.

That’s why the authoritative Pew Research Centre captured the column inches with its “2013 State of the News Media”. It said that, while the US newspaper industry has halved in size, there are “positive signs… for a modicum of optimism.” The unlikely optimism sprang from: the one-third of US dailies which now have some kind of paywall; the rebound in newspaper company share prices; and the fact that Warren Buffet has been investing in newspapers.

Pew was doing its best. But US newspaper print advertising last year fell for a sixth consecutive year – by 7%, and slow-growing digital advertising was not much help. In 2012, for every $16 US newspapers lost in print advertising revenue, they gained only $1 in digital ads. And that’s much worse than the $10-to-$1 ratio the year before. Another $1.5bn lopped off US newspaper revenues. Pew found that increasing numbers of Americans (and, presumably, people in many other countries too) are getting their news from Facebook, Twitter and even Linked-In, which underlines the emerging threat of non-traditional ‘content’ providers. Not much good news.

One problem in identifying any kind of “solution” for newspapers is, of course, that they are very far from being one industry. Daily national and metropolitan newspapers have as little in common with small-town local papers as weeklies have with dailies and evenings. These are different media sectors joined mainly by a historical dependence on newsprint; and ownership of these different newspapers is being unbundled as quickly as everything else. But there are some, slowly emerging positive trends:

New York Times: getting there
The New York Times: getting there

National and metropolitan news. The New York Times is showing the world’s major dailies how to do it. Last year, it increased hard copy and digital circulation revenues by 16%, beating advertising for the first time. This proves that the broken model of traditional newspapers in which low-price copy sales were subsidised by advertising can be replaced by a concentration on getting core readers to pay more. The New York Times now has almost 700,000 subscriptions. And, although increases in digital revenues are not quite making up for the continuing decline in hard copy, it is getting close.

It is now in sight of becoming the first major newspaper to find a settled future in the digital age – and with hard copy remaining a crucial part of the offer. There’s been plenty of pain, of course, including the publisher’s plans now to sell the Boston Globe for probably less than 10% of the $1bn it originally paid for the paper. But newspapers can’t afford to worry about the past. However, before newspaper owners everywhere get too excited by soaring Big Apple subscriptions, they have to acknowledge that the New York Times is a high-quality broadsheet daily, one of the world’s best newspapers. Popular tabloid newspapers, in the US and elsewhere can’t expect to win in the same way. But, for them, the success of free dailies may be inspirational. The Metro is now the UK’s most profitable daily newspaper and is part of the Daily Mail Group whose online revenues are now more than offsetting the decline in hard copy advertising. And News Corp’s free Aussie evening paper MX is also a stand-out success.

The now-profitable free London Evening Standard is expected soon to convert its Independent and i stable-mates to free distribution, perhaps keeping its profitable weekend editions as paid-for. But the company, controlled by Russian entrepreneur Alexander Lebedev, is worth watching for other reasons. It recently won a UK

Free newspaper + local TV
Free London newspaper gets local TV

broadcast licence for local TV in London. So, that may provide us with the clearest view of a new-style metropolitan multi-media business: free newspapers, TV, and digital/ ecommerce.

The free-circulation success of the London Evening Standard (after years of loss-making as a paid-for) is also being closely studied by other UK newspaper publishers. Candidates for the switch from paid to free distribution might include the Daily Express, owned with the fast-growing Channel 5 TV network by Richard Desmond. And perhaps the Daily Mirror group, which alone is still trying to make regional and national daily newspapers into one cohesive business. The Mirror unsuccessfully pitched for a local TV broadcast franchise so may now use online to get there at a fraction of the cost. So the multimedia groupings of the future may be starting to emerge. It is also in the UK where the country’s largest pay TV group BSkyB (owner of the impressive Sky News) is pushing further into online TV with a pilot in the country’s north-east. Sky has recruited eight journalists in Newcastle, who are shooting video and writing stories for a new video-rich website, “Sky Tyne and Wear”. The initiative, which complements Sky’s quietly-growing online TV services in film and sports, will pile further pressure on regional newspaper groups struggling to cope with historic debt and pension fund liabilities.

We might expect the UK’s other profitable free daily, the financial CityAM also to develop online TV. Another pattern is emerging in Washington DC where the hugely influential US political site Politico has just notched up $8million of subscription revenue and is launching a free magazine to cement the relationship. But, then, any number of online and offline retailers parroting the value of ‘content marketing’, know what magazines can add to their promotion: an added value “gift” that more than pays for itself. They have come to understand the powerful integration of digital and hard copy more quickly than many publishers who have been all but paralysed by high costs built up during advertising boom-time.

Politico: Moving from digital to hard copy
Politico: From digital to hard copy

It is clear enough that major newspapers can again become attractive long-term businesses. But traditional operators cannot take their survival for granted and the continuous salami-slicing of newspaper staff and costs hardly inspires confidence. Failure to recognise the need for fundamental change in the business model may actually destroy future viability not merely defer it.

Local news. So-called ‘hyper-local’ newspapers, blogs and websites have become a talked-to-death trend in newspapers. But there seem to be a growing number of local newspaper successes across the US and UK. Texan John P. Garrett, owner of Community Impact Newspaper, a hyper-local paper with eight editions in the Austin, Texas area, is making it work. “We write a lot about local government, local development, city business. In the greater Austin area, there’s probably ten different cities. We’re the only news organization that has a reporter at every city council meeting.” Garrett founded Community Impact Newspaper with a $40,000 loan in 2005 after irritation over what he saw was a dearth of relevant local reporting in his community’s newspaper. The company now employs 63 people across eight publications. We’re winning the local battle and we aren’t the least expensive,” Garrett says. Part of the Community Impact Newspaper‘s success also comes from its approach to free distribution: the paper is mailed to its readers.

Across the Atlantic, Sir Ray Tindle is an 86-year old veteran newspaper proprietor, who has long been proud of his success with ‘hyper local’.

Tindle: 'hyper local' pioneer
Tindle: UK ‘hyper local’ pioneer

He started with a weekly paper in south London and a circulation of just 700. Through launches and acquisitions, the group now has more than 220 titles, with an audited weekly circulation of more than 1.4 million and £50m turnover. He is still buying newspapers and his profits are rising. His approach is pure ‘hyper local’. Last month, Tindle applied the principle to his struggling South London Press, splitting it into seven more paid-for local editions focusing on individual boroughs. Readers’ interest in local news reaches only a short way from their doorstep, he says, and a local DIY store has no interest in advertising a hammer to someone on the other side of London. Three weeks after launch, monthly sales were up by 44%.

Sir Ray illustrates hyper-local by recounting his rescue of the Tenby Observer in 1978. The  160-year-old paper had been renamed the West Wales Observer in a vain attempt to reach a wider market. He bought the paper from the liquidator, revived the old name and told staff to throw out any story that was not from Tenby. Result: a return to profit and doubled copy sales. Tindle seemingly has hundreds of similar examples where newspapers had extended their markets and lost their readers before hyper-local brought them back. It’s small-scale media but profitable and durable.

 Switzerland is home to another successful and more complex version of ‘hyper-local’. The town of Brienz, in the shadow of the Jungfrau mountain, near Interlaken, is home to a population of 45,000 and a pioneering family-owned, local media business built round a 100-year-old newspaper Jungfrau Zeitung. This is now a multi-media ‘hub’ which delivers local news and content via mobile, web TV, and a twice-weekly newspaper. All content goes online as soon as it is written and, crucially, advertisers cannot choose the platform but must book their ads across all media. The business model has been developed by Urs Gossweiler, CEO of Gossweiler Media and grandson of the company’s founder. This is a very local business: the newspaper sells 9,000 copies and the web site has 60,000 page views. But Gossweiler is not a media experiment: the company makes profit margins of 30% and plans to roll out its model across Switzerland and then across Austria and, perhaps, Germany.

It’s a story Warren Buffet knows well. The world’s best-known investor, who has recently scattered his magic dust on

Buffet: buying newspapers
Buffet: buying newspapers

business legends as diverse as Goldman Sachs, H.J.Heinz and the US railroad, has been acquiring newspapers and talking up their prospects. His buying spree actually started in 2011 when he bought The Omaha World-Herald , his hometown paper, for a reported $200 million. But he has stepped up his interest in the past year. His company Berkshire Hathaway has bought 28 dailies in the last 15 months for a total $350m and now owns no fewer than 63 newspapers. To say that the ultimate contrarian investor has reversed his earlier attitude to newspapers would not be the half of it.  As recently as 2009, he described newspapers as dying and said he would never invest in them at any price. You must assume that the man who has amassed an investment fortune of more than $50bn not only came to believe that newspapers had been over-sold but also that they do, after all, have a viable future. Buffet now says: ““Papers delivering comprehensive and reliable information to tightly-bound communities and having a sensible internet strategy will remain viable for a long time. There is no substitute for a local newspaper that is doing its job.”

That’s not much of a clue as to how the 82-year-old Buffet wants the business model of his newspapers to change. But the options for newspapers are starting to get clearer.

Here, Mr Buffet, are the Flashes & Flames 6 tips to pass on to your newspapers:

  • Rethink frequency and content. The Newhouse family’s New Orleans newspapers were among the first in the US to switch from daily to err three-times weekly. Sounds unconvincing but there is every reason to think that frequency can be a key part of the marketing and branding of an energized and compelling digital service – an inevitable a change from its historic role just delivering news first and (reasonably) fast. The temptation will be to reduce frequency to the days that are currently profitable days – like weekends, but that may prove illusory. Current weekend newspaper profits may actually be boosted by weekday loss-making activity. Breaking the daily habit may change the whole relationship a long-established paper has with its readers. But publishers will have to take some chances. How long before one of the world’s major dailies goes weekly or twice-weekly? Many newspaper editors like to espouse “Digital First” (the Financial Times editor was the latest just last month) but they have to start making their web offerings special. Having the latest news online may simply not be enough. They need to have exclusive coverage, columns, and even competitions and offers in order to create the same kind of ‘stickiness’ online that newspapers once had in hard copy. Some newspaper people understand this perfectly well. Study how Rupert Murdoch used his expensively-bought English Premier League football rights in the 1990s to build BSkyB subscriptions in a country which had never before shown any inclination to pay for television programmes. And reflect on how Murdoch’s The Sun newspaper in the UK has just announced its ‘hard’ paywall – to include video clips from those same Premier League games. 
  • Turn readers into members. In many cases, paying for newspaper-like content delivered online will simply not be worth enough either to readers or publishers. Many of these paywalls will have to morph into membership models where readers/ users pay for a wide range of services and benefits – including ecommerce. This could give some news publishers really powerful marketing databases – and a whole new profitable future.
  • Become the gatekeeper. In the early days of online, conventional wisdom was that the winners would be ‘portals’, the gatekeepers of the internet. This was the role that made AOL an early success. How things change. But there is evidence that consumers – especially well-heeled ones – want help in getting the products and services they require and in protecting them from spam and worse. The occasional newspaper and magazine coverage of  ‘web sites to browse’ frequently comes high in reader preferences, which suggests a ready market for feeding web users with links to new sites that meet their interests. A ‘portal’ branded by a traditional daily newspaper could be the ideal internet curator for readers/ users. But they will have to be much more open to including information from a wide range of sources and not just from their own people.
  • Aggregate and curate. Newspapers and other traditional media brands must embrace information, comment, blogs, and services from many sources. They must escape from old world thinking where newspapers conspired to pretend they were the only reliable source of news and information, a monopoly for the reader. The web has changed forever the appetites and attitude of readers. In order to play a major role in online information, newspapers must meet the strong consumer demand for comprehensiveness, aggregation – and choice. Links to other sites must be seen as a service for readers not a threat to the web site that carries them.
  • Grow new skills. Reporters (and even sales people) will need to know a little bit of everything and to be involved in pictures, video, hard copy and online.  Some things will not change, though: news and information services have to learn from their newspaper past and take an active, leadership role in their communities and be involved in campaigns on their behalf.
  • Forget the history. The successful digital strategy will inevitably draw on history and the traditional role of the newspaper, but that’s only the start. The new business model will involve a lot more than just deciding whether there will be a paywall or not. Some free models will work perfectly well but costs and skills need to change. The key is: Forget the history, do the maths.

It is all about a recognition that the current challenges for newspapers have actually been exacerbated by a tendency either to assume there was a self-justifying role just waiting for newspapers: a sense of historic entitlement. Or that tweaking the costs would somehow deliver a profitable future. Both assumptions were flawed: many newspapers won’t survive and most that do will have had to change dramatically to see off innovative, baggage-free competitors. The clock is ticking faster.

But Warren Buffet is not the only octogenarian fighting for the future of newspapers.

Australian-born Rupert Murdoch is the world’s most successful media entrepreneur. His astonishing career began 60 years ago when he inherited the Adelaide News, before rolling into Sydney, London, New York and all points east and west. He invented the screaming modern tabloid and famously used his

Murdoch: back to the future
Rupert Murdoch: back to the future

newspapers to build global profits, power and influence on the way to building the world’s first integrated media business. The success has brought him fame, fortune – and also infamy. His former UK executives (including former CEO and one-time star editor Rebekah Brooks) are preparing to face criminal trials, arising from the phone hacking scandal principally on the defunct News of the World, Murdoch’s first non-Australian newspaper. Although Murdoch is this week spending an Easter holiday in Australia with Brooks and her family, he and his shareholders have made their financial provisions and moved on. Or hope they have.

Next up is the splitting of the News Corporation into two: Fox Group of TV and film, under CEO Chase Carey; and “new” News Corp under former Wall Street Journal and Financial Times editor, Aussie-born Robert Thomson. While investors are pleased to have secured the demerger of their troublesome newspaper assets, the “new” News Corp will actually include Harper Collins book publishing, the burgeoning digital education media, and even its Australian pay TV interests. The legendary Wall Street Journal, acquired in 2007 for a heady US$5bn, is also a major digital business that will be part of the de-merged News Corp business.

While Murdoch apparently plans to remain chairman of both businesses, the de-merger is intended to insulate News’s rich TV and film assets from the haemorrhaging newspaper revenues and and continuing fallout from phone-hacking. The scandal has seen more than 60 arrests and has cost News Corp more than $250 million. And there still are hundreds more cases to settle.

In February, News Corp. reported a quarterly operating profit of $1.6 billion, of which just $53 million came from newspapers. Some of the best-known mastheads – including the New York Post, The Australian, and The Times – are recording annual losses in the tens of millions.But instead of retreating from newspapers, Murdoch is making expansionist moves, at least in the US where he has eyed takeovers of the beleaguered Los Angeles Times and Chicago Tribune – and even some or all of the Time Inc magazines. The “new” News Corp is shaping up to be Murdoch’s last big media expedition. He has been been spending increasing amounts of time with Robert Thomson, his newest “surrogate son”, and insiders are speculating about the following de-merger scenario:

  • Murdoch steps back from Fox Corp either before or after selling some or all of his 40% of the company’s voting shares, in order to concentrate on “new” News Corp. Back to the future?
  • He installs sometime favourite son Australia-based Lachlan (who has remained on the board of News Corp throughout an on-off career with his father) to head the “new” Australian business which, curiously, includes not just the company’s newspapers but also its highly profitable pay TV assets in Foxtel, Fox Sports and Sky News. Combining these with Lachlan’s own Aussie radio group and also the struggling Channel 10 TV network (which he chairs) would create arguably the country’s best media business. And, with Aussie media ownership laws currently in flux, this might well be achievable. Is this why Murdoch kept the Aussie businesses together in what was, elsewhere, a clear split between the group’s newspapers and  its TV/ film operations?
  • He charges daughter Liz Murdoch with the task of building multimedia online ‘channels’, a favourite talking point since she sold her Shine TV production group to Fox – and was forced to take a back seat while her Dad’s American partners took control. This could be the start of a major new international online TV group…

The upshot of that scenario would be a hugely cashed-up News Corp able to take bold initiatives to rebuild Murdoch’s

More than papers: Aussie pay TV leader
More than papers: Aussie pay TV leader

favourite newspaper businesses, with or without some new acquisitions. Shareholders would feel the benefit of Murdoch’s concentration on the troubled legacy businesses, the investor re-rating of the Fox group – and probably completion of the BSkyB takeover. Everyone’s a winner.

So, while Rupert Murdoch might have to step back (however gradually) from the international TV and film businesses he has built in such style across four decades, he will certainly remain in control of many of the media assets he most cares about. In some ways, of course, he would going back to his roots – and at a time when he believes newspapers have been over-sold and have a strong future as part of a broad-based digital offering. The strategy would give him a huge war chest especially if it allows Fox quite readily to take full control of BSkyB, the prize that was denied him when the phone hacking scandal broke 18 months ago.

Not for the first time, Rupert Murdoch is thinking well outside the box and seeking to defy the odds. His biographer Michael Wolff actually sees the strategy as nothing less than a final act of Quixotic madness: ”He sees himself as a guy who can still make newspapers work, but no one else believes it.” Is Wolff underestimating Murdoch’s determination to build a new paying model for journalism, 27 years after he single-handedly transformed the then cash-strapped “Fleet Street” with his state-of-the-art, non-union printing plant at Wapping, in east London?

We do not know whether Rupert Murdoch will effectively exit Fox Corp at some point soon, leaving freeing him to take  “new” News Corp private – or whether he will continue to control the voting shares in both public companies. But there is plenty of evidence that, come June 2013, he will be all over new strategies to revive his newspapers in the UK, Australia and the US – while LA-based Chase Carey limbers up to take control of BSkyB. The greater distance between the Murdoch name and Fox at the time of that next bid for the world’s best pay TV network, the happier Fox shareholders – and the UK regulators – will be. Some distance might also make it easier for Murdoch to move his revved-up newspapers seamlessly into online TV.

So, it’s going to be another eventful year for Citizen Murdoch – even before his former UK executives go on trial in September.