Recently eMarketer reported the landmark, yet predictable event of online advertising sales overtaking newspaper revenues.
Clearly, newspapers have been in trouble for some time. What went wrong?
A combination of technology trends and boneheaded business moves killed newspapers. As somebody who started his career and spent about six years in the newspaper business, let me try to analyze the Top Five Newspaper Killers:
Obviously a big one, because classified ads were once the mainstay of local newspaper advertising revenue. Once Craigslist siphoned off most of that, it put pressure on everything else. The irony? Craig Newmark still runs his company as a lean community-friendly ungreedy operation. Imagine if he had decided to become as big as Google (Nasdaq: GOOG)? Newspapers would really be dead.
OK, another "No-duh" moment. Google has tapped the revenue stream of all content companies by becoming a "technology widget" that sits between the buyer and seller. But the real killer here is that major news organizations co-opted Google's ability to step in the ad revenue stream by giving away lots of their content for free and striking terrible syndication deals.
In the early days, newspaper executives and other print operations dismissed the Internet, fighting rather than embracing it. It wasn't part of their culture. Think if they had been more aggressive in building out their local Internet presences and making their brands more global. It's not too late, though. Newspapers still have strong brands and Internet technology is now cheaper than ever.
4. The "Bill Simmons" effect
I love the sports columnist Bill Simmons. And his story may be a parable for the newspaper industry. Bill Simmons famously could not get a sportswriting job at The Boston Herald newspaper. So he quit the newspaper business and started a blog, which became wildly popular. Now he runs his own mini sports content empire from a base on ESPN's Page 2, has millions of readers, has a #1 bestselling book, and I'm sure he gets paid handsomely -- more than he would ever get paid by a newspaper union. The story points to the newspaper industry's inability to capitalize on Internet-optimized writing talent -- or writing talent of any kind, really.
Much like the car industry, the newspaper business is plagued by the inflexibility and burden of labor unions. While paying people a decent salary and benefits isn't a bad thing, unions don't help things out when your industry is being restructured in real time. Take this, and compare it with the Internet industry, where the compensation packages are often tied to stock and growth, and you have a recipe for disaster for the newspaper business.
So what's next? Some franchise newspaper brands that are still investing in their Internet operations have a shot. USA Today made some progress with a new Internet-embracing design. Internet ad revenue is finally starting to help The New York Times' profitability. Then, of course, there's Rupert Murdoch's famous efforts to drive more paid subscription models through his acquisition of The Wall Street Journal.
Local and regional newspapers, are, of course, in a tougher spot. They have less resources and suffer more severely from the "Craigslist" effect. In addition, they are coming under assault from the "Patch" syndrome, in which large Internet operations such as AOL and The New York Times go after local markets.
What's the solution? Hire some Internet-savvy people, find a way to build low-cost Websites that get the job done, partner with Internet companies on a revenue-sharing basis, and keep tabs on what local advertising partners want from the Internet. There is still a lot of opportunity in regional publishing worlds for media companies that want to embrace the Internet in a creative way and utilize their local talent to engage with their audience online.
— R. Scott Raynovich is an expert in technology, media, and investment markets.