Tuesday, December 30, 2008

Newspapers should get out of the dog food business

Since the 1890's the business model for mass market newspapers has been "aggregate eyeballs and sell them to advertisers."

The people paying the bill (advertisers) don't care about the product, they care about the eyeballs. When the user doesn't pay the bill, that's a dog food business. In a Google Mart economy, every dog food business is under severe stress. The worlds of education, health and government are replete with dog food businesses.

Just three examples to illustrate:
1. Consider the effect of tying textbook purchases and educational outcomes to the compensation of school boards members.
2. Or the compensation of hospital and HMO administrators to public health outcomes.
3. Or the effect of disqualifying all political appointees and elected officials from government funded health care plans.

Anyway, under Google-Mart rules the better business strategy is to produce stuff/service that people willingly buy. It is a revenue stream from the user, not the advertiser nor the stock price nor the ability to convince an administrator that it is a good idea. It gets the incentives aligned to create a product improvement feedback loop. A business that sells well designed products produced efficiently and priced appropriately are much less bubble prone and much more open to the small improvements that lead to big innovations.

Models are evolving in the world of successful web spaces. Amazon, ebay and WalMart don't focus on aggregating eyeballs to sell to advertisers. Sales force.com, basecamp, pbwiki.com don't aggregate eyeballs. They sell service/stuff to people who willingly buy that service/stuff.

The necessary, but not sufficient, business rule for selling stuff is "better, faster, cheaper search and delivery." For service it's "try it for free, pay for an upgrade when you want to upgrade." For everything else it's keep the cost of production to an absolute minimum and price appropriately. If the appropriate price is free, figure out additional revenue streams. (Consider Google and free newspapers.)

The paradox is that while there is lots of talk about how "newspapers need to embrace the web," that part of the ecology is actually developing nicely.
Although print newspapers--especially big metro dailies--appear to be locked in an irreversible long-term decline, newspaper Web sites have had big increases in audiences. In October 2008--the last month for which data is available--newspaper Web sites attracted a total of 68.97 million unique visitors--up 64% from 41.96 million in October 2004. The October 2008 figure represents 42% of the American adult Internet-using population--up from 28% in October 2004
They are having a bit more problems with Web 2.0 and Web 3.0 to come. But they are smart people, so I believe they will figure it out if they can buy enough time.

Newspaper websites are getting traffic. They are attracting an audience of viewers and some advertisers. But the CPM for web advertising is so low you need a billion hits a month before it gets interesting, if you have a high overhead. Cutting overhead is very painful for both good and bad reasons.

The problem is not "nobody reads" or "the web is eating our lunch." The problem is that advertisers are no longer willing to pay high prices for unmeasured results. Sad to say, the advertising business grew in an environment of unmeasured results and arbitrary pricing. That works when there is lots of money floating around. That era has passed.

Meanwhile "search, scan and read for free, pay for stuff" is the evolving norm for content on the internet. The New Yorker seems to get it. The viewer can "read for free" everything that is in the Print edition. But you have to pay for the magazine. Meanwhile, they continue to create new stuff/events they offer on their site and in Print.

For a good newspaper this should be a no brainer. They are either blindsided by their tunnel vision focus on advertising or don't really produce content that people would buy.

Another possibility:
Imagine a series of paperback books approximately 96 pages. They will be produced in close to real time based on the news cycle. The content would focus on any complex problem; immigration, economic redevelopment, local government, local community health or safety, that first appeared in a serial version.

1. First, the series of articles on the website and in the regular print publications.
2. Then an open blog discussion with some experts discussing the issue from different points of view.
3. Then an edited Print edition, with carefully selected parts of the discussion included.
4. Then sell the Paperback version on the website, at events or offer it as a benefit to subscribers.
5. Then repeat as long as the issue is still to be resolved.

Given that barriers to printing a book are so low and that newspapers presumably have the staff that is capable of telling an understandable story about a complicated issue, it should be as easy for a good newspaper as it is for Costco to private label anything they find appropriate.

But who is going to pay for it?
1. Niches of viewers who have followed the story as it was being assembled.
2. Tribes of viewers who need the print version, because "people like us" buy the book.
3. Politicians who have little time to understand complicated stories.
4. Every school system in the United States that needs timely relevant stories about our common situation. (That's the textbooks piece)

Oh yes, maybe certain advertisers - non profits, advocacy groups and government agencies, and businesses with a good brand - might be allowed to underwrite a series, in the interests of educating the public.

Here's a column I did about dog food, textbooks and printing back in 2006.


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