Monday, January 12, 2009

It's not the Internet. It's not News. It's advertising and the cost of admin + sales.

In the last couple of months, the industry debate about "The Future of Newspapers" has become mainstream. No mind that newspaper circulation started to dip in the 1970's. Until recently they were money machines. Everyone was still making a living. Now, not so much.

The discussion has been complicated by soul searching questions about the Fourth Estate. Last week I found the following at MediaPost. It is written by David Morgan. He writes,
. . . the notion that the purity of newspaper journalism is the cornerstone upon which today's great metropolitan newspapers were built is revisionist history. Most of today's great newspapers were built through achieving dominant distribution in their markets, not through delivering better journalism. Most U.S. cities used to have two or more competitive newspapers. The eventual winner was almost always the one that won on the battle on distribution or advertising, almost never on journalism. Great journalism came later.
Then I found this over at SeekingAlpha written by Alex Rappel in an post entitled, The End of Brand Advertising. He writes,
In the good old days of performance-less advertising, engagement didn’t really matter because you generally couldn’t quantify it. Studies on Reach, Frequency, and Recall aside, General Motors (GM) had no way of measuring the marginal benefit (much less revenue!) of a particular advertisement
and then he writes
a seismic shift is underway – one that will not only change the nature of advertising, but will also show that the last century of offline advertising witnessed a tremendous amount of money being flushed down the toilet. We are a lot smarter than we were 50 years ago, and those analog dollars really should have been analog pennies all along.
And then today, over at Buzz Machine, in the comments to Jeff Jarvis' post, Jon Garfinkel says
Yes, editorial is ~15% of the cost, but newsprint/production/circulation is only 41%. The rest is advertising costs (the sales staff) and administration/depreciation (e.g., Renzo Piano edifice, and travel/communication expenses).

So, 56% of the costs go into creating value. 44% of the costs is overhead. If you ran a newspaper would you stop printing and fire talented value creating people? Or would you minimize the cost of sales and admin ?

Of course this gets complicated if the person making the decisions is part of the cost of sales and admin overhead. Better to blame the customer, the unions, the cost of newsprint, the fact the Print is Dead, the "economy" and of course- "the Internet." Sounds good. But it's not true. The problem is that if you can't define the problem, you can't fix it.

It's just the Google-Mart problem in different places. Consider the cost of sales and admin in education, health or government. The tech has made communication very cheap. The function of admin and sales is to coordinate communication. Meanwhile, tech keeps making production of goods and services less and less expensive. Newspapers, education, health, government.

The question on the table is who is going to capture the excess value produced, admins or customers. I'm betting on customers.


  1. re: "So, 56% of the costs go into creating value. 44% of the costs is overhead."

    I'm not sure if I'd split it that way. But the numbers are my hashing of Philip Meyer's summary from the Inland Press Association from a few years back.

  2. Far enough.

    Hopefully someone who really knows the details will come along. My take is that the cost of admin and advertising is a significant cost in most formal organizations. Marketing for hospitals and drug companies. Recruitment campaigns for higher ed. Political campaigns for politicians.