The Fate of Newspapers in a New Media World

The big media news here in New England is the fate of the Boston Globe.  The situation now looks even more urgent in light of the dreadful earnings report and cash burn situation the NY Times Company reported this week.  The Times bought the Globe for $1.1 billion back in 1993 before the dawn the web.  They had a couple of very profitable years until the bottom fell out of the newspaper business.  In retrospect, newspapers did what many trade publishers did for a long time – resist the web because selling print ads was so damn profitable.  And, they gave their content away free online to build traffic.  This combination worked out poorly.  Newspapers across the country are closing or in financial peril. 

In 2008, the Globe lost roughly $50 million on an estimated $450 million in revenue (down a few hundred million in the past three years).  That is not easy to do unless your costs are way out of whack, especially labor costs.  The NYT is asking the unions for concessions or they will close down the paper, and I would assume and keep the very successful Boston.com. There has been a lot of finger pointing and looking to place blame. Hundred of comments have appeared in online forums raving about how the Globe’s liberal editorial slant has hurt them with subscribers and advertisers.  I am sure it has cost them some, but does not nearly account for their revenue and profit freefall.

The truth is actually pretty simple, but the solution is not.  In the not so distant past the Boston Globe was a money machine because it had a stranglehold on classified advertising in New England – help wanted, real estate, cars –huge money makers raking in over $100 million annually with high margins.   This cash flow allowed the cost structure to get fat and happy during the good times.  Most of that revenue is now gone to cars.com, monster.com, realtor.com and craigslist to name a few.  Although Boston.com generates high traffic numbers, the CPMs for online ads are a fraction of what they were in print thanks to all the competition and low barrier to entry.  Factor in declining subscription and single copy revenue due to changing consumer behavior and the fact they are giving away all the content for free online. 

To survive the Globe and other newspapers are going to have to start charging for online content – there is just no way around it anymore.  Something has to give, or they will go out of business. Our communities and democracy will suffer without a functioning free press.  Bloggers, pontificating from their cube or basement, are no substitute for real reporters who are digging for stories and holding government and business to task.  It has been conventional wisdom that people won’t pay for content online, but they have never been confronted with a situation where if they don’t pay for it they will have no other option, at least locally. 

If push comes to shove will people refuse to pay $10-$20 per month for an online local newspaper and let it fold?  Or will they realize there is no real difference between paying for a pile a paper and ink dropped at your door and online content.  Many consumers have an emotional attachment to newsprint, but the web version of a newspaper is far superior with up-to-the minute news, video, talk back forums, interactive charts and archives.  Additionally, younger people are just not subscribing to print versions of newspapers, nor will they anytime soon. One issue not easily resolved is access for people without internet access. Perhaps a newsstand only version can be provided that is subsidized by ads. 

The bottom line is the newspaper business needs to start monetizing online content and quickly.  Consumers would rather read online because there is more functionality and marketers are running less and less print ads because they are not measurable.  The writing is on the wall, but is anyone reading?  In this case, living in the past is a fast road to extinction.