Robert G. Picard

1
Cash Cows or EntrecôteThe Influence of
Interdependency on Physical and Virtual Newspapers

• Robert G. Picard
• Shorenstein Center, Harvard University
• Media Management and Transformation Centre
• Jönköping International Business School
• Jönköping University, Sweden

2
A Bit of Context Percentages of Total
Global Value Created by Various
Media
PricewaterhouseCoopers, 2005
3
Newspapers are a mature industry

• characterised by stagnant markets and cost
  concerns
• newspaper markets are being disrupted by
  electronic media and new digital media
• audience and advertiser behaviors toward these
  media are the driving forces of change in the
  newspaper industries
• environment requires thought about how newspaper
  companies will survive and grow in the future

4
5 most important trends/issues

• erosion of the audience base
• erosion of the advertising base
• online and broadband capabilities (fixed and
  mobile) and digital television are creating
  changes in information and advertising choices
• employee morale has eroded and stress is rising
• owners of capital see more opportunities for
  asset growth and sustained profits in other
  industries

5
Factors Affecting Sustainability
Protectionist Forces problems with
substitutability customer resistance to
change structural control of resources
Production Forces availability of raw
materials capital costs labour costs energy
costs taxes transportation/distribution costs
Market Forces consumer demand advertiser
demand total revenue available demographic and
psychographic changes competition
Sustainability
Social Forces environmental demands political/lega
l demands cultural/social demands
Technological Forces availability of
technology user adoption of technology
Managerial Forces organizational
effectiveness productivity financial
control innovation responsiveness to
change labour relations reinvestment
6
Biggest challenges come from newspaper audiences

• audiences are at the heart of change in print
  media
• audiences for print media are growing older
• readers are reading fewer publications
• readers are spending less time reading
• income and education levels of print audiences
  are rising

7
Increasing choices and use patterns reduce time
spent with newspapers

• newspapers are just one of many choices for
  news/information and diversion/entertainment
  available
• audiences increasingly view all media as having
  same functions
• increased competition for audience attention
• younger people use media differently
  than older persons

8
Readership used to be a function of age, now it
is a function of generation
Generational Reading Gap
reading
0 10 20 30 40 50
9
Newspaper readership over time
How must the business model change to permit
survival?
television
industrial revolution
urbanisation literacy
?
1700 1800 1900 2000 2100
10
Advertiser choices are critical to newspaper
industry developments

• newspapers have one of the largest shares of
  advertising expenditures
• In many developed nations it is still number one
• newspaper share of total advertising is declining
• real expenditures for newspapers are rising but
  have slow growth rates
• the primary sources of newspaper advertising
  revenue are shifting
• --retail advertising is not as important as in
  the past
• --classified advertising is driving growth

11
Changes in Global Ad Expenditures 1995 and 2004
12
Global Online Advertising

• About 3 percent of total advertising expenditures
• Limited use by most traditional advertisers
• 10 companies provide 74 of global Internet
  advertising
• 50 companies provide 97 of global Internet
  advertising
• Biggest use by computer and software firms,
  financial services firms, and direct mail
  retailers
• Biggest users are not direct competitors to
  newspaper advertising
• Migration of classified advertising is removing
  the source of growth for newspaper advertising
• Especially employment, real estate, and
  automobile advertising

13
Strategic Choices in Changing Market Conditions
High Market Growth
growth management service quality management
increased marketing product development
Declining Market Share
Increasing Market Share
majority of newspapers
some newspapers
innovation strategic planning diversification
innovation/new product development diversificat
ion planning for market exit or capital withdrawal
Low or Negative Market Growth
14
Product Development Activities

• improvement of existing products/services
• redesigns, content changes
• reposition existing products and services
• brand development, features contrasted to
  television, online
• additions to existing product/service lines
• online newspapers, mobile services, cross media
• establishment of new product/ service lines
• free newspapers, speciality newspapers
• market introduction of completely new
  product/service
• syndication, advertising services, new
  distribution services

15
Protection Core Newspaper Readers are Not
Migrating to Other Media

• TV network news viewing is half what it was 20
  years ago
• Cable TV
• Less than 10 percent of Internet use involves
  news and most news use involves reading headlines
  on portals
• Core readers are supplementing print with online

16
Protection Primary Source of Advertising is
Dependent Upon Newspapers

• Retail advertising is the most important category
  of advertising
• Retail advertising is linked to specific
  localities
• Retail advertising messages require types of
  content not easily conveyed by other types of
  media

17
Protection News Production Globally is
Dependent Upon Newspapers

• Physical newspapers are the base of the business
  model for all news agencies
• Newspapers are the primary provider of news and
  information for news agencies
• Internet and mobile news is dependent on agency
  or newspaper provided news

18
New Understanding of Online, Mobile and Other
Opportunities

• Not longer seen as freestanding, competing news
  operations
• Not seen as necessarily requiring profitability
  in short term
• Not product extension as in creating a separate
  free standing product
• Potential for new revenue stream
• Limited, some advertising but not with potential
  of print, cross subsidized and consumer funded
• Consumer funding requires more than mere
  mirroring of print content requires some
  uniqueness and exclusivity
• Trend toward blending of print and online
  newsroom operations
• Creation of additional new online and mobile
  services not linked to the newspaper core
• Usually not co-branded with the newspaper

19
Newspaper advertising shares are declining in
developed nations

• but the advertising pie is growing larger
• patterns in nations with multiple commercial
  media indicate that average newspaper share of
  advertising will be less than 20 percent share in
  20-25 years
• current lack of additional television frequencies
  limits significant growth of TV advertising
• growth of interactive advertising media
• special threats from searchable online
  classifieds and notification services

20
New technologies are all threats to the newspaper
industry

• CD-ROMs
• web publishing
• information services
• wireless applications
• interactive television
• all provide substitutes for some communication
  functions of newspapers
• all are nibbling away at the reader and
  advertising bases

21
How soon will new media seriously harm the
newspaper industry?

• as soon as readers and advertisers switch in
  large numbers
• numbers are not too damaging now but are
  increasing steadily
• incremental changes in use and funding can be
  expected
• no sudden shift
• will require changes to newspaper company
  business models and strategies
• changes need to begin now

22
Consumers are being asked to make new
expenditures for media and ICT

• hardware DVD players, computers, Internet
  access, widescreen TVs, interactive digital
  television, digital audio broadcasting, mobile
  Internet, etc.
• software DVDs, software, ISP payments,
  pay-per-view, phone charges
• to purchase the range of options currently
  available will require at least tripling
  household expenditures for media and ICT

23
Newspaper firms cannot grow out of the
situation and must find transition strategies

• need to adjust to the new environment
• continuing defence of strong position as
  advertising providers
• transition strategies
• defensive movement into new media to keep others
  from dominating
• offensive movement to seek new media business
  opportunities built upon the print core
• gradual erosion of newspaper financial base can
  be replaced by growth in new media and ICT
  operations
• transition time will be shorter for national and
  metropolitan newspapers than for smaller local
  newspapers

24
Newspapers Face Different Sustainability Problems

• Local newspapers
• most pressure from revenue and cost problems
• tend to have the most loyal readers
• tend to have retail advertisers not sought by
  national or new media
• tend to have exclusive distribution of local
  information and advertising
• less pressured by new media overall

• National/metro papers
• face more serious distribution problems
• are the target of online publications and portals
• have readers and advertisers with more options
• have much material duplicated by other media
• tend to be more generalist in scope
• are most threatened by new media

25
The key question for publishers

• How does one keep from sacrificing a firm that
  will produce revenue for many years

by changing too rapidly into a firm that will
produce limited results for many years
26
Calling in the butchera financial model
revenue from combined operations
costs from combined operations
costs of the print operations
revenue from new media operations
revenue from print operations
Conventional point for taking the cow to the
abattoir
27

• robert.picard_at_ihh.hj.se