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March 2009

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Newspaper Industry's Survival Lies in Local Markets and Electronic Ink


by Glen Emerson Morris
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A dissertation by blogger Robert Ivan for his Masters Degree defined what he called the Krugman Paradox, which makes the case that the better job newspapers do of attracting readers to their Websites the less revenue they will make overall. In the current market online ads generate significantly less revenue per reader than print ads do (for the NY Times each unique online reader generates $22.40 in annual revenue compared to $1,000 per unique reader in pre-Internet days). If true, without major changes in technology or their business model, newspapers will not be able to move to Internet-only publishing and survive. Unfortunately, staying with the current print only versions doesn't look viable either. (For more information on the Krugman Paradox see metaprinter.com.)

Despite the bleak outlook, it's possible that with new technologies, and a new business model, major newspapers just might be viable long term. Here's how they could pull it off.

One of the core issues newspapers are facing is that the standard newspaper layout format doesn't fit the computer and/or cell phone screens many people are now viewing newspapers online with. The traditional newspaper format has gone through several centuries of refinement and it capably allows a lot of content, and a lot of ads, to be strategically merged on a single page. When newspapers moved online, they lost that extremely compelling reason to advertise with them because of another paradox. Any display that's big enough to display a proper newspaper format will be too big to move, and any display small enough to move will be too small to display newspaper format. Fortunately, a technology is being developed that will solve this problem.

Digital paper, or “electronic ink” as some people call it, is a technology that prints a video display on a flexible surface, like a thin sheet of plastic. Like real printed paper, this technology doesn't need to be back lit to be readable. Once text and images are loaded it needs no power to continue to display the content. Amazon's $359 Kindle and Sony's $300+ Reader use it, and a few million of them have been sold. Several of the major newspapers are already offering subscriptions through Kindle, including the New York Times, but given that the Kindle display is about the size of a paperback, it can't deliver a true copy of the print edition. (For more info on e-ink see www.eink.com or www.electronicink.com.)

Despite its relative success, digital paper is generally considered not ready for primetime, or the mass production required to get the price down, because it is perceived has having two fatal flaws; its refresh rate is too slow for moving images, and it's black and white only. (In time, newspapers will have full motion video clips, as seen in Harry Potter movies.) In mass production, digital paper technology could eventually allow a reusable digital newspaper for under $30. This would be cheap enough newspapers could to give subscribers a free reusable

The digital newspaper of the future will look and feel much like the usual newspaper of today, with the same page size, and the same ability to be folded into a highly portable and convenient size. Its primary advantage will be that it will automatically and wirelessly update itself as each new edition of the newspaper is published (and your subscription is still valid). This will give the newspaper industry all the advantages of an Internet only distribution system, completely eliminating all printing and distribution costs, while maintaining all of the advantages of the traditional newspaper format. It's the best of both worlds, but it probably won't be enough to save the newspaper industry.

To survive in the Age of the Internet newspapers will have make a fundamental change in their business model and learn to deliver advertising on a very local, segmented basis. This is not going to be easy. Newspapers have always had an all or nothing mentality towards their markets. If you buy an ad in most newspapers you know your ad will be in every copy published. This approach kept up the rates, and the profit margins, by making advertisers pay for readers they often did not need.

Unfortunately, this “one market only” pricing created a substantial entry-level barrier to advertising in a local newspaper. Smaller local businesses were left with the option of advertising in the local shopping rags, which have been attracting ever larger numbers of advertisers fleeing from the major newspapers ever increasing ad rates.

By printing just four local editions newspapers could reduce “local” ad rates by 50% for a column inch ad, but be able to sell the space to four different advertisers generating twice the previous revenue. A 50% reduction in the cost of newspaper ads would make newspaper advertising economically feasible to a lot of small businesses not able to afford current prices, and these could be big numbers. There are 7.5 million businesses in the US with less than 20 employees, and in any city the majority of these businesses don't advertise in the city newspaper.

Newspapers could lower the entry level even further by offering dozens, perhaps hundreds of different editions. It could easily double or triple the total number of businesses advertising in a paper. By expanding the market downwards the newspaper industry could more than compensate the revenue lost to other advertising sources, even the classified ad revenues forever lost to Craig's List and similar Websites. There are potentially billions of dollars in new sales for newspapers, and with no smoke and mirrors involved, but it won't be easy, or business as usual.

For the major newspaper to survive in the future it will have to combine all of the advantages of a print edition with all of the advantages of a state of the art ad server, to create a system capable of supporting the average mom and pop store in a small local market. There's no question the technology will become available to do this.

The only question is whether there will be any newspapers left to take advantage of it when the technology finally becomes available.


Glen Emerson Morris was recently a senior QA Consultant for SAP working on a new product to help automate compliance with the Sarbanes-Oxley law, an attempt to make large corporations at least somewhat accountable to stockholders and the law. He has worked as a technology consultant for Yahoo!, Ariba, WebMD, Inktomi, Adobe, Apple and Radius.





Copyright 1994 - 2008 by Glen Emerson Morris All Rights Reserved


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