Newspaper companies can’t unring the bell

American newspapers are in trouble. So far this year, the Rocky Mountain News and the Seattle Post-Intelligencer have shuttered their presses. Tribune is in bankruptcy. My first employer, the Star Tribune in Minneapolis, is also there. Publishers have threatened to close the San Francisco Chronicle and the Boston Globe. Much of the blame has been pointed at two things: not charging for content online and the rise of craigslist.

While those have undoubtedly had an impact, there have been structural changes that go well beyond that:

• Consolidation among key advertisers. There used to be three or four different department stores in each major city, all of whom advertised in the paper. Now they’re nearly all Macy’s, reducing the number of potential ad buyers. The same has happened in the banking industry where many regional banks have been gobbled up. Many of the ad buying decisions that were previously made at a local level are now consolidated as well.
• Demand for trackability. Advertisers and their agencies increasingly want to know how their ads are performing and newspapers don’t provide the level of tracking that online sites do. The key classified verticals — homes, autos and jobs — all have trackable online options.
• Rise of information technology. Businesses can get to know their customers much better due to advances in computer technology. The airlines, banks, hotels, department stores and grocery stores I do business with know my buying habits. They can use that data to create targeted offers that will appeal to me. Harris Teeter, a regional grocery store chain, sends out an e-circular that highlights the items customers have bought in the past. These personalized offers can be delivered for little cost.
• Competition from their own suppliers. Newspapers have long been aggregators. They get a lot of their content from other providers. Instead of relying on a newspaper for Dilbert, I can get it in my email every morning from the syndicate that distributes it. And because color is free online, I get full color seven days a week.
• Rise of user-generated content. Anyone can be a publisher these days. Twitter is stealing mindshare 140 characters at a time from newspapers. It’s not just Twitter, of course. Many of the same experts that newspapers rely on to provide the content for their stories are bloggers as well. Although the average quality of news in newspapers is likely higher than the average quality of an article in the blogosphere, there are more experts in the blogosphere than there are in newsrooms. As Fred Wilson writes, the tools for discovering this excellent content are getting better and better.
• Increasing cost of commodities. Producing and distributing a newspaper is very expensive. Subscriptions don’t cover the cost of newsprint and fuel. While these prices fluctuate, the general trend line is up. To cope with these increasing costs, newspapers have raised their subscription rates, further depressing the circulation that advertisers count on.
• Increasing environmental consciousness. Consumers are increasingly going green and newspapers are no friend of the environment. Trees are cut down, turned into giant rolls of newsprint, shipped across country where massive energy guzzling presses print on them and are then distributed every morning by trucks. Then they have to be disposed of. (See my earlier post on hotels going green and requiring opt-in to newspapers.)
• Decreasing density of newspaper subscribers. As a kid, I used to drag a pile of newspapers around in my red Radio Flyer wagon, going door-to-door delivering the paper to people’s doorsteps. With the decline in subscriptions, you really can’t do that anymore. The unit cost of distribution goes up as there are fewer subscribers. It also makes the paper less convenient: rather than getting it at your doorstep, it might be in a box at the curb. Getting to your laptop doesn’t require getting dressed and going outside.
• Inability to develop national scale. Most of the newspaper companies’ competitors can play at a national scale. This includes both online and offline media such as Google and TV networks. This makes it easier to spread out costs and easier to generate revenue. At startribune.com, we built out online yellow pages, entertainment guides, classifieds, etc. well before the vertical players existed. But because we were a regional paper, we couldn’t generate sufficient revenue to compete with the focused vertical players. The fragmentation also makes it harder for advertisers who want to buy reach. (See my related post on How the AP blew it.)

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