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Tuesday, March 10, 2009

The Problem for the News Media Isn't Just Revenue

While it is true that traditional sources of revenue for newspapers are drying up, the core problem affecting the news industry isn’t revenue—it is consumer choice.  The conventional wisdom about the newspaper business is that if papers could just find a new advertising model or creative way to monetize users, their problems would be solved.  While a healthy revenue stream is vital to the long run success of any venture, the problem facing news media is much greater than simply better monetizing users.  The challenge is to continue to attract a greater number of users and convince them to spend more of their scarce time and valuable personal information on the site.  Satisfying these criteria will ultimately breed innovative revenue streams.  Consumers are voting with their clicks: web users overwhelming prefer to spend their time at social networking properties like Facebook rather than on news sites.  Driving this shift in where people are spending their time are three key trends affecting both news media and the web as a whole: relevancy, immediacy, and community.

1. Relevancy—For the average web user, only a small portion of the content on major news sites is relevant or important to her daily life.  This is a fact both online and offline: news and happenings about our friends and family generally command far more of our attention than general news.

2. Immediacy—Users want content that is published in real-time.  Many news readers prefer the web because content is less dated than in print, but unfortunately for many publishers, even publishing on the web still isn’t fast enough for many users.  Services like Twitter and Facebook publish “news” (OK, it’s not really substantive news, but I will leave it up to the consumer to determine product quality) in a near real-time 
as event occur.

3. Community—News sites like the New York Times, the Wall Street Journal, and CNN.com strive to create a community around the news they publish.  Features like the ability to add comments to articles and share with friends via email strive to create a sense of community, however fall miserably short.  Readers want honest and genuine interaction with both authors and each other. When was the last time you saw a NYT reporter respond to comments on her article?  It’s very rare.  In an effort to create community on its cable news programs, CNN has even begun to expose Twitter responses to topics and opinions discussed by commentators. Community matters and is a key requirement for helping people decide where to spend their time online.  Social networks by nature satisfy the community criteria very well.

How are traditional news papers and even online news sources faring in the battle for readers’ time and attention?  Web users spend over 10x the amount of time on Facebook and Myspace than on traditional online news sources.  The data below compares Yahoo News, the Wall Street Journal, CNN.com, and the New York Times to social networking sites Facebook and Myspace (Source: Compete.com).  During February 2009, U.S. internet users spent 5.9% of their time on Facebook and only 0.7% of their time on Yahoo News, the Wall Street Journal, CNN.com, and the New York Times combined.  While it is true that major news sites have increased their share of user attention on their properties by increasing the immediacy of their content (mostly through blogs) and community features, these sites will not achieve the same share of users time and attention compared to sites exclusively focused on social interactions.  What does this mean for the publishing industry and the news media business overall?  Advertising dollars are limited and marketers will allocate them toward the most productive venues, which judging by user preference, will not be traditional news media for the forseeable future.

5 comments:

GMoney said...

Regarding the assertion that newspapers face three large obstacles in the pursuit of financial stability (relevancy, immediacy, and community), I am confident that each of these concerns are ancillary at best.

Relevancy: It is true that, for the average web user, only a small portion of the content on major news sites is relevant or important to his or her daily life. It is also true that this is a fact both online and offline: happenings about our friends and family generally command far more of our attention than substantive news. It is also, I argue, true that the average human being has always been far more concerned with their personal happenings and the happenings of loved ones than substantive news. Pardon the pun, but this is not news. The financial crisis of the newspaper industry, on the other hand, is something new—the forces causing havoc in the newspaper industry have arisen recently, while self-interest has not. What once was a sustainable business model is now outdated, for reasons other than the ancient urge for self-interest.

Immediacy: It is true that information delivered quickly is better than information delivered less quickly. Newspapers have known this for a long time, and have altered their product accordingly. On NYTimes.com, for instance, reporters live blog many important events, including senate hearing, press conferences, and the like. If people want news as it happens, newspapers (through their websites) are eager to provide live news. If newspapers can provide content as quickly as Facebook or Twitter (and with admittedly higher quality), then we can safely assume that immediacy is not a challenge facing the newspaper industry. Perhaps five years ago, but not anymore.

Community: It is true that the 21st century human craves an online community, and newspapers strive to provide consumers with an online community where visitors can voice their concern and interact with journalists and editors. I believe the industry, in particular the New York Times, have made extraordinary strides towards encouraging consumer interaction including such notable features as the running commentary Room for Debate, where editors post their thoughts on the day’s events as they happen and readers interact with each other and the editors. Unfortunately, all talk of social networking related to the financial challenges facing newspapers is avoiding the primary problem, which is financial in nature. Coca Cola has not created an online network where users interact with the producers of Coca Cola products. Yet their revenue stream remains unaffected by this. Why? Because Coca Cola’s business model has remained essentially the same since its inception: make money by selling beverages to thirsty people.

The business model of newspapers, on the other hand, is no longer viable. Not because news is irrelevant or slow, or because it discourages online social networking. At its most essential, the financial challenges facing the newspaper industry stem from a significant drop in ad revenue. People no long purchase cars or look for apartments in newspaper classified ads because it easier to do so online. This is how newspapers used to make their money, and now that revenue stream has vanished. Their product is strong. Consumption has been steady (circulation for the New York Times has dropped from 1.11m in 1998 to 1.07m in 2008; 32,000 lost subscriptions does not cause a crisis). Their revenue, however, is indifferent to the quality of product or eagerness of consumers. These are facts.

Will Hambly said...

I am arguing that social networking and news/messaging services like Twitter are becoming substitutes for traditional media. I respect the Times and read every day online. No newsroom, however, will be able to match the up-to-the-second reporting from hundreds of sources that something like Twitter is able to provide. Think of it as crowdsourcing news...and the content is free. (I'm not saying the crowd reports better news, but people seem to overwhelmingly prefer it)

I'm not arguing that financial troubles aren't related to a drop in advertising sales. That is beyond clear. Why are papers losing money to Craigslist, Ebay, and Facebook? They've failed to innovate in the concepts of relevancy, immediacy, and community.

This one statement you made doesn't make sense to me, can you clarify? "Their revenue, however, is indifferent to the quality of product or eagerness of consumers."

Put your comment in perspective:
(circulation for the New York Times has dropped from 1.11m in 1998 to 1.07m in 2008; 32,000 lost subscriptions does not cause a crisis)

Over this same time period Facebook went from 0 to 175 million users.

GMoney said...

Firstly, to put newspapers and social media sites in the same arena is to misplace both. People do not go to Facebook or Twitter for news reporting -- users go to Facebook and Twitter to interact with other users. By definition, they are SOCIAL networks, not NEWS networks. They are two very different industries with two very different products.

If, perhaps, a user wanted to know Ashton Kutcher's reaction to a particular piece of news media, then something like Twitter becomes unbelievably valuable. If, on the other hand, users want an update on the latest news from Baghdad, Facebook and Twitter are not sources of information (beyond their ability to link to stories from NYTimes.com or CNN.com). Last time I checked, no social network site has created a Baghdad bureau. Nor have I heard of any plans to establish one. Why not? Because they are not in the business of providing news; they are in the business of connecting people socially. For reasons mentioned below, Facebook could have 10 billion users and it would not have a direct effect on the financial viability of the newspaper industry.

I have already addressed the three-headed straw man you proposed earlier. Newspapers and the products they produce do not suffer from a lack of relevancy, immediacy, or community. The problem is not that people no longer consume news (they do). The problem is that newspapers cannot figure out a way to generate revenue from the people that consume their product (of which, there are millions).

Which brings me to my next point, the explication of my comment, "Their revenue, however, is indifferent to the quality of product or eagerness of consumers." Here's my explanation: The quality of product (the reporting of the news and the content produced by reporters) has not suffered; news reporting is as strong as ever. The eagerness of consumers to consume this product has remained steady; people still read the news, either in print or online. Newspapers provide a quirky business situation where 1) your product remains relevant and quality does not suffer, and 2) your consumer still wants and needs your product, but 3) the business model is no longer viable.

At its most basic, there are three parts to any business: product, consumers, and revenue. It would follow that if you own a business that produces a high-quality product that consumers want, then revenue should naturally take care of itself. Newspapers are finding out that this is not the case. The primary problem is their revenue (advertising) was never truly tied to the product itself (news). People (consumers) still read the news in the same volume they always have (circulation for the New York Times has dropped from 1.11m in 1998 to 1.07m in 2008) and the news itself (product) is still strong. The problem is that classified ads no longer generate money, in print or online.

And here is the bottom line: revenue from classified ads has not been lost to Facebook or Twitter. People do not pay to place classified ads on Twitter or Facebook -- users simply post for free. In order for your hypothesis to be correct, you have to prove that the ad revenue generated from classified ads in newspapers has been taken away from newspapers and given to sites like Twitter and Facebook. This is absolutely false. Revenue generated by classified ads has not gone to Facebook or any other source: it has vanished. Paying for classified ads is a thing of the past. This is the reason newspapers are struggling.

Will Hambly said...

I will post a substantive response, but in the mean time, here is the Baghdad Bureau of Twitter you asked for.

http://search.twitter.com/search?q=&ands=attack&phrase=&ors=&nots=&tag=&lang=all&from=&to=&ref=&near=iraq&within=500&units=mi&since=&until=&rpp=15

Will Hambly said...

GMoney--fantastic discussion--I thank you for the rich debate.

I challenge you to take a broader view of what actually takes place on social networks. The distinction you make between what you see as distinct categories, social and news, are increasingly blurring. The unidirectional model of news reporting is under intense pressure by consumer choice and as I showed through attention statistics, the percentage of time spent by users on traditional news sites is tiny and relatively constant, while social site usage is large and exploding.

Every social network has a Bagdad bureau--social networks have reporting networks in each location where they have users. A great example is a Twitter user being the first to report the Hudson River place landing. Try the advanced features on search.twitter.com and you will find that it is a great way to understand what is going on in locations around the world. The updates are real-time and generally very relevant. I’m not saying journalism is dead—quite the opposite. Reporting the occurrences of events is commoditized, and this component of the news business has been outsourced. The role of a journalist as a fact checker, sleuth, organizer, and interpreter of events, however, will still be of tremendous value. The principles of relevancy, immediacy, and community govern the future of media. They are not sufficient criteria for success but are absolutely necessary. Yes, your point about classified revenues disappearing is correct, but that is history. There are much more dramatic shifts taking place in the media business than merely classified ads moving to Craigslist. It is not just the business model that is changing, but the core product is undergoing a paradigm shift.