Sunday, May 29, 2016

The Five Forces at Work in Newspaper Publishing

The trend line tells an unmistakable story: newspaper publishing in the US is dying. Between 2004 and 2014, print ad revenue declined from $47bn to $16bn, according to Pew Research Center, a non-partisan “fact tank”. During that same period, online ad revenue for those publishers increased to $3.5bn from $1.5bn. The industry was moving online. Clearly it was only taking a small amount of ad dollars with it.

Headlines echo the underlying theme: “Newspaper industry lost 3,800 full-time editorial professionals in 2014”, read an article from Poynter. In 2006, there were 55,000 newsroom editorial professionals; at the end of 2014, there were 32,900, the American Society of News Editors reported.

Disruptive Distribution

Viewed through the lens of Porter’s Five Competitive Forces, the story of US newspapers is one of Weak forces insulating the industry from competitors for more than a century, and those forces turning almost overnight.

For years, newspapers maintained regional monopolies or duopolies on the printed word for news. Though innovations like radio and television challenged for advertising dollars, newspapers found a complementary and market-expanding position alongside them (Medium for substitutes). Consumers watched the nightly news, but they still wanted their daily newspaper.

The old newspaper operating model required extensive physical distribution networks and scale (readership) to drive revenue (Weak for new entrants). It required skilled labor – journalists - who were often unionized (Weak for suppliers) but had few other options for journalism outside the field. There were limited regional or local options for printed news (Weak for customers). And established rivals often carved out specialties or editorial leanings to differentiate themselves, a la the New York Daily News and the New York Post (Weak for established rivals).

Enter digital distribution. Physical distribution and cost were no longer barriers to entry. With the right SEO strategy, content and buzz, customers would come to you (Strong for new entrants). People’s attitudes toward information changed – a Tweet from a crime scene may be just as valuable to consumers as a veteran journalist’s reporting, lowering supplier costs for competitors (Strong to supplier). Digital news providers could curate, customize and micro-report on topics they want to read about (Strong for the customer). And established rivals were no longer focused on you, but on how to address – sometimes unpredictably – the new-entrant onslaught (Medium for established rivals).

Shifting models

With ad revenue in serious decline, newspaper publishers are shifting their focus again to direct monetization of their circulation (i.e. subscription revenue) to balance out the lost revenue. That includes erecting on-line pay walls, and selling news into professional and consumer aggregator services. 

Newspapers are relying less on career journalists and more on social media, agency and automation for content. They’re downsizing in print, and scaling up online. They’re specializing in local and regional news, where sourcing and access still matter. And they’re doubling down on credibility, trusting that consumers will value getting the facts right over just getting some information. The core values still matter to newspapers; they’re struggling to re-assert them commercially in a culture of free information.

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