These are tough times for newspapers. Subscriptions have hit an all time low and advertising revenues have seen a significant decline. Production costs are rising and stock prices have tanked significantly. Average daily circulation for 635 newspapers in USA fell 5 percent in 2010 from a year earlier, according to Audit Bureau of Circulations. There have been 166 U.S. newspapers that have shut down or stopped putting out a print edition since 2008.
Much has been said about how this happened – the digital revolutions, Google, Google News, blogs, etc have all taken the blame for this fall from grace. I will therefore refrain myself from beating the dead horse and concentrate on a different aspect. What can newspapers do to get out of the hellhole?? Is online the savior for the newspapers? Atleast for the immediate future, this does not seem to be the way out. An immediate concern is the willingness of the users to move from the online free model to a paid model. In a study by Harris Interactive, of the 2,105 U.S. adults surveyed, 80 percent said they would be willing to pay "nothing" to read a daily newspaper's content online! Next is the much touted free model where revenues are only generated from online advertisements. Proponents of this model – popularized by Google, argue that free is the purest and far reaching form of model.
So is free the way to go for newspapers?
In my humble opinion – Definitely not
Firstly – a quick glance at the current revenues being generated by online advertisement reveals a telling tale. As of now, online advertising revenue accounts for a small percentage of the total newspaper revenue. So unless the online advertising revenue reaches the scale where they can replace the print revenue it is unlikely that newspaper companies will completely move to online only format.
Secondly, news and advertising are very uncomfortable bedfellows. The basic premise of news consumption is the credibility of the news content and the trust the user has. A newspaper dependent on the advertising only model makes itself susceptible to getting influenced by the very dollars which are financing its existence. Already we are seeing examples of news content being tailored or softened to suit some companies. In April 2009, page one of the Los Angeles Times featured an ad for a new NBC show, with a look and feel of a news item – clearly an issue bordering on grey areas of newspaper ethics. There have been similar accusations of some network newscasts softening the content of the news delivered to benefit a few companies. Truly an alarming situation and one fraught with risk of losing credibility for newspapers.
Finally a dependence on advertising only revenues has the potential to make the newspapers vulnerable to any recessionary trend. Advertising budgets are typically one of the first items to undergo pruning during a time of recession. The current recession is an example to the point - total print and online newspaper advertising fell to $25.8 billion last year, a 6.3% drop compared with 2009, according to data released by the Newspaper Association of America. Print ad revenue dropped to $22.8 billion, a decrease of 8.2% over the same period. For any newspaper completely depending on advertising revenues this situation could prove be very challenging.
Clearly an online advertising only model does not seem to be the most preferable one for newspapers. And despite reducing subscription, print model still is the single most important source of revenue and would continue to be in the immediate future. Newspapers are exploring other revenue streams e.g. online subscription model to boost their revenues, but it will take some time before newspapers can move from the online plus print model to online only model. However with newspapers looking to work out a strategy of charging for premium content and full access things do not looks so bleak. A News Corp research concluded that in another 10 years online version will generate sufficient revenue to replace print.
The big question for newspaper would be - How do they go through the next 10 years?
