Tuesday, December 16, 2008

Detroit newspapers in trouble

The Detroit Free Press and Detroit News have announced that they are cutting back on home delivery; they will only be delivering on Thursday, Friday, and Sunday. How this is going to work is something of a mystery to me. Are they going to have part-time carriers? That's going to be a little weird. I have some nostalgia for both papers, although more so for the Free Press. I delivered both papers for years when I was in junior high and high school. So did my siblings. I prefered the Free Press; it was more liberal (it had Doonesbury), and it seemed like a better paper.

At least it was back then. When I go home to visit my parents, I'm saddened by what I see. The Free Press is a shell of what it used to be. At least that's the way it looks to me.

As we are debating whether or not to save the Big Three, it occurs to me that it might be better for Detroit if one of these papers bites the dust. Los Angeles has one daily newspaper, and it's still a good paper.

Ted Turner realized years ago that newspapers consume a great deal of energy, as they are produced and delivered. That's one reason he started CNN; it's a much more efficient way of delivering the news. Or at least parts of the news.

The problem of efficiency is one that newspapers just can't seem to get a handle on. In many respects, newspapers are horrendously inefficient. I read a story a while ago about a guy who advertised for a clerk for his laundromat business in San Francisco. He put an ad in the paper; he got 4 responses. He put an ad on craigslist. He got 400 responses. Guess which one he uses now.

Consider the energy/resources used in both of those. Let's assume that the guy runs an ad in a SF paper with a circulation of 400,000, and he runs it for a week. That ad will be printed 2.8 million times. If he gets 4 responses, that's one response for every 700,000 times it's printed. That's a huge amount of paper. But if he posts it online, no one has to actually print out the ad at all.

The online ad is orders of magnitude more efficient in terms of energy and resource use. It's also vastly more efficient in terms of being relevant to the person looking for it. It's much easier to find a classified ad on craigslist than it is in a newspaper. It's also easier to reply; just clink on the link.

On the other hand, a newspaper delivers lots and lots of ads, and, in some respects, it's easier to read than something online. I read most of the LA Times every morning. It's easy to scan several articles on each page and decide what you're interested in. And there are pictures to help you figure out what happened. Kobe's excited! Lakers must have won.

So newspapers are inefficient, but lucrative. As of right now, Websites are efficient, but not very lucrative. Megan McArdle makes a good point:

[I]t takes a while to figure out how to make advertising work in a new medium. The original television ads were simply transplanted radio ads, and they were dreadful--just as the original radio ads consisted of someone reading a print ad, which didn't work very well. We may just be waiting for our advertising revolutionary who can show us how to make webvertising work.
Web advertising is, of course, constantly improving. With, unfortunately, a few false starts. One of the best things about Webvertising is that there is a huge range of ads, from one-line text ads on Google to 30-second commercials on comedycentral.com. Unfortunately, that range isn't always taken advantage of. I can think of a few Web ads I have seen far too many times. That cute but serious Indian woman in a white shirt in the SAP ad? Boring. Seen her more times than I care to remember. Several weeks ago, I spent some time doing a lot of trading one day on HSX. I kept seeing the exact same ad, for Soul Men. By the time I was halfway through my trading, I was thoroughly sick of the ad. The fact that I remember my disgust is an indication of just how ineffective the repetition was. There has to be technology available for varying the ads sent to a specific computer.

The upside of this is that newspapers have a couple of advantages on the Web. First, because articles are mostly composed of text, their bandwidth and server costs are lower than, for example, YouTube or Comedy Central. Second, they have massive archives. The NYTimes was a leader in this respect. Putting all of those old articles online is a huge expense, but once it's done, it's done and paid for. I don't understand why every newspaper in the country has not followed in their footsteps. Every decent newspaper in the country has decades of content that no one else has. Once all those articles are online, it's a matter of programming and management ingenuity to figure out how to slice and dice it all to find value in it. Third, as the costs of technology go down, newspapers will be able to realize, one assumes, ever-greater cost savings. Fourth, as high-bandwidth connections proliferate, more and more people will be able to watch high-value video ads.

It's not a pleasant experience watching proud old companies face possible extinction. I'm cautiously optimistic about the future of newspapers. I'm not that impressed so far with current management, but I am also a firm believer in the old saying that nothing so concentrates the mind as the prospect of a hanging in a fortnight. Like the Big Three, newspapers are burdened with legacy costs. Even if GM shuts down a plant, they're still paying the mortgage on it. Same with newspapers. They still have large printing facilities that have to be paid for. There is still a large demand for printing for things besides newspapers. Hopefully they will be able to figure out how to make money with their idle printers. But it's time to start experimenting and rethinking how the business is going to work.

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