By Andrew Edgecliffe-Johnson in New York
Published: August 30 2009 19:09
From the morning paper to the evening news, the media industry is in crisis. After a decade struggling with internet-enabled changes in consumer behaviour, a precipitous slide in advertising and consumer spending has humbled media owners from Hollywood to Fleet Street.
The litany of woe is now familiar: companies as diverse as Setanta Sports, the sports broadcaster, and Reader’s Digest, the magazine publisher, have tumbled into bankruptcy proceedings, while publications from Portfolio magazine to thelondonpaper have folded.
Champagne parties have been cut as lay-offs shrink the guest lists, while Graydon Carter, the Vanity Fair editor and gastronome, has been spotted at the Condé Nast cafeteria, mournfully eyeing the stir fry.
Less commented on is the unprecedented pursuit of alternative growth opportunities by media groups that the crisis has stimulated.
From broadcasters to music labels, game developers to social networking sites, media owners are looking to bundle content with appealing technology, find faster-growing international markets, rethink merger strategies, introduce new content payment models and redefine the way advertising works.
Nowhere is the need for new business models more urgent than in newspapers, the business most saddled with print costs and most exposed to the advertising market’s weakest parts.
PwC expects global revenues from papers and their digital incarnations to fall 10.2 per cent this year and to shed almost $20bn in revenue between 2008 and 2013.
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In the US, where Craigslist started the online challenge to publishers’ once lucrative classified advertising businesses, newspaper advertising is down 29 per cent so far this year.
Alarmingly, the industry has also so far “failed to make the digital transition”, according to a report last month from Outsell, a publishing research firm, which found that news organisations’ digital revenues were just 11 per cent of their total revenues, compared with 69 per cent for the broader information industry, which includes legal and financial data providers such as Reed Elsevier and Bloomberg.
Yet in recent months, the crisis has galvanised a debate about the value of news content, driving a spate of experimentation with alternative models.
Most prominent has been the push to charge for news online, once the preserve of business publications such as the Financial Times and the Wall Street Journal or product reviewers including Which? and Consumer Reports.
Journalism Online, a venture attempting to pool industry costs and ideas, is talking to almost 800 publications about such payment models. It argues that e-payment systems, “all-you-can-read” and “day pass” subscriptions and micropayments can create new online revenues, improve digital advertising rates and restore the value of print.
Rupert Murdoch last month similarly predicted “significant revenue” from introducing charges for all his titles, and is talking to rival publishers about possible paid online services uniting high-end titles such as the Wall Street Journal, New York Times or Washington Post.
Mr Murdoch’s News Corp empire illustrates other less visible growth strategies being pursued across the news business. In the UK, it has built lucrative sidelines to its titles, such as the Sun’s online bingo games and short-break holidays.
Mr Murdoch’s closure of his freesheet, thelondonpaper, illustrates the willingness to make sacrifices. Unprofitable enterprises such as the Rocky Mountain News, BusinessWeek and the Boston Globe have been at the sharp end of the trend to shut, sell or slash costs in order to defend more profitable products.
Finally, Mr Murdoch’s vow to make his content available – at a price – on electronic readers demonstrates the industry’s discovery that it is easier to charge for content when it is on an attractive device.
David Hunke, president of USA Today, said last week it was “extraordinarily bullish” on the potential for wireless readers.
“Consumers across the western world will pay for coolness, they’ll pay for access, they’ll pay for convenience,” said Ken Doctor, an analyst with Outsell.
Newspapers remain cyclical businesses, and perhaps their greatest hope lies in an advertising recovery. PwC expects revenues to at least stop declining by 2011.
By then, Mr Doctor argues, “especially in a recovering economy, the ability of newspapers to get the majority of their revenues from advertising will seem brighter”.
Publishers’ search for alternatives to advertising will not offset the decline in core businesses overnight. But they look set to redefine the scope and definition of many media companies for years to come.
Copyright The Financial Times Limited 2009.
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