Sunday, October 30, 2005

Consolidation in Newspaper Industry is Inevitable, as Owners Make Strategic Decisions

Earlier this month journalism professor and former Knight-Ridder journalist Phil Meyer published a column headlined “Newspapers can't maintain monopoly profits because they've lost their monopolies.” In it he voiced skepticism that attracting “young readers” is a viable resuscitation strategy for traditional newspapers. His compelling evidence went beyond the usual table that shows that 20-somethings don’t read the newspaper. No, Prof. Meyer, the creator of the term and author of the landmark book Precision Journalism makes an even more compelling case with this graph:

readership graph

It's a fine example of a picture having value of a thousand words. But just for emphasis, the import of the data is that the pre-radio generation had and maintains a higher level of newspaper readership than the pre-television generation, which in turn is higher than the boomers who were raised with TV and radio. And the post-boomers, having had VCRs, DVDs, gazillion channel cable and, of course, the Internet, distracted by more media choices than ever, not surprisingly has the least need for-- or at least the least time for-- traditional newspapers.

Meyer does see a sliver of a silver lining, reminding us that "new media never completely replaces old media. They just drive the old media into more specialized niches. Newspapers will survive, but in radically different form, many less than daily." Certainly true for the intermediate future. But it will also eventually result in changes of ownership, as some of today's owners decide they don't want to be in the lower volume, specialized niche business.

The prototype may have been the Harte-Hanks newspaper group, headed by a smart CEO named Robert Marbut. About 10 years ago they decided that the value of their newspapers was high and the future was dull, so they sold their papers-- mostly in Texas-- and redeployed assets into the direct mail business, which indeed has been more robust than newspapers. Direct mail has actually increased its share of advertising expenditures as newspaper share continue to fall. Today more advertising dollars are spent on direct mail than in newspapers. Harte-Hanks may not have foreseen the impact of the Internet when it made its strategic decisions, but it was aware of the move to digital and it understood the long term implications for newspapers. While Harte-Hanks still uses print, it is essentially a data base business.

Harte-Hanks was ahead of its time. I suspect over the next decade the CEO or the Board at some of the larger media companies that own newspapers will also make a strategic decision to start to sell them, channeling the proceeds into online or digital ventures of some sort. At the same time a smaller number of today’s publishers—or perhaps a few new players altogether—will make a strategic decision to specialize in low circulation, higher priced printed dailies and less than dailies. Thus, as print newspapers become a smaller part of the media universe their ownership will consolidate even further. But this might be not only natural but beneficial for the shrinking audience of advertisers and consumers who will want a traditionally printed product. The usual suspects will miss the bigger picture and will criticize and protest about media concentration. But the direction is as sure as water flows downhill.

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