The business case for and against Advance’s strategy for the future of news
Steve Newhouse's essay and the companion interview by my colleague Andrew Beaujon, published Friday, clarify Advance Publications' corporate thinking in taking papers in New Orleans, Alabama and Michigan to three-day-a-week publication.
The strategy entails a double bet on advertising: first, that print revenues will continue to decline sharply rather than stabilize; and second, that a well-positioned news organization will be able to capture a sustaining share of the marketing dollars migrating to digital.
Newhouse, chairman of Advance.net, seems to believe both of those things, and the corollary that the traditional seven-day-a-week model will crash and burn within a few years. He hints that the new format may be coming before long to other properties like the Oregonian, The (Cleveland) Plain Dealer, and the company's New Jersey papers.
This appears to be all about business strategy, but I see a more fundamental question, just below the surface, of importance to everyone working on the editorial side of a newspaper organization: What is the critical mass and the character of the news force needed to succeed in a hybrid print/digital world?
Let me draw on not-for-attribution conversations with two prominent publishers with polar opposite takes. One calls the New Orleans changes "ill conceived" and likely to "take down the business." The other thinks the move is "brilliant."
The business case against Advance's strategy
Publisher A argues that the newsroom cuts, dismissing about half the legacy staff, are so deep that "the breadth and depth that differentiates" a newspaper organization for its local readers is bound to suffer, even if there is some restaffing on the digital side.
That will potentially lead to a loss of traffic and advertising which will migrate to well-managed local TV websites, especially if the newspaper erects a pay wall and the TV site is free. Publisher A is on the board of his employer's company, which owns TV stations in markets that compete with Advance. (Advance has said it is not considering a pay wall).
"Newsroom scale is not the only competitive issue," the publisher continued in a note to his staff. "Local television stations have an ubiquitous distribution system (in addition to the classic and mobile Webs) that reaches into almost every home in the [market]. And this distribution system is fortified by multimillion dollar episodic programming and exclusive live sports, which makes it a very powerful promotional platform."
With less newsroom scale and a lot of news content duplicative of what's on the TV sites, Publisher A sees this scenario:
Less news staff means less local content. Less local content means less page views. Less page views means less digital advertising revenue. Yes, maybe you can grow your page views by flooding your site with wire and syndicated content or by posting the latest roller-skating animal video, but that's a strategy headed down the road of commodity content that ultimately leaves you undistinguished from other sources of news and information ... And with commodity content comes lower [rates].
The business case for Advance's strategy
Publisher B, conversely, sees reduced print frequency strengthening the print and digital reports (while significantly cutting expenses). Newspaper organizations, he argues need to be focused on investigative, enterprise or magazine-like content material "with a shelf life longer than a day."
The seven-day schedule leaves some share of the reporting, editing and production staff focused on the once-daily report. That's a competitive disadvantage. So the lesser print frequency can be viewed as a needed jolt to the system that will move resources away from light updates of what has already been on the Web and into a sharp focus, instead, on value-added content.
In fairness to Advance, we have two months of planning and months more of break-in to see what the New Orleans and Alabama print hybrids actually deliver by way of quality content. Last week, NOLA.com got a past-due redesign. Newhouse insists that about 60 percent of the laid-off journalists will be replaced, and the company may well have big innovations up its sleeve.
Turning back to straight business considerations, print pessimists like Newhouse have recent history on their side. 2010, 2011 and 2012 have brought continued significant declines in advertising revenues, not stabilization. Some prognosticators foresee a down-tick in insert advertising or a sharp shift of news readers and marketing dollars to smart phones in the next two years.
As I wrote in an earlier post on Advance and a more recent one on mobile advertising, Newhouse and some others in the industry seem to assume that digital advertising can spike for the well-repositioned websites. But recent history shows very soft rates for most digital display and only modest advantage for regional sites with a strong story of traffic growth. Nor is it clear that most digital advertising requires the accompaniment of a news environment.
Newhouse notes that the Michigan sites and NOLA.com measure exceptionally high in household penetration. In Michigan, that would seem to me partly accounted for by there being no print newspaper in town four or five days a week.
The company may also have access to revenue growth numbers which show superior market coverage paying off. Even if not, one might argue, as Digital First CEO John Paton has, that publishers need "to learn how to stack digital dimes" because the print dollars are going away fast.
The prevailing winds
While digital denial is mostly a thing of the past, the majority of companies still have a fundamentally different strategy from Advance's -- shift more of the cost of producing a quality news report to readers rather than bet on big digital ad growth. With the metered model and all-access bundled subscriptions, the theory goes, print circulation, especially on Sunday, can stabilize and grow, thus extending the life of the seven-day-a week print edition.
Several years ago, in a hallway conversation at an investment conference, I asked Bob Dickey, head of Gannett's community newspaper division, what he thought of reduced frequency. It had been studied and rejected, he said, the disadvantages outweighing the savings. Seven-day distribution, even of those papers light on advertising, Dickey said, helps hold both readers and advertisers for the more profitable days.
Newhouse and his team have reached the opposite conclusion and opted for big change right now. They are betting their franchise on it. Beaujon coaxed me to a sound-bite conclusion in his Friday story: Either Advance is bolder and smarter than everyone else or they are wrong. Time will tell.
I'm skeptical, but having gotten out front on a transformation strategy, Advance deserves a suspended judgment on whether they can make it work.