Are Newspapers Sticking to a Premium Strategy Amid Digital Disruption?

July 13, 2010
Category: Uncategorized
Six months into 2010, this is shaping up to be a better year for newspapers. One might be cheered simply by the pace and scope of experimentation in 2010: digital futurism headlining the Newspaper Association of America’s annual conference, nontraditional publishers and CEOs taking the helm of several metros, and tests of limited paid online content.
 
I’m less certain, however, that the industry is sending readers and advertisers a clear signal of what newspapers are changing into. Or, for that matter, that the execs know themselves where they are headed.
 
In that frame of mind, I was struck by a recent article and discussion thread in McKinsey Quarterly titled “When companies underestimate low-cost rivals.” That’s been a problem, all right. And the McKinsey piece, written by Swiss marketing professor Adrian Ryans, argues that it is common across a range of industries worldwide, in both expanding and constricting markets. (Reading the full article and comment chain is free but requires registration.)
 
Though newspapers and media are never mentioned, Ryans might well be talking about challenges from Monster, Craigslist, Google, Huff Post and Associated Content when he observes, “Complacency and arrogance produce blind spots that delay a response and leave incumbents vulnerable.”
 
So what is a disrupted “incumbent” to do? The McKinsey piece and the accompanying comments seem to define three broad responses:
  • “Premium players” can refine what they offer that merits higher prices and target a smaller market segment that wants that. They might focus on selling solutions rather than physical products, as IBM famously did when it underscored that consultative help came standard with its business computers.
  • The incumbent can take on the low-cost crowd directly with a pared-down, cheaper product line — as Nokia did with rudimentary “entry-level” cell phones and a regional marketing effort when local players challenged it in the Chinese market.
  • Strategic cost controls and re-engineering have a role, too. However, cuts that chip away at basic quality are self-defeating if the company still wants to dominate in the top end of the market.
The three strategies are not mutually exclusive. In fact, part of the challenge for a company suddenly under new competitive pressure is to pick the best mix.
 
So what’s the best response for the newspaper industry?

Cost control has loomed large at newspapers — and with mixed success. The industry has been ingenious in finding ways to save money, but as revenues crashed in 2008 and 2009, papers made cuts that obviously harmed editorial quality. (Not to mention that a print paper with hardly any ads is even less appealing.) This year’s vogue of decimating or consolidating copy desks will further test whether readers think it’s worth their money and attention to pick up an assemblage of lightly edited articles.

 
Newspapers have fitfully tried to develop their own low-cost products to challenge low-cost competitors. I think there have been many more misses than hits.
 
Search still belongs to Google; news aggregation to Google, Yahoo, Huffington Post and others. For all the tough talk, newspapers take what they can get in increased traffic from search engines and aggregators. Even Rupert Murdoch’s Wall Street Journal wants you to circumvent the pay wall to read the article you found via search.
 
Newspaper websites are slowly expanding into more user content, searchable databases and links out to bloggers and neighborhood sites. But in my judgment, most still fall well short of being the go-to “local information and connection utility,” envisioned by Stephen Gray and his colleagues in the Newspaper Next project.

On the business side, newspapers have tried self-service ad platforms and local search sites, but they’ve had only modest impact.

More broadly, the industry’s stubborn resistance to uniting around any commercial opportunity stands in the way of their ability to exploit the huge audience that newspaper digital ventures collectively have assembled. Antitrust laws further inhibit that kind of industry-wide collaboration.

 
You might wonder whether newspapers are a premium product, given that they have long sold the print edition for slightly less than the cost of production and delivery — and more recently, they’ve given away the Web version.
 
I would argue that they are. Newspaper advertising demanded a premium rate because it reached the biggest audience in town, brought customers to the store and produced sales for those who bought classifieds.

Have newspaper organizations found strategies to remain a premium product?

Several come to mind. The development of niche publications, print and digital, has been a quiet success over the last several years. That helps ad salespeople tailor packages to advertisers’ objectives, analogous to IBM’s consultative selling.

 
In the digital arena, behaviorally targeted ads, delivered in partnership with Yahoo or other vendors, allow participating sites to charge a premium over the prevailing rock-bottom generic rates.
 
Now, the sprawling news reports of the good old days are not coming back. (Sunday editions are a partial exception.) But several battered metros — The Boston Globe and The Dallas Morning News are conspicuous examples — are going with much tighter print editions, rich with exclusive content. They are charging higher single-copy and subscription prices and settling for a smaller, more elite audience.
I’m also encouraged to see that in arguing for a well-assembled package of content and advertising, the industry is emphasizing convenience of access and use. Print die-hards get the point that they need to pay for at-your-doorstep delivery. E-replica editions, Kindle editions, and assorted apps offer a combination of substance and utility that customers will pay for.
 
The iPad (itself a premium product with nearly the cachet of a Gucci bag) opens new vistas for premium pricing. On-the-fly iPad news apps have accumulated a following in just three months. Early returns indicate that iPad advertisers are willing to pay prices well above basic Web rates. Mobile news services with geo-targeted ads have that same potential, though I’m not so sure newspaper organizations have a strategic advantage over more focused competitors like Foursquare.
 
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Some might argue that I’m over-complicating the strategic questions for newspapers, or that the McKinsey framework is the wrong one for an industry facing not just low-cost rivals, but broad disruption. Maybe the game is simply finding many ways to substitute digital audience and revenues as print gradually wanes.

 
Earning season kicks off Friday with Gannett’s second quarter and half-year report. The P & L picture is much improved. But in this and subsequent earnings calls of the next several weeks, I’ll be listening for the corporate chiefs to articulate a more detailed vision, pardon the cliché, of the news organization of the future.