What got Jarvis so excited was a July 4 experiment in which the company’s 18 dailies published using nothing but free, web-based tools. They called this the Ben Franklin Project in recognition of both the country’s birthday and Journal Register’s liberation from ancient proprietary production systems.

More importantly, the company changed the way it reported the news for that day. Readers were actively involved at the front of the process in directing the reporting staff and looking virtually over reporter’s shoulders as stories were prepared. “The Ben Franklin Project is the beginning of a new era of an open and transparent newsgathering process,” wrote Paton on his blog. This is a company worth watching again.

He also quotes from an article by BBC World Service director Peter Horrocks that calls for an end to “Fortress journalism.” Horrocks writes, “In the fortress world, the consumption of journalism was through clearly defined products and platforms… but in the blended world of Internet journalism all those products are available within a single platform and mental space… the reader may never be aware from which fortress the information has come.”

In the world Horrocks describes, the audience pulls together its own newspaper, woven from bits and pieces assembled from various online sources. The consequence of this is that media organizations can’t afford to reinvent the wheel anymore. Each needs to focus on what it does best and pool efforts rather than duplicate them. So maybe 90 of those 100 journalists who currently attend a Presidential press conference can spend their time out in the field assessing reaction and gathering analysis rather than listening to the same thing. What a concept.

Miscellany

Advertiser optimism continues to grow. Advertiser Perceptions Inc. (API) reports that 32% of ad executives now expect to increase their ad spending over the next 12-months. That’s the largest percentage increase since API began asking ad execs about their intentions in 2007. A year ago, the figure was -5%. The 1,412 ad executives who were surveyed continue to be pessimistic about magazine and national newspaper advertising, with intentions to increase spending down 10% and 32% respectively. But even those sentiments are greatly improved over the -26%/-46% plans of a year ago. The biggest winners are digital and mobile media, with more than 60% of ad executives planning to increase spending there.

Speaking of pay walls, Time magazine now has one. Secure in its role as the only newsweekly left standing, the venerable but mostly irrelevant magazine is requiring readers who want to read online versions of its print article to subscribe to either the print or the iPad edition. They can then see the same stuff that’s in the magazine on a screen. Online-only content will continue to be free.

To test, go to gocirculate.com and create an account. The confirmation page contains a link to the toolbar software. You can then browse and add pages to the knowledge base. We were able to install the menu bar, but couldn’t log onto the site for some reason, and Circ Labs provides no means to recover a password. We guess that’s why they’re calling this a test.

And Finally…

Roy Rivenburg is still at it. The jokester who dreamed up Not the LA Times two years ago continues to tweak the nose of the West Coast’s most self-important newspaper. A recent story has Times editors arguing over whether it’s better to start articles with the time or the weather. The inspiration is this page of formulaic opening sentences extracted from the real newspaper. “If I don’t find out the time of day in the first sentence, I stop reading,” says one subscriber.

This week the organization that is doing so much to advance the cause of innovation in journalism unveiled its list of a dozen winners of the Knight News Challenge, a contest that “funds ideas that use digital technology to inform specific geographic communities.” Not all the winners are focused on geographic applications (one proposes to combine reports from journalists embedded in Afghanistan with Facebook updates from soldiers in the field), but there are some innovative ideas in the group that will get enough funding to at least get off the ground. The best part is that the winners of the $2.74 million in grant money must make their inventions freely available.

You can read all the details at the page linked to above or watch the short video below, which quickly covers each project. What we like about all these ideas is that they’re doable with today’s technology (several are live  today) and they bring focus to the overused concept of “citizen journalism.” Most are also oriented toward leveraging geographic communities, which is where newspaper publishers absolutely must focus. We particularly like these brainstorms:

There’s a lot to digest in this article but a few insights struck us as particularly important. One is that Google sees itself as having what one executive calls a “deeply symbiotic relationship” with news organizations. Second is that Google is devoting a lot of bright people and significant amounts of money to help news organizations reinvent themselves. The third is that Google believes advertising will become a lucrative and sustainable source of income for news organizations in the future, but only if they change their tactics.

Thief or Robin Hood?

Google is often pilloried by publishers for “stealing” content. This is despite the fact that Google lifts no more than a few characters from each story, doesn’t sell ads on its Google News service and is the number one source of traffic for most newspaper websites. The real reason Google is so despised is because it has accelerated the “unbundling” of news. This is at the root of the industry’s disruption. Newspapers traditionally have delivered their entire product in one package with advertising in lucrative sections like automotive and food subsidizing the stuff no one wants to pay for, like correspondents in Afghanistan. Search engines have blown apart this model by making it possible for online readers to navigate directly to the content they want. When each form of content is forced to justify its own existence, the world/national news, statehouse coverage and other staples lose out.

Fallows points out that Google and newspapers have a lot in common. Google’s well-being is tied to the availability of high-quality information online. One of the reasons its executives feel such urgency about helping the newspaper industry is that they fear that the loss of this content will diminish Google’s core value. Fallows also astutely points out that Google’s business model is itself a bundle: the company makes the vast majority of its profits from search, which enables it to fund loss leaders like News and Books.

Genuine Concern

Fallows spent a year interviewing Google executives and he portrays their concern about the news industry’s crisis as heartfelt and earnest. Certainly, no Internet company has been more visible in trying to engage with publishing executives. CEO Eric Schmidt addressed the American Society of News Editors last month and has been quoted many times despairing about the industry’s troubles. Of the other online companies that have taken their share of news industry flesh, only Craigslist’s Craig Newmark has shown any concern about the consequences.

Fallows’ piece is basically upbeat. Google executives express unequivocal confidence in the future of display advertising, a vehicle that has been widely written off as a dying intrusion on users’ reading experience. Advertising on the Internet is still in its infancy, executives assert, and advances in targeting will enable display ads to do for readers what Google’s AdWords technology has done: deliver relevant contextual offerings to readers based not only on the article in front of them but also on their self-described interests and recommendations of their friends. As advertising increasingly reflects a two-way dialogue between reader and publisher, “news operations will wonder why they worried so much about print display ads, since online display will be so much more attractive,” Fallows writes.

The company is applying technology to increase the yield of advertising in the same way that airlines adjust their pricing, planes and schedules to maximize revenues per mile. One innovation is an arbitrage system that enables publishers to adjust the allocation of premium priced advertising on a second-by-second basis. Another is Fast Flip, a Google experiment that seeks to mimic the print reading experience on a computer screen. Google has even adjusted its treasured search algorithm to accommodate complaints from individual publishers. There is little or no revenue in these efforts for Google; the company’s motivation appears to be giving publishers more options.

Rethinking News

However, Fallows also emphasizes that Google executives believe news organizations must take responsibility for their own health by rethinking their approach to the business. Krishna Bharat, a distinguished research scientist at Google and the driving force behind Google News, probably reads more newspaper content than most humans. He notes that duplication of effort saps the productive potential of the industry as a whole.

“You see essentially the same approach taken by a thousand publications at the same time,” Bharat says, referring to pack journalism. “Once something has been observed, nearly everyone says approximately the same thing.” This repetition is a relic of the days when readers had limited sources of information and hundreds of reporters might cover the same event. Now this approach has become antiquated. Publishers would get more bang for the buck by pooling their efforts to provide the five Ws and devote more resources to “something else, equally important, that is currently being neglected.”

Executives also emphasize that while they believe the ad picture is bright, a continued overreliance on display advertising will be the news industry’s undoing. Instead, they advise a “lots of small steps” approach based upon continuous experimentation and diversification of revenue streams. “The three most important things any newspaper can do now are experiment, experiment, and experiment,” says Hal Varian, Google’s chief economist.

Which, when you think of it, is how Google works.

Presentation by Google Chief Economist Hal Varian

Gannett officially exited the Hawaiian market where it has played for nearly 40 years. The company signed over ownership of the Honolulu Advertiser to the owner of rival Honolulu Star-Bulletin, bringing an end to a brutally competitive battle. Analysts say Gannett was winning the war but chose to cash out rather than to fight a smaller competitor that simply wouldn’t go away.

The Star-Bulletin plans to merge the two papers into the Honolulu Star-Advertiser sometime in the next 60 days, cutting about 300 of jobs in the process. The combined papers will have a circulation of between 135,000 and 140,000.

This is a little confusing. You see, Gannett used to own the Star-Bulletin. Then it bought the Advertiser and tried to close down the Star-Bulletin. Antitrust regulators didn’t like that idea, so Gannett had to sell the Star-Bulletin to David Black, who is now the publishing brains behind Platinum Equity, the private firm that bought the San Diego Union Tribune last year. Black bought the Star-Bulletin in 2000 and settled in for a long battle, despite having less than half the circulation of the Advertiser.

It turned out to be a war of attrition. A series of bruising battles with labor unions in which union members at one point actually tried to discourage local businesses from doing business with the Advertiser left Gannett bruised and weakened. While the Advertiser maintained its circulation edge, it continued to lose money. Black told the Advertiser that the Star-Bulletin has lost more than $100 million since 2001. Since Black appeared to be in the race for the long haul, Gannett accepted an offer that the Star-Bulletin publisher characterized as “compelling.”

The bottom line is that Honolulu now becomes a one-paper town and the Advertiser becomes the newest addition to our R.I.P. list.

The Respite Arrives

It was about a year ago that Outsell analyst Ken Doctor (right) told us that the newspaper industry was in for an 18-month respite from its troubles beginning in late 2009. It turns out he was right on the money. Alan Mutter totes up recent financial results from six big publishers and reports that the four-year-long freefall in revenues appears to be slowing. Ad sales for the big six fell 10.2% in the first quarter of 2010 compared to drops of 28.3% last year and 12.8% in 2008. As the smoke clears, the extent of the wreckage becomes apparent, however. Overall newspaper revenues in the US are down more than 46% since 2006 and stand at the lowest level since 1986, Mutter says. But in inflation-adjusted figures, the industry is down an incredible 72% over the last 25 years.

Mutter quotes Gannett President Gracia C. Martore stating confidently that “We are very pleased with the momentum that we had coming out of last year.” It’s hard to believe any industry executive could use the word “pleased” in the context of this crisis. Doctor told us last year that news executives should use this short-term breather to make much-needed changes to their business model, diversify their revenue stream and investing in online properties. Little has happened since then outside of publishers rallying around the brain-dead notion of charging for existing content.

But perhaps they simply have no choice. In weighing in with his own characteristically astute analysis on Nieman Journalism Lab, Doctor notes that while some publishers that were hemorrhaging cash a year ago are now marginally profitable, market conditions provide precious few options for spending that pocket money. Doctor calls 2010 “a year crying out for investment in innovative mobile media product creation and marketing services/advertising infrastructure build-out,” but notes that once-mighty publishing companies must satisfy themselves with sitting on the sidelines and nursing their fragile profits while Google completes an acquisition every month.

The one glimmer of good news is that newspaper publishers are finally making a dent in the massive debt that has hobbled them for the last five years. But that still leaves them little room to do anything new. A year ago, Doctor also predicted that after the 18-month respite ends, the industry will enter another period of severe contraction. We think he’s gonna be right about that prediction, too.

Miscellany

There’s good news in Orange County, Calif., however, were Freedom Communications, which owns the Orange County Register along with 31 other dailies and eight TV stations, has emerged from Chapter 11 with $450 million less debt and new ownership by a private equity firm. Freedom entered a controlled bankruptcy last September while its new owners completed a restructuring plan. The founding Hoiles family had originally been granted a tiny 2% stake in the revitalized company, but they lost that in January, leaving Freedom entirely in the hands of the private equity owners. The company is looking for a full-time CEO, if you’re interested.

It appears that the Post Co. is not a good fit for the magazine business. Its magazine revenue plunged 27% in 2009 and its operating loss increased to nearly $30 million. The Post redesigned Newsweek and trimmed its circulation by over a million last year in a last-ditch attempt to focus on a narrower and more profitable niche. However, the magazine market is in dismal shape in general, and weeklies have almost no value proposition in an online-driven news world.

Analysts couldn’t even speculate on who might buy Newsweek, other than U.S. News & World Report owner Mortimer Zuckerman, who shows signs of being off his rocker. That may be just the kind of buyer Newsweek needs.

One thing’s for sure: The Times is reveling in its three 2009 Pulitzers, as evidenced by this snub from a spokesman: “The readers and employees of the Wall Street Journal deserve much better than this type of juvenile behavior from its editor in chief.” The reference is to recently taunting of the Times by Journal editor Robert Thomson, who has criticized his cross-town rival for being insular and slow.

Carlton isn’t a publisher. She’s a career public relations professional who set out a little more than a year ago to figure out a way to drum up new business in a dismal economy. She knew that there were still plenty of innovative companies in the area that were starved for visibility. Finding investors and customers in a crummy economy was a time-consuming, trial-and-error process. The few conferences that were available for such purposes were either expensive or subjected applicants to long and seemingly arbitrary approvals processes.

Carlton hit on the idea of a cheap, frictionless approach she called Mass Innovation Nights. The events would be free to everyone. Entrepreneurs could show their stuff and hope to catch a big break.

Carlton borrowed meeting space from a local museum.  She partnered with Dan Englander of High Rock Media to build a website and a Twitter account and started promoting Mass Innovation Nights entirely through online word of mouth.  There was no hype and no inflated expectations. If the event bombed, then attendees got what they paid for.

Only the event didn’t bomb. MassInno, as the affair is now known, is a raging success, with exhibitors now competing for limited space. The most recent meetup was tweeted more than 600 times and drew more than 400 attendees. Carlton is toying with the idea of syndicating the idea across the country.

Today, Carlton has so much business coming in from startups that were boosted by Mass Innovation Nights that she’s having to refer work elsewhere. That makes her a popular person in the depressed local PR economy. Partner High Rock is booming, too.

Why was one woman able to exploit a simple idea at almost no cost while media institutions with hundreds of employees stood by and watched? Because newspapers didn’t think it was their job. They believed they were in the advertising delivery business, not the business of growing the local economy. Newspapers that continue to think this way will shrivel and die over the next few years. But there is a path to salvation. It’s in doing what Bobbie Carlton is doing on a grand scale. But how many publishers are willing to make the sacrifices to seize that opportunity?

The Folly of Paywalls

Newspaper publishers are confronting their current business challenges in the wrong way. They’re trying to battle online competition by becoming more like their competitors, building massive online presences to serve global audiences when their advantage is inherently local. They’re also hyper-focused on a source of revenue – advertising – that will only become more competitive and less profitable in the future. They need to change the rules.

The eyes of the industry are currently trained on The New York Times, which is trying to re-bottle the evil genie it released 15 years ago when it elected to give away its content for free. The Times’ paywall experiment will be modestly successful because it is The New York Times. Publishers in Baltimore, Dallas, St. Louis and hundreds of other cities will be unable to exploit the idea, however, because they lack the Times’ brand and international reach. Paywalls are a waste of time.

Instead, publishers should concentrate on diversifying their revenue streams away from advertising and into local business services that promise stability, growth and a future. This is a market in which they have a natural advantage. Small business is the one great untapped revenue opportunity left in America, which is why giants like American Express and Bank of America are practically throwing money at the market. But these global companies lack the local connections and the feet on the street to truly become partners in small business success. Local newspapers have that advantage.

Most major metro dailies have long regarded local business advertising as the cherry on top of the sundae of display contracts from national advertisers and department stores.  Local businesses fueled the classified section, but counted for only a small part of the total revenue picture. Now national advertisers are marketing directly to customers, classified advertising has collapsed and local businesses are publishers’ only hope for a future.

The Local Opportunity

Look at the merchants in your local community. Most don’t know the first thing about marketing. Few are even very good at managing their businesses. Marketing is tough for little guys. They spend their dollars on a mishmash of coupons, flyers, Yellow Pages listings, classified ads and occasional radio and television.  Few of them track ROI or have any means to assess the performance of these investments. Online, they’re practically invisible. They know nothing about search marketing or customer relationship management (CRM). In short, the kinds of sophisticated analytics and tools that big companies use are out of reach to mom-and-pops. Lots of businesses want to market better, but they don’t have anyone to teach them how or give them a cost-effective platform to do so.

News organizations can be that platform. They can start by delivering a basic package of marketing and business services on a subscription basis and expand as local conditions dictate. They can potentially manage many of the overhead and backroom activities that sap small business owners’ time. Here are five ways news organizations can monetize this opportunity. There are plenty more where these come from:

Website Development – Few small businesses know anything about the Web.  Outside of restaurants and entertainment providers, most have websites that are little more than online brochures, if they have websites at all. Their sites aren’t optimized for search, don’t deliver calls to action and have no means to retain visitors as subscribers. Forget about analytics. If small business owners want to adopt new platforms like blogs or Twitter, they either pay outside consultants or figure out the tools through extensive trial and error.

This is a huge opportunity for news organizations. These companies have long-term relationships with business customers, local credibility and expertise in publishing. They can deliver advanced online features like e-commerce, e-mail marketing, search optimization and analytics at low cost by leveraging economies of scale. There is no reason why the local newspaper publisher can’t also be the dominant provider of online services to local businesses.

Affinity Programs – Every hotel, airline, national retailer and supermarket chain has a loyalty program these days.  The reason is simple: they work. Customers who carry affinity cards typically buy between 10% and 30% more product from the merchants who offer the programs than from those who don’t. Unfortunately, few small-business owners have the option of participating.  The administrative overhead is high and customers won’t carry cards for every merchant in their community. News organizations could set up these plans as cooperatives, allowing groups of noncompetitive businesses to participate at a modest cost.  Commercial grade analytics could be bought and scaled to provide reporting that demonstrates the return to business owners.  Revenue would come from the fees paid by the participants and potentially even subscribers to premium buyers clubs.

Events – Lots of small businesses would like to use event marketing to share their expertise and meet new prospects, but if you’ve ever tried to stage a promotional event, you know what an ordeal it is. The details and hidden costs can be overwhelming and few small businesses have the means to manage the leads that result.  Again, publishers can come to the rescue.  By building expertise at event management and applying it to different businesses within the community, publishers can provide targeted thematic events (for example, outdoor recreation or pet care) at a scale and cost that makes them affordable to local businesses. They can gather and manage leads that result and create marketing programs that optimize them for their customers. The news organization becomes a business partner and consultant, not just an outlet for advertising. There’s even the possibility of generating fees from event attendees in some cases.

Value-Added Advertising – Craigslist has won the war for the low end of the recruitment advertising market.  Publishers need to stop mourning the loss of this commodity business and move the bar higher. Christopher Ryan and Steve Outing published a manifesto for competing with Craigslist more than a year ago. Unfortunately, few publishers seemed to have noticed.  We won’t try to reinvent their wheel; ReinventingClassifieds.com has some great ideas publishers can apply to take advantage of their local reach and marginalize Craigslist.

For example, they can offer real estate agents or car dealers video walk-throughs of the products they sell. Or they can provide peer recommendations like Angie’s List (more than one million members at $35/year). They can tweet ads and push them to mobile phones. They can even provide transaction and fulfillment services that Craigslist can’t. In short, they can do all the things that Craigslist doesn’t do and build these features into a monthly subscription service that makes them all but invisible to the customer.

Transaction Fees – If you’ve ever used Ticketmaster, you’ve experienced the sticker shock of discovering that those $40 Nine Inch Nails tickets carry an eight dollar “convenience fee.” But you pay it because it’s easier than standing in line for two hours. Publishers can tap into that revenue stream.

The local garden show probably isn’t interested in ticket brokering. It may outsource the task to TicketMaster for the sake of convenience but it would really be interested in using a local organization that could combine fees with demographic marketing, behavioral targeting and amenities like e-commerce. Who better to deliver that experience than a service provider that knows the local community? Do you think restaurant or hair salon owners would like to have automated scheduling? The newspaper could provide that, too, with fees from the buyer, the seller or both.

Bottom Line

The five scenarios outlined above are just a sample of the opportunities available to local publishers once they stop thinking of themselves as advertising vessels and become partners in the success of local businesses. At their core, newspapers are marketing tools. Instead of simply providing advertising space, publishers can become marketing consultants, value-added resellers and service bureaus. They can offer the kind of expertise and analytics at a price that mom-and-pops can finally afford.

There are many more possibilities: Publishers could offer accounting, tax preparation, creative services, executive recruitment, business telephony, technical support, facilities management, order fulfillment and so on. Where they lack in-house expertise, they could partner with local providers under an approved-vendor program. Does this mean publishers might compete with their prospective advertisers? Sure, but how many of those companies are advertising now, anyway? Members of the approved-vendor program could potentially buy bigger schedules from the publishers who feed them business.

Back to the Future

Few publishers will choose to pursue the business model outlined here. It’s too hard. Departments such as circulation will need to be downsized or eliminated. Sales people must be retrained or released. Experts must be hired in new areas and partnership networks will have to be formed. New services will have to be created and priced, software licenses acquired and technology infrastructure put in place. These changes are painful, but reinvention isn’t pretty. It’s easier to sit and hope that paywalls will succeed in letting you do what you’ve always done.  Good luck with that.

If this transformation sounds radical or risky, consider that it’s already been done. More than 20 years ago, many computer companies faced the same kind of near-death experience that confronts newspaper publishers today. Their core hardware products, which generated 80% margins, were suddenly assaulted by cheap, standardized components. Many of these companies died or were acquired, but a few, like IBM and Hewlett-Packard, took the strong medicine that was necessary to transform themselves. Today, IBM derives more than half its revenue from services, a revenue stream that barely even existed 20 years ago. Its 2008 revenue was a record $103 billion. HP made the shift even earlier. Twenty years ago, it was less than one-fifth IBM’s size. In 2009, it was bigger than IBM.

Thanks for sticking with us through this long essay. Now tell us what you think. Are we off the wall or could business services be the prescription that nurses this dying industry back to health?

Garfield was interviewed at the South by Southwest conference in Austin, where the people who are incubating the changes he describes have gathered for their giant annual mind meld. Running time: 19:17.

Bob Garfield on Media in Chaos from Newspaper Death Watch on Vimeo.

MagCloud is an experiment by HP, which is the world’s largest computer printer maker, to see if its technology can scale up into the micro-publishing market. The service uses laser printer technology to produce magazine-quality publications in volumes ranging from one to about 3,000 units, which is the threshold at which offset printing becomes more cost-efficient. A lot of companies provide similar services in the self-published book market, including Lulu, Issuu, Blurb and CreateSpace. However, MagCloud is alone in its market at the moment. The curious thing is that HP is targeting MagCloud at the wrong market. It’s selling the service to small-market publishers and missing the much bigger opportunity with major publishers and advertisers.

MagCloud offers some impressive benefits. Users upload PDF files and MagCloud publishes the contents as saddle-stitched magazines on a nice matte paper stock  The samples at the company’s South by Southwest booth, including Broadway (above) are beautiful. MagCloud also hosts a virtual newsstand where visitors can buy issues for shipment by US mail.

Publishers can charge whatever the market will bear for their work. MagCloud bills 20 cents per page with volume discounts. So a 48-page magazine comes in at a little under $10 quantity one. Publishers can keep the difference between what they charge and the production/shipping charges from MagCloud.

Small Market Focus

That’s fine, and a very small number of consumers will be willing to pay $15 or $20 for a custom-published magazine. The much bigger opportunity is to take advantage of the customization potential of digital printing to apply the technology to mainstream publishing and direct marketing:

• Direct marketers could conduct A/B testing in small markets to identify their most effective messages before rolling out printed mailings on a large scale;
• Publishers could produce targeted editorial supplements to small audiences, such as art or gourmet food enthusiasts, and sell premium-priced advertising against them;
• Newspapers could produce customized coupon packages to address targeted segments. For example, subscribers could elect to receive bound circulars containing coupons  only for sporting goods in their immediate geographic area.

MagCloud should also be working to exploit the inherent advantages of digital printing to produce publications customized to individual subscribers. This could make print publishing exciting again. Imagine if consumers could:

• Receive a monthly magazine with their name on the cover, profiles of their favorite sports stars in the pages and coupons from only the merchants they patronize in the ad well?
• Get magazine customized with their names on the cover and photos of their kids in the center spread?
• Receive annual calendars with the photos selected from their Flickr photostream?
• Fill out a form to receive a quarterly food magazine with recipes tuned to their favorite ingredients?

This kind of customization is possible right now. The only issue is finding someone to pay to develop it on a large scale. Publishers have every incentive to find ways to get their advertising customers excited about print again. It seems that MagCloud could be an opportunity to do that. Will someone contact the people at HP and educate them about the opportunity they’re missing? Or perhaps MagCloud will contact us to tell why it doesn’t see an opportunity there.

Print newspapers and magazines will never get [to new online business models], he argues, until they burn the boats and shut down their print operations. Yes, there are still a lot of people and money in those boats—billions of dollars in revenue in some cases. “At risk is 80% of revenues and headcount,” Andreessen acknowledges, “but shift happens.”

Andreessen has a point that it makes senses to abandon failing models in the long term, but setting fire to profitable print operations is the wrong strategy at the moment. After years of fretting over declining circulation and trying desperately to rejuvenate a dying business, newspaper publishers are finally adopting an intelligent strategy. They’re milking all they can from their profitable business while trying to manage it down to a level that new models can take over. It won’t be easy.

The strategy that most publishers have recently adopted has three parts:

• Raise subscription rates in order to milk as much revenue as possible out of an aging but loyal reader base;
• Manage costs downward in a manner that preserves profitability without alienating traditional readers;
• Invest in growth markets that can preserve the brand and generate new profits.

The New York Times reported last year that its second-quarter subscription revenues nearly matched its advertising revenue. Aggressive price increases, combined with a substantial reduction in discounted circulation, are turning paying subscribers into a profit engine. Other publishers are adopting this approach, which is why the seemingly catastrophic declines in circulation of the last couple of years aren’t as devastating as they seem. Many businesses have legacy customers that generate a small but profitable business. Successful long-term franchises, however, also have the skills to move on.

A Successful Online Model

New media news entities have demonstrated that they can earn a profit with about 20% of the revenues of print organizations. That’s because their operating expenses are about 90% lower. These organizations are profitable, but a lot smaller than print publishers.

In their most recent round of earnings reports, most publishers stated that they are now deriving between 12% and 16% of their revenue from online advertising. Most of them have also not done nearly as much as they can to monetize other sources such as events, transaction fees and value-added and classified advertising. Once publishers reach the threshold of 20% online revenue, they can conceivably shutter their print operations while sustaining the business and the brand. They’re trying to get to that threshold gracefully, though. Lots of money can still be made in print if publishers can manage that asset down steadily while reducing costs in lockstep.

That’s a tricky process. If publishers cut costs too deeply, they risk losing loyal print subscribers and circulation revenue could enter a free-fall. They also don’t have the luxury of much time to complete the transition.

Even harder is the third bullet point. The people who run newspapers are skilled at operations and asset management, not visionary investments in emerging markets. In the TechCrunch interview, Andreessen correctly points out that technology companies are adept at dealing with constant disruption to their markets, a situation that faces Microsoft right now. Successful technology companies manage this challenge through a kind of creative destruction process. Successful executives are experts at learning to identify new opportunities and quickly discarding old product lines without looking back.

However, technology companies don’t have the luxury of a loyal legacy base that newspaper publishers have. The audience of committed daily readers may still buy the newspaper industry another 10 years of life in print, although that business will eventually become unsustainable. It isn’t crazy for publishers to want to milk the cash cow for a few more years. The hard part is finding new opportunities and having the stomach to invest in them in the face of inevitable shareholder demands for greater profits.

Burning the boats isn’t a wise strategy at the moment. But it’s a good idea to start collecting firewood.

It’s good to see the industry tackling its challenges head on, but we have to wonder if this is the right crowd to do it. Nearly every person in the room will have a career and a business built on a crumbling advertising model. It seems unlikely that much innovation will flourish in that atmosphere. And if you believe what people like Mark Potts and Steve Outing are saying, then the future of these companies is about diversifying revenue and cultivating local advertisers, not finding new ways to squeeze more blood from the display advertising stone.. Meanwhile, the agenda is packed with speakers from the newspaper industry. We trust Huffington Post wasn’t invited.

And Finally…

The folks who brought you the wonderful Fail Blog have aggregated some of their best media miscues into Probably Bad News, a site whose tagline is “News Fails, because journalism isn’t dying fast enough.”You can upload your own favorite typos, double entendres and acts of sheer stupidity for others to vote upon. Many of the examples are computers gone haywire, which lack the sheer hilarity of printed mistakes, in our view. But there’s some good stuff there, anyway.

Langeveld analyzes the earnings announcement so far and finds scant reason for optimism. Publishers are talking of “stability” rather than growth, which means that their dramatic cost cuts of the last year are finally generating some profits. The good news is that this will enable them to finally pay down some of their huge debt burdens, but any growth into new areas still seems a long way off given that most publishers still derive less than 15% of their revenue from online advertising. The sole bright spot was Media General, which reported that total revenues in December “were essentially even with December 2008.” Langeveld takes that to mean that they were only down in the single digits. Still, any stability is a good thing. There’s much more on the Nieman site.

In other good business news, McClatchy’s debt ratings were upgraded by two major credit ratings agencies. While the upgrades were small, they moved McClatchy out of the “highly speculative” category. The company just concluded a sale of $875 million of senior secured notes that pays off impending loans and stretches maturities out to 2017, giving it some breathing room.

Things are getting worse at the Boston Globe, though. The newspaper, which failed to sell for a reported asking price of $25 million last year, suffered a 20.3% drop in advertising revenues in the fourth quarter. Full-year revenue was down nearly 16%. The only glimmer of good news was an increase in circulation revenue, but the Globe, which has been frantically slashing costs since its near-death experience a year ago, continues to sink while it’s much smaller crosstown rival, the Herald, is reportedly earning a small profit.

Optimize Socially

“The old gatekeepers are disappearing. We’ve become our own and one another’s editors.” That’s one of the gems from Ken Doctor’s post this week on Nieman Journalism Lab in which he weighs in on Google Buzz and the rapid socialization of the Web. Noting that the bit.ly URL shortening service, which is one of about a dozen on the Internet, is now processing about 2 billion link referrals a month, Doctor suggests that news organizations must tap into the link-sharing patterns of social networks to identify new readers. “Are Facebook users of a certain kind more likely to convert to become regular users of NYTimes.com (or Dallasnews.com or VoiceofSanDiego.org) than Twitter users?” he asks, citing one example.

It’s an excellent point. Social network practitioners who frequently refer their friends and followers to content from the same source should, in theory, be more likely to become paying subscribers to that source. The tricky part is how to find these people. Amid the deafening social cacophony of the Internet, pinpointing fans can make the task of searching for a needle in a haystack look trivial.

Doctor cites an emerging discipline called “social media optimization,” that is about making content more appealing to people who like to share. This goes beyond packaging or optimizing headlines for search; it’s also about making stuff easily shareable and getting the content producers embedded into the networks that grow around their products.

The Death Watch on Facebook

Our day job is helping businesses understand and adapt to the social Web, so it seems only natural that the Death Watch should go up on Facebook. Well, here we are. We’ll use this platform to point to the many stories we read but don’t get  a chance to summarize in our occasional blog entries. We’ll also post some discussion topics and would like to hear your comments on the choices we make. Fan us! It’s hot in here.

Miscellany

Gerald Posner resigned from the Daily Beast this week amid a swirl of charges of serial plagiarism. In a post on his blog, Posner admitted that he had copied material from the Miami Herald, among other sources, but insisted that the plagiarism was inadvertent. Posner’s shame highlights a risk of the copy-and-paste nature of Web publishing, in which original information quickly becomes intermingled with notes lifted from other sources. While that’s not an excuse, it’s an explanation of how the need for speed, combined with the portability of printed words, can be a recipe for disaster. When in doubt, select the text and copy it into Google. You’ll quickly see if you’ve violated someone else’s property.

And Finally…

Two amusing closing items today:

The funny folks at 10,000 Words are back with their collection of Valentines for journalists. Although vaguely suggestive, they’re mostly G-rated and should be good for a laugh if your beloved happens to end his or her love letters with “-30-.”

• Always decent; never dull;
• The news of the day; not the rubbish;
• A decent newspaper for decent people;
• All the world’s news, but not a school for scandal.

We think Ochs made a good choice, though his choice of words probably didn’t anticipate the Internet.

With his characteristic eye for detail, Mutter figures such factors as the self-employment tax and capital expenses in his calculations. The sample shows a fictional reporter charging about 55 cents a word to cover his/her fully loaded costs figuring an average pay rate of about $30/hour, which is union scale in Pittsburgh. Your mileage may vary, of course.

If journalists “don’t put a value on what they do, then no one else will, either,” Mutter declares, noting that media organizations are using the explosion of blogs and citizen media operations to “pick off writers, photographers and videographers on the cheap.”

We have enormous respect for Alan Mutter, but we find ourselves in complete disagreement on this one. In our view, journalists who draw lines in the sand and start charging only what they think they’re worth will find themselves practicing a lot less journalism.

Are media organizations taking advantage of plummeting freelance rates? You betcha. Is what they’re doing wrong? We don’t think so. Supply and demand is the underpinning of a capitalist economy, and if the rules have changed in a way that devalues quality journalism, well, those are the cards we’re dealt. It sucks, but it’s how the system works.

Journalists can try to charge what they think they’re worth, but they’ll ultimately live or die by what the market is willing to pay. With the arrival of Web 2.0-style publishing, millions of people have started playing at journalism and it turns out some aren’t half bad at it. The trouble is that many of these casual journalists don’t make a living as reporters. Their journalism is a sidelight to their day jobs. They may be happy to work for a vague reward defined as “exposure” if it pays off in speaking jobs, consulting work or book contracts.

Mutter is outraged that people contact him asking “to commission an article or reprint a post in exchange for the ephemeral compensation known as ‘exposure,’” but the reality of the market is that a lot of people are willing to work for that (full disclosure: we recently approached Mutter about contributing to a for-profit website in exchange for a modest fee; he politely declined). For example, many book authors write extensively about their expertise for free in exchange for exposure in major publications.

We sympathize with journalists who have seen the market value of their work collapse over the last couple of years. We’ve experienced some of that pain personally and we have many friends and colleagues who are suffering because of it. However, the market has spoken, and the solution to collapsing fees isn’t to insist on getting a rate that employers will no longer pay.

Is there a solution? Well, journalists who specialize in everything from geography to gastroenterology can still command higher prices than general assignment reporters. Also, a lot of journalists work for commercial clients on the side so that they can afford to practice their craft. There’s money in speaking, consulting, writing books and corporate ghost-writing. Some of that work may be distasteful, but at least it pays the bills.

That doesn’t solve the problem of who is going to embed in Iraq for six months at 25 cents a word. That’s a much tougher issue and we wish we had better ideas how to solve it. But drawing lines in the sand is career suicide.

Miscellany

Opponents of government subsidies for media organizations overlook an important detail: US media has been subsidized for 200 years, reports The New York Times. Citing a report released last week by the Annenberg School at the University of Southern California, the Times notes that government support of newspapers has actually been declining in recent years as mailing discounts have diminished laws requiring businesses to buy newspaper ads for certain kinds of legal notices have been dropped. In fact, the study’s authors estimate that annual government support has declined from more than $4 billion in 1970 to less than $2 billion today.