An executive reorganization puts former life section editor Susan Weiss in charge of content. According to a slide presentation obtained by the Associated Press, Weiss will have a “collaborative relationship” with the papers vice president of business development. The presentation said the restructuring will “usher in a new way of doing business that aligns sales efforts with the content we produce.” The statement is already raising eyebrows by publishing pundits who fear that the deteriorating business situation in American newspapers will force editorial apartments become handmaidens of sales operations. Publisher Dave Hunke and editor Editor John Hillkirk said nothing will interfere with the paper’s commitment to independent journalism. However, as paidContent wryly put it, “While this doesn’t necessarily mean a complete demolition of the “Chinese Wall” that traditionally exists at established news organizations, it certainly sounds like it will be little more than a nylon curtain.”

Publishing executives would be wise to closely watch USA Today‘s moves. While the paper has long been derided as a journalism lightweight, it has a history of innovation in adapting to changing audience tastes. Many publishing veterans sniffed at USA Today in the early days, believing its formula of short stories without jumps, large infographics and generous use of color represented a dumbing down of news. A few years later, nearly all of them had adapted the same style. In the years since, USA Today has solidly established itself as a national institution with a readership of more than 1.8 million.

It’s particularly interesting that USA Today has made such a public commitment to harmonizing its editorial and advertising operations. This is a bitter pill for traditionalists to swallow, but a necessary one if professional news organizations are to thrive in the future. We believe that win-win solutions are possible when creative minds seek them. Few have done so to this point, and USA Today‘s strategy shift shouldn’t be dismissed until it’s had a chance to work.

Miscellany

Former Walt Disney Co. CEO Michael Eisner is among the candidates to take over the bankrupt Tribune Co. once it emerges from Chapter 11 reorganization. Eisner confirmed speculation that he is a candidate for the top job in a Variety interview this week. Jeff Shell, a former News Corp. cable executive who’s now with Comcast, is being considered for the CEO slot. Presumably, that means Eisner would be chairman. In the Variety interview, Eisner expressed support for paywalls. “The salvation of the newspaper is some kind of pay arrangement [online], which will evolve into something significant,” he said. The Tribune may actually be a bargain. Romenesko got hold of a memo stating that Tribune Co. has $1.6 billion in cash and generated $18 million more in cash flow in July than in the same month last year.

Dawson is a big fan of tablets as a delivery medium and has several interesting posts on his blog about a topic. the chart below is one of the free takeaways (click to download).

And Finally…

Popular comic strip “Cathy” will end its 34-year run on Oct. 2. Cartoonist Cathy Guisewite, 60, who started the strip as a series of autobiographical doodlings that she sent to her mother, said she wants to spend more time with her family and explore other creative avenues. Cathy was an instant hit in 1976. It struck a chord with the growing number of women who were entering the workforce and struggling to balance career and personal priorities. It currently runs in 1,400 newspapers. In recent years, the strip has been criticized for being dated and even anti-feminist. It’s still clipped to a lot of refrigerators, though.

The results varied significantly by age. Nearly half of Americans between the ages of 18 and 29 said they had confidence in newspapers. However, disillusionment evidently sets in early, as the confidence level dropped to 16% among 30- to 49-year-olds, making them the most cynical group. Even liberals, who have traditionally been a stronghold of support for mainstream media, expressed support to the tune of  only 35%. It’s important to keep the results in perspective, though. Gallup has been conducting this survey annually for the last 20 years, and confidence in newspapers has never exceeded 39% during that time. However, confidence dipped from the low 30s to the low 20s about four years ago and has been stuck there ever since.

Good News for Hyperlocals

Hot new DC news startup TBD “resembles a sleek, coolly designed, high-tech house with several unfurnished rooms — and a market value yet to be determined,” writes Howard Kurtz in a generally favorable review of the most ambitious hyperlocal launch of the year. The site, which has 15 reporters buttressed by an army of 127 local bloggers, “has a voice, a sense of fun and a knack for packaging short items that creates the appearance of flow and momentum,” Kurtz writes. It also has some good political reporting, although the staff seems to be more focused on local news than national or global politics. TBD has been closely watched as a potential model for hyperlocal startups because of its inclusive approach to community journalism and its backing by a major media company, Allbritton Communications, which also owns The Politico, as well as a collection of regional television stations

Also on the hyperlocal front, BringMeTheNews, an aggregation and podcasting venture founded by former Twin Cities news anchor Rick Kupchella (right), just raised $1 million from two local investors. The site has an interesting business model and has reportedly been profitable since day one. It aggregates headlines and summaries from “hundreds of online news and non-traditional sources” around Minnesota and publishes them on its website. It also produces audio news summaries that are picked up by Minnesota radio stations and broadcast to about 1.5 million listeners each day. At the moment, the site produces no original content.

The advertising model is also novel: The site carries no more than four paid sponsors, who buy contracts of at least six months’ duration. Sponsors are also expected to “provide informational advertising of interest to our audience.” According to MinnPost, “Sponsored copy is integrated into the links BringMeTheNews curates, and carries the sponsor’s logo. Theoretically, the copy is useful information for readers (Explore Minnesota tourist guides, OptumHealth wellness tips) while still advancing the sponsor’s interest.”

Despite having only one-eighth the traffic of MinnPost, BringMeTheNews has apparently hit upon a revenue model that works, even at low volume levels. Kupchella said the business would still be viable without the radio component.

Miscellany

The Worcester (Mass.) Telegram & Gazette will begin charging up to $15/mo. for access to local news articles. Non-print subscribers will be able to read 10 stories for free before the paywall goes up. The T&G is owned by The New York Times Co., which plans to build a paywall at its flagship newspaper in January. The Worcester experiment may be a pricing trial balloon. If a lot of people will pay $15/mo. to read the T&G, it’s good news for the Times. We doubt it, though.

And Finally…

As if to underline the shrinking attention span of the American news consumer, American Public Media’s Marketplace Radio devoted all of six sentences to summarizing the world financial situation last week. The idea came about during a daily news meeting, when staffers were boiling down the factors underlying the global financial crisis and thought it would be funny to express them as simply as possible. Megan Garber has the background on Nieman Journalism Lab. We snipped out the 90-second segment below for your listening pleasure.

He’s talking about the pressure of the new online newsroom. It used to be that daily deadlines were considered intense, but in today’s hyper-competitive environment, many reporters are expected to file several times a day. “Young journalists who once dreamed of trotting the globe in pursuit of a story are instead shackled to their computers,” writes The New York Times.

Some staffers at The Politico start their work days before dawn. Editors walk the aisles asking who’s broken a scoop that day, and reporters may wake up to find an e-mail sent at 5 a.m. asking why they were beaten on a story. The pressure is on to file something – anything – that a reader hasn’t seen before.

The Politico knows that the new competitive environment doesn’t tolerate delay.  “Everybody in the audience is his or her own editor based on where they want to move their mouse or their finger on the iPad,” says Politico’s editor in chief, John F. Harris. Perhaps it’s not surprising that the Politico has lost about 20% of its news staff this year. But where are they gonna go? The website’s results-fueled journalism is becoming the norm.

The Christian Science Monitor sends a daily e-mail telling its reporters which stories had the highest view count the previous day. Gawker Media displays the top 10 most viewed stories, along with reporters’ bylines, on a monitor in its offices. Some news outlets even compensate their staff based on traffic. And then there are search-driven word factories like Associated Content and Demand Media that assign stories based upon search popularity and pay by the page view.  Search marketing expert Mike Moran calls these outfits “content chop shops” that cheapen quality by elevating search visibility. But you can’t argue with success. Yahoo bought Associated Content for $90 million and Demand Media is reportedly hoping to be the first $1 billion IPO in nearly a decade.

The good news is that some media properties are hot again. The bad news is that they’re places where few people can apparently stand to work (See also Search-Driven News).

Miscellany

A.H. Belo reported a narrower second-quarter loss, but what stole the headlines on the earnings call was the rising importance of circulation revenue, which now accounts for nearly 30% of the company’s sales. In fact, circulation revenue was up 66% in the quarter, largely due to price increases at the Dallas Morning News. Executives crowed that the Dallas paper is now the third most-expensive in the country, behind only The New York Times and the Boston Globe. The prices are a function of “the quantity and quality of what we put in the newspaper,” said Belo CEO Robert Decherd. They’re also a function of what the dwindling ranks of elderly print readers are willing to pay. Belo also reported that it has $60 million in the bank and is increasing is earnings before interest, depreciation, taxes and amortization (EBITDA), even though revenues continue to decline. The company’s strategy appears to reflect that of many of its competitors: milk the print cow while you can, cut costs and hope to get traction in new markets. That’ll work for a little while longer.

And Finally

Pulitzer-winning editorial cartoonist Steve Breen decided to satirize the Gulf oil spill by drawing some of his cartoons using oil instead of ink. The process turned out to be a lot more involved than you might think. Breen flew from San Diego to New Orleans on his own dime and then drove to Pensacola, FL to find tar balls of sufficient viscosity to work with. He then diluted the tar with various solvents until he hit upon gasoline as the perfect element to soften the tar enough to work with. The result is a striking sepia tone, with which Breen has skewered not only BP but also America’s obsession with oil. Here’s Breen’s page on the San Diego Union-Tribune site. Click on the image at right to see a gallery.

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.

The best quotes were from Alan Murray (right), Executive Editor of Wall Street Journal Online, who at one point characterized Huffington Post and similar aggregation sites as “parasites.” Facing HuffPo Managing Editor Jai Singh (below left) at the other end of the stage, Murray one point asked, “Isn’t that the Huffington Post model? Go do something else and then we’ll let you be a journalist?”

Singh, a print journalist who was an early pioneer in digital news at CNet in the mid-90s, declined to engage in battle, preferring instead to carry the banner for a new kind of journalism. Defending HuffPo’s participative model, he remarked simply, “Community is fundamental to journalism online.” Huffington pays few of its contributors, rewarding them instead with visibility and Web traffic. Singh noted that  a blogger recently asked HuffPo to pull down a link to his sites because the traffic was crashing his servers. Murray conceded that the traffic from Huffington was gratifying.

Murray was a bit smug in pointing out that the Journal never gave away its editorial content and today generates about $200 million annually in digital revenue, or about double its $100 million editorial budget. “But how many other pubs are going to be able to get to same place?” he asked

Ellen Levine, editorial director of Hearst Magazines, didn’t seem particularly worried about that question, although she acknowledged that journalists will no longer have the luxury of being insulated from the business side of the house. “The most important thing I’ve learned in last 54 years is if you don’t understand the P&L, you are out of business,” she said.

Levine sees the market dividing into two camps, with disposable print on one end and high-end luxury magazines on the other. The disposable market will migrate quickly to readers like the Apple iPad, but Levine said luxury publications are going to be around for a while. “The day I can wrap myself in my iPad in the bathtub, that’s when magazines will be gone,” she said, drawing the biggest laugh of the session.

Investigative Journalism Under Siege

One thing all  panelists agreed-is that investigative journalism is under severe pressure because of lack of funds and reader preference for quick-hit sound bites. Investigative reporting “has been most challenged by the collapse of business models,” Murray said. “A team can work six months on a story and it will never be paid back.” Few viable alternatives to newspaper-sponsored investigative journalism have arisen. At the moment, ProPublica’s nonprofit approach appears to be working, but Murray questioned its scalability.  “ProPublica sets up investigative journalism as the equivalent of the opera or the symphony,” he said, choosing examples of organizations that are known to appeal to small, elite audiences.

Singh agreed. “Much of the news is commoditized. Investigative journalism is where the value is,” he said. But publications no longer get the mileage out of in-depth stories that they once did. Singh cited Rolling Stone’s blockbuster account last week of Gen. Stanley McChrystal’s insubordinate remarks about the Afghanistan war as evidence that exclusivity has almost ceased to be meaningful. “The Rolling Stone story was picked up by Time and Politico before it was published in Rolling Stone,” he said. Huffington Post has created a modest investigative journalism fund to help fill the gap.

Panelists agreed that it’s no longer viable for 100 newspapers to maintain Washington bureaus just to report the same news. “When I ran the Washington bureau [of the Journal] during the Clinton administration, there were 150 reporters chasing the same ‘blue dress’ story,” Murray says. “What’s killing the metro dailies is that they had monopolies. You can’t just differentiate by geography anymore.”

Investigative reports used to help sell magazines by enticing readers who were interested in one story to subscribe, Levine said. “That doesn’t work anymore. People just print out the article that interests them.”

Singh saw possibilities in that fact. “There is an opportunity to create products for people who just want to read one article,” he said. The others nodded, unclear about what that product should be.

Television journalism, which was never much to write home about in the first place, has become a pale specter of its former self as talent has fled the budget-strapped industry. On Tuesday, we chatted with Marijane Miller, who is one of those refugees. Miller is now a producer at WhatGives!?, a media company that creates programming to promote charitable causes. She spent more than 20 years in broadcast television, much of it producing documentaries and educational programming, and she worked on some pretty visible stuff.

Now Miller travels the country with a Sony videocam creating her own mini-documentaries of people doing work to make the world a better place. Miller said she became demoralized and frustrated during her last few years in commercial television as quality documentaries gave way to low-budget reality TV and voyeurism. Reality TV is anything but real, she told us. People who do stupid and outrageous things in real life are often only too happy to reenact their absurdities in front of the TV cameras. The sad thing is that many television producers these days are only happy to oblige.

The last straw for Miller was working on a reality program in which a person did something truly revolting. We won’t go into details, but Miller characterized the act as “sick. I thought they were going to throw the person off the program,” she said. “Instead, they asked him to reenact the scene.”

The happy ending is that Miller described WhatGives!? as a bit of a throwback to the golden age of television. “They just tell me to go out and find good stories and tell the truth, and” she said. “I haven’t had this much fun in years.”

Lewis Dvorkin of True/Slant

They range from Demand Media, which generates assignment lists based entirely on search terms, to Global Post, which hopes to charge readers for direct access to its foreign correspondents. A few themes are apparent through many of the business models. One is their reliance upon search as both a guide and a source of revenue. New-age publishers see Google as the pulse of reader interest and have tuned their models to respond, in some cases, in near real-time. Another is that they pay very little for journalism.

Rice visits True/Slant, an operation that uses a digital speedometer to match content on its site to trending topics on Google and Twitter. Thousands of writers contribute to the service, which posts about 125 articles a day. Journalists are paid a fraction of what that would make at traditional media organizations, but at least there’s a little money in the work. True/Slant has only five full-time staff and about 300 contributors. “It’s not so much a unified publication as a loosely connected commune of bloggers, who generate a continual stream of content with minimal editorial intervention,” Rice writes.

The 125-story-per-day figure may sound like a lot, but it’s a pittance compared to the daily output of Huffington Post (500) or Examiner.com (3,000). These publishers produce news in the kind of volumes meant to serve picky advertisers, who only buy proximity to certain keywords. Since advertisers don’t have to waste money on audiences they don’t want any more, the publishing model being built by these new companies is to churn out huge quantities of content and serve lots of niche advertisers.

Everything is search-optimized and, in some cases, search drives the boat. Demand Media actually assigns stories based upon search popularity. Freelancers pick from a list of topics culled from popular search queries and turn out articles and video that post to sites like eHow, which has a revenue-sharing agreement with Demand. No story is assigned unless there’s a high probability it will pay for itself.  Demand “says these mathematically generated ideas are 4.9 times as valuable as those devised by mere human brainstorming,” Rice writes. Journalists get $15 to $20 per item and Demand Media booked $200 million in revenue last year.

The new economics of search-driven publishing have thrown open the question of how much journalism is worth. Contributors to many of the sites Rice describes are paid anywhere from $10 to $25 per contribution. Search advertising is such a low cost-commodity that one publisher estimates a journalist needs to attract 1.8 million monthly page views in order to earn a $60,000 annual salary.

If all of this makes you slightly nauseous, you’re not alone. Many of these emerging business models play to popularity as measured by search volume. Nor surprisingly, sex and sin sell. “Writers and editors know that click-driven Internet economics tend to reward lowbrow gimmickry. They have to decide whether to work around that or to embrace it as a fact of life,” Rice writes. Some new models play directly to the will of the crowd, such as Henry Blodget’s (yes, that Henry Blodget) gossipy Business Insider and Demand Media.  Other new operations, like GlobalPost, The Politico and Awl, are attempting to produce thoughtful journalism and make money at it, mostly through creative use of alternative funding sources.

The elephant in the corner is the rising interest of businesses in inserting themselves into the media stream. Nearly everyone Rice interviews agrees that the companies that pay the bills want – and deserve – a role in determining  content. True/Slant, which is run by 57-year-old former newspaperman Lewis Dvorkin, gives its advertisers the same tools to contribute to the news stream as its reporters. “It’s the way the world is moving,” Dvorkin says.

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?

The report is pessimistic on the chances that existing business models will ever transition successfully online. It notes that only one in seven UK news consumers declared a willingness to pay for content. However, the trust factor should embolden publishers to seek more innovative revenue models, including advertorials and transaction fees.

In our view, this is news organizations’ best shot. As the volume of online information grows by leaps and bounds, the need for trusted sources grows with it. Publishers need to discard their not-invented-here thinking and look for ways to aggregate information in ways that command a premium value. We also really like the transaction fee idea. We’ve been pushing that one for about a year.

Google CEO Brings Upbeat Message

Google CEO Eric Schmidt was on hand Sunday night to speak to members of the American Society of Newspaper Editors and tell them what they already knew: their content is valuable but their business model is broken. However, the executive had encouraging words. “There’s every reason to believe that eventually we’ll solve this,” he said, pointing to emerging but still unspecified subscription models that Google and others will develop. Schmidt later told reporters that he doesn’t know what the solution will look like, but it will probably be a combination of subscriptions and advertising.

Schmidt prodded the editors to focus on mobile devices like the Apple iPad and Google Android, noting that publishers will need to address all popular form factors and not simply look to the iPad or the Amazon Kindle as a cure-all. “When I say Internet first, I mean mobile first,” he said. He also asserted that new sites themselves will need to become smarter, not only habituating themselves to the interests of the readers but also presenting them with selected information they don’t necessarily choose to consume. In comments to Paidcontent.org, he reiterated his confidence: “This problem will be solved when newspapers are making bundles of money and the sooner we can make that happen …”

Miscellany

If you’re considering instituting a pay wall for your newspaper, you might want to head on over to Paidcontent.org, which has assembled a list of 26 newspapers that are now charging readers for online access. The subscription fees  are all over the map, ranging from less than $1 per month for online access bundled with print subscriptions at the Vineyard Gazette to $20 at Newsday. The chart doesn’t include The Wall Street Journal, which has been charging a subscription fee for years. Paidcontent.org says the list is about to expand by at least six other titles which have announced plans to erect pay walls but haven’t gone live yet.