“Research has shown that the downside of powerful, centralized networks is their susceptibility to being subverted and exploited,” writes The Wall Street Journal’s Christopher Mims in a fascinating analysis of why social networks, which were supposed to challenge hierarchy, have reinforced it instead.
Delving into network theory, Mims explains why networks that start out with flat, distributed power structures ultimately, become vertical hierarchies. That was true in the Bolshevik revolutions of 1917, when a circle of insiders around Joseph Stalin created a hierarchy within the supposedly distributed network of citizens who overthrew the Czar.
It is also true in the 16^th century, when the printing press and Martin Luther’s vernacular versions of the Bible, rather than democratizing access to information, led to nearly 200 years of civil war. The impact of the internet has often been compared to that of Gutenberg’s invention.
“Even when networks aren’t architected for this kind of control, they tend to organize themselves in ways that lead to disproportionate influence by a handful of their members,” Mims writes. “When any new person or entity joins a network, it is likely to attach to the most visible hubs, making them even more influential.”
Facebook magnified this effect by designing its algorithms to optimize for engagement rather than for truth. Russia understood this, and brilliantly exploited it to foster confusion and misinformation in the 2016 election.

Pro Publica is using fire to fight fire. Co. Design reports on the work that a team at the nonprofit news organization has been doing to employ the tools of big data to see if companies like Amazon and Facebook are living up to their own policies.
The team crowdsourced the process of identifying examples of people who felt their free-speech rights had been violated by Facebook, or that they had been denied information because of some arbitrary decision. Facebook publishes its censorship rules, but verifying compliance is nearly impossible. That’s what the big data team at Pro Publica figured out a way to do. It used a Facebook Messenger survey to gather input from the crowd and then combed through the most puzzling cases by hand. In the end, Facebook had to admit not following its own policies in 22 examples brought forth by members.
The Pro Public team’s next step will be to investigate how political ads work by using a browser plug-in that scrapes Facebook ads and analyzes them using machine learning. The team has already published some of its initial findings, including the fact that many political ads don’t carry the required disclaimers or candidate endorsements.

Image: Wikimedia Commons

News executives who insist upon seeing Google as the Great Satan would do well to read James Fallows’ 9,000-word analysis in this month’s Atlantic. Fallows is well-equipped to write the story of Google’s tortured romance with the news industry. He is a veteran traditional journalist with a technology bent who is as comfortable writing for PC Magazine as for Atlantic.
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

Hawaiians are preparing to be one newspaper poorer.

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.

There isn’t much room in the market for newsweeklies any more, and the conventional wisdom has been that Time magazine will be the last man standing. Looks like conventional wisdom is right. The Washington Post Co. is reportedly looking to unload Newsweek after three straight years of losses and the likelihood of a fourth. “In the current climate, it might be a better fit elsewhere,” said Post CEO Donald Graham in a statement.

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.

The Wall Street Journal’s campaign to slug it out with The New York Times for national daily supremacy appears to be taking its toll on at least some Journal staffers, who are grumbling about the paper’s failure to secure even a single nomination for a Pulitzer Prize this year. There are all kinds of theories about the snub, ranging from perceived institutional hatred for Rupert Murdoch at Columbia University to the Journal’s focus on breaking news at the expense of long-form journalism to the inherently biased and political process of awarding prizes for non-measurable things like journalism in the first place (our favorite).

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.

The publisher of Dan’s Papers, which is the largest-circulation local newspaper on eastern Long Island, filed for bankruptcy, citing the weak real estate advertising market. This is despite the fact that Dan’s Papers claims an average reader household income of $381,000. The real estate market must be really bad, or high-income people must not be reading newspapers or both. Owner Brown Publishing Co., owns 15 dailies, 32 weeklies, 11 business publications, 41 free publications and 51 newspapers or niche websites.

If you’re an iPhone, iPod Touch or iPad user who really likes the idea of getting a newspaper look-and-feel in a digital package, you might want to check out PressReader from NewspaperDirect. “If you’ve ever wanted to experience unadulterated newspaper goodness on the iPad, this is it,” the company said in an e-mail. “Cover-to-cover newspaper browsing with one finger. Or two, if you like to zoom in.” Which we do. The company says it delivers more than 1,500 daily newspapers from 90 countries digitally in formats that can be viewed or printed. The iPhone reader is free, so what do you have to lose?

Meet Bobbie Carlton. She’s come up with an idea that every newspaper publisher in New England should have had but didn’t. Her success demonstrates how news publishers can reinvent themselves and survive – maybe even thrive – but only if they have completely rethink what they do.

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?

In this video interview, Bob Garfield, the author of The Chaos Scenario discusses the changes being brought about by the collapse of the mass advertising model, and with it the mass media. While Garfield is fundamentally optimistic about the future, he compares the pain being experienced by media professionals and their organizations today to the dislocation that occurred when the craft/artisan economy gave way to the Industrial Revolution. In the long run, Garfield asserts, we’ll be better off for the democratization of media. But there’ll be a decade or two of chaos that precedes new models.

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.

Tucked away in a corner at the Austin Convention Center this week is a tiny Hewlett-Packard subsidiary that could be a godsend for publishers and direct markets who are seeing their print businesses shrivel. But MagCloud may not see the opportunity before its own eyes.

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.

TechCrunch has an interview with Marc Andreessen in which the Internet boy wonder advises media companies to “burn the boats,” an analogy to the instructions Cortés supposedly gave his army upon landing in Mexico nearly 500 years ago in order to insure that the soldiers pressed on.

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.

Newspaper executives and their largest advertisers will gather next month in Orlando to discuss the transition to a digital media world. Advertisers in attendance include Staples Inc., Walgreens, Best Buy,  Home Depot, RadioShack, Target and many other print media veterans.

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.

Meanwhile, Outsell has a new report predicting that US companies will spend more on digital marketing than print for the first time ever this year. Of the $368 billion that Outsell expects US advertisers to spend this year, roughly $120 billion will be spent online and $111 in print. Of the total online spending, 53% will be on company websites. Outsell expects print newspaper ad spending to drop 8.2% to $27 billion. The report costs $1,295. More here.

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.

Dan Bloom has been pushing the idea of renaming newspapers “snailpapers.” He’s put the cause to music. It’s six-and-a-half-minutes of countrified banjo-picking. Watch it if you can.

During fourth-quarter earnings calls, several newspaper executives tried to put a positive spin on their financial situation, noting that the rate of decline in advertising revenues has slowed. That’s true, says Martin Langeveld, but it’s still a dismal situation overall. Langeveld totes up the numbers from the five publishers who have reported earnings so far and forecasts that the US industry as a whole will show a decline of 16% for the quarter. That’s better than the average 28% decline of the first three quarters of last year, but the overall trend is still in the wrong direction. It’s even uglier when you look at the last five years in aggregate: Total revenues for 2009 will come to about $28.4 billion, compared to $49.4 billion in the boom year of 2005. That’s a decline of 43%.

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.

The Berkeley Daily Planet, which isn’t daily, will cease print publication and go online only, although the owners held out the possibility of a return to the newsstands. Distribution was only one of several problems the paper faced. The city of San Francisco’s recent ban on freestanding newspaper stands hurt distribution, and the Daily Planet’s often critical reporting on local businesses didn’t help with advertising sales. The newspaper also suffered from a campaign by a group of East Bay Zionists to dissuade businesses from advertising because of editorials that criticized Israel’s treatment of Palestinians.

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-.”

It was 113 years ago yesterday that the phrase “All the News That’s Fit to Print” first appeared on the front page of The New York Times. The phrase was actually being used in marketing and advertising prior to that date and had assumed a modest place on the Times’ editorial page, but it was a slogan contest organized in late 1896 by publisher Adolph Ochs that catapulted the now-famous slogan to the banner. W. Joseph Campbell, whose 2006 book entitled The Year That Defined American Journalism documented the momentous events of 1897, recounts some of the entries that didn’t win the contest and its $100 prize.  They include:

• 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.

Alan Mutter is stirring things up again with a spreadsheet that journalists can use to value their work. His thinking: Stop debasing yourself by working for peanuts. Figure out what your time is worth and charge accordingly.

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.

Indianapolis-based freelance journalist Christopher Lloyd sees things our way. He’s passionate about movies and has contributed free movie reviews to some area newspapers since being laid off by the Indianapolis Star. “I knew I wasn’t going to drop my passion for film criticism. If I was going to do it, I might as well have it published,” he writes. Plus, movie studios won’t pay attention to a journalist whose work isn’t being read by anyone. He’s still plugging away and some of his clients are now paying a modest fee. He’s also got a site for film buffs called The Film Yap, where contributors work for, you guessed it…

Speaking of careers, a university professor has analyzed six months worth of recent job postings and discovered that traditional and non-traditional news outlets differ in their criteria for hiring journalists. Dr. Serena Carpenter, an assistant professor in the Walter Cronkite School of Journalism and Mass Communication at Arizona State University, looked at 664 online media job postings and concluded that established media organizations such as newspapers tended to favor candidates with solid writing and reporting skills while new media operations looked favorably on what she calls “adaptive expertise.” That includes broad-based experience and creative thinking.

Seth Lewis, a former Miami Herald editor and Ph.D student at the University of Texas, has joined the Nieman Journalism Lab as a contributor (paid?) specializing in journalism education and he’d like to know your ideas for what J-schools should teach. Perhaps stealing a line from the research noted above, Lewis is inclined to recommend a focus on adaptability. He defines that as the skills “to work in unpredictable settings, to generate their own funding as needed, and otherwise learn as they go.” In the process of interviewing for a faculty position at various academic institutions, Lewis says he was often asked what journalism schools should teach, which indicates that the profs at those schools are perplexed as well. Maybe you can provide him with some guidance.

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.

News organizations are starting to figure out how to monetize social networks. The Austin American-Statesman is charging for tweets and actually booking revenue. Local businesses can buy two tweets per day of up to 124 characters (to allow for retweets). The messages are labeled as ads and must prompt the reader to take action. Huffington Post is experimenting with the same idea. The New York Times is also selling packages of ads against visitors to its Facebook site. Nobody’s making much money at this yet, though.

Gannett executives demonstrated a rarely-seen attitude during this week’s earnings call: Optimism. “”We are very excited by what we are seeing,” said CEO Craig Dubow. Circulation is beginning to recover and profitability is returning to the income statement, enabling Gannett to pay down some of its debt. Profitability was still driven more by cost-cutting than by revenue growth, however. Classified revenues were down nearly 22% in the quarter and digital revenues fell 7.2% due largely to the dismal picture state of employment advertising. More coverage.

Newspaper readership continues at record levels when you factor in online traffic, according to the latest results from Nielsen Online and the Newspaper Association of America (NAA). More than 72 million people — about one quarter of all Internet users, according to the NAA — visited a newspaper site in the fourth quarter, racking up 3.2 billion monthly page views. The NAA declined to provide year-to-year comparisons, citing a change in Nielsen’s measurement technique.

The New York Times is building a paywall despite the 2005-2007 disaster that was TimesSelect. On Wednesday, the Times announced the decision to start charging for access beyond a specified number of articles beginning in 2011. Details, including the fee and the access threshold, weren’t revealed. The Times is leaving itself plenty of leeway to modify or even call off the program, knowing that the eyes of a $35 billion industry are upon it. “We can’t get this halfway right or three-quarters of the way right. We have to get this really, really right,” said Times Co. publisher Arthur Sulzberger, Jr.

The Times is stepping with characteristic caution into territory that its own coverage acknowledged has both “tempted and terrified” publishers. The most well-read newspaper in America is under pressure to set a precedent that others can follow while at the same time preserving its dominance and an online revenue stream that is a growing part of its business.

A Q&A on the Times‘ website sounds almost apologetic in tone. It points out that readers will continue to have full access to Times content from search engines but will not be able to click through to other stories on the website without paying a fee. Readers will be entitled to access a certain number of articles each month at no charge, but the limit was not specified. The decision to announce the paywall a year before implementation gives the Times some breathing room to assess reaction and set thresholds that readers can live with. The article in the Times notes that most readers still arrive at NYTimes.com via search engine, meaning that their experience will be undisturbed. The piece also notes that reader reaction on the Times’ website has been modestly favorable toward the move.

Even if the Times‘ paywall experience is successful, there’s no guarantee that other newspapers will be able to duplicate it. The newspaper enjoys a cachet that few other titles can duplicate and it’s likely that some readers will support the initiative in the name of keeping the hallowed title afloat. The same can probably not be said for the Chicago Tribune.

The New York Post reports that New York Times Co. minority owner Carlos Slim is a big fan of paid content and has been  pushing Times Co. executives behind the scenes to take the plunge. TimesSelect was an early stab at paid content that floundered when columnists complained that their visibility plummeted when a price was put on their work.

The problem with paywalls is that they cannibalize Web traffic that could otherwise be monetized with advertising. ClickZ reports that Forrester Research analyst James McQuivey predicts that ad revenues for NYTimes.com will drop by up to 50% after the paywall is erected. It also notes that Newsday saw website traffic drop 21% in the month after it built a limited paywall last fall. The trick is to find the right balance and The New York Times, with its history of online innovation, is the best candidate to reach a happy medium.

The Times is diversifying its revenue through a novel partnership with four institutions of higher learning that deliver Times expertise as online courses. This spring, the Times will start awarding certificates to paying students. For example, Ball State University just launched a six-week course on video storytelling that bestows certificates in “emerging media journalism” co-validated by the Times and Ball State. We love this idea. While tuition will never be a major revenue stream for the old Gray Lady, it is at least a diversification out of the declining advertising business. And with more citizens wanting to learn the craft of storytelling, perhaps a course with Times reporters and editors is something they’d be willing to pay for.

Internet Out of the Courtroom

Print journalists can take some heart – while new-media advocates roll their eyes – at two court decisions last week that limit the dissemination of trial coverage over the Internet. First, the U.S. Supreme Court overrode a trial judge’s decision and blocked video coverage of a federal trial about the constitutionality of California’s law banning gay marriage. Then a Florida judge ruled later in the week that a Florida Times-Union reporter couldn’t live blog a capital murder trial.

The California case is important because it involves a highly polarized issue that has implications in other states. A 5-4 conservative majority ruled that the judge in the case had erred by initially allowing video of the trial to be streamed to other courtrooms even though that practice is usually denied in federal cases. However, the justices did not address the bigger constitutional question of whether live video is permissible in legal proceedings.

In the Florida case, the judge banned a reporter from live blogging because he said the noise was distracting. A second reporter who was texting notes from the courtroom on a cell phone was also told to cut it out. However, a third reporter who was writing notes on paper was not disciplined. The tweeting journalist had drawn a more than 1,300 followers on Twitter for her coverage of the trial.

The cases illustrate the discomfort that new media is creating in the trial courts. The capability of anyone to relate the events of a trial would seem to comply with the founding fathers’ desire for legal transparency, but the fact that those narratives can now be communicated worldwide makes some jurists nervous. Both of these issues are likely to need a Supreme Court resolution.

Miscellany

When Nielsen orphaned Editor & Publisher in a sale of several of its titles to e5 Global Media last month, the staff at the venerable newspaper industry trade publication held out for a rescue. It came. Duncan McIntosh Co., an Irvine, Calif.-based publisher of trade magazines that ironically include FishRap News (which has nothing to do with newspapers), has picked up E&P and will continue more or less uninterrupted publication. “We’re all very excited around here about the news,” said staffer Mark Fitzgerald, who gains a promotion to editor in the process. Monthly print publication will resume next month and entries on the magazine’s two blogs – Fitz & Jen Give You the Business and the E&P Pub – have already resumed. Hooray.

The parent company of MediaNews Group, Inc. will file for bankruptcy, the 13^th such filing by a U.S. newspaper publisher in the last 13 months. But it doesn’t look like MediaNews plans to stay in Chapter 11 for long. It has a debt restructuring plan in place that will cut its debt from about $930 million to $165 million and swap senior debtors’ paper for stock. The 116 creditors will have a majority of stock but not voting control. The Hearst Corp. and the family of MediaNews co-founder Richard Scudder are reportedly giving up interests in the company. Hearst took a $300 million stake in MediaNews in 2006 and that investment is now effectively worthless.  MediaNews said newspaper operations, employees and suppliers wouldn’t be affected and that the debt restructuring plan would enable the company to quickly emerge in better financial condition.

Dan Bloom has come up with a new word for newspapers. He calls them “snailpapers.” Only the longtime newspaperman insists this is a term of endearment, not derision. He thinks maybe if newspapers poked more fun at themselves instead of getting all righteously indignant about new media, they would generate more sympathy. More on his blog.

The Greenwood Lake (N.Y.) News is shutting down after 46 years, idling a small staff. The weekly had been honored for  editorial quality by the New York Press Association.

Dramatic Effect

We get some unusual requests at the Death Watch and always try to be helpful, but we were stumped by this inquiry from Amy Wimmer Schwarb, a 15-year journalism veteran:

“What’s more old-school than the print-on-paper newspaper we both love?” she writes. “The theater, of course. I’ve been working on and off for the past 18 months on a script that I’m about to start submitting to play competitions around the country. The title is ‘Dash Thirty Dash: An Allegory for the End Times.’ The piece celebrates the fun and beauty of the business and documents the suicide of newspapers.

“My concern about submitting this play through traditional channels is that I want it to be seen NOW, and sometimes, such channels have long lag times. Through your online travels and contacts, do you have any suggestions for how I might distribute this work? In my dreams, it will be performed in small independent theaters around the country.”

We couldn’t help, but perhaps you can. Post any ideas below as comments, or e-mail us using the contact box on the right and we’ll put you in touch with Amy directly.