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Elliott Morss | December 20, 2014

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Information: From Print to Digital – What Transition Models Work?

© Elliott R. Morss, Ph.D.

You must have noticed that newspapers and news magazines are getting thinner. But have you also noticed that libraries are no longer used as sources for research? Instead, they have become “book museums” with computer terminals. Did you realize that word transmissions daily via digital are greater than the total of written works in libraries worldwide? The transition is happening: from print to digital. The transition would be more rapid, but as with other technological revolutions, it is slowed by human reluctance to give up old habits: we like to read newspapers and we are used to paying bills via checks and “snail mail” .

 

In my case, I have always loved writing for the print media. In college, I spent a summer working for the Quincy Patriot Ledger that was at the time a great local newspaper. When I graduated from college, the question was whether I should go to work as an apprentice to Juan de Onis, the chief Latin American correspondent for the New York Times, or go to graduate school. My professors convinced me to go to graduate school. To this day, I believe it was the wrong choice. For all of my life, the most challenging and satisfying activity has been writing. And it was always a thrill to see one of my books in the window of a bookstore.

 

What is Happening?

 

Times are changing: most professional journals are accessed online; books are giving way to Kindle and/or audio; most banks encourage you to pay bills online. Overall, the print industry is struggling with the digital transition. And some are doing better than others.

 

Humans are adapting, but at different rates. In part, it is a generation thing. Older generations are used to reading the newspaper: Marshall McLuhan said: “People don’t actually read newspapers. They step into them every morning like a hot bath.” Younger generations don’t need anything printed. They read online. In school, everything is done online via e-mails with their professors. I am between generations. I read headlines online but use an inexpensive black and white laser printer for any article I want to read carefully.

 

Rates of digital use vary by region. The following table provides data on “digital receivers” (cell phones and internet connections) worldwide and for selected countries.

 

Cell Phones and Internet Connections for Selected Countries (2007)

Country

Cell Phones

 Internet Connections

Total

Per Capita

 Hong Kong

10,550,000

3,961,000

14,511,000

2.06

 United Kingdom

71,992,000

40,200,000

112,192,000

1.84

 United States

255,000,000

223,000,000

478,000,000

1.56

 Japan

107,339,000

88,110,000

195,449,000

1.54

 European Union

466,000,000

247,000,000

713,000,000

1.45

 China

547,286,000

253,000,000

800,286,000

0.60

 India

362,300,000

80,000,000

442,300,000

0.38

 World

2,168,433,600

1,018,057,389

3,186,490,989

0.47

Source: US Central Intelligence Agency

 

Back to the transition. We are going to paperless news. This is happening because with cell phones, cable TV and the Internet, we have other sources for news. It is so bad with newspapers that a web site tracing their demise has been created – www.newspaperdeathwatch.com.

 

For a better understanding of what is happening, let us consider a few examples of entities trying to make the transition.

 

Book Stores, Book Publishers, and Amazon

 

Book stores and publishers: a total disaster. To survive, most publishers have sold out to multimedia firms. For example, Random House bought Knopf and was then bought by Bertelsmann. Bookstores are becoming coffee shops where people can read books for free. And then there is Amazon: it was started as a “digital” firm, so it could see what was coming. It first sold books. Next, Amazon offered books that could be downloaded. Shortly thereafter, book audios could be downloaded. And now you can buy a digital book-reader and download book contents into your reader. Amazon is handling the transition well.

 

The same thing that Apple did to the music industry is happening to books. The next battle is taking place for the standard of the e-book and e-paper readers (Kindle vs. Sony vs. News Corp vs. Palm, etc. etc.). They are all rushing to develop that type of artifact, since it is a great way to monetize content and lower production and distribution costs.

(quote from Gabriel Foglia Dean, School of Economics, Universidad de Palermo – Argentina – www.palermo.edu)

 

Realtors, Auto Dealerships, Tourist Agencies, Department Stores, and Medical Advice

 

Think of how things have changed for all of these entities. If you want to buy a house or a car, you should do most of your research on the web. For travel, you can get the best deals on the web. Nobody should buy anything in a department store. And medical advice: it is all available in digital form.

 

Entertainers

 

Before digital, most musical performers made most their money by selling their wares on plastic: first records and then CDs. Internet piracy has ended that money making venue. Today, entertainers mostly “put bread on the table” via live performances.

 

Business News

People will pay for business news. The Wall Street Journal is apparently getting by. It charges $119 annually for the newspaper to be delivered, $103 online, and $140 for both. I think the Economist is making a profit with hardly any advertising. It charges $126 for an annual magazine subscription, and that includes free online access. Bloomberg charges $1,900 a month for its online information. In addition to quantitative data, it accesses 18,000 sources for news, rumors, etc. on the business world.

 

Entercom’s WEEI 850AM Radio Station in Boston

 

WEEI has for some time been the dominant sports radio station in Boston. Recently, like many radio stations, it can also be heard live on its web site (weei.com). But in the last year, something very interesting happened. As both major newspapers in Boston (Globe and Herald) were forced to drop reporters because of declining revenues, WEEI picked them up to write and do interviews for its web site. One presumes WEEI hopes to capitalize on this via advertising on the web. I do not have data on how WEEI is doing. From SEC reports, I know its parent company, Entercom, had a profit last year and in the first three months of 2009). It will be interesting to watch what happens. Unlike newspapers, WEEI is hiring rather than firing reporters.

 

Newspapers – The New York Times as a Case Study

 

The newspaper transition from print to digital has not gone well, and the global recession has made things worse. According to Coen, overall advertising sales have fallen in the last two years and are projected to fall this year as well. Newspaper ads are projected to fall by 11.7% this year.

 

These problems are reflected in the prices of newspaper stocks. Gannett is down from $91 in 2004 to under $5, and the Wall Street Journal is off 69% from its 2004 high of $39.48.

 

Thing have also been tough for the New York Times. Even with 1.7 million papers in daily circulation, 3rd in the US behind USA Today (2.5 million) and the Wall Street Journal (2.1 million), its stock has fallen from over $50 in 2002 to less than $10 today. Despite its worldwide reputation for excellence, it has not been able to remain profitable as the world moves to digital transmissions of information.

 

Let’s look at the Company’s financial problems. It is expensive to print and distribute a newspaper. In 2008, the Company spent $251 million on raw materials (mostly newsprint). Distribution is also expensive. The company’s balance sheet discloses that it has $3 billion in assets. But it also has benefit liabilities of more than $1 billion. And over the last 39 months, it has lost $467 million. A significant portion of these reported losses involved writedowns on some of its holdings. In particular, there have serious problems with its New England Media Group that includes the Boston Globe.

 

This year, it has taken two major steps to raise cash. First, it sold off its headquarter offices and then leased them back. That provided immediate cash of $214 million. The effective interest rate on this transaction works out to be 13%. Second, Carlos Slim Helu, a wealthy Mexican who already owns 7% of the company’s Class A common stock, lent the NYT $250 million at an effective interest rate of 17%. This is very expensive money.

 

Resolution for the Times

 

Why has all this happened, and is there a way out? Like other entities, the Times pays reporters to collect news. But the Company has not come up with an effective way to charge for its online news. The paper has tried several approaches. In the 1990s, it charged international users but gave up because it feared losing is online audience. In 2005, it started charging for online access to Op-Ed, news columnists and archives. In two years, they had 200,000 subscribers generating roughly $10 million a year. Again, they abandoned this model in hopes of expanding web traffic and consequent ad revenues.

 

While the Company does not publicly break out its online revenues, it is possible to estimate them from the information it does release, and these are provided in the following table.

 

New York Times Advertising Revenues

(in $ millions)

Type

2007

2008

Print

986

820

Online

237

257

Total

1,223

1,077

 

Online advertising revenues are growing. But will this be enough?

 

The Times is not charging for all the news it provides online. Something is wrong here. Bloomberg charges $1,900 per month for the information it provides, and it gets the headlines and synopses of Times articles for free.

 

In the morning, I, like many others, turn on my computer. My home page has the main headlines from the Associated Press, the NYT, business headlines from Reuters, the NYT, Bloomberg, and Kiplinger, and sports from ESPN and the Associated Press. If any headline interests me, I click on it and can read the entire article. In essence, I get free news. This cannot continue – somebody ultimately has to pay the reporters!

 

Too much free information is provided on the Web. This is not sustainable. How can this be changed? If a small news provider tried charging online for information, they would fail because people have plenty of other free news sources. But people will pay for news from the Times, so long as the Times is not forced into firing their top quality reporters (as the Boston Globe had to do) and closing down overseas offices.

 

The Company needs to take a deep breath and go back to charging for all its digital news. And no free synopses. Why should it only charge its newspaper subscribers for news? Does the paper want to lose its newspaper subscribers? What better way to lose them than providing online access for free? This approach should be an especially effective deterrent to younger generations who are not newspaper buyers.

 

I am not an expert on this subject, and I know the Company has very smart people trying almost everything. Perhaps the Times should approach the leading home page web providers and tell them that in the future, they will only get headlines for free, no synopses. Tell them there will be a charge for direct access to the articles. Let the home page web providers pay the Times out of their advertising revenues. The Times would only need one of the Web providers to agree…. Word would get around. And Bloomberg: if they are charging $1,900 monthly to clients, how could they not include access to the NYT? Charge Bloomberg for access to the NYT for its clients! No free synopses! Someone has to pay the reporters!

 

Let’s look at the numbers. In an article appearing in the paper on May 18, David Carr reported that Nielsen estimated that the NYT online gets 20 million hits monthly, with 3 million regular visitors. Suppose NYT charged $100 for online access. It is reasonable to assume they would get 2 million of their regular visitors to sign up and another 2 million from the 20 million monthly hits. At $100 for access, that would yield $400 million annually. Of course, online ad revenues would fall: if online revenues in 2008 were $257 million with 20 million hits, what would they be with only 4 million hits. 20% of $257 million or $51.4 million? I doubt online ad revenues would fall nearly that much. Why? Because online subscribers to the paper would be a most attractive audience for potential advertisers. Other revenues could also be generated from the Company negotiating licensing agreements with other news providers.

 

It is time for the Times to adopt the following rule (from NFL football) to govern its information distribution policies: Any reproduction, duplication, or distribution in any form without the express written consent of the New York Times is strictly prohibited.

 

Letter to The Business Managers of The New York Times

 

Ladies and Gentlemen:

 

I know you are trying everything to generate revenue for your organization. But in trying everything, you have lost your way. The business model that worked well for you in the past needs to be applied again. That model involves charging all readers for access to your writings. It worked for the paper, and it will work online. And just as with the paper, once you establish the policy online, the ads will follow.

 

Postscript

 

Is there anything left for print? I think so. We all need “comfort reading”. What do I mean by that? We all need relaxing magazines we look forward to reading. They might involve hobbies – gardening, cooking, traveling, autos, or news about a certain region we enjoy visiting. There will always be a market for “comfort” magazines.

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