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Picard
1. Robert G. Picard
Shorenstein Center, Harvard University
Media Management and Transformation Centre
Jönköping International Business School
Jönköping University, Sweden
Cash Cows or Entrecôte:
The Influence of Interdependency on
Physical and Virtual Newspapers
2. A Bit of Context
Percentages of Total Global Value
Created by Various Media
Internet Service
20%
Cable
Subscription
19%
Motion Pictures
15%
Newspapers
10%
Books
10%
Television
7%
Radio
2%
Videogames
5%Audio
Recordings
5%
Magazines
7%
PricewaterhouseCoopers, 2005
3. Newspapers are a mature industry
• characterised by stagnant markets and
cost concerns
• newspaper markets are being disrupted
by electronic media and new digital
media
– audience and advertiser behaviors toward
these media are the driving forces of
change in the newspaper industries
• environment requires thought about
how newspaper companies will survive
and grow in the future
4. 5 most important trends/issues
• erosion of the audience base
• erosion of the advertising base
• online and broadband capabilities (fixed and
mobile) and digital television are creating
changes in information and advertising choices
• employee morale has eroded and stress is rising
• owners of capital see more opportunities for
asset growth and sustained profits in other
industries
5. Factors Affecting Sustainability
Production Forces
availability of raw materials
capital costs
labour costs
energy costs
taxes
transportation/distribution
costs
Social Forces
environmental demands
political/legal demands
cultural/social demands
Market Forces
consumer demand
advertiser demand
total revenue available
demographic and
psychographic changes
competition
Technological Forces
availability of technology
user adoption of technology
Sustainability
Managerial Forces
organizational effectiveness
productivity
financial control
innovation
responsiveness to change
labour relations
reinvestment
Protectionist Forces
problems with substitutability
customer resistance to change
structural control of resources
6. • audiences are at the
heart of change in print
media
• audiences for print
media are growing older
• readers are reading
fewer publications
• readers are spending
less time reading
• income and education
levels of print audiences
are rising
Biggest challenges come from
newspaper audiences
7. Increasing choices and use patterns
reduce time spent with newspapers
• newspapers are just one of many
choices for news/information and
diversion/entertainment available
• audiences increasingly view all media
as having same functions
• increased competition for audience
attention
• younger people use media
differently than older persons
8. Readership used to be a function of age,
now it is a function of generation
0 10 20 30 40 50
Generational
Reading Gap
%
reading
9. Newspaper readership over time
1700 1800 1900 2000 2100
industrial
revolution
urbanisation
literacy
television
How must
the
business
model
change to
permit
survival?
?
10. • newspapers have one of the largest shares of
advertising expenditures
– In many developed nations it is still number one
• newspaper share of total advertising is declining
– real expenditures for newspapers are rising but have slow
growth rates
• the primary sources of newspaper advertising
revenue are shifting
--retail advertising is not as important as in the past
--classified advertising is driving growth
Advertiser choices are critical to
newspaper industry developments
11. Changes in Global Ad Expenditures
1995 and 2004
0
10
20
30
40
50
60
Print TV Radio Cinema Outdoor Internet
1995 2004
12. Global Online Advertising
• About 3 percent of total advertising expenditures
• Limited use by most traditional advertisers
– 10 companies provide 74% of global Internet advertising
– 50 companies provide 97% of global Internet advertising
• Biggest use by computer and software firms, financial
services firms, and direct mail retailers
• Biggest users are not direct competitors to newspaper
advertising
• Migration of classified advertising is removing the source
of growth for newspaper advertising
– Especially employment, real estate, and automobile advertising
13. majority of
newspapers
Declining
Market
Share
Increasing
Market
Share
High Market Growth
Low or Negative
Market Growth
growth management
service quality
management
innovation
strategic planning
diversification
increased marketing
product development
innovation/new
product development
diversification
planning for market exit
or capital withdrawal
some
newspapers
Strategic Choices in Changing
Market Conditions
14. Product Development Activities
• improvement of existing products/services
– redesigns, content changes
• reposition existing products and services
– brand development, features contrasted to television,
online
• additions to existing product/service lines
– online newspapers, mobile services, cross media
• establishment of new product/ service lines
– free newspapers, speciality newspapers
• market introduction of completely new
product/service
– syndication, advertising services, new distribution
services
15. Protection
Core Newspaper Readers are Not
Migrating to Other Media
• TV network news viewing is half what it
was 20 years ago
• Cable TV
• Less than 10 percent of Internet use
involves news and most news use
involves reading headlines on portals
• Core readers are supplementing print with
online
16. Protection
Primary Source of Advertising is
Dependent Upon Newspapers
• Retail advertising is the most important
category of advertising
• Retail advertising is linked to specific
localities
• Retail advertising messages require types
of content not easily conveyed by other
types of media
17. Protection
News Production Globally is
Dependent Upon Newspapers
• Physical newspapers are the base of the
business model for all news agencies
• Newspapers are the primary provider of
news and information for news agencies
• Internet and mobile news is dependent on
agency or newspaper provided news
18. New Understanding of Online,
Mobile and Other Opportunities
• Not longer seen as freestanding, competing news
operations
• Not seen as necessarily requiring profitability in short
term
– Not product extension as in creating a separate free standing
product
– Potential for new revenue stream
• Limited, some advertising but not with potential of print, cross
subsidized and consumer funded
• Consumer funding requires more than mere mirroring of print
content; requires some uniqueness and exclusivity
• Trend toward blending of print and online newsroom
operations
• Creation of additional new online and mobile services not
linked to the newspaper core
– Usually not co-branded with the newspaper
19. Newspaper advertising shares are
declining in developed nations
• but the advertising pie is growing larger
• patterns in nations with multiple commercial
media indicate that average newspaper share of
advertising will be less than 20 percent share in
20-25 years
• current lack of additional television frequencies
limits significant growth of TV advertising
• growth of interactive advertising media
– special threats from searchable online
classifieds and notification services
20. New technologies are all threats to
the newspaper industry
• CD-ROMs
• web publishing
• information services
• wireless applications
• interactive television
all provide substitutes for
some communication
functions of newspapers
all are nibbling away at the
reader and advertising
bases
21. How soon will new media seriously
harm the newspaper industry?
• as soon as readers and advertisers
switch in large numbers
– numbers are not too damaging now
but are increasing steadily
• incremental changes in use and
funding can be expected
– no “sudden” shift
• will require changes to newspaper
company business models and
strategies
– changes need to begin now
22. Consumers are being asked to make
new expenditures for media and ICT
• hardware: DVD players, computers,
Internet access, widescreen TVs,
interactive digital television, digital audio
broadcasting, mobile Internet, etc.
• software: DVDs, software, ISP payments,
pay-per-view, phone charges
• to purchase the range of options currently
available will require at least tripling
household expenditures for media and ICT
23. Newspaper firms cannot “grow” out of the
situation and must find transition strategies
• need to adjust to the new environment
• continuing defence of strong position as
advertising providers
• transition strategies
– defensive movement into new media to keep others from
dominating
– offensive movement to seek new media business
opportunities built upon the print core
– gradual erosion of newspaper financial base can be
replaced by growth in new media and ICT operations
• transition time will be shorter for national and
metropolitan newspapers than for smaller local
newspapers
24. The key question for publishers
How does one keep
from sacrificing a
firm that will produce
revenue for many
years
by changing too
rapidly into a firm that
will produce limited
results for many
years
25. Calling in the butcher
a financial model
costs from combined
operations
revenue from
new media
operations
costs of the print
operations
revenue from
combined operations
revenue from
print operations
Conventional point
for taking the cow to
the abattoir
Will discuss issues of the future of the newspaper industry. Its demise has been predicted for decades because of costs declining audiences. In more recent years it has been cast as facing death by digital technologies. Today I want to examine what is happening and what the future holds.
We all know that newspapers were incredibly profitable during the last 3 decades of the 20th century.
This occurred because of the growth of advertising.
Newspapers in North America and Europe received nearly 3 times as much income IN REAL TERMS from advertising in 2000 than in 1950 and advertising expenditures are still growing.
They still remain quintessential CASH COWS
Even today profits are higher than those for most industries including banks, chemical companies and pharmaceutical companies
Changes in newspaper markets, however, make it clear that the cow is getting older and will soon produce less milk
The question in the back of our minds is whether and when it will be sent abattoir to be turned into steak
Sustainability involves the ability to continue current operations, products/services, and performance
It involves the ability to maintain existing business models
It also involves the ability to innovate, rejuvenate, and adapt to survive
new products and new business models
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Initial readership was by aristocracy and merchant classes
Core readership left at end of century will be higher than original readership in 1700s
because of more education, more economic and social involvement,e tc
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improvement of existing products/services
newspaper and magazine redesigns; new sections; new features
improvement to existing processes
seeking efficiency by changing working methods, technologies, customer service
reposition existing products and services
magazine intended for women between the ages of 35 and 54 changes itself to serve women between 18 and 35
additions to existing product/service lines
publisher of an skiing magazine starts a snowboarding magazine
publisher of a weekly newspaper establishes a new weekly in a nearby community
establishment of new product/ service lines
publisher of a newspaper begins offering SMS notification services
market introduction of completely new product/service
something not existing elsewhere; becoming the first introducer
MTG and Metro
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cows get old, stop giving as much milk
when income from production exceeds costs of maintenance, the cow is killed
