Traditional press enjoyed an extraordinary 200-year run. Net profit margins of 25-30% were the norm after WWII, when rising consumer affluence and a frenetic advertising industry fuelled newspapers.
The gush of revenue led to an advertising-subsidized price for news to the consumer on newsstands, below cost of product. That over-dependence on advertising was to prove fatal by the early 21st Century as digital disruption shattered the press business model.
Closer to home, the SPH Group in Singapore saw its 45% net profit margins slide to 35% on a downward spiral. The SCMP in Hong Kong once described as the “world’s most profitable newspaper” saw net profit margins of 60% in its heyday, dwindle to the mid-teens. Both groups are diversifying into real estate investments and property revenue streams.
The latest US Industry Summary on Yahoo Biz indicates the relative net profit margins for industry sectors http://biz.yahoo.com/p/sum_qpmd.html
The newspaper industry does not even figure anymore. Magazines still show a net profit margin of 29.5% along with Brewers at 27.3%. Banks make 18%, Broadcast TV 13% and generic Drugs 6.8%.
Newspaper Extinction Timeline
A deathwatch table constructed by Ross Dawson for the Future Exploration Network lists the countries through 2017-2040, when printed newspapers will cease to publish – like lamps being switched off across Planet Earth.
The table predicts Singapore newspapers to go by 2021, followed by Hong Kong and Australia in 2022. The USA leads the table at 2017. The world will be rid of printed newspapers by 2040.
Online evaporates ‘Rivers of Gold’
Metropolitan newspapers thrived on being marketplaces for city residents looking to buy-sell-rent accommodation, cars, household products and everything people need when they migrate to cities where they do not have community support or family networks.
Classified advertising became profitable, recurrent revenue for city newspapers. Only one newspaper in any city would dominate the classifieds marketplace. It was a ‘winner-take-all’ phenomenon.
That usually resulted in a 60-40 split of classifieds to display advertising for the market leader. Classifieds was a rich and enduring franchise. For a metropolitan market leader earning $1billion in annual advertising revenues, $600 thousand would be generated by classifieds.
To serve the demand for professionals and managers, specialist head-hunters placed regular semi-display recruitment classifieds for their corporate clients. This was another highly profitable segment of classifieds for upscale newspapers.
Mr Rupert Murdoch referred to classifieds as ‘Rivers of Gold’. He tried every trick, fair and foul, to divert the Classifieds Rivers in Sydney and Melbourne from the Fairfax Group into his newspapers, over decades, without success.
Classified ads come from thousands of individuals paying cash with no agency intermediary taking a commission. Through the year, landlords advertised flats for rent or sale, car owners traded up, families disposed household furniture and appliances. It was efficient and inexpensive: trade was typically completed before lunch of the day.
The champions of classifieds in our zone were: SCMP, Straits Times, Bangkok Post, Sydney Morning Herald, The Age, Manila Bulletin…
Then came Craigslist, Monster, JobsDB etc which hosted personal ads, vacuumed the classified market, wrecked newspaper rates and offered the convenience of searchable online databases. Consumers loved the painless access, ease of use and 24/7 churn. They could post their CVs online for jobs.
The strongest newspapers suffered the most. Even as newspapers scrambled belatedly to host their own web classified portals, their pricing monopoly was lost – never to return. The franchise evaporated.
Digital Ads remain a mirage
Mega portals Google, Yahoo, MSN and others trawl and aggregate news free with updates and breaking news alerts. The news cycle has become 24/7 instead of the morning after. Newspapers lost their news franchise as well.
The mega portals offered consumers hassle-free email utility without storage limits. They had millions of eyeballs which advertisers found incredibly cost-effective, compared to newspaper sites which are midgets by comparison. Worse, when advertisers imposed a payment based on click-throughs, the hope for meaningful digital revenues evaporated.
Sophisticated search algorithms allowed portals to serve relevant ads dynamically in real time, against static banner and tile ads of newspaper sites. Users found banner ads irrelevant and annoyingly intrusive when some sites animated them in desperation, like dancing bears at a circus.
After two decades of trying to get a share of digital advertising, the entire global industry of newspapers averages only 8-10% of digital within their revenue mix. Even that digital slice is there mainly because they bundle digital exposure on their website with print advertising.
Digital advertising has been compounding double-digit growth annually – very little of which goes to publishers. Digital ad spend is dominated by Google, Yahoo, MSN, Facebook, AOL etc.
Advertisers connect consumers directly
Advertising budgets are leaving ‘mass reach’ channels for more targeted, interactive engagement with consumers. It enables them to build databases and to promote directly to end users.
A print Ad for Mercedes will be charged 100% page rate when only about 15% of the readers can afford a Mercedes. The advertiser has to pay for 85% waste. It is worse for broadcast TV when premium brand advertisers buy airtime. Free-to-air TV cannot be beaten for toothpaste, hairspray and deodorants.
The movement, colour, audio and video engagement in emotive storytelling is what brands could not deliver outside TV before the advent of social media. You Tube, Facebook and Twitter have incredible potential for instant, spontaneous viral distribution across the globe.
As consumers skip ads, advertisers are resorting to stealth tactics to mask commercial promotion. This furtive methodology is called ‘native advertising’ or ‘content marketing’. Brands try to craft an ‘immersive’ experience for their target ‘community’ on social networks and within editorial space.
This is displacing advertising agencies and traditional media. Social media is where humans spend their discretionary time and brands want to follow them there, while also leveraging trusted media brands.
The trust editorial content still enjoys, is being stretched to cloak disguised commercial messages which consumer radar would otherwise detect and reject. As publishers trade away precious consumer trust, one wonders how long it will be before the endemic distrust against advertising turns on the editorial brand which colludes to mislead readers?
Everyone a Publisher!
Content sites now amass created, curated and user-generated material to serve their audiences comprehensively. Audiences have become participants and co-creators in the new publishing dynamic. The top-down, ‘editor decides’ paradigm is over.
A plethora of new content tools are emerging which journalists would do well to keep abreast of. Robin Good has done all content creators a great service by organizing an index of content types, formats and tools:
How to track real-time interactivity?
Netizens form their own networks and communities of interest on social media. Their voice is heard, distributed and amplified without any newspaper, radio or TV channel to filter, modify, twist or block their conversations.
Advertisers are mostly unwelcome on social networks. They have to sneak in, camouflaged by ‘native advertising’ and ‘content marketing’ or risk being flamed out.
Governments and brands are eager to ‘follow’ the millions of conversations, comments and video posts in real-time, for effective response, damage-limitation and general feedback.
Social engagement is organic and continuous. Entirely new tools are needed to make sense of the speed, scale and virality of the babble. It exceeds human capacity to track and tail.
Edward Snowden gave us a hint of how digital snooping is conducted over mobile networks, social networks and email traffic worldwide. He was part of the Big Data machinery. It spooked him enough to blow-cover, go rogue and flee to Russia.
Big Data changes the game
Huffington Post launched in 2005 as a celebrity blog. It was acquired by AOL in 2011 for US$315 million. Compare that to Jeff Bezos buying the 137 year old Washington Post in 2013 for US$250 million!
Apart from Arianna Huffington’s access to the political elite in Washington and Hollywood celebrities, the real secret behind the traffic volumes and energy of the site is its Big Data engine.
Content, commentary, re-posting and random pings to and within social networks are all driven and orchestrated by sophisticated algorithms.
News stories are physically placed alongside pictures of sexy women to trigger voyeuristic appeal. Stories are re-ordered or deleted in tune with traffic flows. A small team of tabloid hands write and re-write headings of lead stories to command attention.
Leading blogs average 10,000 comments. 2013 statistics show a million comments per month. No content site on earth shows that consistent degree of user engagement. It would be impossible to drive without the tireless rhythm of Big Data intervention and channeling. The site is anything but passive.
Here is a news site with no print version. It won a Pulitzer Prize in 2012. News is trawled from other sources. It gives the site fresh content to deliver. But only 15% of HuffPo traffic comes for news.
The bulk of users come for the other 85% of stuff spread across 50+ ‘verticals’ – categories from the bizarre to divorce and gardening, maintained by 30,000 bloggers, most of whom are not paid. The site is now globalizing and is already available in local versions in 12 countries.
HuffPo earned US$100 million in advertising and sponsor revenues in 2013. It is not yet profitable but has a dynamic of user engagement unmatched in its category.
FT digital revenues overtake print
The Financial Times is a specialist business newspaper with a global audience. Its subscriptions are company-paid, not personal. The daily printed version is expensive to produce and deliver. For real-time financial markets, static print is also a severe limitation.
The FT moved to online, dynamic market analysis and news with a ‘hard paywall’ in 2001 with little impact. It innovated a ‘soft/metered’ paywall in 2007. As executives adopted tablets and smartphones, its digital subscriptions spurted from 2010 to overtake print subscriptions by 2012 by a ratio of 62:38. It mines Big Data to gain user insights and to deliver timely and relevant content.
The FT also focused on mobile content delivery from 2011 which now generates 34% of user access, 15% of new subscriptions and 12% of digital advertising. Mobile access has extended FT reader engagement into commutes to and from work and over weekends.
This has influenced the re-deployment of journalists and editors to coincide with the times of peak user access, rather than the graveyard shift of morning newspapers. The FT is also reducing its print editions to one core offering worldwide. “Digital breaks, Print explains” is the new mantra.
The digital transition of the 126 year old newspaper has been nothing short of phenomenal. It led CEO John Ridding to declare: “Ten years ago 85% of FT revenue was from advertising. Now it is only 35-40%. The FT has moved on from the ‘existential crisis’ facing the newspaper industry”.
Written by Cyril Pereira, the Asia Sentinel colomnist