February 11, 2013

Newspapers Turning Ideas into Dollars

Four Revenue Success Stories

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VIDEO: Q&A WITH MARK JURKOWITZ 

In America’s embattled newspaper industry, some business innovations are showing clear signs of success, according to a new report by the Pew Research Center. While many of these are occurring on the digital side, some papers are generating new print revenue-through circulation gains, niche products and even sales reorganization.

The report follows a year-long effort to identify newspaper successes in the search for new business models. This report analyzes four such dailies whose executives explained, in detail, the motivation and strategy behind their experiments and shared internal data about the results with the Pew Research Center’s Project for Excellence in Journalism.

Their innovations-ranging from sales force restructuring to rebranding the print product to web consulting for local merchants-are generating significant new income.

One paper, contrary to a downward industry trend, has enjoyed an increase in overall revenue in both 2011 and 2012. Another has seen digital revenues average nearly 50% annual growth since 2010. A third has developed a fast-growing revenue stream outside of the core business while the fourth has seen the growth of digital revenue largely offset print losses.

All these organizations embarked on business-side experiments in the past two or three years after suffering major economic losses in the second half of the last decade. These success stories share some common characteristics such as risk-taking leadership, a commitment to remaking the internal culture and a push to improve the editorial product. Yet, they all introduced different innovations, tailored to the particulars of that market.  What worked in a wired California wine community might be a poor choice in a Florida resort destination. Customizing the business model for the community, these newspaper executives say, is a key component of success.

The four news organizations profiled here are:

  • The Naples (Fla.) Daily News (weekday circulation 44,876). After the publisher and his managerial team overhauled the composition of the sales force and its operating philosophy, the paper saw overall revenue growth in 2011 and 2012. In Naples, protecting print revenue proved to be a significant part of the success story.
  • The Santa Rosa (Calif.) Press Democrat (circulation 53,292). As part of a revamped business plan, the paper developed the Media Lab, a sophisticated digital agency that provides a full range of online marketing services to merchants. In its first year, the lab accounted for roughly 25% of the paper’s digital revenue and is expected to grow revenue by about 60% in 2013.
  • The (Salt Lake City) Deseret News (circulation 91,638). Former Harvard Business professor Clark Gilbert engineered a major reorganization of the Deseret media properties, building a digital company, creating a new-and more narrowly focused-editorial identity for the newspaper and unveiling a weekly national print edition. Digital revenue has been growing at over 40% a year since 2010 while daily and Sunday circulation jumped about 33% and 90% respectively from September 2011 to September 2012.
  • The Columbia (Tenn.) Daily Herald (circulation 12,744). This small, but aggressive daily in an economically hard-hit Tennessee community rolled out more than a half dozen new revenue ideas in 2012 alone, some in print, but most in digital. The resultant growth in online revenues allowed the paper to keep overall annual revenue losses well below the national average-about 2% in 2012.

These case studies are the outgrowth of “The Search for a New Business Model” released by Pew Research Center in March 2012. Based on data provided by nearly 40 newspapers and interviews with executives at 13 newspaper companies, that study found that in general, the effort to replace losses in print ad revenue with new digital revenue was taking longer and proving more difficult than executives wanted. In the sample, for every $1 newspapers were gaining in digital ad revenue, they were losing $7 in print advertising. (By the end of 2012, the numbers were considerably grimmer for the sector as a whole-$16 in print losses for every digital dollar gained.)

But there were a few signs of hope in that study. A half dozen outliers either managed to offset print losses with digital gains or came very close to doing so. Pew Research tracked those outliers and found, as a reminder of the fragility of the business, that in the course of several months, two had suffered significant revenue declines and three others were part of a company undergoing a major organizational restructuring that made it difficult to draw conclusions about their economic health. At that point, Pew Research sought to identify other papers that had valuable revenue success stories to tell.

One of the four papers included in this report, the Deseret News, had participated in the earlier survey and reported good results. The Santa Rosa Press Democrat also provided data, but was not one of the successful outliers at that time. The other papers were identified after multiple conversations with news executives and then preliminary interviews with the publishers at each paper. (The Naples Daily News came to the attention of the Pew Research Center when the E.W. Scripps Company issued a release trumpeting its revenue increase of about 10% in the first quarter of 2012.)

These papers are not alone in experimenting with new revenue streams-many dailies are working on business innovation in this difficult economic era out of necessity. But these four were selected for the degree to which their innovations had developed into essential components of their organization and culture, because their innovations showed tangible and positive revenue results and because their stories offered lessons worth sharing-ranging from leadership to market customization. Still, these innovations are works in progress and these papers remain vulnerable to the economic disruption that has wreaked havoc on the industry in the past half dozen years and that industry-wide, continues to worsen.

To produce these reports, Pew Research visited each of the four newspapers, gathered data and conducted lengthy on-the-record interviews with executives as well as other observers and analysts. Each case study details the nature of the newspaper’s market, how the innovations work, the challenges faced, the empirical evidence of success and the lessons learned. Some of the lessons include:

  • Manage the digital and legacy businesses separately (Deseret News). Deseret News Publishing Co. CEO Clark Gilbert has a theory of media evolution. The legacy business is the crocodile, the prehistoric creature that will shrink, but can survive. The digital business is the mammal, the new life form designed to dominate the future. And they need to be managed apart. So the company created Deseret Digital Media to capture future growth, shrunk the Deseret News newsroom and reoriented the paper’s editorial mission.
  • Keep developing niche editorial products (Daily Herald). In recent years, the Daily Herald management has rolled out a successful monthly health magazine and a new men’s lifestyle magazine and plans to introduce a real estate product early in 2013-keeping many of the costs in-house. It seems an ambitious enterprise for a small operation with modest resources, but publisher Mark Palmer says the health magazine has been “very profitable” and initial results from the new publication are quite positive.
  • Decentralize decision-making power (Daily News). Under the sales restructuring plan, ad directors and account executives now have far greater authority to negotiate contracts on their own and the bureaucracy is more streamlined. That may sound logical, but it’s not easy, according to one ad director. “It takes an incredible amount of courage and trust from the head of your business,” he says. “So if someone is trying to replicate this and they don’t have the courage and the trust to pass that along, it’s not going to [happen.]“
  • Establish the digital agency as an independent business (Santa Rosa). A key decision was to set up the Media Lab digital agency as a separate entity with a separate staff to operate it. While it traded on the Press Democrat’s brand as a trusted news source in the community, the idea was to make the lab an incubator for innovation. In that vein, digital director Greg Retsinas says, it was absolutely crucial to the success of the Lab that it “have a start-up feel to it and not be swallowed by the older Press Democrat brand.”
  • Rebuild your editorial philosophy around what you do best (Deseret News). The News, which is owned by the Mormon Church, made the crucial decision to shift its editorial mission from general interest to coverage of topic areas such as faith and family. It’s not likely many newspapers would or could focus around those particular issues, but Gilbert believes diminished newsroom resources should be allocated to unique editorial strengths that offer added value. You “have to be differentiated,” he says. “Invest where you can be the best in the world…The failure to choose is a choice to be mediocre.”
  • Don’t give up on print. (Daily News) In Naples, where the print franchise is comparatively healthy, the publisher is bullish, saying “we are going to reinvent print” and envisioning a future where the print product could be customized for the individual consumer. At many dailies, where print revenues continue to plummet, that may seem overly optimistic. But the lesson from Naples is that in communities where conditions are favorable, a substantial bet on print can still pay off.

While these lessons vary, there are some basic shared characteristics that undergird the decisions taken at these papers.

One is strong, aggressive leadership or what media analyst Gordon Borrell describes as “clarity of vision.” The styles of leadership at these papers range from Deseret CEO Clark Gilbert’s academically oriented theories about business disruption to Columbia Daily Herald publisher Mark Palmer’s determined pursuit of every dollar lost to the economic downturn. But the leaders at these papers are risk takers who concluded that the biggest risk was not rethinking their business models.

Another is the ability and perseverance to get the buy-in necessary to change the internal cultures in an industry where that frequently proves difficult. Indeed, 10 of the 13 newspaper executives interviewed for Pew Research’s March 2012 report identified internal tensions between the legacy and digital cultures as the biggest challenge to business success. Some of the executives profiled admitted that implementing cultural change was among their most daunting task-with plenty of early resistance, whether it was getting former competitors to work together in Salt Lake City or convincing account executives to embrace more autonomy in Naples.

A third is a commitment to improving the quality of the editorial product, even with reduced resources. In the case of the Deseret News, the response was not only to shift the focus of coverage from general interest to faith and family, but to dig deeper into those topics with more ambitious, enterprise reporting. At the small Columbia Daily Herald, it meant hiring an investigative reporter from Detroit. Several publishers spoke openly of the need to improve the news product and these organizations view quality as essential to “keeping the franchise” and building revenue.

The case studies also help illustrate the accelerating pace of change in the newspaper industry in the last few years. When Pew Research asked newspaper executives three years ago about trying to get news consumers to pay for digital content, 58% said their organizations had not begun a pay wall and another 22% said they had not yet considered such an option or had rejected it. Of the four papers included in the case studies, one instituted a paid digital subscription plan in 2012 and the other three are likely to do so in the near future.

Even so, one common theme that emerges from the publishers featured in this report is that there is still too much innate caution and ambivalence in an industry that must take significant risks to build a sustainable revenue model.

“We need to be fearless, and we need to operate in that mode,” says Naples Daily News publisher Dave Neill. “And we don’t.”