America’s Newspapers: The Search for a New Business Model

New Study Finds Some Papers Succeeding With Digital Revenue; But Many Executives Report Struggle to Change Business Culture

Though the newspaper industry generally is making only halting progress in the search for a new revenue model, some newspapers are beginning to distinguish themselves and may finally provide signs of a path forward, according to a new study by the Pew Research Center’s Project for Excellence in Journalism.

The report, based on PEJ’s analysis of private financial data from 38 newspapers and in-depth interviews with senior executives from 13 companies that own a total of 330 dailies, found that the papers studied are losing seven dollars in print advertising for every one dollar they are gaining in new digital revenue-a ratio that shows the pace at which newspapers are shrinking.

But unlike the usual aggregate industry data, the report’s 38 case studies also reveal enormous differences among newspapers, which suggest different management approaches can make a significant difference in performance.

Some papers that shared proprietary financial data with PEJ are coming close to matching their losses in print with gains in online advertising. While the papers studied on average grew digital revenue by 12%, one paper studied saw online ad revenue grow by 63%-and grew print advertising revenue by 8% as well. Another grew online advertising revenue by 50%, and came close to matching its print declines. But some papers are failing to grow digital revenue at all. One paper studied saw digital revenue fall 37%; another fell 25%.

“The study suggests that the future of newspapers, rather than being determined entirely by sweeping external trends, can be substantially affected by company culture and management-even at papers of quite different sizes,” said PEJ Director Tom Rosenstiel.

Among the study’s key findings:

Papers studied are losing seven dollars in print advertising for every one dollar they are gaining in new digital revenue. The papers providing detailed data took in roughly $11 in print revenue for every $1 they attracted online in the last full year for which they had data. Thus, even though the total digital advertising revenues from those newspapers rose on average 19% in the last full year, that did not come anywhere close to making up for the dollars lost as a result of 9% declines in print advertising.

Only 40% of papers say targeted advertising is a major part of their sales efforts. Most papers are not putting major effort into selling “smart” or customized digital ads, the category expected to soon dominate local advertising.

“There’s no doubt we’re going out of business right now.” Executives interviewed for the study were candid that cultural problems inside their newspapers are making the transition to digital more difficult. They talked about their people being tied to old ways, and the challenge of attracting digital sales people to the newspaper industry. Some predicted papers will continue to shrink, that more papers will close and that many papers will soon home deliver print editions only a few days a week, perhaps only on Sunday.

The majority of papers studied focus most of their digital sales efforts on conventional display (such as banner ads) and digital classified. Those categories account on average for 76% of digital revenue at the papers studied, but they are not growing. These are the same two categories that provide most of their revenue in print. And 92% of the papers studied said display was a major focus of their digital sales effort.

Daily deals accounted for 5% of overall digital revenue in 2011 at the papers studied. One of the bigger innovations in the last year, the move toward coupons or daily deals (such as Groupon), accounted in the end for only a small amount of digital revenue in 2011. A majority of all the papers studied-30 of them-have adopted such programs, and most created their own programs. But there are widely varying views in the industry on the future of this category. Some executives are convinced it represents a solid revenue source going forward. Others see the deal gold rush as a bubble that has already reached its peak.

Of the papers sharing private data, advertising on mobile devices accounted for only 1% of the digital revenue in 2011. Executives are generally excited by the prospects of mobile, but for now it accounts for a tiny amount of revenue. Executives also believe that due to its ubiquity in the market, the phone ultimately could be more important to mobile revenue than tablets, a sign perhaps of some growing uncertainty about the ability to charge for apps, though some executives are already skeptical about how much money newspapers can make with smartphones.

Almost half (44%) of the papers that shared data reported that they were trying to develop some form of nontraditional revenue-such as holding events, consulting or selling new business products. In most cases, the dollars involved are minimal-less than $10,000 quarterly. Some executives also expressed concern that their companies don’t have the resources or competencies for such undertakings. Still, there were a few cases of remarkable success here.

Among the papers that provided data, the number of print-focused sales representatives outnumbered digital-focused reps by about 3-to-1. A large majority of the newspapers sharing data with us reported that they had implemented a digital sales training program and had made it a priority to hire sales people with digital experience. But their sales force remains primarily focused on print, reflecting again that print ad revenue, which is shrinking, still makes up the bulk of the overall revenue-an average 92% in the study’s sample.

The Project for Excellence in Journalism tracks the transformation of journalism in a changing information landscape through its annual State of the News Media report, its ongoing News Coverage Index and a series of special reports. As part of the nonpartisan, non-advocacy Pew Research Center, it does not take positions on policy issues.

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