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Vin Crosbie Vin Crosbie
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Dorian Benkoil Dorian Benkoil
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Bob Cauthorn Bob Cauthorn
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Ben Compaine Ben Compaine
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Dorian Benkoil senior consultant at Teeming Media. An award-winning journalist and editor, he was a foreign correspondent for AP and Newsweek, and international and managing editor for ABCNews.com. At ABC News he moved to the business side, handling sales integration and business development, before joining Fairchild Publications as General Manager for their Internet division, becoming editorial director for mediabistro.com, then a consultant for Teeming Media in New York. He graduates this year with an MBA from Baruch's Zicklin school of business. Learn more about him at Benkoil.com or his blog - MediaFlect.com.

Robert Cauthorn is a journalist, former vice president of digital media at the San Francisco Chronicle, and was the third recipient of the Newspaper Association of America's prestigious Digital Pioneer Award. He launched one of the first five newspapers web sites in the world and is generally considered to have delivered the first profitable newspaper web site in 1995. Cauthorn has been in the middle of the transition from old media to new and is recognized as frank-talking critic when he believes newspapers stray for their mission. In mid-2004 he became the president of CityTools, LLC a new media startup based in San Francisco.

Ben Compaine has divided his career between the academic world and private business. He was a journalist when manual typewriters were considered state of the art, but also led the conversion of his college newspaper to cold type. He has started and managed weekly newspapers. His dissertation at Temple University in 1977 was about the changing technologies that were going to unsettle the landscape of the staid and low profit newspaper industry. Since then he has focused his research and consulting on examining the forces and trends at work in the information industries. Among his most well-known works (and the name of his blog) is "Who Owns the Media?".

Vin Crosbie has been called "the Practical Futurist" by Folio, the trade journal of the American magazine industry. Editor & Publisher magazine, the trade journal of the American newspaper industry, devoted the Overview chapter of executive research report Digital Delivery of News: A How-to Guide for Publishers to his work. His speech to the National Association of Broadcasters annual conference was one of 24 orations selected by a team of speech professors for publication in the reference book Representative American Speeches 2004-2005. He has keynoted the Seybold Publishing Strategies conference in 2000; co-chaired and co-moderated last year's annual Beyond the Printed Word the digital publishing conference in Vienna; and regularly speaks at most major online news media conferences. He is currently in residence as adjunct professor of visual and interactive communications and senior consultant on executive education in new media at Syracuse University's S.I. Newhouse School of Public Communications, and meanwhile is managing partner of the media consulting firm of Digital Deliverance LLC in Greenwich, Connecticut.
About this blog
Two forces have shattered the news media. Technology is the first. Although media technology is undergoing its greatest change since the day in 1440 when Johannes Gutenberg first inked type, for more than ten years now the news industry has mistaken new technologies merely as electronic ways to distribute otherwise printed or analog products. Estrangement is the second. The news media has lost touch with people's needs and interests during the past 30 years, as demonstrated by rapidly declining readerships of newspapers and audiences of broadcast news. How we rebuild news media appropriate to the 21st Century from the growing rubble of this industry is the subject of this group weblog.
In the Pipeline: Don't miss Derek Lowe's excellent commentary on drug discovery and the pharma industry in general at In the Pipeline

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August 1, 2007

The Press Will Be Outsourced Before Stopped

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Posted by Vin Crosbie

Dorian Benkoil last month e-mailed me asking what I thought about Business Week columnist Jon Fine's recent article, When Do You Stop The Presses?.

In the column, Fine ponders which major American newspaper will be the first to stop publishing a print edition and publish online only. He speculates that it will be the San Francisco Chronicle, which has reportedly lost $330 million this decade, approximately $1 million per week. Fine wonders if how the Chronicle should consider stopping its presses and start delivering news only online.

On the surface, that sounds like a good idea. The Chronicle's print edition is losing money. It has a large potential online-only audience in San Francisco. And if the Chronicle stops using its presses, it will no longer have to bear the costs of purchasing, printing, and distributing paper edition, costs that probably total 50 to 60 percent of the Chronicle's expenses.

But before roaring off with this idea, check under its hood to make sure it has an engine. I don't know what percentage of the Chronicle's revenues its website produces, but my guess is 5 to 10 percent. The printed product generates the rest. So, if the Chronicle were to stop printing paper, it would reduce its expenses to only 40 to 50 percent of their prior level, but the will have also removed 90 to 95 percent of its em>Chronicle's revenues. So, it's rather obvious that the Chronicle would be in a much, much worse predicament than it is now if it were to stop its presses permanently and publish online only. A not-so-fine idea.

But what really troubles me about Fine's speculation—and for that matter most newspapers' attempts to shovel their printed content onto their websites— are two two unconscious and linked presumptions that I think underlie such ideas: (1) That there is nothing inherently wrong with the Chronicle's product (i.e., its package of journalism and advertisements) except (2) that it should be delivered online rather than on paper because more and more people are getting their information online.

A lot of publishers suffer from these presumptions. They see less and less people reading printed publications, more and more of those people reading things online, and believe that all they need to do is shovel their printed editions over to online (and add video and audio) to reverse their newspapers' declines in readership.

These presumptions ignore the fact that newspaper readerships have been declining for more than 30 years and that approximately half of those declines occured before the Internet was opened to the public or the public had any online access. Shouldn't that give publishers a hint that the major cause of their readerships' declines isn't the Internet or their content not being online?

And is adding video and audio to that content (so-called 'multimedia') going to reverse those declines? Consider that television station's news viewerships have been declining for more than 20 years and that radio station's news listenerships have been declining for even longer. Do you think that if radio or television stations add newspaper-like texts to their own websites that this will reverse the declines in their viewerships or listenerships? So, why do publishers think that newspapers adding video and audio to their own texts online will reverse newspapers' declines in readerships? Adding together two or more declining media do not an ascending new-media make.

The real problem, Mr. Newspaperman, isn't that your content isn't online or isn't online with multimedia. It's your content. Specifically, it's what you report, which stories you publish, and how you publish them to people, who, by the way, have very different individual interests. The problem is the content you're giving them, stupid; not the platform its on. But I digress.

Back to Fine's column. If the San Francisco Chronicle, despite losing money, cannot afford to stop its presses and go online only, what it is likely to do?. I think that daily newspaper presses will be outsourced before being stopped.

I think the Chronicle will try to do what another troubled newspaper is considering. Boston Herald owner and Publisher Patrick Purcell has been talking about outsourcing his newspaper's printing. Dow Jones & Company has a printing plant with spare capacity 80 miles outside of Boston, a plant that prints the regional edition of The Wall Street Journal. This plant in.Chicopee, Massachusetts, is far more efficient than the Herald's antiquated presses. Purcell is calculating whether eliminating his own presses, pressmen, ink, and paper costs would save him money against whatever markup on those costs that Dow Jones would charge him.

Two footnotes:

First, we frequently see much larger dollar amounts printed in the business sections of newspapers ('Murdoch Buys Dow Jones for $5 billion', etc.), making us somewhat inurred to smaller financial figures such as $330 million or $1 million per week. However, the San Francisco Chronicle's latest weekday circulation figure is 386,564, so if that newspaper has lost $330 million during the past six years, it's lost approximately $853.67 per reader during that time or $142.28 per reader per year! Now does its amount of loss impress you? It does me. The Chronicle would lose less money if it just bought each reader a fine meal each year at San Francisco's best restaurant instead of delivering a newspaper each day.

Second, earlier this week I posted on my own company's blog some reasons why I've not been blogging here or there lately. I apologize for my absence.

[Update: when I wrote this post a few days ago, I didn't (and I suspect Fine didn't either) that the Chronicle has already signed an agreement to outsource its production to a third-party printer. A tip of my hat to Alan Mutter's blog. The outsourcing deal will cost the jobs of 230 unionized press operators when the new plant opens in 2009. When this outsourcing contract was signed, I wonder how large a newspaper the Chronicle's executives thought they'd be producing in 2009?]

Comments (12) + TrackBacks (1) | Category: Convergence | Newspapers


COMMENTS

1. Paul Bradshaw on August 2, 2007 2:56 AM writes...

This is the most coherently argued case I've heard yet against the desperate/unconsidered rush to online video, etc. etc.

I would add another element: community. Newspapers in particular have been increasingly losing touch with their communities as their resources became increasingly stretched; this not only affects the content, but the trust between reader and paper.

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2. Reader on August 3, 2007 1:43 PM writes...

This is a great post, but the math in the first footnote is wrong. In fact, it's off by a factor of a thousand.

The $330 million loss divided by 386,564 readers is $853.67 per reader, not $853,000 per reader. That's a loss of $142.28 per reader per year, or 39 cents per reader per day.

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3. jon haley on August 3, 2007 2:37 PM writes...

The SF Chronicle might increase it's paper subscriptions if it reworked it's delivery process. I stopped getting delivery after 2 months of hassles, non-delivery and inept service. Never a problem with the 3 other papers I receive. Online was the only option for me.

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4. Vin Crosbie on August 3, 2007 4:00 PM writes...

So that's why my car ran out of gas! I'm getting 23 and not 23,000 miles per gallon. Mea culpa! I've corrected the error. And to think that I sometimes chastize trade journalists for being innumerate!

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5. DaSarge on August 4, 2007 11:04 AM writes...

I suspect the same problem is at work here in Seattle, especially the Post-Intelligencer. The population of the Puget Sound area has risen substantially in the past 30 years or so, but the P-I's circulation dropped -- as did the Seattle Times.

Newspapers are increasingly vacuous and puerile. The demographic drawn to that sort of "news" is shrinking; circulation numbers follow.

The best examples I can think of offhand are Frank Rich and Maureen Dowd at the NYT. Any newspaper that gives these two space is not edited by adults and has no claim to be serious.

Another example is the Scott Beauchamp affair at TNR. That Beauchamp seemed plausible to Foer, et al clearly shows there are no adults left at TNR. I was a long-time subscriber to TNR, as was my father before me. Like many others, I stopped. I have enough teenage angst and emoting at home already; I don't need to pay for more.

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6. noname on August 9, 2007 9:56 PM writes...

This is a step forward! At last, a discussion about quality.
FYI: the newspaper I work for has been working on quality improvements in a very agressive way for nine years. It's cover price has just gone up. It's circulation is rising strongly. It's ad revenue is very strong. And it's profits and margins are near record levels. Lately it has begun a paid web site.
It's all about quality.

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7. Vin Crosbie on August 10, 2007 1:53 PM writes...

Then how curious that you want to keep it and yourself anonymous?

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8. Stacey on August 15, 2007 2:26 PM writes...

Outsourcing sounds logical. My newspaper's presses are so old they're now held vertical with old crates of backshop cement, I think.
There's no way our mother ship is going to invest another $60 million in new presses, I'm betting, so I can see the appeal of outsourcing.
But the big problem here is transportation cost and time.
When the Miami Herald decided to build its printing plant in downtown Miami rather than to the north, where their real circulation growth was taking place, they doomed themselves to always being beaten on sports and election deadlines by the Sun-Sentinel, and to much higher distribution costs per subscriber. The Herald used to be a statewide paper, with a wonderfully detailed state page, full of colorful stories from Key West to Daytona. Gosh, I miss that.

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9. Andrew D. Todd on August 20, 2007 2:19 PM writes...

The real explanation for the newspaper's decline is to be found in its relationship to the kinds of businesses which advertise in newspapers.

Magazine and newspaper readers have never paid for more than the printing and distribution, with the notable exception of certain professional journals. In the case of newspapers, the paper has traditionally been priced so cheaply as to be competitive with paper towel and similar products. When one speaks of paper-training a puppy, one does not mean teaching him to read. The editorial staff have always lived on the advertising revenue. This means that, economically speaking, they are admen, and when they get into financial difficulties, the difficulties grow out of their position as admen. I have noted that when a magazine is due for collapse, its advertisements "go dull"-- they run out of things to say. Instead of actually saying something about the product, the advertiser fills up space with pictures of pretty girls.

The Internet did not just come out of nowhere. It was preceded by a "paper internet," that is, people doing internet-type-things by paper means, with limited use of computers. Most importantly, newspapers were losing circulation to magazines. Magazines were of course sent through the mails at a substantial discount over newsstand prices. Magazine publishers used computers to to print address labels in presorted order so as to be eligible for various volume postage discounts. The Post Office was itself computerizing, going from 5-digit ZIP codes to 9-digit ZIP codes, and offering correspondingly deeper discounts to those able to take advantage of them. There were some national daily postal newspapers (the highly regarded Christian Science Monitor comes to mind; it was the archetypal "highbrow" newspaper). Furthermore, magazine publishers conducted an elaborate traffic in mailing lists. A magazine would often have a "customer service card." The reader could detach this card, stamp it a couple of times with his rubber address stamp, and go through the magazine circling reply numbers corresponding to those printed in the various advertisements and articles. Having done this, he dropped the card in the mailbox, and in due course, various brochures, pamphlets, and catalogs would arrive. The system was not as fast as clicking links, but it was just about as effortless. In advertising, there were various "shopper" publications, focused around various kinds of purchases. If one was in the market for a particular purchase, one bought the appropriate "shopper," and dived into the advertisements. More recently, "shoppers" have become free, left in boxes at convenient locations. Similarly, there is Direct Mail Advertising, which can be geographically targeted in a precise way, and there are local "advertising newspapers," distributed for free by mail. The electronic internet is only the final straw.

A postal carrier has comparative advantage over a teenage boy with a paper route. The postal carrier distributes many things at each stop, giving him economy of scale. The result is that the postal carrier can be cheaper to use than the minimum-wage newsboy, even while he is being paid five times as much. Mail is sorted with machinery of progressively more advanced type. The advertiser does not really have the need for daily delivery. Shop floors simply are not stocked with merchandise at that speed. It is convenient for the advertiser to run his promotional offers on a weekly or monthly basis, and put together a conveniently big advertising package to get the best postal rates. Add to this, the fact that a newspaper audience, being undifferentiated, is not very profitable to advertise to.

Similarly, in the related field of merchandising, one can talk about a continuum from discount stores and mail-order vendors to Amazon. The better mail-order vendors were using computers to get their order-processing time down, and the discount stores were adopting barcodes. Grocery stores were getting bigger, and carrying a wider range of incidental goods. Over the whole period, all kinds of consumer goods manufacturing was being outsourced, and then offshored, first to Alabama, then to Mexico, and finally, to China. Department stores were often being remodeled as shopping malls. The merchandise was no longer at the center of the customer experience. The name of the game was not to bring people in for merchandise sales, but to get them in the habit of coming in every day for lunch and window-shopping. These kinds of changes affected newspapers indirectly by injuring the kinds of firms which were likely to use newspaper advertising. Looking at a 1995 issue of a big city newspaper (Philadelphia Inquirer) which I happened to have hung onto for some reason, I note that the prime advertisements were placed by traditional department stores (eg. Macys), offering temporary discounts on upscale clothing, housewares, electronics, etc. In the end, the discount store triumphed. More than that, the mentality of the discount store triumphed, that is the assumption that nearly all merchandise is presumed to have been bought at a discount store, or else, by mail order. Discount stores spend very little on advertising. Their basic method is to make things cheap enough that the shopper buys on impulse. Mail-order retailers spend their money obtaining or building mailing lists. These firms will continue to look for ways to move more of their production offshore, employing the smallest feasible number of high-wage Americans, and to lower their prices accordingly. The end result will probably be somewhere between vending machines and mail orders processed in China.

One significant special area should be mentioned: automobiles. At present, a new automobile costs about $20,000 and up, or maybe $500/month on a lease basis. The automakers all have car rental subsidiaries, and can therefore deal directly with customers who are willing to pay the premium rate. However, someone who only wants to spend $3000 cash, or $100-200 per month has to wade into the complexities of the used automobile market. The Chinese are entering the auto industry in a big way, and they are likely to drop prices to the point where buying an automobile becomes uncomplicated. There is no great point in trying to buy an automobile for $200-300 cash, because the costs of gasoline, insurance, parking, road tolls, etc. would become dominant. The result of the Chinese invasion would therefore be to decimate the used car dealers. Back in the old days, there were junk stores in near-slum districts, where students setting up housekeeping would go to get used kitchen gear, at much lower prices than those charged in department stores. Wal-Mart simplified all that. So, if this happens to automobiles, farewell to the display advertisements placed by theatrical used car dealers.

The money released by merchandise discounting has been going into services, and services, being people-based, are extremely local. Even so standardized an operation as McDonald's varies substantially, according to the kind and quality of people McDonald's is able to recruit in any given locality. The local shopping newspapers serve such businesses better than a city newspaper could. A neighborhood restaurant does not benefit much from advertising to people who are too far away to drop in conveniently.

The basic economic problem of newspapers is that they have stayed the same while the rest of the world moved on. In the case of big city newspapers, there is a further complication. The newspaper naturally reports on its city, and such identity as the city possesses is usually focused around the slum at the center of the city. The business of a big-city mayor is first and foremost to deal with poverty. Suburbia is about rejecting the city, and the rejection is becoming more complete over time, with the rise of what Joel Garreau called "edge city," the exurban city of the ring road, yet another precursor of the internet. The Philadelphia Inquirer is a great newspaper, and its greatness consists very largely in telling tragic stories about the slums. When you juxtapose the local headlines with the advertisements, the effect is that of a grimly comic "Tale of Two Cities... it was the best of times and it was the worst of times..." One can see that an advertiser would not want to pay for being portrayed as a kind of buffoon if there were any alternative. With Direct Mail, there is an alternative.

The newspaper cannot put the clock back. It cannot restore a lost monopoly. Nor can it restore department stores with high markups. If the city's principal industry has become poverty, the newspaper cannot change that in any simple way. There are things that a newspaper can do, within limits. For example, it can go to weekly publication, and distribute, gratis, by mail. The marginal cost of printing an additional copy, as distinct from setting up the printing press, is very small. Much the same logic applies to postal discounts. It is no great difficulty for the postman to methodically stuff a newspaper in every mailbox-- the difficulty arises when he has to stop and work out who gets what. Charging money for the newspaper only reduces the advertising exposure, and requires the complications of subscription billing. To get within the post office's optimal size and weight limits, the newspaper will have to weed out things like the wire service material. Similarly, the newspaper should be very cautious about covering subjects which it cannot cover as well as the magazines found in every drug store and convenience store.

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10. portatiles baratos on August 25, 2007 10:31 PM writes...

desconocia esas cifras que se mueven de dinero, es asombroso, salu2.

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11. http://wwttmuseum.com on November 1, 2007 2:24 PM writes...

Readers have simply been burned too many times by monologue. They are stopping the presses, not the institutions. Rust will have the final edit.

http://wttmuseum.com

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12. Professor Ivory on November 26, 2007 11:12 AM writes...

Obviously the San Francisco Comical is not a paper about making money. It's not even a capitalist venture. It is a paper owned by rich people who are willing to spend their billions on promoting their personal agenda. Doesn't take a genius to see that.

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