I was leading an editors conference for a small newspaper publishing group last week. The objective was to think about strategies for the newspapers as well as their online components. To get things going I presented an ersatz IQ quiz to the 60 or so participants. Below are the questions. The answers and discussion follow. Few of the editors last week had the correct response to more than two of the five questions.
1. In the last quarter, MediaNews Group derived 13% of its profit from online. What % of its revenue was from online?
a) 5%
b) 8%
c) 10%
d) 13%
e) 15%
2. What is the annual quarter over quarter rate of increase for online revenue of newspaper publishers?
a) 10%
b) 20%
c) 30%
d) 40%
e) 50%
3. In 1950 about 2% of GDP went toward advertising. What was the % in 2005?
a) 1.5%
b) 2.0%
c) 2.5%
d) 3.0%
e) What’s GDP?
4. Craig Newmark got the idea for Craigslist when he was classified ad manager of what Northern California newspaper? Extra credit: In what year?
a) San Francisco Chronicle
b) Oakland Tribune
c) Sacramento Bee
d) San Jose Mercury-News
e) None of the above
5. Which newspaper group created the first consumer-oriented online news product in the U.S.? Extra credit: In what year? (+/- one good enough)
a) NY Times Co.
b) Dow Jones
c) Gannett
d) Knight-Ridder
e) McClatchy
f) Tribune Co.
Answers
1. a) I read recently that NewsMedia (a privately held company) claimed that 5% of its revenue was from online. (Unfortunately I didn’t make note of the source and I have been able to find it again. If anyone can provide a link, please leave a comment or email me). This would help confirm that the profit margin for online is greater than in print. I keep telling the newspaper folks that they should not be concerned about replacing lost print revenue dollar of dollar with online revenue. The key metrics are profit margin and net profit. 30% on $100 million beats 20% on $125 million.
2. c) For the industry overall it has been running about a 30% to 35% clip recently—both in the US and EU. It is still under 6% of total newspaper ad revenue in the U.S., but much needed, as print revenue has been flat.
3. b) Advertising expenditures have hovered about 2% of GDP for decades, up a bit in good years, down some in recession years. In 1930 newspapers took in about 45% of the total. By 1950 it was down to about 30%, with most of the difference going to radio. Surprisingly perhaps, television had relatively little effect on newspaper advertising share, with most of that medium’s share coming out of radio in the 1950s. Of course, the total amount spent on advertising kept increasing over the years, as 2% of a consistently larger GDP kept all boats rising, even as some lost share. But today, with so many boats in the water, newspapers are not only losing share but, in constant dollars, finding it hard to even increase ad rates enough to make up for declining lineage. Even broadcast television is losing share, to cable networks.
4. e) Trick question. Newmark—as presumably most of the readers of this blog will know, was a software engineer and did not come from the newspaper industry. That, of course, is the point. We might have expected that someone at a newspaper would have seen the connection between online and classifieds in a creative way before an outsider did. In fact, incumbents tend not to be product innovators because they are afraid of cannibalizing their current profitable products. So outsiders are freer to innovate. It is easier to create a Wal-Mart from the ground up than for a Sears to re-invent itself. By the way, Craigslist first appeared for the San Francisco area in 1995.
5. d) Knight-Ridder teamed up with AT&T to create Viewtron, a videotex service, in 1983. I was there. It used a TV set for the display (what else?) and the ubiquitous “set top box” from AT&T for the smarts, incorporating a 1200 baud modem. All for about $600 (double that in today’s dollars). Oh, plus $12 per month, plus $1 per hour for the dial-up time. The graphics were crude. But the services are recognizable: news, weather, 
sports, primitive online banking, shopping—and email with the handful of others who subscribed. Never heard of it? Surprise! They shut it down in 1986, after spending $50 million. Right idea, wrong decade.
sports, primitive online banking, shopping—and email with the handful of others who subscribed. Never heard of it? Surprise! They shut it down in 1986, after spending $50 million. Right idea, wrong decade.
The point of the quiz is three fold: First, the online information business did not arrive suddenly with the commercialization of the Internet. It started with Prestel in the late 1970s in the UK and had the attention of the newspaper industry (or at least Knight-Ridder and Times Mirror, which lagged K-R only by months with its own videotex trials) in the early 1980s. Unfortunately, the failure of these early developments emboldened the naysayers who were skeptical that online would ever be a threat to newspapers.
Second, it is exceedingly hard for incumbent players in any industry to reinvent themselves faster than outsiders can see and take advantage of opportunities. For the incumbents the knee jerk reaction is to preserve market share. For the new guys, getting even one or two percent of a large market such as advertising, can look very attractive.
Finally, online advertising dollars are quickly becoming sizeable and the profit margins make even the 20% sought under the old one-newspaper city model look minimal. Growing the online component of their businesses—whether with a MySpace type acquisition or more modest local initiatives—is not only important, but urgent and imperative.
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