It’s the Internet, Dad!

My Michigan son tells me that the Detroit Free Press will be doing home delivery only three days a week as a cost-cutting measure.

I asked him what the source of the difficulty is, and he responded succinctly, “The internet, Dad!”

Of course he’s right; internet advertising at least partly displaces print advertising, shifting the demand curve for newspapers leftward; and with ad revenues forming a major source of newspaper revenues and profits, it’s unsurprising that this once-leading paper has fallen on hard times.

This kind of problem occurs with every major technological innovation. This was discussed in the case of home weavers/spinners and industrialized textile manufacturing in George Eliot‘s Silas Marner. My favorite line on this was by my former teacher, colleague, and co-author, the late Albert Rees, who once asked the leader of the International Whiskmakers Union (they made brooms) what his biggest problem was; the guy replied, “The vacuum cleaner.”


Martin

It's not just advertising. Subscriptions have also fallen since free news is available on the interest as well. Newspapers are a two-sided market (getting money from advertisers and subscribers), the internet has weakened both sides.

Walter Wimberly

It is not just the advertising that is affecting newspapers, although it gets the lion's share of the news. It also has to do with 1) cost of production ( the on-going cost of ink and paper is more than a few web servers purchased every few years) 2) distribution costs (recent gas increases makes delivery of a heavy medium more costly) and 3) timeliness news is a "day old", vs. hours or even minutes in some cases when reported by TV, radio, and the Internet.

Part of the reason why TV and Radio didn't displace news, as the perceived quality, and the lack of ability to "skim" for the important parts. With the Internet, you get the best of "both" worlds.

Mercutio.Mont

"It's the internet!"

Wrong.

The problem is that home delivery is extremely expensive to carry out. Declining ad revenues (Detroit, after all!) mean that papers must either charge much more for home delivery or cut deliveries.

Ryan

It is actually the quality of the product more than anything. See The Wall Street Journal.

Also see Clark Gilbert's work at Harvard on how to handle the transition to the internet properly as a newspaper. Failed newspaper companies are failed because of poor management, poor product, and the inability to handle disruptive innovation.

Or you can just blame the internet.

jack

don't forget most of the people left in Michigan (I have lived here my WHOLE life) can't read anyway...

jonathan

Couple of notes. This is possible because the DetNews and the Freep are published together under a joint operating agreement. They are separate editorially but they make joint economic decisions.

The News was once the largest afternoon paper. It lost share first as the world switched to morning papers and then both papers lost share to Michigan's problems.

One question / issue: I've never understood two things about the papers.

1. Why didn't they jump on the internet classified business? Craigslist is free but it offers bare bones functionality for users. I'm reminded of Ebay - have you ever used their hideous search function, only to get a multi-page list of stuff you don't want? They had an opportunity to develop technology and share it in the industry but they didn't.

2. Why are papers free for local access? I read the Detroit papers every day but I live 1,000 miles away and would not subscribe to the physical paper. Why don't papers charge some small amount for local users? Those are the ones who are substituting free online for paid hard copy.

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Jim Mack

I'm a long-time subscriber (to the Freep and the NYT), and on the face of it this seems ridiculous. Not enough readers? I know! Let's not deliver!

Nothing I've seen suggests that their online ad revenue comes close to matching their print ad revenue. Maybe there are no good answers and this is just the canary that signals the slow demise of all local papers.

As soon as they inform me that they're cutting my delivery back, I'm telling them to cut it all the way back. One reason I've kept it up is a desire to see the print edition survive. But there are two sides to that bargain, and they just reneged.

When we get to the point that a print reader is considered a liability, it's time to shut the doors.

tom

This all could be predicted when the internet was born. Historically, the only reason to print news on paper is because that was the best way to distribute the written word. Now we have a new delivery technology (the internet) that is way more efficient in distributing the news.

Eventually most news organizations will not be distributing the news in physical form. At some point the "papers" will have to decide if their news is worth anything, and charge readers or internet providers for access.

I think the major papers should form a consortium and charge a monthly fee for access. Otherwise, there may not be any news left to read.

Bobby G

Season 5 of the Wire!

(But everyone should start from Season 1, you won't regret it).

Dan

For the record, DetNews and Freep are still printing Tuesday and Thursday editions, they just won't be delivering them except to news stands and vending machines.

Sounds like an opportunity for some freelance delivery services.

Eric M. Jones

"It's the Internet, Dad!"

Not quite...it's the digital computer chip. I am wearing clothing bought on the internet. When I have parts made, it's CAD emailed to MFG.com. Bought all my Xmas presents on Ecost , Buy.com, Amazon, and Tiger Direct. Found my Jeep online. Never walk into a bank. Pay all my bills online. Use a digital camera, and a digital cell phone. Ship packages with my email postage account. Buy tickets online. I buy gas for the Jeep and food for me, but that's about it as far as shopping.

So at the start of the digital revolution, who would have thought that in a few decades, almost all science, medicine, business and entertainment, imaging, astronomy, our social lives, communication, writing, TV transmission, education, landing airplane and buying shoes through Zappos would fall to the computer chip?

Amazing. If one can write an algorithm for doing something, it's now done easier and better by computer. Making the newspapers more relevant and better quality is like making carbon fiber buggy whips. Sorry.

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Ruth

Advertising rates in newspapers are relatively high. Online advertising rates are low, and advertising results online are more measurable (counting clicks, for instance), so readers who avoid ads don't contribute to payment for news-gathering.

Advertisers look for lower costs, just like their customers do, so downward pressure continues on advertising rates.

Newspaper printing and production is expensive, but newspaper management has refused to invest in staff delivery technology to control delivery quality. (For instance, carriers have to buy the plastic bags newspapers are delivered in. Also, carriers are independent contractors, so they can't be disciplined, only fired.)

Newspaper consolidation has produced unmanageable debt instead of efficiencies.

Most newspapers have not found out how to engage in effective give-and-take with readers through the Internet.

The Associated Press and newspapers in general have not found a way to earn appropriate licensing fees from search engines, so Google continues to make money by searching information databases it does not pay to support, while accreting advertising revenue that at one time would have supported the newsgathering process.

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Mike

Except in this case it is the little guy getting the big guys $$$

DJH

The reality is that a number of things have factored into this. One of those factors is the Internet -- but it is not the "only" factor.

1. Advertising: Newspaper advertising remains expensive relative to other kinds of advertising. The Internet is one of these competing ad venues, to be sure, but broadcasting is another. With the rise of cable television and cable companies selling targeted ads to small groups of subscribers, it has become cheaper than ever to advertise this way. Cooperatives also allow businesses to buy broadcast-TV and radio advertising, again more cheaply than had been possible in the past. Newspapers -- probably due to cost constraints -- have simply not been able to compete by lowering ad prices.

2. Subscribers: People are definitely less reliant on physical newspapers, and here again the Internet is a player ... but it is only one of several. In many markets, broadcast news has also stepped up from what it once was, and many are getting their local news that way. In TV, decades ago most stations had only 30 minutes of local news around dinnertime and another 30 minutes at night; but now, they have local news early in the morning, too, and an hour or 90 minutes at dinnertime. On radio, there are many more "news stations" than there were in the early 80s, most of them broadcasting local news on the half-hour, round-the-clock. Newspapers once were the primary sources for local news,but this is no longer true.

3. Timeliness: A morning paper, for example, cannot convey news that's breaking at, say, 2 in the afternoon. But the Internet -- and broadcast outlets -- can. On this point, physical newspapers are not merely facing added competition, they literally cannot compete (unless they go back to the old days of printing "extra editions," which is not likely).

Note that among all of these, the Internet is not the only factor hindering newspapers. It may be a big one -- perhaps the biggest -- but it's not the only one. Blaming the Internet for newspapers' problems, therefore, is an oversimplification.

Given all of the above, newspapers have tried to amend their offerings so as to compete. Mostly they've done this in two ways: First, in some cases by partnering with a broadcast outlet, and second, by operating Web sites. Some of these efforts have succeeded, but across the industry, they haven't been enough.

Given that these efforts have been tried and proven insufficient in many quarters, I'm not sure what can be done to save the newspaper industry. It does appear to me that, in many cases, papers have worried too much about the Internet and not enough about broadcast competition. It may be that intensified efforts to partner with broadcast outlets may open some opportunities, but I'm not sure that will even be enough; the Tribune company, for example, owns newspapers and broadcast outlets in most of its markets, and has not managed yet to overcome the problems with print newspaper.

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Clyde

Wow. These Comments miss the point.
First: I own several brooms--and several vacuum cleaners. People actually need brooms less, because the streets are cleaner.
Second: in 1922, my father delivered about 20 papers up the street on the way home from school. He was paid---get this: 2? per paper! UNBELEIVABLE ! My son was delivering papers five years ago, and he got 3.5? per paper. WHAT A HUGE DIFFERENCE ! My son had to deliver 45 papers--and still made no money.
NOW: In the 1920s, our local paper, the Mt.Vernon News, looked like the New York Times. Today, the Mt. Vernon News looks like a rag-tag, 12 page version of USA today. Almost no news. Almost no editorials.
SECOND: Every Week, I get a HUGE, FREE classified ad paper thrown on my driveway because they can't put it in my mailbox.
THIRD: Back when the Wall St Journal was clawing its way into respectibility in the 70s, it had only one section.
NOW: Will someone explain to me why papers are losing money? We get four newspapers--and two are HUGE and one is free and delivered involuntarily. Our old newspaper stack is HUGE. Where is this paperless society?
OH--And did I mention the magazines? Like LLBEAN and Victoria's Secret and so forth. Who said that paper was no good?
Our house receives 2 lbs of paper a day in the form of papers, magazines, and catalogues. FAR MORE than my parent received and way, way more than my grandparents received in the '20s.
Don't tell me that paper is dead. The people peddling it are brain-dead.

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Kevin

This reminds me of something that happened to me just last month. I am 25 years old, and I moved out of my parents' house earlier this year. I was at my parents' house for Thanksgiving, and since the football games that day were awful, I was looking at the guide on the digital cable to see what else was on. My dad offers me the paper tv guide, which I turn down. He asks me if there are any channels on the digital guide that I would watch that aren't on the paper guide. I hesitantly answer yes, and he looks at me as if I were speaking a different language. This told me that we really come from different generations that look at modern technology in very different ways, and that paper tv guides will probably go extinct in the near future.

steven

someone said "declining add revenues, not the internet". (its still the internet) add revenues are declining because of the internet making print ads less attractive.

btw, this phenomena is known as the innovator's delema. its a concept that has existed for eternity.