Wednesday, May 14, 2008

Looking across the burning bridge

A recent trip back to Anchorage got me thinking about how I left my hometown in 1995, headed to Sacramento for a new job with the improbable (and admittedly pretentious) title of “assistant to the president for new media strategies.”

I was sure there was a big digital revolution brewing our business, and I desperately wanted to be part of it.
Like most folks who thought about such things back then, my anxiety for the news business centered on the notion of “disaggregation” – the worry that audiences wouldn’t need us any more to get at the information they wanted and needed. With nearly unlimited access to nearly anything, 24 hours a day, would people want newspaper content, and the editing, sorting and filtering we provide?

Now, in the midst of a bigger challenge and transition than I ever imagined, I realize I had that all wrong.
We’ve done a great job on the content side of the equation. Unique visitors to McClatchy websites grew by 25% last year; for the first quarter of 2008 it was even better, more than 40%; about 26 million different people visit our sites each month, according to Omniture measurements. Even in a world with astonishing content available everywhere online, we’ve demonstrated that we can create local news websites and related ventures that draw growing audiences – and we’re getting better at it.

The big challenge is one I didn’t much consider back in 1995: what really got disaggregated was audience and revenue. It works a little like this: People still like the content we produce and assemble, but when they’re done reading our site they go to Google and type in “Maui condos” instead of looking at the ads in our travel section. Google’s frictionless, astonishingly efficient AdSense serves up ads in relation to those searches and rakes in money.

Not all the money, mind you. Newspaper advertising – about $45 billion a year – is still bigger than Google and Yahoo revenue combined. But our ad revenue is declining rapidly, and our cost structures – which grew up in an era of monopoly pricing and deal with moving around tons of paper and ink – don’t stack up well against margins at the digital-only players. Our own online revenue performance, while improving dramatically, isn’t where it needs to be.

That gap between audience and revenue, between costs at our traditional ink-and-paper business and pure digital companies, defines the pain newspaper companies feel today. It isn’t permanent, no matter what the digital triumphalists proclaim; print revenue is falling, but not falling to zero. Our online revenue isn’t a one-to-one replacement for lost newsprint profits, but it doesn’t need to be. There's a healthy, sustainable business at the intersection of those two: a hybrid news and advertising company that creates and sells content on multiple platforms, mainly print and online.

Because we now have competition we didn't have to face before, our share of both audience and advertising will shrink. Eventually, thanks to the same technologies that fuel that competition, so will our expenses. Meanwhile, we'll discover and prosper from opportunities, as well: being back in the breaking news business, delivering video, targeting information for specific audiences, convening and enabling community conversations, delivering easy access to vast databases of information.

We're at the most painful and awkward juncture of that transition right now. There's a promising future across the bridge, but we have to get from here to there – and the bridge is burning. Mark Zieman in KC likes to quote the mid-century American poet who wrote, "Time is the school in which we learn / Time is the fire in which we burn," and that's never been more true.

Layered on top of structural changes (new competition, new platforms, new audience expectations), we're also suffering painfully from a national economic downturn that hits newspapers in the breadbasket: employment, real estate, auto and general retail advertising. McClatchy gets to bleed extra, since we have big properties in Florida and California, where real estate woes are much worse than elsewhere.

Well, so be it. We can't control the national economy or the transformation of the news and information world. We can get better at what we do, and tune our operations to match the challenges and new demands – and we are.

As I said earlier, our success in growing audiences is a bedrock accomplishment that is the foundation of everything else we're doing. Audience growth has always been the best predictor of success for media companies, and it still is.

We do have to improve revenue performance to match, and there are major initiatives in play across McClatchy to do so. This obviously isn't my area of expertise, but I know that staffing, training, compensation and incentives for sales are top priorities.

And, finally, we have to adjust expenses to reflect the new revenue realities – an unavoidable, continuing process that must be done right for any of this to work. McClatchy employees are living this reality every day.

We do all this because our mission matters. We're a public service journalism company; if we don't produce public service journalism (defined here, bottom of the post) there's no real reason for there to be a McClatchy Company. That requires finding a stable, sustainable and successful place in the marketplace. 


Anonymous said...

Newspaper advertising – about $45 billion a year – is still bigger than Google and Yahoo revenue combined.

"Newspaper" is an industry. "Google" and "Yahoo" are single companies. Did you really mean to compare the revenue of an entire industry against that of two companies?

I'd like to see "newsprint" industry numbers versus "all online information companies" -- consciously including the revenue from newspaper web ventures in the online category -- I suspect those numbers would be jarringly different.

Anonymous said...

"...but I know that staffing, training, compensation and incentives for sales are top priorities."

Howard, help me out here. Does the prepositional phrase "for sales" modify just "incentives" or does it apply to all of "staffing, training, compensation" thereby limiting their scope to "sales".

Unfortunately my experience - and the experience of anyone reading Romenesko - already leads me to the answer... or at least the reality.

Howard said...

Anonymous 1: So what? This isn't intended to suggest newspaper advertising is bigger than all internet advertising, just to give it a sense of scale. It's not a zero-sum game, either. (P.S. I bet Google + Yahoo = a damned big percentage of all internet revenues, anyhow).

Anonymous 2: It modifies the whole phrase, as you suggest. Staffing, training etc. for newsrooms is certainly diminished as we adjust to new revenue realities. I wish it were not so, but it is. But every dollar of additional revenue we can generate through increased emphasis to sales departments is a dollar less pressure to cut elsewhere; I am a huge fan of investing in sales power.

John Robinson said...

Thanks for posting this, Howard. I sent it to my staff and told them it describes where we are and what I wished I had written.