The newspaper industry is in big trouble. US Newspaper ad revenues sag to a 25-low in 2010. The classified ad revenues decreased by 92% since the year 2000 to $723 million in 2010. The total US newspaper ad revenue per capita fell from $213 to currently $84. Next to the decreasing ad revenues, more and more customers prefer to read their news online than a physical subscription.
The consequence of this collapse in revenues is a high and even increasing number of bankruptcies in this sector, accompanied by a desperate consolidation phase. Probably the newspaper industry is the one that struggles the most with the ongoing process of digitization.
A radical change in the business model and the integration of several value-creating elements is inevitable in order to survive. In this post, I want to discuss a new value chain for the industry that allows the newspaper publishers to captures additional value (also in terms of revenues) by integrating web-based components, social media and innovative payment methods.
Traditional value chain
Before introducing this enhanced publication process I shortly want to discuss the traditional value chain of the newspaper industry and from there start adding different value creating elements.
The content is produced by writers employed by the newspaper as well as by external journalists. The next step is putting together the different articles and adding classified as well as display ads. After the printing process, they are distributed to subscribers and to occasional buyers through different channels such as kiosks, retail chains, gas stations, etc.
The different shades of the steps show the bargaining power of the corresponding party. In the traditional process the newspaper publisher dominates the market.
New value chain
Content creation
Content in written form is no longer enough. Next to articles, new forms of media have to be introduced, like interactive maps, videos, etc.
Distribution/Aggregation
While distribution was purely offline, nowadays is it essential to combine it with online channels, redefine the target groups and extend the customer reach. Convergence offers great opportunities to distribute the content cross platforms and devices. One example would be a partnership with a telecom operator that wants to extend its offer by a news service. Another possibility is the development of mobile Apps offering customized news feeds. Within those newly established distribution channels, not only own articles can be delivered but also content from third parties.
Retrieving/Storing
While some years ago the only way to maintain the content accessible is to physically store the newspaper, today every news major site possesses a database that allows searching and reading previous articles. Linking these achieves to search engines like Google or Bing, directs additional readers to the site. The offering of past content is an important driver for the traffic of the page and therewith the revenue.
Connecting & Sharing
Next to providing interesting offline and online content, newspapers should offer a platform for its readers to comment and discuss articles. Furthermore, a community for its readers should be built where they can interact with each other about relevant topics. The efficient use of social media tools is a key success factor in this area. Furthermore, it is important to make these platforms accessible through the web as well as through mobile devices. These features are an important element to increase the newspapers’ customer retention. Furthermore, those interactive elements help the sites to increase their ranking in the search engines.
Changes in bargaining power
As shown in the illustration above, the bargaining power in this industry has shifted from the publisher to the consumer. This can be mainly explained with the increased offer of online news sites. While every site has its own core topics, styles and political orientation, the information itself is quite similar throughout the different newspapers. So, it is less the articles that decide about success or failure, rather it is the design, accessibility and additional features.
Revenue model
The enhancement of the business model also offers revenue opportunities. Next to the subscription and pay-per-unit model, a pay-per-article option has to be introduced. New revenue driver can include:
- Fees from partners e.g. in the telecommunication industry for the provision of news
- Feed from 3rd parties for using the newspapers distribution channel
- Fee for reading a previous article saved in the database
Next to those revenue sources, the content can be divided into a free and a premium section. Furthermore, the new distribution channels offer additional revenue potential, for example monthly subscriptions for e-readers as Kindle or Nook. The main new revenue however will probably be generated through banner ads on the websites.
Conclusion
Although there are a number of opportunities that digitization offers, at the current state of the industry, the negative effects outweigh. The two main short to medium-term strategic targets for the companies should be to further reduce costs while trying to develop additional revenue drivers in the digital area. Furthermore, I think we will see a lot of mergers and acquisitions in the near future. On the one side, traditional newspaper will try to increase their digital exposure by buying promising technological advanced firms. On the other hand, decreasing demand for printed newspapers and high synergy potential will drive mergers within the industry.