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JULY 4, 2005
Net To Newspapers: Drop Dead Newspapers are cockroaches. No matter what is introduced into the media ecosystem, the oldest of the Big Media survives. Despite decades of doomsayers, newspapers prospered through radio, through TV and cable, through video games, through the Internet.... Not so fast. Suddenly, even sober Wall Street analysts think something new is afoot. What looms now "is different from all other threats," says Lauren Rich Fine (no relation), a Merrill Lynch & Co. (MER ) analyst who has covered the industry since the 1980s. Consumers are shifting decisively to online information, says Fine, especially the young, and are no longer yoked to the local newspaper. "Ads are following the eyeballs to where they make transactional decisions." Fine recently forecast that newspapers' profit margins are set to enter a long period of decline. The new and troubling reality for newspapers is that even if they excel as purveyors of information to appreciative audiences, they still face tough business terrain. "They can try to be the destination where you go online and [can] be really successful with citizen journalism and blogs," says Fine. But such innovations are "not going to pay a lot of bills." Newspaper execs are groping for some killer app, but nothing has yet taken hold. Charging for online content works for The Wall Street Journal, where Web-only subscriptions cost $79 -- still far below the $215 print subscription -- but no other brand-name newspaper dares to follow. The New York Times will charge Web users to read its columnists' prose later this year, but the Los Angeles Times just lifted the fee for its arts listings site, calendarlive.com. Washington Post Co. (WPO ) Chairman Donald E. Graham has said he won't charge for washingtonpost.com. INTERNET DAMAGE WAS QUANTIFIED in an April McKinsey & Co. report on online classified ads that bluntly talked about "price destruction." The Internet's effect on help-wanted classifieds, the study found, cost newspapers $1.9 billion in revenue between 1996 and 2004. And classified-ad categories like real estate and automotive may not be exempt from such trends, the report warned. (The report is "a very shallow and superficial effort," says P. Anthony Ridder, chairman and chief executive of Knight Ridder Inc. and a past chairman of the Newspaper Association of America, which commissioned the study.) Newspapers have been hurt by the quiet march of free (or low-cost) classifieds on craigslist.org, which now serves more than 100 U.S. regions and 33 countries and logs more than 2.5 billion page views a month. Further pressure may be discerned in analysts' studies showing recent increases in discounted newspaper subscriptions. This coincided roughly with widespread broad-band adoption, enabling painless perusal of endless free content. And it has occurred alongside the advent of free dailies from the likes of Sweden's Metro International (MTOAF ) and Knight Ridder, which in February bought five free dailies in California. Companies like Knight Ridder and Tribune Co (TRB ). have also moved aggressively into low-cost and free classifieds online. But holding share via ultra-low prices means, in bottom-line terms, that "you lose for winning," says Fine, substituting lower-margin for higher-margin business. Knight Ridder exec Hilary A. Schneider disputes the lower-margin claim, pointing to successes with online and offline classified packages. But that doesn't convince. Given the Internet's vast, almost infinite, expanse, scarcity will never drive ad pricing online. "There's just so much inventory out there," says Deutsche Bank analyst Paul Ginocchio. No medium disappears quickly, and it will be a while before rusting newspaper boxes creak vacantly in the breeze. Newspaper companies now pursue digital deals. Recently, Gannett (GCI ) acquired online ad tech provider PointRoll, and E.W. Scripps (SSP ) snagged comparison shopping service Shopzilla. Diversifying means snapping up Web outfits -- and therein lies an unpleasant reminder. Newspapers are cockroaches. But the Net's starting to resemble Black Flag.  By Jon Fine Get BusinessWeek directly on your desktop with our RSS feeds.  Add BusinessWeek news to your Web site with our headline feed. Click to buy an e-print or reprint of a BusinessWeek or BusinessWeek Online story or video. To subscribe online to BusinessWeek magazine, please click here. Learn more, go to the BusinessWeekOnline home page  | | |
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