Newspapers' Traditional Strengths Continue to Erode

Implications: Newspapers are facing more declines in readership and advertising.  Online gains are not making up the losses.  Costs are too high.  And continued cost-cutting makes newspapers less appealing for readers and advertisers.

Analysis: The traditional strengths of newspapers have been rooted in delivering a trusted, relevant and useful source of news to readers and a  highly-involved, geographically targeted audience to advertisers.

There weren't too many games in town.  Advertisers -- from the local classified seller to the national brand -- could tell very quickly if the ad worked.  If it did, they ran more.  If it didn't, they tried a new approach.

However, as the game shifted online, and more and more players entered it -- bloggers, news aggregators, Craigslist, national news brands, local TV stations, etc. etc. -- newspapers were too slow to change and recognize that, for a whole new generation of readers, newspapers, as a format at least, didn't matter.

For too long, "online" was given a free ride within the newspaper, viewed as an incremental revenue stream, not carrying its proper allocation of costs. 

Meanwhile, we have entered an age where editorial, production, sales, marketing and distribution costs for a print newspaper can no longer be carried indefinitely by circulation and advertising revenue.  Without a significant contribution from online, the business models for most newspapers are out of line with the new realities.  Yet online is still, on average, contributing only 7% of an average newspaper's revenues.

Today. most readers don't need printed newspapers for local weather, sports, business, politics and general interest news.  Anyone under 40 with a broadband connection has been trained to get what they need, when they want, either on their PC or directly to their mobile device.

In 2007, newspapers lost ground in every way. Classified and display ad sales slumped.  Circulations declined.  Investment in staff and product was cut.  And newspapers lost ground on the web to pretty much everyone else -- especially the national and local TV news providers.

Things don't look a lot better in 2008. 

Dow Jones, now part of NewsCorp, may succeed best, injecting energy into the national news category, and extending The Wall Street Journal brand globally and across platforms.

Gannett and USA Today in particular may benefit in a perception among advertisers that there's still life in the national newspaper category.  Gannett has an opportunity to do even more online to make its local papers and national USA Today content work well together - and cement USA Today as the preferred (and familiar) newspaper for business and leisure travelers when they find themselves away from their hometown routine.

The New York Times will see its national circulation challenged, but conversely will succeed better than most online.  Web traffic has jumped substantially since Times Select went free.

Tribune Company under Sam Zell's leadership is announcing new layoffs amid continued advertising weakness.  It seems that the "new sheriff" hasn't arrived in town with any ready-made solutions for the newspaper business to learn from.

The national economy will likely to put pressure on everyone else too.  Classified advertising in real estate, help wanted and automotive has declined and migrated to the web.  This is the case of a cyclical downturn accelerating the secular trend.  Newspapers shouldn't sit around and wait for the economy to rebound and Classified ads to come back.

The problems they face are far, far bigger than that.