As the newspaper industry is unraveling at frightening speed, something is emerging on the pure player front, something that could (I’m being cautious) lead to the seeds of a business model.
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But, before going any further, I want to make sure readers of the Monday Note have fully abandoned all hope for any turnaround whatsoever in newspaper business. Let’s face it: our beloved trade is spiraling down. We’ll see many fatalities and, of course, a few survivors. Latest headlines: The Miami Herald (good regional paper, solid journalism with 19 Pulitzer Prizes, strong readership) is said to be for sale by its owner, the McClatchy Company, the third-largest newspaper publisher in the US. With a $2bn debt load and a market cap down by 97% since 2005, McClatchy has no choice but to unload its most precious asset (one that is still making little money, btw). E.W. Scripps has put another big regional paper on the block: The Rocky Mountain News ($11m loss in 9 months). For these two good papers: no bidder in sight..
Overall, ad sales for US newspapers are bound to plunge by 15%-20% this year. The drop accelerates in the last two quarters of 2008. This is the unavoidable consequence of the deterioration of the American economy: 1.9m jobs destroyed since the beginning of the year, including 1.2m in the last three months alone. The unemployment rate now reaches 6.7%, but the picture is much worse if “hidden unemployment” is taken into account. The number of “discouraged” people, individuals who gave up their search for a job climbed by 17% on yearly basis, and those who declare working less than they want rose by a stunning 62.2%. Including both categories, the jobless rate is now 12.5%.
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Even more worrisome are the historical references used to contextualize these gloomy figures: “worse single month drop in jobs since 1974″; “likelihood of the biggest recession since WWII (comparable to the 1982′s when GDP contracted by 2% over the year)”; “the largest decline in consumer confidence since its tracking began in the 50′s”.France is likely to be spared by this crisis, at least by the perception of it. Call it the Chernobyl cloud syndrome. Back in 1986, when the explosion of an Ukranian nuclear reactor spread a vast radioactive cloud all over Europe, France was told by its government it had miraculously escaped the toxic cloud. See: according to our map, the polluting cloud stopped right at the border with Germany. Today, in similar fashion, we appear still in denial of the upcoming 2009 recession (even though Nicolas Sarkozy outlined a €26bn stimulus package).  Echoing this is the unshakeable confidence of the media industry, it insists the crisis can be weathered in one way or another. Everyone seems to believe that major French papers are definitely “too important to fail” and that Bank X or Y will ultimately throw a lifeline to group Z when it runs out of cash next March (I will come back with names and figures in a few weeks).
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Obviously, with advertising orders vaporizing and copy sales falling, bean counters have switched to realism mode. But harsh measures are nowhere in sight. Ascribe this to the difficulty in making structural adjustments: while it takes three weeks to implement staff reduction in most countries (US, UK, Spain, Scandinavia), doing a “plan social” in France takes six months of legal hassles. And forget decisive and effective measures such as significant, across the board, salary cuts: they take months to negotiate (I hope to be proven wrong, but I doubt it).
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On the subject of drastic measures, please go to the excellent blog “Reflection of a Newsosaur”: in a two-part analysis, Alan Mutter (himself a former editor) outlines all the contingency plans American newspaper are undertaking. Worth to read, or to show to the next happy-go-lucky union representative you have in front of you.
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I’ll stop here. Let’s have a glass of California Merlot, Nordic Aquavit, Australian Chardonnay, or French Sancerre (depending on where you while reading this…). Let’s look at the bright side: the evolution of the Internet business model in light of recent events involving three news outlets: the NY Times Digital, Politico, and the Huffington Post.
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The NY Times rolled-out last week a great feature called Times Extra. In a nutshell, it allows the integration of outside links for every subject displayed on the home page of the New York Times website. The links are presented in green and you can scroll down (and switch the new feature off if you don’t like it). The system is powered by Blogrunner, a straightforward news aggregator (owned by the Times) that crawls more than 10,000 sources and ranks them based on popularity.
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[Just an quick detour]: the funny thing is that Techmeme, a remarkable news “aggrefilter” (the expression is from Cnet’s Dan Farber), just announced it was hiring a human editor to supplement its algorithm-based retrieval system. Techmeme will pick a former Wired.com editor (read Techmeme’s creator Gabe Riviera’s funny post on why “Automated news doesn’t quite work”).
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Coming back to the Times Extra, here is why it is relevant:
1) From the reader’s standpoint: this feature enhances the panoramic view of a news items by integrating trusted sources, at least ones approved by the NY Times, from the competition or from quality blogs.
2) From the publisher’s standpoint, especially the small but serious ones: it helps hundreds of them rise from the depths of cyberspace.
3) In an era of interconnected information, this is exactly what a modern and self-assured news organization should be: selective, open, not afraid of linking a piece of news to a competitor, simply because it is relevant and newsworthy.
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Second good news: the deal announced last week by Politico. This excellent political site has allied itself with 100 news organizations, including 67 newspapers, in the Politico Network (see the members map here). Here is an example of how it works: the site of a local radio station publishes Politico’s coverage of Congress and of the new administration – for free. In exchange, Politico places an ad on the station’s site. Ad revenue is split between the two according to a formula using the volume of Politico material actually used (see story in Editor & Publisher).
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Smart concept indeed: with a hundred sites inventories to sell, Politico Network suddenly becomes way more credible in its discussions with media buying agencies. Its content gets much more audience in areas it could not reach by itself. Financial performance will be interesting to follow. (By the way: such a deal would be unworkable in France because journalists are legally entitled to be paid for every piece of news published by any third party site. That’s the copyright law, which overrules the employment contract).
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The final encouraging news of the week involves the Huffington Post (see previous Monday Note for story on “superblogs“). Last week, “HuffPo” disclosed it had raised a whopping $25m from the venture capital firm Oak Investment Partners. (Read the story in All Things Digital). This gives the Huffington Post a post-money valuation close to $100m. Not bad for a pure player with a relatively modest 4.5m unique visitors a month.
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The Oak investment is good news since it represents a genuine validation of the pure player business model by the venture capitalist community. VCs do take risks, calculated ones. They invest based on due diligence, including thorough market research. No gambling here: analysis precedes action. The deal holds up hope for Internet media outlets with significant audiences and professional management but insufficient capital.
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The Internet economy is moving in the right direction: The HuffPo financing, the Times Extra initiatives and the advent of the Politico Network all provide evidence of such progress. Similar news organizations are bound to find sustainable business models. Eventually.  –FF
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