Newspapers should follow the dollars

Posted by David Richards on May 28, 2009, 1:20 PM EDT

Business-customers: low penetration and high direct revenue

Newspaper publishers have always had to carefully balance the interest of two customer segments, readers and advertisers. The hometown Daily Bugle needs significant numbers of each for their business model to work. Both are "antes", if you will, if you want to be in the game.  While some might argue they're of equal importance, they have not historically been treated as such. IMHO Publishers most commonly put readers "first amongst equals".  And for some pretty good reasons; there is that community watchdog role and 1'st Amendment thing, and without eyeballs there's little to sell to advertisers. Having myself overseen an ad deparment way back when, I realized the goose that laid the golden egg was in the care of the Executive Editor; if his team failed, so did I. And while I thought most Executive Editors had no appreciation for business realities -- as I've gotten older, I think I was right -- as long as they delivered the content that drove circulation, that created ad availability, it didn't really matter what I thought.  My advertisers might be second-class-customer-citizens, but the model worked.

The Reality That Arose:

One of the interesting economic and business realities that arose is captured in the following simple table:

What's interesting about this?  Well, if you didn't know anything about the industry that these numbers describe, and if you're looking at the figures with an eye toward creating new growth opportunities, most strategists would point to customer category A (Advertisers) as the better place to look for innovation.  Why?  Advertisers account for 80% of the direct revenue, yet there's only 10% penetration of the local market.  Conversely, newspapers penetrate 40% or so of local households yet they account for only 20% of direct revenue. 

But we know these figures refer to newspapers.  In my opinion, the advertiser-first growth focus is the right lens to conceive of innovation.  It is not, however, what I see the strategy development teams within the industry focusing on.  They are still consumer-first, advertiser-second. Their fundamental position is that newspapers need more AND better targeted eyeballs.  With these they can sell more and better targeted advertising (witness the Yahoo partnership). This approach can gain incrementally.  However, this will not bring about dramatic growth if only because the consumer-first strategy goes head to head with struggling little firms like Google.  Ugh.

The easier route to growth, revenue and innovation I believe is on the advertiser side of the equation.  First, however we need to drop the term "advertiser".  Instead, we need to simply consider them local businesses in need of help.  Advertising is a piece of their needs.  More broadly it's about helping them "acquire, retain and service" their customers. If we look at the world from that lens, there are an almost unlimited number of new products and services we can offer them.  More on that in another blog.