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Media and Markets Thomas Abraham The newspaper business model: An unequal triangle Advertisers Newspaper revenues- an unequal relationship Newspapers face a double crisis… The vanishing reader Advertising follows readers How paid newspapers responded to falling revenues
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Media and Markets Thomas Abraham
How paid newspapers responded to falling revenues Cutting costs-mainly journalists and news operations
How else have newspapers responded? • If its circulation is falling, what can a newspaper do to increase circulation? • Give it away free…
The free newspaper movement • Contemporary free newspapers began with the Metro in Stockholm, Sweden. Metro International today is the largest publisher of free newspapers in the world • 240 titles in 60 countries worldwide, total circulation of 44 million copies a day. Circulation growing
Free newspapers in Hong Kong • Metro ( 2002) • Headline Daily ( Sing Tao News) 2005 • AM 730 (Centaline Reality) • The Standard ( Sing Tao) 2007 • Headline Daily is the largest circulating newspaper in Hong Kong ( 700,000 copies+) • Paid papers: Oriental Daily News (500,000+) • Apple ( 300,000+)
Strengths • Has expanded the newspaper reading market, and attracted younger readers • Innovations in terms of design and format: the tabloid format will probably the future of newspapers
Weaknesses of the model • Business model based on low cost content, with minimum editorial staff • Based on only one source of revenue- advertising • Content is not deep: no place for in depth reporting or analysis. Short stories reporting events • Focus on entertainment • Weakening traditional newspapers?
For more on free newspapers • http://www.newspaperinnovation.com/ ( A website run by Piet Bakker, a professor in the Netherlands who specialises on free newspapers)
Many news organisations listed and became publicly traded companies in the US in the 1970s and 1980s
What exactly is the problem? • Newspapers continue to make money and remain more profitable than many other business sectors • But investors and stock markets are uncertain about how the news industry is going to continue to grow because of • Falling readership • Migration of advertising to other media
How a highly profitable newspaper group was forced to sell its assets • Knight Ridder, the second largest newspaper group in the United States was in 2006 forced to sell all its newspapers even though they were profitable. Why? • Forced to do so by Bruce S Sherman, a fund manager based in Florida who had bought 19 % of the company’s stock.
Sherman’s problem • Sherman had begun buying Knight Ridder stock in 2000, when it was around $50/share. The share rose until it peaked at $ $80 a share in August 2004. • It then fell to around $60 a share. • Sherman’s average purchase price: $65/share • Sherman’s expected a rate of return on investment around 20-25 percent. He needed to do something.
Why was its share price falling? • The company itself is healthy: in 2004 it made a profit of $ 540 mill, profit margin 18.4%) and in 2005, $ 514.0 mill ( 17.1 %) • Markets look at profit growth: analysts did not see a faster rate of growth in profits.
What could Sherman do? • Selling the stock would depress the share price, increasing his losses • The value of the company’s assets was greater than its share price, and therefore selling it would realise a lot of money for Sherman. • He and three other fund managers with stakes in KR persuaded management to find a buyer. • Eventually the McClatchy group bought Knight Ridder newspapers, but has sold several titles.
The demands for ever increasing revenues puts pressure • Editors of newspapers now spend most of their time worrying about increasing circulation, cutting costs, managing budgets, leaving little time to think about the quality of journalism.
Advertising, a second source of conflict • Given that advertisers are the main source of revenue for a newspaper, advertisers sometimes try and ask for privileges like favourable coverage, or no unfavourable coverage in return for advertising. Owners and business managers sometimes ask their journalists to “help” advertisers
The power of owners • Newspaper owners tend to be powerful personalities with large egos. • They are in the media business because it gives them power. • Owners have their pet likes and dislikes, and expect their newspapers to follow their thinking
Corporate ownership has also produced great journalism • Many of the best news organisations in the world are owned by publicly traded corporations: The New York Times, The Washington Post, the Wall Street Journal, to name some • The financial resources at their disposal has allowed them to spend a lot of money on journalism • But they are vulnerable to the vagaries of the market.
Who should journalists work for? • The owners of their news organisations or the public?
An exercise • You have been given enough money to start a news organisation by a wealthy tycoon • He attaches the following conditions: -The organization should promote good, professional journalism and be of service to the public -While he will continue to fund it for the long term he expects a business model that indicates how the organization will at least make enough money to cover its costs within 5 years
He wants your ideas on the following • Should the new organization be a newspaper, TV station, radio station or web site? If a mixture, what kind of mixture? • What strategies do you have to make it financially successful? (Eg. Should it be free, what kind of advertising would you target, what kind of readership, how large a staff)?