Newspaper managers marking time to Gold Rolex?

Outfit previously called 'newspaper' 

needs to transition fast or be buried

Old business model was license to print money

Newspapers rode the wave of annual demographic growth, rising literacy and consumer affluence for 200 years. Since WWII the explosion of advertising in the USA made the metropolitan newspapers rely heavily on advertisers for revenues. That was replicated in other developed and developing markets.

Publishers discovered that under-pricing copy sales boosted circulation growth and magnified advertising income.

Circulation increase became a key metric to leverage advertising rates. It generated disproportionate advertising revenue leverage against the cost of the copy sales growth. This was a bonanza that allowed newspapers net profit margins of 20-25% for decades.

It was too good to last. The Internet disrupted the paid news model and severed generational renewal. Losing audience and revenue, print is in terminal decline.

Internet & demographic switch kill the biz model

The demographic engine for metropolitan newspapers died sometime after the mid-90s. Gen Y & Z are “Digital Natives” who rely totally on laptops, smart-phones and tablet screens to receive news alerts FREE.

There is no renewal of youth readership in print. The ageing profiles of existing newspaper readers are unattractive to brands looking for next generation shoppers.

Advertisers and their agencies are squeezing newspapers for heavy discounts while they divert budgets to digital channels and social media to reach youth.

Today’s youth have to be met through their preferred media, which is not print. Mobile, Online and Social Media platforms are the challenge for 21C marketing.

Press responds with desperate measures (all fail)

Desperate newspaper publishers shifted focus from serious issue-driven journalism to crime, sex and celebrity gossip. Voyeuristic gratification became the publishing mission.

Capsule reporting and racy tabloid formats were designed to cater to distracted youth and time-impoverished middle-class professionals. That gained ‘flip-through, throw-away’ interest which did not impress brands. They were shy of sharing that content environment.

FREE tabloids were distributed on trains, buses and at shopping malls in the hope that copies sprayed liberally would attract advertising revenues sufficient for survival.

The youth spend their time on digital and mobile platforms. The professionals have little time to sit with newspapers but ample digital access to news of all categories.

Eager advertisers are chasing both groups through Cyberspace in continuing experimentation of methods, formats and channels. Generic press does not figure in their calculations of future marketing.

Quality press brands enjoy residual commercial support as they still wield influence over national politics and corporate business. Margins are thin and getting thinner. Staff lay-offs have reached their limit. There is little room left for internal cost reduction. There is no revenue growth. Ageing readers are going blind and dying literally.

FREE tabloids are struggling to keep their noses above water. Advertising rates are low and in many cases uneconomic. Publishers can live on hope and hype for only so long.

The days of 25% net profit margins are gone. The dominant concern is survival.

What options for newspapers beyond print?

Newspapers are a medium of broad reach for which advertisers are charged 100% even when a specific marketing target comprises only 15% of that reach - potential buyers for BMW cars or holidaymakers to New Zealand for example. That is unsustainable.

Online, mobile and social media platforms allow for targeting, connecting and interacting with individuals who fit specific target definitions. Advertisers are looking for ‘engagement’. Brands want to dialogue and sustain a lifetime relationship.

Strong newspapers enjoy incredibly powerful brand equity compared to other businesses. That strength can be multiplied through online, mobile and social networks to serve appropriate content, connect communities and facilitate access to searchable archives.

Content created with deep domain expertise has inherent value to communities. They will pay for useful information, convenience and access ‘on-the-go’. That re-defines the value of content beyond news and advertising dependency.

It requires database-driven, content-format-technology-channel-organization structure alignments to converge and connect consumers seamlessly across a range of personal devices.

Digital channels are opportunities to project the powerful print brand into all networks and platforms in Cyberspace. It enables entirely new revenue opportunities for different kinds of service. Content is the glue which holds communities of interest. Services that enhance community experience can be built and grown around that central idea.

The organization previously called ‘newspaper’, needs to nurture and facilitate multiple community touch-points. It is anchored in content but creates value well beyond it.

Is it prudent to re-shape the existing business structure and model? Or replace it altogether? Can the transition be managed without fatal dislocation? Can the managers and staff cope with such radical change? How can successful transitioning be mapped?

ENDS

Why did Murdoch focus so much on his press assets?

Newspapers yield only 13 percent of News Corp operating income

Stock analysts and investors of News Corporation are dismayed at Rupert Murdoch’s obsession with newspapers. Many feel the chairman wastes his energies on ‘old media’ instead of focusing on the much larger cable and movie businesses.

Newspapers contributed 13% of News Corp operating income for 2010. Press contribution has been in straight line decline over the past 10 years. News International (the UK newspaper subsidiary) in fact lost US$126 million in the financial year ending June 2010.

The bean-counters fail to realize that it is the power of press which gained Murdoch such unprecedented, undetected and disproportionate influence on governments – to skate over cross-media ownership and fair competition legislation – away from public scrutiny. He applied that formula with stealth in Australia, UK and the USA to build News Corporation over four decades.

He is at his best in closed rooms to parley power and seal deals. When David Cameron took office at 10 Downing Street, Mr Murdoch was asked to come incognito through the back door. Neither man thought that untoward for the shadowy agenda they needed to brainstorm.

The biggest coup of all

Murdoch was about to deliver his biggest coup of all – full control of BSkyB, the most profitable cash-cow News Corporation did not fully own – the same month in which, awkwardly, the News of the World (NoW) became the enemy of the people. It was shut down with indecent haste by James Murdoch.

The shock disclosure in early July by The Guardian, of the hacking into murdered 13-year old Millie Dowler’s voicemails outraged the British working class and awoke Parliament, forcing the Prime Minister to urge News Corp to dock its bid for BSkyB.

Enquiry? Ha, fooled the buggers again!

Jeremy Hunt the Secretary for Culture, Olympics, Media and Sport had already given ‘provisional approval’ in March and was poised to sign-off on the BSkyB deal after clearance by Ofcom, the communications regulator: “We make sure that people in the UK get the best from their communications services and are protected from scams and sharp practices, while ensuring that competition can thrive.”

It was Ofcom’s mandate to assess if media plurality would be compromised and whether News Corp was a ‘fit and proper’ entity to hold a TV broadcasting license.

Even as the Murdochs were summoned to the Parliamentary Committee hearing, Mr Hunt was declaring that the News of the World probe is a separate matter which will “have no bearing” on his decision. Murdoch was that close before all hell broke. 

News Corp owns 39% of BSkyB. Murdoch offered US$12.6 billion for the 61% it did not own. Compared to the 37% revenue growth at News Corp’s other properties 2006-2010, BSkyB revenues surged 54%. In the last three current quarters alone, BSkyB gushed US$1 billion in cash-flow.

In 2010 the 39% of BSkyB contributed US$354 million or 14% of News Corp’s US$2.5 billion net income. If News Corp had fully acquired BSkyB, Enders Analysis (a research service on media, entertainment & telco industries in Europe) estimates it would have accounted for 25% of annual revenues and near 30% of operating income. That was the significance of the grand prize Murdoch was stalking.

Gut the BBC too while lobbying for full control of BSkyB

Rupert could persuade the Prime Minister to allow him to skate smoothly over the maze of cross-media ownership regulations and fair-competition criteria. He was already dominant in newspapers and pay-TV. While at it, he also waged a nasty, noisy campaign to have the BBC neutered from commercial competition.

Rupert primed David Cameron to cut it down to size

It helped that Fox News’ rabid right wing spin gelled with the Conservatives’ distaste for the “Marxists and left-liberals” they believed the BBC harboured. David Cameron wasted no time cutting the public broadcaster down to size.

At a press conference 29 Oct 2010 in Brussels, David Cameron relished the ‘delicious’ prospect of budget cuts at the BBC: “…deliciously, the BBC in another negotiation, agreed a license fee freeze for six years.” 

Reporting on that press conference, The Telegraph observed: “…from Mr Cameron’s expression and manner it is fair to suggest that he takes a certain pleasure in both the BBC’s financial discomfort and in taunting its staff about it.”

Ongoing investigations into the NoW scandal reveal that, apart from the PM himself, senior cabinet members of the Conservative government met with News International executives on average “once every three days” since the May 2010 General Election. George Osborne (Chancellor) and Michael Gove (Education Secretary) had each logged more than 12 meetings. That is a measure of the clout Mr Murdoch swung in the corridors of power.

Until the revelation of hacking into Millie Dowler’s voicemails, all the other routine tabloid privacy abuses did not provoke mass resentment. The targets of the hacking were mostly businessmen, politicians, footballers and celebrities.

The working class had little concern for them. Being confined below the decks of wealth and ostentation, they took delight in seeing the rich and famous shamed and tossed overboard. Murdoch tabloid press fed the working class craving for vicarious revenge better than his rivals.

The Millie Dowler case was the misjudged NoW over-reach that Mr Murdoch will regret forever. That may have forced him to finally ditch Rebekah Brooks.

‘Dirty Files’ compromised politicians, police & law enforcement

Unlike other sleaze publishers, Murdoch went one step further – his hackers dug the dirt on key politicians and police chiefs – not always to be published but to selectively confront the victims to compel ‘co-operation’. Politicians of all stripes were terrorized, law enforcement agencies de-fanged and co-opted into the NoW scheme.

News International was generous with cash for street cops, arranged highly paid ‘editorial columns’ for ex-police officers, plush PR jobs for ex-journalists at the Met, the PM’s communications czar role for an ‘outed’ editor and invitations to society events for judges. It was a jolly circus of swagmen with Rupert as ringmaster.

The corrupt web News International was able to weave between editors, police and politicians made a mockery of much vaunted and trusted British public institutions.

Murdoch is not the first power broker to use ‘dirty files’ on people perceived to be threats or who could be ‘turned’. Both Lee Kuan Yew and Dr Mahathir in their day were ruthless and unabashed master practitioners of this grim trade. Murdoch deployed slimy private detectives to the same effect – except he did not moralize about it. It was just business.

In a sense Murdoch was even more dangerous because he was unelected and invisible in the best traditions of La Cosa Nostra.

British politicians no longer fear Murdoch. What next for News Corp?

The unwinding NoW scandal has already cost News Corp its BSkyB bid for full control (which triggered a US$63 million ‘breakup fee’ to BSkyB), closure of the168 year old tabloid, resignation of two senior executives and arrest of 12 other people.

Mr Murdoch’s News Corp board of mates did not embarrass him about the corporate shambles and international opprobrium at their 9^th August meeting at Fox Studios. Indeed he declared the board wanted him to continue as chairman and CEO.

However Rupert endorsed Chase Carey as his able deputy to take over (“If I went under a bus”) without making a play for James to be advanced. He did not elevate his daughter Elisabeth to a board seat. These are major concessions for a proud family man used to getting what he wants, regardless. It is a sad turning point for the king who ruled a US$60 billion public company for four decades like a family fiefdom.

His British tabloids have been discredited and are not much use for political leverage anymore. As a business they are insignificant within the News Corp canvas. Some shareholders are calling for divestment and exit from the newspaper sector.

As a backroom political manipulator Rupert is finished after the humiliating public inquiry in London. Without that magic power over politicians, there is no need for News Corp shareholders to indulge its 80-year old chairman or his children.

Calls for proper corporate governance will nudge him to let go several of his cronies posing as ‘independent’ directors. (News Corp satisfies all regulatory requirements for independent director appointments on paper).

There is mounting pressure to correct the dual class share mechanism which allows the 12% family shareholding to leverage 40% voting power.

Chances are high that News Corp will eventually disintegrate into separate businesses by region and sector after Rupert. Will his children succeed him? Till a month ago that would not even be a question. Post the NoW mess, activist shareholders are pushing for competent professional management and strict integrity in business practices.

What about the numerous ongoing investigations into NoW?

No handcuffs: The Establishment looks after its own

At last count, no less than fifteen separate probes are underway between the Met, Parliamentary committees and other regulatory bodies. There will be much public theatre, pontification and preening by parliamentarians. Some minions will take a fall to satisfy the public mood for punitive justice. 


Rupert is practiced at buying silence. He is unlikely to see the inside of a jail. That is not the way the British establishment deals with its white-collar deviants.

ENDS                                                   

CP/12-08-2011