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The elusive digital news business model

Twenty years ago today, the Rochester Business Journal went daily. Quick as a mouse click, our biggest disadvantage as a print weekly disappeared. With the Internet, if news broke or we uncovered a big story that would not hold until Friday, we could deliver it to readers immediately.

The launch of the RBJ Daily Edition prompted a Xerox Corp. communications officer to write to us: “Your electronic edition has the immediacy of broadcast and the depth of print. It is the model for what tomorrow’s newspaper might someday become. Congrats!”

In June 1996, the Wall Street Journal’s WSJ.com was only 2 months old, and many other newspapers had not even ventured online. (Nor had most Americans—in 1997, fewer than one in five U.S. households had Internet access.) But that changed rapidly. Within a few years, newspaper websites had become ubiquitous.

Belief in the digital future remains nearly universal in the newspaper industry today. “Digital first” is the mantra; Tribune Publishing recently went so far as to rename itself “tronc,” for tribune online publishing—a rebranding that “acknowledges our important evolution as a company and captures the essence of our vision for the future.” (One reaction posted on Twitter: “If I had a pet dinosaur, I’d probably name it #tronc, too.)

One small problem remains, though. It’s what new media researcher H. Iris Chyi calls the inconvenient truth of the newspaper industry: Digital publishing still doesn’t pay. If forced to try, nearly all papers would fail to cover the cost of their current operations with revenues from their digital efforts, let alone turn a profit.

“The vast majority of U.S. newspapers have found no viable business models for any of their digital offerings,” Chyi wrote in “Trial and Error: U.S. Newspapers’ Digital Struggles toward Inferiority,” published last year.

The just-released 2016 State of the News Media Report from the Pew Research Center contains these stark numbers:

 Print circulation last year accounted for 78 percent of newspapers’ weekday circulation and 86 percent of Sunday circulation. This was true even though print circulation dropped more sharply in 2015 than any year since the Great Recession.

 Digital advertising now accounts for one-fourth of newspaper advertising revenue—but that’s because print ad revenue has been plummeting. In 2015, digital ad revenue also fell—2 percent versus 10 percent for non-digital sales.

No one expected the industry’s digital transition to occur overnight. But after 20 years, time alone cannot explain why self-sufficiency eludes newspapers’ digital strategies.

Critics say the industry was slow to embrace the Internet; and once it did, newspapers made the fatal error of giving away their news content. The first claim simply is not true; many papers eagerly went online in the mid-1990s even though most Americans weren’t there yet. As for the explosion of free news content, it would have happened with or without newspapers.

It’s also said that newspaper owners lack the smarts to succeed online. Really? Owners like legendary investor Warren Buffett, whose BH Media operates dozens of daily and weekly papers, and Amazon founder Jeff Bezos, who bought the Washington Post in October 2013? Or that like other legacy businesses, newspapers are too burdened by the past. But most digital-only news ventures also have failed to thrive financially.

So, what does explain the failure? Why, in Buffett’s words, have newspapers not “cracked the code yet”?

Here’s a best guess with five parts (all of which Chyi explores in her book):

 An overabundance of digital news. With its minimal delivery costs, the Internet makes it possible for newspapers and other news organizations to publish more content than ever before. Add to that the proliferation of user-generated content through social media. I don’t need to tell you what happens when supply greatly exceeds demand.

 The reluctance to pay. The Reuters Institute for the Study of Journalism at the University of Oxford last year released a study of digital news trends in nearly a dozen countries worldwide. It found that most people would not pay for online news whatever the cost; the U.S. figure was 67 percent. Similarly, most advertisers will pay only a fraction of what they would in print—which is great for online aggregators like Facebook and Google, but not news businesses.

 No more time. Newspapers’ competition now is not just other papers or news media, but an ever-expanding universe of entertainment options. Worse still, while the Internet has greatly increased what people can do with their time, it has not added one millisecond to the time available each day. Binge-watching a series on Netflix means less time for reading.

 Stuck in mediocrity. After two decades, many news web sites still suffer from poor functionality and design. As a result, even readers who prefer screens to paper often find the experience frustrating.

 The resilience of print. Studies have shown that many readers still do prefer to read news in print. In fact, a 2012 Pew study Chyi cites showed that “preference toward print holds up across all age groups.” Yes, millennials spend a lot of time with their faces buried in mobile devices, but they are not reading news stories. In Chyi’s view, it’s time for newspaper publishers to acknowledge that “the ‘dead-tree’ format is what most newspaper readers use, prefer, and are willing to pay (for).”

I, too, think many newspapers have lost sight of the value of print. But I would not yet toss digital news on the scrapheap. Bezos reportedly has brought to the Post many of the operating principles that helped him to make Amazon an online retail behemoth. By early this year, the Post’s online news audience was second only to CNN.com. Papers of all sizes should be able to learn some lessons, even if they can’t approach the resources now available to the Post.

In 2011, when we reached the 15-year mark for delivering news online, I wrote that news publishers still had time “to track down that elusive digital business model, if it’s out there somewhere.” Five years later, the clock has not stopped ticking—but how much longer will it run?

6/24/2016 (c) 2016 Rochester Business Journal. To obtain permission to reprint this article, call 585-546-8303 or email rbj@rbj.net.

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