Building A Newspaper’s Online Audience

By Stephen Lacy
Professor, Department of Communication and School of Journalism
Michigan State University

Newspapers are struggling with how to attract online visitors. This reflects the need to replace readers who are leaving the print newspaper, but more importantly, increasing online visitors will be essential for attracting advertisers to newspaper Web sites. Traditionally, advertisers follow audience and not the other way around.

As a result, how newspapers can gain online visitors remains the primary issue deciding the future of newspapers. A one-size-fits-all solution is unlikely to emerge. The key to attracting visitors will vary from market to market and from demographic group to demographic group.

However, general observations serve as a guide for managerial decisions. This commentary offers some of those general observations about how news organizations can make the transition from the current upheaval to a more stable time.

Reasons to experiment

* The high profit margins that news organizations have enjoyed during the last 40 to 50 years cannot be maintained when advertisers can go straight to consumers rather than using media, and when competition for people’s time has become so intense. Companies will have to adjust profit goals or they will cease to exist. In times of industry restructuring, potential profit margins shrink and surviving restructuring requires higher levels of investment.

* Although businesses can bypass news media to reach customers, the Internet is a medium where people must purposefully seek information, and even then, it is not always easy to search efficiently and effectively. Therefore, businesses still need to create awareness of their presence in a market and develop a brand in people’s minds. News organizations need to generate large local audiences and effectively segment them to generate advertising support. Advertisers will still need to reach buyers through media, but the need will not be as great before the Web developed.

* News organizations will need to create multiple forms of financial support. This can range from e-commercial to selling specialized information to small audience segments. The exact form of new revenue sources will vary from market to market and will need to be determined through experimentation.

* The digital media distributed through the Internet does four things well: 1. It provides depth of news and information at low cost. 2. It delivers news and information quickly. 3. It is multimedia. 4. It is interactive. Newspapers will need to use all of these Internet strengths when generating content on their sites.

* The ways news organization can best use the Web’s strengths for delivering journalism and attracting audiences remain unclear. The immediate future will require news organizations to experiment with a variety of content to discover how to best serve their audiences.

* This experimentation must be combined with formal and informal evaluation of reader feedback. Newspaper companies need to conduct periodic market research about the news and information their audiences need and want, the best ways to present that news and information, and types of interactivity their audience members want and need. But the companies also need a continuing, formal system for acquiring feedback from a wide range of audience members.

One newspaper's response

Uncertainty is the biggest problem underlying this transition from print domination to more online distribution. The appropriate response to uncertainty is experimentation with a variety of content based on research. But what does it mean to experiment with content on news Web sites?

There are more than a few sites that are trying to figure out what will and will not work, but one that is seriously experimenting with content is the Web site of the Las Vegas Sun.

The Greenspun family, which has owned the Sun since its inception in 1950, has committed itself to extensive investment in its Web site. Under the leadership of Rob Curley and Josh Williams, with whom I discussed the Sun’s online future in May, the Sun’s revitalized Web site is founded on a tradition of strong local news coverage with a commitment to developing new ways for expressing that coverage.

Experimenting with multimedia

If you visit the Lasvegassun.com, you will find news stories, blogs, photographs, and video about events and issues that concern the city of Las Vegas and surrounding areas, just as you will you will on any modern newspaper web site. The more experimental work can be found on the multimedia page.

The Sun Web team is emphasizing news video that provides background about important issues, multimedia presentations that deal with history and the nature of the community, and databases that allow visitors to customize the information they want.

Examples of the Sun’s video include interviews with families of some of the nine workers who died on Strip construction sites during a 16-month period. The video, titled “Cost of Expansion,” fits well with the Sun’s traditional investigative story about these deaths.

The Sun also includes an interview with two Iraq War veterans who have very different opinions about the war. The sharp contrast between their views seems to summarize the national debate that has occupied us for the last few years.

The Sun also emphasizes “evergreen” content about the city. This includes a video history of Las Vegas and interactive maps of downtown Las Vegas, the Strip, and the Valley. The maps allow you to see what the city was like at various times, along with important events and entertainers from that time. The map includes icons representing important buildings. If you click on an icon, a popup will reveal information about the location, size, and history of the building. In some cases, you can see video of the building’s implosion.

The interactive maps are really databases presented in a graphic form, and the Sun offers others. The site has a Flight Delay Generator , which allows a visitor to enter a flight number and find out how late it will be. An interactive map allows you to go to various airports around the nation and find out the percentage of flights from that airport that arrive late at Las Vegas McCarran Airport. The site has a variety of other data about air travel to Las Vegas.

Another interactive map was developed to go with a story about prescription drug abuse, and it allows a visitor to examine state by state use of six prescription drugs over a decade. These interactive maps are experiments in the user friendly, interactive presentation of databases.

Curley, president and executive editor of Greenspun Interactive, recently wrote about plans and some of the developments at the Sun in his blog.

Take risks, don't be defensive

This is not to say that the Lasvegassun.com has found the solutions to the problems confronting news organizations, nor that the content it produces is perfect. As with all news, errors are inevitable. The point is that the Sun is currently doing what all news organizations need to do--experimenting with ways to build its audience. Many news organizations have taken defensive approaches to the Web, but the Sun management seems to think that the best defense is a good offense.

Out of fairness, it should be mentioned that Lasvegassun.com has some advantages not enjoyed by all news organizations. In addition to the Web site, Greenspun Media includes the Las Vegas Sun, seven weekly newspapers in the Hometown Community News group, several local magazines, such as Las Vegas Magazine and In Business Las Vegas, and a low-power TV station. These media provide a wide range of community content that can be leveraged online.

Of course, having access to content does not guarantee its effective use. The long-term goal of the Lasvegassun.com management team is to take advantage of these content sources to create a Web site that will dominate the local Web market.

In addition to the commitment to experimentation, the Lasvegassun.com approach incorporates all of the Web’s strengths into the site—depth, speed, multimedia and interactivity. Many newspapers have not yet committed to exploiting all of these strengths.

Although the nature of newspaper Web sites will vary from market to market in meeting community needs, this does not mean each newspaper site will be unique. Few ideas are totally new. Newspapers’ experimentations should “borrow” ideas, content forms and presentation from any place they can find them. Lasvegassun.com is one. It would help newspapers to share as many experiments as possible.

Philly paper clarifies its plans for print vs. online

Executives at the Philadelphia Inquirer have issued a second memo clarifying plans to restrict online publication of some expensive or exclusive stories, apparently in response to a barrage of often ill-informed criticism.

Yesterday, I argued the paper's plan to delay online publication of some stories makes economic sense because revenue per reader is still very small online. The paper did not say it would never publish the stories on its website, just wait until the stories had a chance to circulate in print.

The new memo says these stories will instead "appear online concurrent with print publication." The memo also clarifies the kinds of stories that will be published immediately on the web, such as breaking news or time-sensitive stories that help readers plan for a night out.

The original plan made sense because it tried to separate readers into groups based on the amount of revenue the paper earns. Print readers are far more valuable than readers on the web. Publishing a story in print first might therefore limit the number of readers who abandon print to read the story on the web.

The new plan to publish stories "concurrently' may have a similar effect if some stories don't appear on the web until the paper's print deadlines. Print deadlines are often very late at night, when many readers are either watching television or getting ready for bed.

Meanwhile, columnist Will Bunch at the rival Philadelphia Daily News has a good suggestion for using web videos to promote stories the Inquirer wants to delay publishing online, building anticipation to increase readership once the article finally appears.

Bunch, unlike many others who responded to the original memo without much thought, gets this one. It's all about the revenue, ...

Information may be free, but that doesn't make it cheap

Monday's New York Times took an unjustified swipe at a sister paper for plans to delay web publication of expensive to report or popular to read stories until after those stories appear in print.

Times media columnist David Carr sought out an entirely predictable quote from a former newspaperman turned "Web evangelist" denouncing the Philadelphia Inquirer for delaying online publication.

But the Philadelphia Inquirer's new policy to publish "signature investigative reporting, enterprise, trend stories, news features, and reviews" in print first, and then online, makes good economic sense.

Many newspapers still make startlingly small amounts of revenue on the web. I suspect that is the case at the Inquirer, so delaying publication of their best material is a smart move entirely consistent with the economics of new media.

It's the revenue, ...

A bit of arithmetic using statistics from an industry survey shows some newspaper web sites were earning only $0.33 to $0.83 per visitor for the entire year in 2006.¹

I presented these calculations last week at a conference, and the next day heard an executive at a major metropolitan newspaper cite figures for their current web operations. The paper earns less than $4.00 per visitor each year. Revenue per reader in print is probably much higher at all of these papers.

Publishing a story online probably increases the number of readers compared to a story published only in print. But some print readers will also move online to read the story, reducing the revenues earned in print.²

This means any online gains in readers and revenue have to be large enough to offset losses of print readers and revenue. And the very small online revenue numbers suggest this is unlikely to happen if the story is published both places at the same time.

So the Inquirer is probably doing the right thing economically. Withholding publication of expensive to produce investigative and enterprise stories will limit the immediate loss of print readership. Meanwhile, the paper plans to keep publishing breaking news on its website, which is probably what most online readers are looking for in the first place.

Several newspaper and television employees responsible for publishing online and in mobile media spoke at the conference, and all complained about having small staffs. The majority of journalists at these organizations still work in the print or broadcast part of the operation.

But this is also sensible so long as revenue per reader or viewer is much higher for distribution in print or over the airwaves. Keeping web operations small when online revenues are also small shows these companies are economically rational.

That may not satisfy the naive view that Carr promotes in his column, but it should make everyone at the Inquirer and elsewhere feel a little better about what their bosses are trying to do.

1 Newspaper Association of America: Newspapers Online Operations – Performance Report 2006.

2 Wildman, S.S. (in press). "Interactive channels and the challenge of content budgeting." The International Journal on Media Management.

Mortgage crisis threatens media companies too

The $20 billion deal to sell Clear Channel Communications, which owns hundreds of radio stations across the country, is fading, another potential victim of the mortgage crisis.

The Clear Channel sale was announced months ago, but six banks that agreed to finance the deal are getting cold feet. The banks contend the original terms of the deal would place them in the ranks of lenders who've been bitten in all kinds of unexpected ways by cascading effects from the collapse of the market for subprime mortgages. Bain Capital and THL Partners, the private equity firms buying Clear Channel, are suing to get the financing restored, according to The New York Times.

Newspaper companies are vulnerable

This development also reinforces questions about the sale of several large newspaper companies that left the buyers with large amounts of debt. Ordinarily, these companies might not be affected by the shaky credit markets because their loans would have been for very long periods, with the actual newspapers providing collateral. Advertising revenues shrink whenever the economy turns down, but historically that was a short-term problem for newspapers. Many companies responded by cutting variable costs, like wages and benefits until advertising began to expand again.

But it's likely that long-term declines in newspaper advertising revenues will accelerate in the current slowdown and may not recover. This is not a helpful development given extraordinary levels of concern about the true state of financial markets. The Tribune Co., which was sold in December, has been put on a watch list, meaning its credit rating is under review. The $8.2 billion sale put the company deeply in debt.

Alan Mutter's Newsosaur blog argues credit problems could potentially cause severe damage to newspaper companies already weary from repeated rounds of cost cutting. There is a lot to like about the new technologies and media that are siphoning audiences and advertising from old media like newspapers. But the plight of these once proud companies, the people who work for them, and their readers, is nothing to celebrate.

Department of Justice OKs satellite radio merger, but isn't real clear about why

The justice department has concluded consumers won't be hurt by the controversial proposal to merge both satellite radio companies, saying competition from other sources ensures consumers won't face higher prices if the deal goes through.

The decision, announced today, states competition between XM and Sirius is already limited because both companies rely on exclusive contracts to put radios in new cars and trucks, which attracts substantial numbers of new subscribers. Even if consumers find satellite radio attractive, the company offering the service probably doesn't influence the decision to buy an automobile.

The U.S. Department of Justice press release acknowledges XM and Sirius compete for retail sales to customers who install their own radios, but retail sales have "dropped significantly since 2005, and the parties contended that the decline was accelerating."

The companies must now get approval from the Federal Communications Commission to complete the merger, but today's action is certain to rekindle controversy about the proposal.

A Confusing Analysis

Last year I wrote about some of the problems for regulators trying to determine how a merger might affect competition. The justice department statement is uncomfortably vague about how such problems were resolved.

A key question under antitrust guidelines asks if a merger would "substantially lessen competition," allowing the merged firms to "impose at least a 'small but significant and nontransitory' increase in (the) price" of their products. This is usually interpreted to mean a merger should not reduce competition enough to allow sustained prices increases of 5 percent or more.

The guidelines require that the department consider what substitute products are available, potential cost reductions from a merger, and the possibility the firms might otherwise fail, leaving consumers without access to their products. The justice department's actual analysis isn't available, so my comments cautiously rely on the press release.

The press release states "there has never been" significant competition between XM and Sirius for existing customers, and competition for new customers is expected to decrease. Each company sells radios that only receive its broadcasts. Technology that would allow a customer to subscribe to both companies "likely would not be introduced in the near term."

This suggests the companies may be limiting the development of such technology, even though it would increase their subscriptions. For example, anyone who wants to hear broadcasts available from just one of the companies -- such as major league baseball or Howard Stern -- might be willing to subscribe to both for the right price.

My example comes from the press release, which oddly makes the opposite argument. Differences in exclusive content, the release says, make it less likely that consumers consider XM and Sirius substitutes. This would only be correct if subscribers are primarily interested in a single company's exclusive content.

But it's plausible that many baseball fans like Howard Stern. Many consumers probably want to listen to a range of programming, and make purchase decisions by comparing groups of channels offering desired programs. This makes it possible, for example, that some consumers are forced to choose either baseball or Howard Stern.

The press release seems to accept this broader argument when it describes MP3 players, terrestial radio broadcasts, and audio delivered on cell phones as competition if the satellite firms merge. It would be interesting to know what evidence shows that demand for satellite radio changes when there is a change in the price of MP3 players or cell phone music downloads, which is how economists decide if goods are substitutes. (Obviously, free radio broadcasts are a separate problem).

These alternatives probably do compete with XM and Sirius as a source of widely available programming, such as music. This is less likely to be true for content that is exclusively available from the satellite companies, such as baseball games outside the market where a consumer lives.

Reductions in cost

The justice department also says its investigation "confirmed that the parties are likely to realize significant variable and fixed cost savings through the merger." Those savings, the department says, will be passed to consumers as lower prices.

However, two conditions must be met before consumers prices are reduced. First, the promised cost savings must materialize. The history of mergers suggests such savings are easy to promise, and difficult to produce.

Second, a merged company with lower costs will not reduce prices unless it faces significant competition. This means the department's analysis of effects on competition must also be correct.

The press release ignores a larger question associated with cost -- will the satellite firms fail if they cannot merge? The firms have argued they must merge to survive, so it's troubling that the justice department did not address this issue.

What's Next

It's quite possible the analysis is better than portrayed in the press release. As my earlier post noted, a merger is not automatically a bad idea.

However, the department probably had to use a lot of information provided by the companies because reliable alternatives aren't available. Merger decisions are also influenced by the ideology of the political appointees at justice who make the final call, and politics will play an important part when the merger proposal goes to the FCC.

For all of these reasons, today's decision needs a better explanation before it becomes fodder for the coming debate. Sadly, I doubt that will happen.

FCC Chairman Makes Lemonade from Lemon (at least for now)

The Federal Communications Commission today voted to tighten regulation of cable companies, and ease regulation of newspaper and broadcast companies. The votes are a triumph for FCC Chairman Kevin J. Martin, who last month suffered a temporary defeat when he brought the cable proposal up for a vote.

Today's victory on the cable issue may also be temporary given strong and continuing industry resistance. But for now Martin appears to have reconciled the complex array of competing interests at stake in both of these votes.

The importance of competition

Competition is at the heart of all the arguments voted on today. Newspaper companies argued increasing competition for advertising revenue makes obsolete a rule against owning a broadcast station in the same market. Huge numbers of readers disagreed, arguing the restriction preserved competition covering local news, increasing the range of information and ideas available in those markets.

The FCC voted to ease the cross-ownership restriction in the 20 largest markets.

Cable companies argued they need to get larger because subscribers have more and more alternatives in the new media world. Consumer groups and Chairman Martin disagreed, arguing cable rates keep rising and subscribers don't have access to the full range of possible program choices.

The FCC voted to keep individual cable companies from reaching more than 30 percent of the national market. This is expected to have an immediate effect on Comcast.

Reasons to be skeptical on cross-ownership

My immediate reaction is mostly to the cross-ownership vote. The competitive problem for newspapers is not local radio or television stations, but new forms of media such as the Internet and cell phones. Putting resources into broadcast stations is an odd response, especially when you consider some newspaper companies such as The New York Times and Belo recently divested their television stations.

The expense of acquiring radio and television stations will also force newspaper companies to cut operating costs, so be skeptical of claims that these companies will increase news coverage in these markets.

More broadly, the competition arguments rely on differing definitions and models. Newspaper companies, and both sides in the cable argument, are using economic models concerned with efficient use of limited resources, and providing goods and services at the lowest possible cost.

Supporters of cross-ownership restrictions are using a First Amendment model concerned with expanding the range of ideas, and the emergence of a workable consensus on matters of public concern.

Exchanging Information in Newsgroups

The economics of information are particularly important on the web where reproduction and distribution costs are remarkably small. This guest post describes new research on information distribution in newsgroups. The post was generously provided by one of the study's authors.

Identifying Discussion Leaders and Information Sources
by Itai Himmelboim¹

Here’s some old news: one of the greatest promises of the Internet is the ability for anyone with a PC and Internet connection to join forums on any topic imaginable and contribute, consume and exchange information and opinions. Information is available via a wide range of old sources (news websites) and new sources (blogs, forums, personal websites and news aggregators such as Google News).

Robert Nye said once that a richness of information leads to a poverty of attention. In a study I conducted with Marc Smith and Eric Gleave from Microsoft Research, the Netscan dataset was used to follow patterns of replies – indicators of attention – in 20 political newsgroups between July and December 2006.

It wasn’t a surprise to find that in all newsgroups, relatively few participants attracted a relatively large portion of the discussion to threads they started. After all, literature illustrates that large networks – be they of people, websites or even genes – tend to show a power-law distribution in which few participants receive a large and disproportional number of links – in our case, replies – from other participants. With that in mind, we began to explore the role that this small number of highly connected participants play in their groups.

We identified these highly replied participants using a range of statistical measures including: success in starting new threads, the percentage of all messages in a group that appeared in threads they started, as well as the percentage of individuals in the group that participated in these threads. We found only a handful of such highly connected participants in each group, making them less than one percent of the population in their newsgroups. Many of these participants attracted more than one-half of the discussion to threads they started. We decided to name them Discussion Catalysts, or DCs.

Deciding what to talk about

Discussion catalysts may not tell fellow group members what to say, but according to their attention grabbing records, they do tell groups what to talk about. Our next step was to determine what information they brought to the table.

Content analysis of messages that discussion catalysts used to start threads revealed an interesting phenomenon. If you thought, like I did, that political discussions in newsgroups start with an individual’s opinion, you may be surprised to find that this study shows otherwise. DCs play the role of content importers. They go outside their groups to the World Wide Web – news sites, blogs and other websites – search for interesting articles, and bring them to groups to discuss.

Another interesting finding was that although DCs import content from a range of sources, most of the articles came from traditional news sites such as the Washington Post and Associated Press. Less than one tenth of the entries came from blogs.

So what does all this tell us? First, although the Internet is free and open by its nature, when we interact freely, we tend to create a structure in which few of us get a lot and most of us get very little. Second, even when we use relatively new platforms for political discussions, the information comes from good (?), old news organizations. Why? Well, I’ll leave that for you to discuss.

¹ Itai Himmelboim is a doctoral student at the University of Minnesota's School of Journalism and Mass Communication.