Newspapers at a Crossroads
Andrés is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The newspaper industry is facing serious challenges due to the advancement of the digital age Companies like The New York Times (NYSE: NYT) and The Washington Post (NYSE: WPO) are facing increasing competition from online and mobile information sources. As devices like tablets and smart phones keep replacing paper over time, these newspapers will need to find a strategy to sustain informative relevance at a competitive price while at the same time produce sustainable profit margins for their shareholders.
The Wall Street Journal and The Financial Times have been able to adapt to this change by charging a subscription fee for their online edition. This seems like the best alternative for specialized media outlets like these: in financial markets information and depth of analysis are very valuable commodities and many industry professionals just can´t assume the cost of not having an online subscription to such relevant sources.
The New York Times seems to be making some progress on that front, after launching a paywall to unlimited access to its online content nearly a year ago, the company has now nearly half a million paying subscribers. Gannet (NYSE: GCI) is also choosing the paid online subscription model in an effort to recover sales, which have been falling steadily since 2006, it remains to be seen however if the company´s newspapers have enough traction to convince readers about paying for online content.
The drawback of this strategy is that it could reduce online traffic and hence the chances of making profits from advertising in the online edition. Newspapers need to be very aware of this possibility, since once a subscription model is launched, turning around the decision after it´s proven wrong could be extremely costly in terms of brand value and prestige.
The Washington Post, on the other hand, seems quite committed to keeping its online content free, but this alternative has some important drawbacks too. Like Warren Buffet said on the issue: “You shouldn´t be giving away a product you are trying to sell”, so the online edition should not have the same content as the printed one, because readers wouldn’t have much incentive to pay for the paper in such a scenario.
Under this strategy there will simply be no alternative to access the full content of the Washington Post online, and the newspaper will be missing a big part the growth opportunities provided by mobile devices and e-readers. If current trends continue, and content keeps moving from paper to digital, the Washington Post could be making a very costly decision.
These companies need to embrace the digital era instead of trying to protect themselves from the changes that are coming, since they will be inevitable. Some newspapers that provide in-depth research and sensitive information on specialized uses should probably go for the online paid subscription model; such is the case of The Wall Street Journal and The Financial Times. The same alternative could be valid for newspapers like The New York Times that have a strong reputation for high quality journalism and investigative work.
But newspapers need to evaluate this decision very carefully, since it could practically be a death sentence if the subscription model doesn´t work out: it could provide a huge blow to the company and its reputation.
Online advertising should be a big area of focus for newspapers in the following years since reader’s time and advertising dollars are moving from paper to digital, and there is no reason why high quality content shouldn´t be able to generate a decent income from online advertising over time. The transition period and competition from Google (NASDAQ: GOOG) are a big hurdle for these companies when it comes to online advertising, but the situation should get better as the online ads market continues to expand.
The Washington Post seems to be stuck in a limbo that could be a very dangerous mistake; no content is good enough to be able to afford the luxury of missing the digital revolution. The company needs to define a clear and consistent strategy in the online world as soon as possible. The changes are coming, and newspapers need to quickly adapt if they don´t want to become as worthless as yesterday´s news.
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