The Black Magic of Compounded Newspaper Losses

It hasn’t been a good decade for newspapers, but the last month has been especially bad.

It’s not like last year was good. The San Francisco Chronicle‘s ad revenue was down 8 percent last year, and is now about 12 percent below that pace. The Times says the Chronicle is losing about $1 million a week.

In school we learned about “The Magic of Compound Interest.” The magic for newspapers must feel like something straight out of Mordor.

Compounding losses have a way of spiraling. Ad revenue falls, so papers cut back on staff and on the number of pages. The paper is less compelling, so circulation falls. Advertisers won’t pay the high prices for reduced reach, so revenue falls still further.

Add to this the general trend among younger people to not read the newspaper, and on-line alternatives such as eBay, Craigslist and that are claiming an ever-larger share of what was formerly a classified advertising monopoly for newspapers, and the situation looks quite bleak.

It’s hard to know which of these trends started first, but Clay Shirky has a good analysis of the monster forces conspiring against the newspaper business in Here Comes Everybody: The Power of Organizing without Organizations. I hope to write a review in the coming days; it’s quite insightful.

It will be difficult for my review to do it justice, though,  and besides, I might not get to it for a while. So you should just go ahead and order it today.

I’ve got a Podcasting curriculum to finish.

Social Media Disruptive Innovation

Disruption Social Media

Like Big Dan Teague the Bible salesman in one of my all-time favorite movies, Gary the church directory peddler showed an unexpected side in his comment today on this post, in which I had explored the idea of using a Facebook group as an alternative to a printed church directory:

You stupid p*$#k. The money you tell people that they are saving by not spending it with a church directory company is a false statement. Most people will spend it somewhere else like sears or a much more expensive studio. Just give it time. This is an excellent opportunity for people to get inexpensive portraits compared to a studio and the church gets free printing on the flip side. This is a lasting historical document. You are so simple in your view it just shows how pathetic you really are.
I can just tell you are a loser who has been envious of people who make money. That is why you have a mean on for this low margin business.
You pathetic piece of s^!$!

I guess I should be thankful he didn’t show up in a bedsheet. (And by the way, I have edited his comment to at least modify if not delete his expletives.) Maybe cleaning up his language would help him make more sales in the church market.

I’m thinking this means he doesn’t want to be my Facebook friend.

Gary’s comments do illustrate, though, that when disruptive technologies provide new opportunities for consumers and businesses, there are some losers. (Gary says I’m one, but if that’s the case how come he’s the one who’s mad?)

I’ve written a lot about the disruption in the mainstream media. Cable TV started the disruption for the broadcast networks a generation ago. CNN stole viewership from the Big 3. Then came MSNBC and Fox News Channel. And now with internet video and iPods people have infinite choices. In the last year NBC has laid off 700 employees.

In addition to the web-based competition that affects TV, newspapers have found that their cash cow of classified ads has been milked by Craigslist and So in the last year we’ve seen the Minneapolis Star Tribune and St. Paul Pioneer Press buy out nearly 100 employees from their newsrooms alone. Meanwhile, the valuation of Facebook, based on Microsoft’s investment, suggests that it may be worth more than the Chicago Tribune, Wall Street Journal and Los Angeles Times combined, with YouTube and the Chicago Cubs thrown in to sweeten the deal.

And Wikipedia clearly makes it harder for World Book to sell multi-volume encyclopedia sets (like the one we bought at the county fair in the mid-1990s) for several hundred dollars.

So it’s easy to see how Gary and others who face the disruptive innovation of social media may feel like singing along with the smash hit of The Soggy Bottom Boys.

I am a man of constant sorrow
I’ve seen trouble all my day.
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Facebook > WSJ + Chicago Tribune + LA Times + Chicago Cubs + YouTube

facebook microsoft deal
So you still don’t think Facebook is a big deal? Today’s Wall Street Journal reports that Microsoft (MSFT) has agreed to purchase a 1.6 percent stake in Facebook for $240 million. That pegs the overall value of Facebook at $15 billion.

In the real estate world, when setting a market price for a house my friends Ben Martin (or at least the people in his Virginia Association of Realtors) and Daniel Rothamel look at what they call “comparables.” They ask, “What price have similar houses in the neighborhood brought recently?” Let’s look at the comparables for Facebook. In roughly the last year:

  • Rupert Murdoch’s Newscorp paid $5 billion for the venerable Wall Street Journal
  • Sam Zell bought the Chicago Tribune (which owns the Chicago Cubs and had earlier purchased the Los Angeles Times), for $8 billion
  • Google (GOOG) gobbled YouTube for $1.65 billion
  • Avista Capital acquired the Minneapolis-St. Paul Star Tribune (and a few blocks of prime downtown real estate) for $530 million.

Add them all together, and they’re barely equal to the valuation Microsoft placed on Facebook.

Which just shows that for Facebook there really aren’t any comparables. Why?

  • Facebook has 85 percent of college students in its network, and a similar percentage of recent graduates. At a conference I attended earlier this year, I heard that David’s Bridal has found that people spend more money in the five years after they get married than they do in any five-year period. Facebook has the ability to help advertisers reach these people in their golden spending years. If, as David Walker said about Medicare, “Demographics are destiny,” Facebook’s future is bright indeed.
  • Facebook’s growth in other demographics is similarly astonishing. In adding 200,000 new users per day, Facebook ran out of college students to bring in a long time ago. The great majority of the growth this year has been in older adults and internationally. Shel Israel said yesterday that in Israel, where the primary language is Hebrew, Facebook now has nearly 100,000 users, which is up 33 percent in the last 9 days.
  • Facebook users don’t (mostly) just sign up for an account and forget it. Over half of its users visit the site at least once a day, and the average time spent on Facebook is 20 minutes per day.

I will confess that when it was reported last year that Mark Zuckerberg had turned down $1 billion or more for Facebook, I thought he would regret it.

That was before I actually tried Facebook. If you haven’t tried it, you should. Shel Israel says it’s the most beneficial professional networking tool he has ever used. My other friend Shel, Shel Holtz, and his partner (in the podcasting sense) Neville Hobson, in their For Immediate Release podcast for PR professionals, talk about Facebook in every program. They’ve joked that they have a rule that they have to mention Facebook at least once in each of their twice-weekly podcasts, but the reality is Facebook is that important.

Steve Ballmer obviously thinks so. And if you’re in sales, marketing, PR or have any need for professional networking, so should you.

Lest Shel Israel take me to task for that last line, I want to emphasize that you need to understand Facebook and social networking, and not see it as just another channel to force-feed your marketing messages to a captive audience. They (we) are not an audience. We’re creating content, too. Markets are conversations, and that involves both speaking and listening.

Microsoft is betting big that Facebook is where a lot of those conversations will be happening.

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Sign of The Times

A colleague just pointed this out to me. She knows I’m the blogging and new media guy, so she thought (correctly) I would get a kick out of the fact that the New York Times‘ online edition has a slightly different masthead. Instead of “All the news that’s fit to print” it’s (see lower right)…


So…is this new, or did I just miss it previously? Is it a sign of the Times, or just a sign that my eyes don’t pick up the small print as well anymore?

And I see that Tara Parker-Pope, who previously had written for the Wall Street Journal, has her blog going for the Times. I had heard she was moving, but didn’t know she was starting right away. Seems she’s been at it for about 10 days, starting here.

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It’s about Time(s)

timesselect free
The New York Times announces in tomorrow’s paper that its experiment with charging for a portion of its content on the web has come to an end:

What changed, The Times said, was that many more readers started coming to the site from search engines and links on other sites instead of coming directly to These indirect readers, unable to get access to articles behind the pay wall and less likely to pay subscription fees than the more loyal direct users, were seen as opportunities for more page views and increased advertising revenue.

“What wasn’t anticipated was the explosion in how much of our traffic would be generated by Google, by Yahoo and some others,” Ms. Schiller said.

The Times’s site has about 13 million unique visitors each month, according to Nielsen/NetRatings, far more than any other newspaper site. Ms. Schiller would not say how much increased Web traffic the paper expects by eliminating the charges, or how much additional ad revenue the move was expected to generate.

You can read the whole announcement here and get Jeff Jarvis’ take here.

I used to echo the standard line that “content is king.” If that were true, the Times wouldn’t be giving it away. The reality is relationships and conversations are what matter, and the TimesSelect wall was cutting off those relationships.Content is nobility at best (since users can generate it, too), not royalty.

In the city where I work — Rochester, Minnesota — the Post-Bulletin has likewise opened all of its content to non-subscribers. The reason: it was losing online ad revenue.

As Jarvis notes, it seems much more likely that the Wall Street Journal will soon open its online content to non-subscribers, especially under its new ownership.

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