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December 19 2011

14:00

Nicholas Carr: 2012 will bring the appification of media

Editor’s Note: We’re wrapping up 2011 by asking some of the smartest people in journalism what the new year will bring.

To kick things off, it’s Nicholas Carr, the veteran technology writer, whose most recent book — The Shallows: What the Internet Is Doing to Our Brains — was a finalist for the 2011 Pulitzer Prize.

For years now, the line between the software business and the media business has been blurring. Software applications used to take the form of packaged goods, sold through retail outlets at set prices. Today, as a result of cloud computing and other advances, applications look more and more like media products. They’re ad-supported, subscribed to, continually updated, and the content they incorporate is often as important as the functions they provide. As traditional media companies have moved to distribute their wares in digital form — as code, in other words — they’ve come to resemble software companies. They provide not only original content, but an array of online tools and functions that allow customers to view, manipulate, and add to the content in myriad ways.

During 2011, the blending of software and media accelerated greatly, thanks to what might be termed the dis-integration of the internet. The old general-purpose web, where everyone visited the same sites and saw the same stuff, is rapidly being supplanted by specialized packages of digital content geared to particular devices—iPhone, iPad, Android, BlackBerry, Kindle, Nook, Xbox — or to particular members-only sites like Facebook and Google+. Not only has the net left its Wild West days; it’s entered the era of the gated suburban subdivision. As part of this trend, the open, html-based website is being replaced, or at least supplemented, by the proprietary app. In app stores, the already blurry line between software and media disappears altogether. Apps are as much content-delivery services as they are conventional software programs. Newspapers, magazines, books, games, music albums, TV shows: All are being reimagined as apps. Appified, if you will.

Appification promises to be the major force reshaping media in general and news media in particular during 2012. The influence will be exerted directly, through a proliferation of specialized media apps, as well as indirectly, through changes in consumer attitudes, expectations, and purchasing habits. There are all sorts of implications for newspapers, but perhaps the most important is that the app explosion makes it much easier to charge for online news and other content. That’s true not only when the content is delivered through formal apps but also when it is delivered through traditional websites, which may themselves come to be viewed by customers as a form of app. In the old world of the open web, paying for online content seemed at best weird and at worst repugnant. In the new world of the app, paying for online content suddenly seems normal. What’s an app store but a series of paywalls?

Appification opens to newspapers the powerful marketing and pricing strategy that the Berkeley economist (and now Google executive) Hal Varian dubs “versioning.” Long a cornerstone of the software business, versioning is the practice of creating many versions of the same underlying informational product, packaging them in different ways, and selling them at different prices to different sets of customers. A software maker, for example, may give away a bare-bones version of an application, sell a version with more features to mainstream consumers at a modest price, and offer a high-end version, perhaps combined with added services, to professional users at a premium price. As Varian explains, “the point of versioning is to get the consumers to sort themselves into different groups according to their willingness to pay. Consumers with high willingness to pay choose one version, while consumers with lower willingnesses [sic] to pay choose a different version. The producer chooses the versions so as to induce the consumers to ‘self select’ into appropriate categories.”

We already see versioning strategies at work in the “metered” programs operated by a growing number of papers, including the Financial Times, The New York Times, and the Minneapolis Star Tribune. Readers lacking a willingness to pay get limited access to the papers’ sites for free. Readers who value the content more highly, and hence are willing to pay for it, subscribe for a fee to gain unlimited access. And readers with the greatest willingness to pay shell out even more money to receive both the print edition and unfettered online access. Appification provides an opportunity to create many more versions of the same basic content and deliver them to different customer segments. In 2012, we’ll see versioning strategies become not only more common in the newspaper business but more intricate, sophisticated, and lucrative.

The orthodox view among online pundits has been that paywalls and subscription fees won’t work for general-interest newspapers, that people simply won’t pay for a bundle of news online. Last year, media blogger Jeff Jarvis dismissed The New York Times’s metered plan as “cockeyed economics.” Earlier this year, Nieman Lab blogger Martin Langeveld opined that “newspapers are slowly digging their graves by building paywalls.” It seems likely that 2012 will be the year when we stop hearing such gloomy proclamations. Well-designed versioning strategies, spanning various devices, formats, functions, content bundles, and access plans, will provide smart newspapers with new ways to charge for their products, in both digital and print form, without sacrificing the unique opportunities presented by online distribution. That won’t mean the end of the industry’s struggles, but it does portend a brighter future. And that’s good news.

April 05 2010

16:43

Is print still king? Has online made a move? Updating a controversial post

A year ago, in a Nieman Journalism Lab post that garnered 88 comments and still has viral life out there, I maintained that just three percent of newspaper content consumption happens online; the rest of it happens the old fashioned way, by people reading ink on dead trees. Given the continuing attention being paid to that conclusion (it was cited just last month by Hal Varian, Google’s chief economist, in testimony to the Federal Trade Commission), let’s revisit the numbers and see whether anything has changed.

With updates or improved data on at least some of the numbers, the general conclusions still hold: U.S. newspapers have not pushed much of their audience to their websites, nor have they followed the migration of their readership to the web. Their combined print and online readership metrics, whether measured in pageviews or in time spent, show that there’s been significant attrition since last year in the total audience for newspaper content, and that the fraction of that audience consuming newspaper content online remains in the low-to-mid single digits.

Here’s how I arrived at the numbers this year (to follow this more closely, or check my math, you can view my worksheet here):

Point of comparison: Pageviews

First, a comparison of pageviews in print and pageviews online. In print, I projected pageviews for newspaper content by taking the 2008 paid circulation reported by the Newspaper Association of America, adjusting it by the average of the two six-month circulation loss figures reported by the Audit Bureau of Circulations (March, September), and multiplying the resulting 2009 circulation by 2.128 readers per copy for weekdays and 2.477 for Sundays. (This is a 2007 Scarborough Research (PDF link) number I used last year also, but readers per copy has been a very consistent figure with little variation for decades.) This yielded total readership for weekdays and Sundays. I then made the same (discussable) assumption as last year: that the average reader of a newspaper issue looks at 24 pages, which means there is a total of 70.602 billion printed newspaper pageviews per month. That’s down almost 19 percent from last year’s 87.1 billion pages viewed. To be fair, my audience numbers last year were also based on that 2007 Scarborough data, so that’s really a two-year decline. (Jim Conaghan, research director at the NAA, tells me they have no data on the number of printed pages readers look at on average, and that there is no update to the 2007 readers-per-copy study.)

For online pageviews, NAA offers a precise number based on research by Nielsen Online. Nielsen’s methodology changed in June 2009, so I’ve used the average of the nine months from June 2009 to February 2010, which was 3.382 billion online newspaper site pageviews per month. So for print and online combined, we have a total of 73.985 billion pageviews (versus 90.3 billion last year). In other words, as measured in pageviews, 95.43 percent of total readership for newspaper content was in print; 4.57 percent of it was online. So while it appears that the online fraction has grown from 3.5 percent in the previous analysis, the bad news is that the total content exposure has dropped by about one fifth.

Point of comparison: Time on site

Some commenters to last year’s post maintained that print and online pageviews weren’t comparable. And certainly, the current wisdom says that pageviews and unique visitors don’t count nearly as much as “engagement” as measured by time spent on site as well as interaction with content. So, as I did last year, let’s look at time spent — both in print and online, print engagement versus online engagement with the newspaper content:

For the print side of the ledger, I began with the readership counts derived as above, and assumed average time spent with printed newspapers to be 25 minutes on weekdays and 35 minutes on Sundays. Now, this assumption got considerable comment flak last year, and no doubt will have its doubters this year. For those who say “I don’t know anybody who reads a newspaper at all, so how can the average be 25 minutes?” let me say that more than 40 million newspapers are still sold every day and someone is reading them, whether you know them or not. Anecdotally, half the people I see at Amy’s in Brattleboro are spending more time that that just with the New York Times. But let’s avoid the anecdotal evidence — here’s (PDF link) some U.S. Statistical Abstract data on time spent with various media, sourced from Veronis Suhler. It claims that the average person in 2009 spent 159 hours a year with newspapers (including newspaper websites), which is 26.1 minutes a day. While this tends to support the controversial pass-along factor, it’s for the average (adult) person. Since only about half the population actually reads printed newspapers (on average per day), that would mean newspaper readers spend an average of 52 minutes a day — which just strikes me as way too high. So I’m going to stick with the happy medium of 25 minutes weekdays and 35 on Sundays until someone can improve that data. (As an additional data point: According an NAA print newspaper “engagement” study (PDF link) presented a few years ago, on weekdays 45 percent of readers spent more than 30 minutes, 34 percent between 16 and 30 minutes, 21 percent under 15 minutes. Higher times were reported for Sunday editions.)

That yields total time spent with printed newspapers of 78.471 billion minutes per month. The online side is easy: averaging the last 9 months of NAA data, we get time spent at newspaper websites of 2.535 billion minutes per month. And combining print and online time spent, we have a total of 81.006 billion minutes per month spent with newspaper content. The engagement measure, therefore, says that 96.87 percent of time spent with newspaper content was in print; 3.13 percent of time spent was online. This is almost exactly the same as last year, when I found that 3.0 percent of time spent was online. But printed newspapers have lost a big chunk of total engagement as well: this year’s numbers are down 18.9 percent from last year’s analysis, which, again, really is a two-year drop of about one-fifth, with the loss occurring on the print side.

The conclusion that the overwhelming share of newspapers’ audience remains on the print side of the ledger is supported by Scarborough’s 2008 ratings of what it called the “Integrated Newspaper Audience” (PDF link) in selected markets. Measuring the cumulative 5-day audience rather than daily averages, that data showed that the incremental audience at newspaper websites added only a few percentage points to their print reach.

NAA and Nielsen are clear that their pageviews and time-spent stats since June 2009 can’t be compared with earlier months because of methodology changes, so I’ll refrain from doing that; but clearly the print/online audience split was enormously skewed last year and remains so — and most importantly, the online side is not growing. Back in June, NAA reported 3.469 billion pageviews and 2.701 billion minutes spent; in January (to avoid the short month of February), there were 3.452 billion pageviews and 2.485 billion minutes spent. Time spent per unique visitor has fallen gradually from 38:24 minutes in June to 33:09 minutes in January. In other words, while newspapers are losing readership on the print side, that disappearing audience is not following them online; at best, the online audience for newspaper content is static.

The purpose of this analysis is not to compare all “offline” news consumption with all online news consumption; it is to dissect the newspaper content audience. But as several commenters noted last year, this really means that as the audience moves online, it is getting most of its news from non-newspaper sites.

Beyond examining the split between readers of printed and online newspaper content, I also noted in another post last year that newspaper websites attracted less than one percent of all U.S. web traffic — 0.69 percent of pageviews and 0.56 percent of time spent, to be precise, in June 2009. Updating those stats with February 2010 Nielsen Online data (also detailed in the spreadsheet linked above), over the last nine months newspapers have actually lost share in both pageviews and time spent: pageview share dropped to 0.63 percent, and time spent dropped to 0.50 percent of total web traffic.

Meanwhile at newspapers, much effort and much dialogue continues to focus on getting readers to pay for content and battling aggregators — energy that might better be spent figuring out how not to lose the sizeable remaining audience for newspaper content, not by “protecting print” but by keeping the current print readers in the fold as they, too, gradually migrate to reading news online.

March 12 2010

15:00

This Week in Review: Plagiarism and the link, location and context at SXSW, and advice for newspapers

[Every Friday, Mark Coddington sums up the week’s top stories about the future of news and the debates that grew up around them. —Josh]

The Times, plagiarism and the link: A few weeks ago, the resignations of two journalists from The Daily Beast and The New York Times accused of plagiarism had us talking about how the culture of the web affects that age-old journalistic sin. That discussion was revived this week by the Times’ public editor, Clark Hoyt, whose postmortem on the Zachery Kouwe scandal appeared Sunday. Hoyt concluded that the Times “owes readers a full accounting” of how Kouwe’s plagiarism occurred, and he also called out DealBook, the Times’ business blog for which Kouwe wrote, questioning its hyper-competitive nature and saying it needs more oversight. (In an accompanying blog post, Hoyt also said the Times needs to look closer at implementing plagiarism prevention software.)

Reuters’ Felix Salmon challenged Hoyt’s assertion, saying that the Times’ problem was not that its ethics were too steeped in the ethos of the blogosphere, but that they aren’t bloggy enough. Channeling CUNY prof Jeff Jarvis’ catchphrase “Do what you do best and link to the rest,” Salmon chastised Kouwe and other Times bloggers for rewriting stories that other online news organizations beat them to, rather than simply linking to them. “The problem, here, is that the bloggers at places like the NYT and the WSJ are print reporters, and aren’t really bloggers at heart,” Salmon wrote.

Michael Roston made a similar argument at True/Slant the first time this came up, and ex-newspaperman Mathew Ingram strode to Salmon’s defense this time with an eloquent defense of the link. It’s not just a practice for geeky insiders, he argues; it’s “a fundamental aspect of writing for the web.” (Also at True/Slant, Paul Smalera made a similar Jarvis-esque argument.) In a lengthy Twitter exchange with Salmon, Times editor Patrick LaForge countered that the Times does link more than most newspapers, and Kouwe was an exception.

Jason Fry, a former blogger for the Wall Street Journal, agreed with Ingram and Smalera, but theorizes that the Times’ linking problem is not so much a refusal to play by the web’s rules as “an unthinking perpetuation of print values that are past their sell-by date.” Those values, he says, are scoops, which, as he argued further in a more sports-centric column, readers on the web just don’t care about as much as they used to.

Location prepares for liftoff: The massive music/tech gathering South By Southwest (or, in webspeak, SXSW) starts today in Austin, Texas, so I’m sure you’ll see a lot of ideas making their way from Austin to next week’s review. If early predictions are any indication, one of the ideas we’ll be talking about is geolocation — services like Foursquare and Gowalla that use your mobile device to give and broadcast location-specific information to and about you. In anticipation of this geolocation hype, CNET has given us a pre-SXSW primer on location-based services.

Facebook jump-started the location buzz by apparently leaking word to The New York Times that it’s going to unveil a new location-based feature next month. Silicon Alley Insider does a quick pro-and-con rundown of the major location platforms, and ReadWriteWeb wonders whether Facebook’s typically privacy-guarding users will go for this.

The major implication of this development for news organizations, I think, is the fact that Facebook’s jump onto the location train is going to send it hurtling forward far, far faster than it’s been going. Within as little as a year, location could go from the domain of early-adopting smartphone addicts to being a mainstream staple of social media, similar to the boom that Facebook itself saw once it was opened beyond college campuses. That means news organizations have to be there, too, developing location-based methods of delivering news and information. We’ve known for a while that this was coming; now we know it’s close.

The future of context: South By Southwest also includes bunches of fascinating tech/media/journalism panels, and one of them that’s given us a sneak preview is Monday’s panel called “The Future of Context.” Two of the panelists, former web reporter and editor Matt Thompson and NYU professor Jay Rosen, have published versions of their opening statements online, and both pieces are great food for thought. Thompson’s is a must-read: He describes the difference between day-to-day headline- and development-oriented information about news stories that he calls “episodic” and the “systemic knowledge” that forms our fundamental framework for understanding an issue. Thompson notes how broken the traditional news system’s way of intertwining those two forms of knowledge are, and he asks us how we can do it better online.

Rosen’s post is in less of a finished format, but it has a number of interesting thoughts, including a quick rundown of reasons that newsrooms don’t do explanatory journalism better. Cluetrain Manifesto co-author Doc Searls ties together both Rosen’s and Thompson’s thoughts and talks a bit more about the centrality of stories in pulling all that information together.

Tech execs’ advice for newspapers: Traditional news organizations got a couple of pieces of advice this week from two relatively big-time folks in the tech world. First, Netscape co-founder Marc Andreessen gave an interview with TechCrunch’s Erick Schonfeld in which he told newspaper execs to “burn the boats” and commit wholeheartedly to the web, rather than finding way to prop up modified print models. He used the iPad as a litmus test for this philosophy, noting that “All the new [web] companies are not spending a nanosecond on the iPad or thinking of ways to charge for content. The older companies, that is all they are thinking about.”

Not everyone agreed: Newspaper Death Watch’s Paul Gillin said publishers’ current strategy, which includes keeping the print model around, is an intelligent one: They’re milking the print-based profits they have while trying to manage their business down to a level where they can transfer it over to a web-based model. News business expert Alan Mutter offered a more pointed counterargument: “It doesn’t take a certifiable Silicon Valley genius to see that no business can walk away from some 90% of its revenue base without imploding.”

Second, Google chief economist Hal Varian spoke at a Federal Trade Commission hearing about the economics of newspapers, advising newspapers that rather than charging for online content, they should be experimenting like crazy. (Varian’s summary and audio are at Google’s Public Policy Blog, and the full text, slides and Martin Langeveld’s summary are here at the Lab. Sync ‘em up and you can pretty much recreate the presentation yourself.) After briefly outlining the status of newspaper circulation and its print and online advertising, Varian also suggests that newspapers make better use of the demographic information they have of their online readers. Over at GigaOM, Mathew Ingram seconds Varian’s comments on engagement, imploring newspapers to actually use the interactive tools that they already have at their sites.

Reading roundup: We’ll start with our now-weekly summary of iPad stuff: Apple announced last week that you can preorder iPads as of today, and they’ll be released April 3. That could be only the beginning — an exec with the semiconductor IP company ARM told ComputerWorld we could see 50 similar tablet devices out this year. Multimedia journalist Mark Luckie urged media outlets to develop iPad apps, and Mac and iPhone developer Matt Gemmell delved into the finer points of iPad app design. (It’s not “like an iPhone, only bigger,” he says.)

I have two long, thought-provoking pieces on journalism, both courtesy of the Columbia Journalism Review. First, Megan Garber (now with the Lab) has a sharp essay on the public’s growing fixation on authorship that’s led to so much mistrust in journalism — and how journalists helped bring that fixation on. It’s a long, deep-thinking piece, but it’s well worth reading all the way through Garber’s cogent argument. Her concluding suggestions for news orgs regarding authority and identity are particularly interesting, with nuggets like “Transparency may be the new objectivity; but we need to shift our definition of ‘transparency’: from ‘the revelation of potential biases,’ and toward ‘the revelation of the journalistic process.’”

Second, CJR has the text of Illinois professor Robert McChesney’s speech this week to the FTC, in which he makes the case for a government subsidy of news organizations. McChesney and The Nation’s John Nichols have made this case in several places with a new book, “The Death and Life of American Journalism,” on the shelves, but it’s helpful to have a comprehensive version of it in one spot online.

Finally, the Online Journalism Review’s Robert Niles has a simple tip for newspaper publishers looking to stave off their organizations’ decline: Learn to understand technology from the consumer’s perspective. That means, well, consuming technology. Niles provides a to-do list you can hand to your bosses to help get them started.

March 10 2010

09:15

March 09 2010

17:37

Google’s Hal Varian to newspapers at FTC confab: “Experiment, experiment, experiment!”

Google’s economist-in-chief, Hal Varian, was the keynote speaker this morning at the Federal Trade Commission’s second round of hearings on the future of journalism. (The study is entitled “How will journalism survive the internet age?” Round 1 was held in December; transcripts and other material are linked here — scroll down. Not to be outdone, the Federal Communications Commission also has a project studying pretty much the same thing.)

Here’s the slide deck from Varian’s presentation, entitled “Newspaper Economics, Online and Offline”:

(Lab readers may recognize some of the slides and data as having appeared here previously. I provided some input to Varian as he prepared his talk. Varian also posted the presentation and a summary of his remarks at the Google Public Policy Blog.)

Varian took a leave of absence from academia a few years ago to take charge, among other things, of tweaking and explaining the workings of Google’s brilliantly clever auction pricing mechanisms for text ads. He’s also involved in analysis, finance, corporate strategy, and public policy.

Google has been in the crosshairs of the newspaper industry as newspapers struggle to hold onto print revenue in the face of digital onslaughts, including the text ads that bring Google the bulk of its $24 billion 2009 revenue (equivalent to about 85 percent of the entire newspaper industry’s ad sales). The industry’s biggest beef with the search giant is that it sees content aggregation on Google News as pilfering, without compensation, page views that ought to be going to newspaper sites; Google counters that it delivers a hefty share of total traffic at news sites (and that publishers can opt out of Google News if they really want to).

Varian offered no magic potion for newspapers, other than exhorting the industry to “experiment, experiment, experiment,” and to get better at analyzing and exploiting the information they can glean from their site visitor data. He began with a series of slides illustrating the dismal trend lines of the newspaper industry and its place in the media environment:

  • Newspapers’ share of total ad expenditures have been dropping pretty steadily since the 1940s, from a 37 percent share down to barely 10 percent today.
  • Newspaper ad revenue kept pace with GDP until the mid-1980s (both inflation-adjusted), but since then, it has disconnected and fallen — not just during periods of recession but during the entire 2002-2008 expansion as well.
  • Online ad revenue at newspapers has grown to just 5 percent of total ad revenue, failing to offset the declines suffered in other categories, particularly classified.
  • Circulation as been falling from its 1970-1990 plateau of about 60 million copies, but on a per-household basis has dropped steadily from 1.2 copies per household in 1947 to about 0.4 copies per household currently.
  • While television still predominates as a source of national and international news for most people, in 2009 “Internet” surpassed newspapers as a source reported by consumers.

Twenty-six percent of all Americans (46 percent of those under 50) access news by mobile phone, and an astonishing 80 percent get news from e-mailed links, Varian said. But (as first analyzed right here at the Lab), only three percent of all consumption of newspaper-generated content happens online; 97 percent is still consumed in printed newspapers. This is true whether you measure pageviews in print and online, or time spent with printed newspapers versus newspaper web sites.

Still, news consumption ranks high among online activities of consumers, with 39 percent getting online news “yesterday” (according to the Pew Internet and American Life Project, 2008), ranking it the third-most-popular reported activity (after e-mailing at 56 percent and using search engines at 49 percent).

Using Google data, Varian showed that accessing news exceeds search on weekdays, but drops to a fraction of its weekday level on weekends, when search leads. From this he concludes that much access to news and newspaper sites happens in the workplace, when consumers have time only for quick checks of headlines, not for in-depth reading.

The challenge for newspapers, therefore, is to “increase involvement in the news by turning it back into a leisure-time activity.” He sees tablets and mobile phones as helping to do that.

ComScore data shows that search engines send 35 to 40 percent of traffic to major U.S. news sites — so, assuming that this traffic monetizes about the same as other traffic, search engines must be driving 35 to 40 percent of revenue, as well, Varian said. But he suggested newspapers could do a better job using the data that comes along with the search click (the keywords used in the search), and using it to categorize the reader’s interests and tailor content suggestions and advertising accordingly.

One problem with this, I’ve found, is that about half of visits that come via search engines tend to be generic — users type the name of the paper, the URL, or a variant thereof, into the search field, using it in lieu of their browser’s address bar. But of the non-generic search clicks, Varian pointed out that most are for categories like sports, news/current events, and local (Google’s categories), which are difficult to monetize, while few are for the more lucrative areas of travel, health, shopping, computers, and electronics. “So the news narrowly defined is pretty hard to monetize.”

What about charging the consumer for news online, then? Varian’s answer:

My view is, yes, I mean, you should try for sure. But there is this difficulty that you run into when you start thinking about the economics of it is that you can really only charge for thing ifs they’re differentiated. There are a lot of substitutes for a product then it’s hard to charge for it. Then you have this problem, what economists call Bertrand competition…You get this competing down to the lowest common denominator.

So you really have to have news that’s highly differentiated in order to support a charging model. One time I thought, well, local news, that’s highly differentiated. Local football scores, things like that. Then I realized all of the moms and dads are in the audience on twitter with the mobile phones, maybe the news isn’t so highly differentiated after all, they’ve got mostly specialized industry content, points of view, analyses are not easily imitated are also a case that they can differentiate news. I’m agnostic on whether the charging will work. I think it’s worth a try, but you can only try it for something that’s going to be unique content. It’s very hard to charge for, let’s say, the weather, or something of that sort.

Varian concluded with this exhortation to publishers: “The three things newspapers should do is experiment, experiment, experiment!” He cited a few options from Google, like Living Stories and starred stories that can be followed for updates during the day.

“I’m a big fan of the new devices,” he said. The iPad, Kindle and other tablets introduce a “completely different ergonomics for accessing the news…so what I believe they’ll see is a merger of the TV, magazine, radio, and newspaper experience. You’ll have a device which will access all of the different medias. Give you a deeper — potentially deeper involvement with the news…So I would like to see this — this area develop and we’re doing what we can to help that happen.”

Finally, Varian urged newspapers to better exploit the information they have:

You know, in many cases, the newspaper website is seen as — as something that for the techies or the person who’s managing the web log [stats] is doing it just to look at how performance is working. But it’s hugely valuable information in those web logs [stats] — both from an editorial point of view and from a marketing point of view. There’s lots of interesting things that you can do when you understand why people are coming to your site, where they’re spending the most time, what they’re coming back to. It’s just extremely valuable information. I think newspapers can spend more time on analyzing that information and end up with better ad effectiveness measuring better contextual targeting and editorial targeting.

Here’s a full transcript of Varian’s remarks, as recorded by the FTC’s transcription service. (Note: This is not fully cleaned up or compared with a recorded version. I’ve inserted the slide numbers at the appropriate points.)

Wow, thank you very much for that kind introduction. Happy to be here. [1] As you heard, we’re going to talk about on-line and off line economics of newspapers. [2] And basically this is going to be mostly a fact-based presentation, looking at revenue, costs, advertising level change, composition, and so on. Most of the talk is from the data from the newspaper association of America that’s put up a lot of trends on the website, a key foundation of some of the other sources and a little bit of Google data that’s also emerged with this report.

[3] So I want to start off with a little overview of what revenues and costs look like for newspapers. And basically the bottom line here is 80% of the revenue roughly comes from advertising, 20% from sales. If you break down the cost side of newspapers, turns out that about 50% of the costs are production and distribution, that is the physical production and distribution of the newspaper, obviously it’s attractive if you can reduce your costs by 50% for any business. So the promise to the internet is just to reduce costs. I understand we’re going to hear much more detail about that this afternoon.

[4] If you look at ad spend by medium in the United States, I pulled this data from the U.S. Statistical Abstract. Of course, the big gorilla in the room is TV. You look at broadcast and cable TV, you’ve got by far the largest expenditure on advertising on those two media. Surprising enough, the next biggest thing is direct mail. Then after direct mail comes the — comes the newspapers. You look at how things have changed over the years, broadcast TV has gone down a little bit. Cable TV has grown by quite a bit, almost a factor of three. The internet’s grown from nothing in 1995 to about 5% of ad expenditures in 2008. And newspapers, As you can see, have contracted from about 23% down to maybe 13% or so. So the big changes are apparent in this diagram. And I guess the next talk is going to be perhaps some more up-to-date figures on the advertising business and newspapers. Newspapers, of course, are still about three times as large in terms of ad revenue as the internet, so there’s still quite a major force in the advertising world.

[5] This is another chart showing pretty much the same thing. If you look at newspapers, that’s the blue line, they’ve been going down since basically 1950 in terms of media share. If you look at the yellow line, that’s TV and cable. That’s been going up quite dramatically over the same period. And way down there in the bottom right-hand corner, that light blue line, is the internet which came from pretty much nothing up until the — maybe late 1990 s started to become a force in — in advertising and other media stayed more or less the same.

[6] Now this is a plot of GDP which I just put there to have a general measure of economic activity and newspaper ad revenue. And I’ve adjusted it but the consumer price index that you can see what the changes will be in the real term. So basically we have real GDP and real newspaper ad revenue. And you can see, it’s pretty much pieced back in the late ‘80 s, since then, more or less conference in the last couple of years where it took a big dropdown. By the way, the vertical grade bars are recessions. One thing to note is that typically during recessions, advertising expenditures are quite sensitive to cyclical conditions so you can see GDP dropping and advertising expenditures dropping as well. The last couple of years have been dropping outside and even more than the economy would indicate and we’ll see an echo of that in one of the — one of the later slides. The important point is that newspaper ad revenue pretty much Maxed out way before the internet came on the — on the scene.

[7] This is a picture of what ad revenue looks like by type, again, measured in constant dollars. So typically it’s broken down into four different categories, retail, which would tend to be local stores, national, which would be national brand advertising, classified, the blue segment there, and then on-line is the tiny little green segment that kind of popped up a few years ago. You can see what’s going on is retail advertising has been growing over this period. The brand advertising has been contracting and classified advertising stayed pretty much the same up until the last few years at which point it dropped fairly precipitously.

[8] This is the same chart only measured in shares so you can see the share and we’ll have a lot more clearly. I think the important point to note here is the on-line ad revenue is still — as of 2008, at least — is substantially less than 5%.

[9] What about circulation? If you look at circulation, the chart on the upper left-hand corner, the circulation stayed constant for a long period of time and drop in the last couple of years, but, of course, it’s a little bit misleading just to look at total circulation, what you’re most interested in, most likely, is circulation per house hold. So if you look at paid circulation per person, over on the right, you can see it was declining since the ‘60 s and pretty much a steady manner. The interesting thing is, if you look at ad revenue per reader, or ad revenue per circulation, it actually was increasing since the late ‘60 s with a few up s and downs in the recessionary periods and so on, but by in large increasing up until very recently in the last few years. But the ad revenue per circulation is going up even though ad revenue is going down because the circulation has been going down so much. So it’s the denominator that’s been causing this effect.

[10] And here’s another chart just showing circulation which, again, has been remarkably constant between say 55 million and 60 million copies.

[11] And here’s a chart of circulation per household, which is also been pretty stable in terms of its decline. Back in 1947, you were seeing a little over one newspaper per house hold, which I presume is morning and evening editions in many cases. But that’s gone down to something like 40 — .4 newspapers per household in today’s world.

[12] And this is the chart that — well, we just heard Susan refer to that now the internet has surpassed physical newspapers as the popular way of accessing information. I would say television is — got a pretty substantial lead on both of them. And, of course, most of the internet access is access to newspaper sites. So they aren’t, of course, the physical paper.

[13] In that same report, there were some interesting trends about getting news by phone. 26% of all Americans said that they actually access news on their phones and 43% of those under 50 — so this is yet another medium by which people can access news. But in many cases, given the interface that’s available, people are looking at weather or at current events because reading in depth on your phone may be somewhat inconvenient. I thought one of the more fascinating numbers that came out of the PEW report is that 8 80% of people get news by e-mailed links. That’s one of the more popular distribution mechanisms now. You see an interesting story, you send it to their friends. You go to the websites, you see the most mailed stories MRKS are accessed on people’s computers and now, increasingly, on handheld devices. And we shouldn’t think of a single medium per person. Half the population surveyed said they used four to six different media for accessing news. So it’s important to distinguish in these discussions between newspapers traditionally considered as the physical newspaper and, of course, all the other ways you can access news, on TV, on your phone, on your computer, your lap top, etc.

[14] Now, if you add it all up and you look at the difference between physical newspaper reading and on-line newspaper reading, you get this kind of amazing statistic that’s due to Martin Langeveld at Harvard['s Nieman Journalism Lab]. Only about 3% of total news comes on the computer. Most of it comes from looking at physical newspapers. You get nice numbers looking at the web data. This is data from the Newspaper Association Of America. People are spend 38 minutes per month on on-line news which works out about 70 seconds a day. Whereas a person who reads a physical newspaper tends to spend about 25 minutes a day. There’s also time use studies to back these numbers up. So even though accessing news on-line is a very popular thing to do, it’s actually the case that people are not spending nearly as much time on the newspaper on-line as those people are who are reading physical newspaper. Of course, they’re different populations, so you have to compare these carefully. But roughly speaking, about 3% of either page views or time accessing on-line news — sorry — 3% of the total access to newspapers is done on-line. On the other hand, it’s accessed quite often.

[15] This is from data from the U.S. statistical abstract. Also it came from Pew, that roughly 40% of adult internet users say they accessed news yesterday. And. In, if you look at those with household incomes of $75,000 or more, it’s about 53%. So it’s very popular to access that on-line news, it’s just that people aren’t spending a huge amount of time on it, at least compared to the people who are reading the physical newspaper.

[16] If you look, for example, at total number of hours per year where people are accessing newspapers or reading newspapers, it’s about — let’s see, in 2008, 168 hours per year. So roughly works out to 25 minutes a day. In terms of physical newspaper consumption — that’s the same order of magnitude as the time people spend on the internet.

[17] News — the third most popular activity on-line, sending a regular e-mail, using a search engine, getting news on-line. Those are, again, the three top things that people do on the internet, but they’re spending a lot more time, for example, reading e-mail than they are looking at the on-line news. Now this is a little bit of a paradox. Let me stop for a minute and show you the charts. The paradox is, it’s popular to access news on-line, but they don’t spend time doing it. Why is that? That’s the mystery. How much time they do it compared to physically reading the newspaper.

[18] So I pulled some Google data and I looked at the time use pattern of access to Google news. So what you got down there on the bottom are the hours in the over a couple of weeks. The two little small bumps are the weekend access. And the — the five bumps between them are the daily access. So the red line is search activities. This is how many people are searching Google for things. And the blue line is the news activity. So I plotted both of these charts from the area of — each graph is normalized to be one, so it’s measured in percentage terms.

So what’s the first thing you see in the blue line is a lot further up than the red line. What that says is that people are accessing the news during the day a lot more frequently than they’re doing searches. And if you go over to look at the weekend, you can see the searches dramatically exceed the news, people are doing searches more on the weekend than they’re accessing the news. What that suggests to me is that people are accessing on-line news a lot during business hours. It’s not so surprising that they’re not spending a whole lot of time on it because offline news reading is a leisure-time activity. You do it over a cup of coffee, you do it in the evening, maybe. Whereas on-line news reading, that’s a labor time activity. People snatch a few minutes out of the day to check the sports scores or the headlines or something of that sort. So if that’s true, people are spending much less time looking at on-line news than they traditionally spent reading on-line news because they’re doing it during working hours, much less during leisure ours. During leisure hours, you might sit and watch TV, as a matter of fact, it would be a common thing to do.

So the challenge, I think, that’s facing the newspaper industry is to try to turn that on-line newspaper access which is much more attractive way to reach a broader audience is to increase involvement of the news by turning it back to a leisure-time activity.

[19] If you look at the value of clicks sent to newspapers, according to COMSCORE, it’s 35% to 40% of the traffic to news sites. That monetizes about as well as other traffic, that means that search engines are driving about 35% to 40% of traffic of revenues, on-line news sites. Which is a substantial amount. However I have to remind you that the on-line news revenue is about 5% of the total. So even though they’re driving a substantial fracture of the on-line revenue that’s still a relatively small amount of the total revenue.

[20] One thing that’s interesting to do is if you look at a search click that goes to the newspaper site, the newspaper is sent a query — or any site, not just the newspaper site, the site is sent a query that generated that search click. And that means that the site that received the search click could direct the user to the appropriate section of the site. So you can take those queries that people are issuing when they click on news sites and ask, what are the categories? What are people looking for when they go to these on-line news sites?

And I’ve done that. It turns out that the kinds of things that people are looking for when they’re going to these on-line news sites are sports, news and current events, and local — those are the top-level categories that we use at Google categorize search clicks. But there’s relatively the same in travel, shopping, so on. And roughly the same in entertainment, computers, and electronics. I’m comparing searches that go to newspapers to just searches in general that go to sites that aren’t specifically classified as newspapers. I say newspapers, I mean sites indexed by Google news.

Now the bad thing — or maybe not the bad thing, just a fact is, that if you look at the money in on-line advertising, the money is in categories like travel, health, shopping, and consumer electronics. But if you look at the revenue that’s going to newspapers. That’s in sports, news, and current events and local. And believe me, it’s very, very hard to monetize those categories because there isn’t as much consumer dollars spent in those areas as there are in areas like travel, health, and shopping.

[21] So the news narrowly defined is pretty hard to monetize. Despite the fact that it’s popular and frequently accessed, there’s a relatively low level of involvement because of the time constraints that people face, and it’s typically not a highly commercial activity. In fact, newspapers have never made money from news. You look at where the revenue came from, they made money from the business page, the automotive page, home and garden, travel and technology, all those parts of the newspaper that wasn’t the raw news, not the newspapers. Why? You can target ads, not surprising that people who read the automotive page are interested in buying cars or people who look at the travel section might be interested in taking trips.You can see targeted ads in the physical newspaper but tied to the sections. Then it’s the revenue generated from those sections which are used to cross subsidize the actual production of news.

And what’s happened is, this has been a problem with this intermediation that now people can go directly to finance sites, to auto sites, to consumer electronics, books, to travel sites, real estate sites, and so on, so people go directly to seeking those specific sources of information, they tend to bypass the traditional sections of the newspaper and so the cross subsiization model that’s worked for many years has not really work ed now. It’s very hard to do conceptual targeting of the news. If you’re reading the travel section and you see a story about Hawaii, you wouldn’t be surprised to see ads for travel to Hawaii next to that story. If you read the news section and you see bombing in Baghdad, you’re not likely to see travel ads or anything else particularly relevant to that story. So it’s very, very difficult to do the same kind of cross subsidization we’ve seen work in the past.

[22] If you go look at advertising verticals for newspapers, you can see 20% is general merchandise, 14% financial. That would tend to be in the business section of the paper, home supplies, furniture and so on. So you look at the breakdown of where the money is coming from, then it tends to be somewhat different from the kinds of things that people are making money on on search engines and general internet advertising. Of course, all this doesn’t mean that newspapers aren’t valuable. You heard earlier — I would absolutely second that is critical both from the individuals and societal point of view. People find it valuable because people are going to look at news on-line. We see half of internet users read news on-line at some time or another. They just don’t spend a whole lot of time on it.

[23] I’ve seen this big debate on whether you can charge for news, replace the advertising model. My view is, yes, I mean, you should try for sure. But there is this difficulty that you run into when you start thinking about the economics of it is that you can really only charge for thing ifs they’re differentiated. There are a lot of substitutes for a product then it’s hard to charge for it. Then you have this problem, what economists call Bertrand competition — one seller sets it price here, one could sell it down. You get this competing down to the lowest common denominator.

So you really have to have news that’s highly differentiated in order to support a charging model. One time I thought, well, local news, that’s highly differentiated. Local football scores, things like that. Then I realized all of the moms and dads are in the audience on twitter with the mobile phones, maybe the news isn’t so highly differentiated after all, they’ve got mostly specialized industry content, points of view, analyses are not easily imitated are also a case that they can differentiate news. I’m agnostic on whether the charging will work. I think it’s worth a try, but you can only try it for something that’s going to be unique content. It’s very hard to charge for, let’s say, the weather, or something of that sort.

[24] So, in summary, if you go through and look at all of this, newspaper ad revenue is pretty much cost adjusted for dollars. The circulation per capita is going down since 1947. The really big increase of advertising revenues come from cable TV and that’s way before the internet. You do have this problem with on-line news that people are using it differently than they’ve used offline news. They tend to access it more episodically, and the challenge that the newspapers face is how can they use that to — how can they turn that deeper access to the news to the kind of deeper involvement that they would like to have? Maybe what you need, everyone said this is maybe not the news, but engagement. You need to increase the engagement with news.

[25] And the three things newspapers should do is experiment, experiment, experiment. Google has been working on doing some of the experimentations, I think a promising avenue is try to link news access during the day so you use this rather brief occasional access to stories, to a much bigger engagement, partially by shifting some of the access to leisure time.

So we’ve done things like living stories where you work with major newspapers to try to string together all of the items about a particular story as the newspaper developed through the day. Got this capability called star stories, you can look at a story and star it and then you can follow what happens in that story. Maybe look at it later when you have some free time, and other things like that. I’m a big fan of the new devices. I think that things like the ipad or the kindle and this whole group of tab let computing is going to potentially make a big difference because it gives you completely different ergonomics for accessing the news. If people are accessing on-line news at their workstation, computer, or their laptop during the day and they have a lot of things going on, when you come home, probably you don’t want to go sit in front of your laptop or your workstation at home to do the same thing. What you might want to do is sit in your easy chair and look at your tablet where you can follow some of the stories that you might have seen accessed originally at work.

Of course, this isn’t going to be a flat textural description, it’s going to be multimedia in those devices, and so what I believe they’ll see is a merger of the TV, magazine, radio, and newspaper experience. You’ll have a device which will access all of the different medias. Give you a deeper — potentially deeper involvement with the news. Because what happens with TV is you get this emotional experience from the visual side, but in many cases, it’s frustrating because you can’t go deeper in to the story because the newspaper, the physical newspaper with textural material you can go deeper in the story but maybe don’t have the same emotional involvement, get them both together, then potentially you can have a very positive and interesting and worthwhile experience. So I would like to see this — this area develop and we’re doing what we can to help that happen.

Finally, the last point is newspapers should better exploit the information they have. You know, in many cases, the newspaper website is seen as — as something that for the techies or the person who’s managing the web blog is doing it just to look at how performance is working. But it’s hugely valuable information in those web logs — both from an editorial point of view and from a marketing point of view. There’s lots of interesting things that you can do when you understand why people are coming to your site, where they’re spending the most time, what they’re coming back to. It’s just extremely valuable information. I think newspapers can spend more time on analyzing that information and end up with better ad effectiveness measuring better contextual targeting and editorial targeting. I think I’ll end there. And thank you very much for your attention.

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