Tuesday, December 05, 2006

NEWSPAPERS: Tom Mohr, Cronkite-ASU -- "Winning Online" -- A Manifesto


Published: September 04, 2006 1:30 PM ET
Editor & Publisher Online

SPECIAL: "Winning Online" -- A Manifesto

By Tom Mohr

(Tom Mohr is the former head of Knight Ridder Digital. He now heads the
"innovations laboratory" at the Cronkite School of Journalism at Arizona State

NEW YORK -- Newspapers must win online, or face a future of painful

To win, industry leaders must adopt a Marshall Plan embodying two key
objectives: the migration to common platforms, and the acquisition of the
ability to sell top-quality online product to our advertisers. To fulfill these
objectives, the independent companies of a proud industry must aggregate into
an industry-wide network. In this network, each company must cede some control
over its digital future into a .Switzerland. organization that manages the

This will require a degree of cooperation and trust rarely seen before in the
newspaper business, and therefore will only be achieved through the active,
visionary leadership of the industry.s captains. But, if they pursue this path
and plug into the power of network economics, they will tap into $4 billion of
revenue upside for the industry by 2010.

The low rumble of shifting ground is palpable. Not only is the shift towards
online; it is, in tandem, a shift away from print. Not dramatic yet,
perhaps.but clear. And the impacts continue to ripple. As I write, the
newspapers of the former Knight Ridder are soon to be parts of nine different
companies. Tribune Co. faces a boardroom battle which challenges its very
survival as an intact firm. Wall Street analysts have cooled on the industry.s
prospects. Academics in journalism schools despair the future of the craft in a
post-newspaper world.

I believe newspapers. social purpose.the building of civil society in cities
and towns across America through the daily output of good journalism.is worth
fighting for. Securing the future of the industry.s social purpose requires
securing its financial future. And I have concluded that depends on an
industry-wide understanding of seven key points:

-- Local newspapers will not be the innovation source for top online products.

-- "Local. is not, in itself, defensible online.

-- The big money is not in newspaper websites, but in gaining access to
top-tier product via partnerships with vertical online leaders.

-- Moving newspaper websites onto common platforms will deliver improvements in
quality, cost reduction, traffic and revenue.

-- When networked, newspapers bring critical assets to the table that
strengthen their competitive position vs. online-only players.

-- The window of opportunity is closing; failure to act will compromise the
future of the business.

-- Ultimately, the key is leadership at the highest levels.

1. Breakthrough online innovation won.t come from newspapers

It is instructive that after twelve years of the consumer web, not a single
example of breakthrough online innovation has emerged out of a newspaper
company. Not in recruitment. Not in auto. Not in classifieds. Not in shopping,
directory, new ad models, or content aggregation. The Real Cities ad network,
created by Knight Ridder, comes close, but lacks the scale or technology to
earn the title .breakthrough., as would Advertising.com or Google AdSense.

There are two simple reasons: skill and scale.

As historical print media companies, newspapers don.t boast a critical mass of
the world.s best mathematicians, computer scientists and computer programmers
in their organizations. Nor are they led by CEO.s with operational experience
in online or technology. Online is a technology play first, a media play
second. The truly breakthrough online successes.Google, Yahoo!, MySpace,
Amazon.com, Monster, eBay, Wikipedia, Shopzilla, etc..have emerged from teams
led by internet-savvy visionaries and loaded with tech DNA.

And newspapers. sense of scale is bounded by circulation footprints. Even
newspaper companies with multiple newspapers tend to have a sense of scale that
follows a polka dot pattern across the United States. Yet when you talk to the
upstarts who have created successful start-ups, you realize that from the
moment they first step into the garage to begin their work, their vision is for
global scale.

Let.s look first at the consumer side. True, some newspaper websites, such as
washingtonpost.com, are outstanding. But when we scan the industry as a whole,
many sites fall well short of the bar in a Web 2.0 world. Many lack basic
features like article commenting, RSS feeds, .related links., user blogs, and
rich features at the channel level (calendar functionality in entertainment,
stock portfolios in business, etc.).

This feature gap has contributed to a consumer indifference problem. In a
recent study completed by the Outsell research organization, in critical
information areas such as .Where I get my news right now. and .Where I get my
news first thing in the day., newspaper websites fell behind not just Google,
Yahoo!, AOL and MSN, but even .Other online sites..

The difficulty is that in all but the largest markets, the technology
investments required to deliver best-in-class feature functionality are simply
too rich for individual local markets to bear, given the limited local revenue

As important as newspaper websites are, the direct revenue opportunities they
enable (classifieds on homegrown platforms, display ads, email marketing and
content syndication) comprise perhaps thirty percent of the total online
revenue opportunity for newspapers. The real money for newspapers is in
providing advertisers top-tier vertical online solutions.

And in this arena, newspapers have been on the sidelines. In every ad vertical
that matters to the newspaper industry, vertical .category killers. such as
Monster, CareerBuilder, Craigslist, eBay, PriceGrabber, Shopzilla, Cars.com and
AutoTrader have emerged to predominate. None has been created by a newspaper
company. In a handful of cases, a handful of newspaper companies have taken
ownership stakes or set up partnerships.

But when we consider the percentage of top-200 newspapers that have access to
top-tier online products via ownership of or partnership with online vertical
leaders in all the relevant verticals (not just recruitment and auto), the
coverage is staggeringly inadequate. This is why online revenues comprise only
5 1/2 % of total newspaper industry ad revenues today.

2. .Local. is indefensible online

Over the past 50 years, newspapers have benefited from near-monopoly status.
Their dominant leadership in driving results for local advertisers has provided
the financial capacity to deliver highly compelling daily local news to
consumers, which in turn has driven high circulation and market penetration,
supporting high advertiser ROI in a virtuous cycle of self-reinforcing

But in itself, .local. is indefensible online. All online success stories
benefit from network economics. Network economics is characterized by two
benefits: the network effect and scale economics. With the network effect,
every member in the network gains increasing benefits as membership grows,
causing membership to grow faster. In turn, the central costs of technology are
spread across a wider and wider revenue stream. MySpace, Google, PriceGrabber
and eBay all exhibit this distinguishing characteristic. Scale economics refers
to the leverage of size: bargaining power with vendors and partners, and the
ability to gain a network-wide view of performance to identify best practices.

Individual newspapers, acting alone, can.t gain the leverage of network
economics. Even the largest newspaper company in the U.S. (Gannett) ranks
seventh in combined monthly unique visitors vs. other online news sites, and
has only limited network leverage. However, the newspaper industry as a whole
boasts 56 million monthly unique visitors, fully a third of the entire U.S.
monthly Internet audience.

If we were to build an industry-wide network, we would leap to the lead in
combined monthly unique visitors vs. other online news sites, and gain the
critical bargaining power that would open the door to sharp deals with vertical
online leaders in all the ad verticals that matter.

3. The big money is in vertical partnerships

At Knight Ridder, fully 70% of its online revenues came from branded online
vertical products (CareerBuilder, the Classified Ventures products, and
ShopLocal). The remaining revenue directly leveraged the traffic and content on
our newspaper websites. primarily display advertising and content syndication.

It.s interesting that online revenue comprised about 7% of total revenue at
Knight Ridder, 1½ points higher than the industry average of 5½%. The
difference may well reflect the disproportionate value of branded vertical
products in driving incremental revenue opportunity.

Here.s another indicator. Thirty-three percent of Knight Ridder.s recruitment
revenues were online in the first half of 2006, compared to about 20% for
another large newspaper company I spoke with. I believe the 13 point difference
has nothing to do with sales execution, but rather is reflective of the fact
that Knight Ridder could offer CareerBuilder-- a branded, top-tier online
product.to its advertisers, while the other company lacked access to a top-tier

A back-of-the envelope analysis shows $3.3 billion of the total $4 billion
incremental opportunity by 2010 is in partnerships with online leaders (#1, #2
or #3 in their verticals, and the search portal players). This is the
difference between baseline industry growth (my analysis, with help from NAA,
Merrill Lynch and Universal McCann estimates) and growth powered by top-tier
online product, if available to most newspapers in the industry.

The point is intuitive: advertisers pay for results. Results come from top-tier
products that drive consumer behavior. Access to top online products will only
come from deals with existing vertical online leaders. And if partners can work
with newspapers efficiently, through a single .Switzerland. organization (let.s
call it Switzerland Inc.), deals can get done.

There is little doubt that newspapers provide potent benefits to any potential
partner. CareerBuilder.s brand position has been strengthened immeasurably in
the past few years by its weekly branding on the front of jobs sections in
Gannett, Tribune and Knight Ridder markets across the country. But to get
favorable terms with regard to wholesale prices, channel conflict and branding
requirements, you need scale.

Take the case of Philadelphia, which recently cut a deal with Monster. I'm sure
Philly cut the best deal it could, given the circumstances. But let's be clear:
from Monster's perspective, the deal must have been a tactical one. I doubt
Philly comprises more than 5% of Monster's world. On sticking points such as
sales channel conflict with the pre-existing Monster sales team in Philly, or
the wholesale price, how sharp was Monster's pencil? But if the newspaper
industry were networked, a different approach would have been possible: "our
network offers you 1,800 recruitment salespeople in 180 markets across the
U.S." That's a strategic conversation.

That.s the power of a network.

4. Newspapers gain by moving onto common platforms

Newspaper online infrastructures dot the United States like a thousand points
of light. It is a massive waste of financial and intellectual capital. As
Knight Ridder proved, multiple newspaper websites of all sizes (from the Biloxi
Sun Herald to the Philadelphia Inquirer) can sit on common platforms and
deliver Pulitzer Prize-winning quality.

What, specifically, is meant by common platforms?

They include a common content management system, common classified marketplace
solution, common ad serving capabilities, a common ad network, shared content
and feature functionality within key channels, a common underlying technical
infrastructure and common supporting financial systems, metrics and analytics.

I do not mean one site for the newspaper industry. Nor do I mean that every
site would look the same. As is true today, the consumer would go to the unique
URL they.ve always known, and see the unique newspaper.com site they would
expect to find. Content would be prioritized and managed locally. Producer
tools would offer templates that reflect usability best practices, but allow
unique presentation and design.

However, there would be standardization where standardization adds value.
Producer tools, ad positions, measurement tools and metrics, ad serving
infrastructures and classified marketplace solutions would all be standardized.
There would be one ad network for national advertising. And business
development, shared content management and channel services in channels like
travel, business and technology would all be centralized. Underneath the hood,
the platforms would be built on a common, massively scaleable infrastructure to
allow efficient addition of markets. A Switzerland Inc. would manage both the
technology and the network, with all the inherent relationships involved.

Let.s face it. Making such a move is a monumental effort involving operating
risk, loss of full local control, significant switching costs and real
transition pain. The infrastructures currently in place are the product of
years of blood, sweat and tears. Managing this kind of industry- wide change is
a bold and daunting challenge. Is it worth it?

Collectively, the move to common platforms could drive roughly $700 million of
the $4 billion in 2010 incremental revenues, plus significant cost reductions.
This is driven by four key benefits.

-- Common platforms can be built to best-in-class standards, driving traffic,
page views, ad impressions and revenue, since the investment is once for many.

-- Costs for each newspaper fall as the network grows, because the central
technology costs can be spread across the network.

-- With common platforms, a network view of member performance is
possible.enabling identification and evangelization of best practice, lifting
all boats.

-- Perhaps most importantly, common platforms deliver bargaining power.

The bargaining power benefit is worth elaboration.

With scale, newspapers can take on some of the most vexing dilemmas they.ve
faced in the online era. For instance, Yahoo! News gains about $6.00 per
thousand page views today. But those page views are driven by content provided
largely by AP and newspapers. I roughly estimate that the combination of AP.s
revenue from the deal (expressed in revenue per thousand Yahoo! page views) and
the revenue newspapers gain from the Yahoo! News click stream is little over
1/10 what Yahoo! receives. Bad deal.

But what if 2/3 or more of the U.S. newspaper industry sits on one platform,
managed by Switzerland Inc.? What if Switzerland Inc. decides to deny Yahoo!
and perhaps Google access to newspaper industry content for three months,
followed by a negotiation for better terms?

That.s the power of a network.

5. Newspapers bring critical assets to the table

While newspapers acting alone are ill-positioned to succeed online, they bring
potent assets when plugged into a network. In aggregate, newspaper websites
reach 1/3 of the entire U.S. internet audience on a monthly basis already, in
many cases with suboptimal websites.

Newspapers deliver three benefits:

-- Strong local brands, with the capability to drive audience

-- Trusted, compelling local content

-- Large local sales organizations and relationships with advertisers

In a network, these assets become decisive advantages. Online-only players must
justify investments in local brand, content and sales assets based solely on
online revenue opportunity. Newspapers can leverage these assets across both
print and online.

That.s not to say that these benefits are fully optimized. Sales teams need to
learn how to sell online products much more effectively than they do today.
Newsrooms need to learn how to deliver breaking news and updates throughout the
day, and how to create compelling multimedia projects with frequency. But at
least an organizational foundation is in place to engineer these improvements.

6. The window of opportunity is closing

Newspaper industry leaders are frogs in a pot. The water.s starting to boil,
and it.s time to jump. Only 19 percent of 18-34 year olds read a daily
newspaper; 44 percent of them go to a web news portal. Broadband penetration
has reached 57%. The blogosphere is doubling every 5 ½ months. Search provides
instant access to the world.s information. User-generated content has turned
the authority model of institutional media on its head. Peer-to-peer networks,
tag clouds and reputation engines are fundamentally changing how people engage
with content and communications.

Safa Rashtchy, Senior Internet Analyst for Piper Jaffray, has advanced the
notion that these shifts in consumer behavior have precipitated a nascent shift
in the marketing mix. He sees search at the center of a new marketing mix.
Acknowledging a debt to his framework, I would expand the .center. somewhat to
include all intention-based advertising (search, lead-generation advertising,
and e-commerce).

Increasingly, smart advertisers are placing their first dollars in
intention-based advertising. That.s because these ad dollars target consumers
who demonstrate through their actions an expressed interest in the product or
service being advertised. While traditional media are not completely replaced
by intention-based advertising, they suffer lost market share.

These changes have begun to restructure consumer consumption habits and
advertiser behaviors. Circulation has declined 12% since 2000, and the rate of
decline is increasing. 3,500 newsroom professionals have lost their jobs, about
7% of the industry total, since 2000.

It is not beyond the pale for the $49 billion (2005) newspaper ad business ($47
billion of which was print) to begin to see accelerating declines in print ad
revenue over the next five years. My rough projection is for 2010 print revenue
to be just under $3 billion below its 2005 level. This loss must be offset by
online. The $4 billion incremental revenue from a network ensures sub-two
percent revenue growth from 2006 . 2010. Not robust, perhaps, but certainly
much better than the alternative.

This migration path is difficult. The benefits of today.s actions will be seen
in two to three years. It.s important to start now.

7. It.s all about leadership

Newspaper leaders are moving in the right direction.

A small consortium of newspaper companies is in discussions regarding a Yahoo!
partnership involving classifieds, local news, and vertical ad packages. AP
seeks to launch tools that support the standardization of metadata taxonomies
across newspapers so that articles can be efficiently filed, archived,
retrieved and shared across the network. Lee Enterprises. recent acquisition of
DotConnect Media puts it in the ad network business. Tribune and Gannett are
pursuing ad network and vertical partnership opportunities. McClatchy has
indicated that they wish to move the Real Cities ad network towards a common ad
serving platform.

As laudable as these steps are, they are just a subset of the network
opportunity. Pursued separately in loose consortiums, they are like trying to
get a gaggle of geese to march in a parade. We need to think bigger and bolder.
A strong Switzerland Inc. that brings together all of these initiatives
maximizes integration and bargaining power.

It won.t be easy. To create a Switzerland Inc., thorny strategic issues must be
addressed. These include divergent newspaper company objectives, competitive
dynamics, network ownership and governance issues, and affiliate structure. The
tactical concerns are no less daunting, including newspaper sales territory
overlaps, wholesale pricing, channel conflict with the vertical partners. own
sales organizations, and branding requirements. There are migration planning
issues, and antitrust considerations.

But it.s worth it. Not just in strengthened stock prices and reductions in
layoffs. This is a fight for the future of quality news.and for finding new
ways to enrich the shared life in an online world.

Conviction in the vision must be deep, for it will be tested. Inevitable
miscues will challenge resolve. But if industry leaders conclude that success
online is vital-- and that it will only come by plugging into network
economics-- then we can have great confidence in the future of the newspaper
business. Committed leaders make change happen. No matter how hard that change
may be.

© 2006 VNU eMedia Inc. All rights reserved.

Tom Mohr (letters@editorandpublisher.com) was president of Knight Ridder
Digital until its sale to McClatchy in June. He is now director of the New
Media Innovation Lab at Arizona State University and an executive in residence
at Charles Venture Partners, where he evaluates start-ups in the media space.
His email address is: mohr4fun@gmail.com.

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