Needed: An Order of Battle for the Newspaper War

Search-based advertising is the real problem

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Posted in Uncategorized

The Trump administration having declared war on the media – three of the four most important newspapers, in particular – it is prudent to construct an order of battle for the newsprint press. It’s been fifteen years since I worked for a newspaper. I no longer know much about what constitutes common knowledge in their pared-down newsrooms, much less combat readiness in their front offices. But Jack Shafer, who writes the Fourth Estate Column for Politico, is a close and shrewd commentator on the scene.

So I sat upright when Shafer wrote in December, Don’t Blame Craigslist for the Decline of Newspapers.  The conviction that free online for-sale lists – “verticals,” in Web-speak – were a critical factor was widespread, Shafer wrote. For example, The Economist had written in 2006, “Craig Newmark has probably done more than anything to destroy newspapers’ income.”  But blaming the innovative Newmark was unfair and ahistorical, Shafer continued.

Newspapers themselves deserve a share of it. Where they gained monopoly power, which was in most U.S. cities, daily newspapers gouged their classified customers pitilessly; they lobbied Congress heavily to block the early migration of classifieds to electronic forms. And the big newspaper chains helped destroy their own business by investing in national online classified advertising verticals, which they ultimately sold.

It was as I feared. Newsrooms still don’t understand what happened to their centuries-old semi-monopoly on advertising. It was search-based advertising, introduced in 2002 by Google, not Craigslist, which sent newspapers into a tailspin from which they haven’t yet fully leveled off. Regaining altitude depends critically on responding effectively to the entry of this new competitor in the market for attention.

Google didn’t invent search advertising.  That honor belong to a serial entrepreneur named Bill Gross, who in February 1998 introduced the idea to an uncomprehending TED audience that a search term was inherently valuable – six months before Google incorporated. A Cal Tech graduate, Gross understood that, because it signaled intent, a search term could be priced and sold at auction to an advertiser. His GoTo.com, later known as Overture, didn’t make it big (unless you think its eventual $1.63 billion sale to Yahoo was big), but Google did, when it introduced an improved version of the scheme it called AdWords four years later.  At that point newspapers were still expecting a full recovery from the mild recession.

The significance of search advertising to newspapers was news to me when I started writing about it, in 2011, in A Bare Knuckles Pricing Strategy for The New York Times and A Momentous Event, Not Yet Widely Understood.  I cobbled together my understanding from several books, the best of which remains The Search: How Google and Its Rival Rewrote the Rules of Business and Transformed Our Culture (Portfolio, 2005), by John Battelle, a founding editor of Wired. Columbia University professor Tim Wu gives the story a ten-page reprise in The Attention Merchants: The Epic Scramble to Get inside Our Heads (Knopf, 2016), though far too late in the book to be of much use to newspaper strategists.

I don’t want to go on rewriting old columns.  My point here is that newspapers themselves haven’t covered the story. Among financial sophisticates, search advertising is old news to almost everyone but newspaper readers. Here’s how Bloomberg Businessweek last month described the enormous new market in a cover story on Google’s new CFO:

Whereas traditional advertising companies had tried to target audiences based on demographic profile, Google’s search ads could be aimed at people already interested in a particular product. Its pioneering pay-for-click pricing scheme, AdWords, meant advertisers paid only for ads that worked.  The result revolutionized media and advertising, and gave Google a revenue stream that seemed almost limitless. Googlers have a name for its ad business: “the cash machine.”

The magazine cover was simplicity itself:

.                  Google Income Statement:

1. Revenue from online advertising

$76,062,000,000

2. Revenue from Google Glass, venture capital investments, Nest thermostats, smart contact lenses, building-size video screens, seawater-based fuel, broadband internet service, delivery drones, internet balloons, self-driving cars, quadrupedal all-terrain robots, Wi-fi kiosks, energy generating kites, the world’s most sophisticated artificial intelligence software, possible cure for death:

¯\_(ツ)_/¯

Facebook, Google’s closest search-advertising competitor, saw revenues climb to around $25 billion last year. In contrast, the four best papers probably didn’t sell $10 billion worth of advertising between them.  But if deeply reported stories about the invention and significance of search-based advertising have appeared on newspapers’ front pages, I have missed them.

Five developments have been necessary to remove newspapers from the hands of travelers, wherever they happen to be:  browsers, search engines, servers, auction technology and, of course, smart phones. But what about the body (and mind) at rest?  Research is accumulating that a significant market remains for printed newspapers, delivered to homes and offices.  As Jack Shafer wrote last summer, in Why Print Still Rules,

Print—particularly the newspaper—is an amazingly sophisticated technology for showing you what’s important, and showing you a lot of it. The newspaper has refined its user interface for more than two centuries. Incorporated into your daily newspaper’s architecture are the findings from field research conducted in thousands of newspapers over hundreds of millions of editions. Newspaper designers have created a universal grammar of headline size, typeface, place, letter spacing, white space, sections, photography, and illustration that gives readers subtle clues on what and how to read to satisfy their news needs.

Web pages can’t convey this metadata because there’s not enough room on the screen to display it all. Even if you have two monitors on your desk, you still don’t have as much reading real estate that an open broadsheet newspaper offers. Computer fonts still lag behind their high-resolution newsprint cousins, and reading them drains mental energy. I’d argue that even the serendipity of reading in newsprint surpasses the serendipity of reading online, which was supposed to be one of the virtues of the digital world.

And last week, in Print Still Refuses to Surrender, Shafer concluded that English readers, at least, had spoken:  “You can pry their newspapers from their cold dead hands.” A new study, by Neil Thurman, of the City University of London, had found that 88.5 percent of the total time readers devoted to 11 national U.K. newspapers was spent on the print edition, Shafer wrote, compared to 7.5 percent on smartphones, and 4 percent on PCs. Another study, by the audit and consulting firm Deloitte, revealed that 88 percent of newspaper revenues in France, Germany, Spain and the UK still come from print editions of newspapers. Everybody knows that printed editions are doing better in Europe than in the US, but here, too, advertisers pay far more for space in newspapers than they do for fleeting online impressions, even as print-advertising revenues continue to drop – last year precipitously, it turns out,.

Here is where the story gets interesting.  Leave aside the FT, a truly global newspaper that was purchased in 2015 by the deep-pocketed Nikkei media group. (The Japanese are the ones who really love newspapers.) The three leading US newspaper appear to be pursuing very different strategies with respect to print.

The New York Times publisher Arthur O. Sulzberger Jr. in 2012 hired as chief executive Mark Thompson, who built a highly successful web page for the state-subsidized British Broadcasting Company. The Washington Post, is now owned by Jeffrey Bezos, Amazon founder who possesses an almost limitless sense of the power of the web. Bezos’s executive editor, Martin Baron, told Madrid’s El Pais in an interview last month, “Print is not going to be around forever and it’s going to become a smaller and smaller part of what we do. I don’t know whether it’s five or ten years or something longer than that, but I do know it’s not going to be the future of our business… I wouldn’t even use the word newspaper anymore.”

That leaves The Wall Street Journal, privately owned by Rupert Murdoch’s News Corp. since 2007. The WSJ, like the WPost, no longer publishes its income statements, so it is hard – or at least expensive – to know how either enterprise is doing.  But of the three, the Journal seems most deeply committed to its paper editions, given Murdoch’s deep, deep roots in print. It could turn out that the NYT and WPost become, as did the Christian Science Monitor in 2008, all digital operations.

Suppose, for the sake of argument, that Shafer is right – that print is in fact a vital aspect of the future of the business. That could leave Murdoch’s WSJ, along with Gannett’s USA Today, with a shared monopoly on the national newspaper business. It’s one more thing to worry about in the time of Trump.