The Internet and Business
Lecture 9. Information Businesses;
Industry Analysis Example: Newspapers
Spring 2009. Lecture 9
1
The Internet and Business.
R. David Seabrook. Purchase College, SUNY.
Only three more lectures from me!
• Today: Industry Analysis Example: Newspapers
– Learn about information goods
– See an example of an industry analysis (for group projects)
– Learn to analyze industry structure: Porter’s Five Forces
• 4/13: Industry Analysis Example: Music
– Another example of an information good
– Also explain how startup ventures work (financing)
• 4/20: The Internet and the Workplace
– How the internet has changed the nature of work
• 4/27 and 5/4: Group Presentations
Spring 2009. Lecture 9
2
The Internet and Business.
R. David Seabrook. Purchase College, SUNY.
Group Presentation Schedule
• 4/27: Internet Banking, Movie Rentals, Social
Networking
• 5/4: Apparel, Internet Gambling, Television
• Group wiki due 5/4 for all groups
Spring 2009. Lecture 9
3
The Internet and Business.
R. David Seabrook. Purchase College, SUNY.
Information Businesses
Introduction to Information Goods
Spring 2009. Lecture 9
4
The Internet and Business.
R. David Seabrook. Purchase College, SUNY.
An information good is anything that
can be digitized
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Music
Movies
Newspapers
Book content, encyclopedias
Software
Blueprints
Address lists
These lecture notes…..
Spring 2009. Lecture 9
5
The Internet and Business.
R. David Seabrook. Purchase College, SUNY.
Information goods have a unique
quality – they’re non-rivalrous
• I can give my music to you and still keep it for
myself!
• But I can’t do that with my car; either I’m driving it or
you are
• Physical goods are rivalrous – only one person can
get the benefit of it at a time (e.g. car, hamburger)
• Information goods are non-rivalrous – many people
can get the benefit of the same item at the same
time
Spring 2009. Lecture 9
6
The Internet and Business.
R. David Seabrook. Purchase College, SUNY.
Information goods are also cheap to copy
• The cost of producing the first copy of the
song may be high
– Weeks or months of composition
– Time and cost of musicians
– Editing, mixing etc
• But once you’ve produced a song, the cost of
producing one more copy is essentially zero
• Information goods have high fixed costs and
near-zero marginal costs
Spring 2009. Lecture 9
7
The Internet and Business.
R. David Seabrook. Purchase College, SUNY.
Before the internet, information goods were
distributed the same way as physical goods
• Milk distribution:
– Truck delivers milk to the store
– You drive to the store and buy the milk
– Sometimes milk is delivered to your door
• Music distribution
– Truck delivers CDs to the store (e.g. Tower Records)
– You drive to the store and buy the CD
• News distribution
– Truck delivers heavy bundles of paper with information printed on it
– You drive to the store and buy the newspaper
– Sometimes the newspaper is delivered to your door
Spring 2009. Lecture 9
8
The Internet and Business.
R. David Seabrook. Purchase College, SUNY.
Because information was treated as a “physical”
good, firms could make money in the same way
• Distribute it via retail stores
• Charge per copy
• Prevent theft
Spring 2009. Lecture 9
9
The Internet and Business.
R. David Seabrook. Purchase College, SUNY.
The internet has dramatically changed the
economics of businesses that produce
information goods
• Lower production and distribution costs
• Leads to much more competition  lower profits
– International news organizations can easily reach New York customers
– Anyone can blog about sports or local news
– Small independent music producers can distribute internationally
• Competitors (legal and illegal) provide free goods
– Why pay for the New York Times when you can go to CNN.com for
free?
– New York Times and other papers forced to provide free information
over the internet
– Free music downloads and illegal copying have hit revenues both for
record companies and artists, who receive smaller royalties
Spring 2009. Lecture 9
10
The Internet and Business.
R. David Seabrook. Purchase College, SUNY.
The impact of the internet on an industry
depends on the product or service
Type of industry
Examples
Impact of Internet
Physical goods
Steel, fruit, clothing
?
Information goods
Music, newspapers,
television
?
Services
Gardening, travel agents,
gambling, banking, social
networking, movie rental
?
Spring 2009. Lecture 9
11
The Internet and Business.
R. David Seabrook. Purchase College, SUNY.
Industry Research Sources
Spring 2009. Lecture 9
12
The Internet and Business.
R. David Seabrook. Purchase College, SUNY.
Look at news and its sources, financial
and business sites
• Need to look at the news
– www.nytimes.com and similar have good business info
– Look at the dates
• Google is a useful starting place, but to get up
to date info you need to go to the source
• Company and industry reports are a very
valuable source of information
– See financial sites such as www.bigcharts.com,
www.yahoo.com/finance, www.finance.google.com
– Industry reports such as Newspaper Association of America
Spring 2009. Lecture 9
13
The Internet and Business.
R. David Seabrook. Purchase College, SUNY.
Information sources
• Industry associations
– Newspaper Association of America
– International Federation of the Phonographic Industry (IFPI)
• Trade newspapers, magazines, web sites
• Company annual reports
• Market research organizations such as NPD,
Nielsen and others
• Use press and business magazines to find
original sources
– Occasionally can be original sources themselves
Spring 2009. Lecture 9
14
The Internet and Business.
R. David Seabrook. Purchase College, SUNY.
Research tips
• Start “long lead time” data first
– Company financials
– Market size numerical data
• Make sure you get the most recent news
– If you base your project on data from 2002 you may find that it is
now totally wrong
– Internet business moves fast! You need 2008 or 2009 data
– You can sometimes use older data if you are confident that little has
changed
• Business news sites are a good place to start
– News sites try hard to be up to date with technology news
– That’s because internet users are big consumers of that news
– Many consumers attracts advertisers!
• Include links to sources
Spring 2009. Lecture 9
15
The Internet and Business.
R. David Seabrook. Purchase College, SUNY.
Newspaper Industry
See class wiki
Video
See New York Times web site
Note: newspapers are an information good,
so we expect the internet will have a big
impact on the business
Spring 2009. Lecture 9
16
The Internet and Business.
R. David Seabrook. Purchase College, SUNY.
Executive Summary (put links to sections)
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There are more than 1,400 newspapers in the US with total annual revenues of $55B
Advertising represents about 75% of revenue
Circulation has fallen about 15% in the last five years ; advertising revenue fell over
16% in 2008; newspaper stocks are underperforming the market
This was a fragmented industry with local monopolies (usually one paper per town)
Free news via the internet is a substitute for newspapers
Web sites have also siphoned off advertising revenue, especially classified ads
Newspapers have responded by setting up their own web sites, cannibalizing
subscription revenue while trying to compete for advertising revenue. They are using
more multimedia content.
However, top news sites are portals and blogs, not newspaper sites
Newspaper online ad revenue is not growing fast enough to offset falling newspaper
ad revenue
Profits are falling across the industry
Newspapers are forming alliances with web sites to share local advertising revenue
and to provide local content
Papers with strong brands – like the New York Times – are trying to use their brand
to create partnerships e.g. with Monster.com
Some papers are advertising heavily to try to retain subscribers
Expect continued consolidation among smaller papers
Newspapers continuing to close, downsize or move to internet-only publication
Spring 2009.
Lecture
9
17 current form will surviveThe Internet and Business.
Unlikely
that
newspaper
companies in their
R. David Seabrook. Purchase College, SUNY.
Expect newspapers will not disappear – some advertising segments still strong
Elements of industry analysis
• Size
– Revenues and profits
– Trends – growing? Contracting?
• Structure
– Who are the players? Are there a few big companies or many small ones?
– What do they do?
• Economics of industry participants
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Who is making the money (profitability)?
Costs and cost “drivers” – what determines costs?
Revenue and revenue “drivers” – what affects revenue?
Impact of the internet – how does it affect cost and revenue?
Determinants of industry structure – what determines the amount of competition?
• Business models
– Who buys the product and why? How do the businesses make money?
– Impact of the internet on business models
– Examples of companies with different business models
• Competitive strategy
• Marketing strategy
• Future developments
– What’s happening now? To existing companies? To new companies?
– What emerging new ways are there to use the internet in this industry?
Spring 2009. Lecture 9
18
The Internet and Business.
R. David Seabrook. Purchase College, SUNY.
Newspaper Industry Size
Spring 2009. Lecture 9
19
The Internet and Business.
R. David Seabrook. Purchase College, SUNY.
The first thing to do in industry
analysis is to get the scope right (this
can be tricky!)
Newspaper Industry Scope Questions
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Are weekly papers included?
Are free newspapers?
What about news web sites like CNN.com?
What about news magazines?
What geographical scope?
– International?
– National?
– Regional?
Spring 2009. Lecture 9
20
The Internet and Business.
R. David Seabrook. Purchase College, SUNY.
Here’s a working definition of an industry:
• Group of firms
• Serving the same customer needs
• Using essentially the same technology
Spring 2009. Lecture 9
21
The Internet and Business.
R. David Seabrook. Purchase College, SUNY.
I’m choosing to use the definition used by
the Newspaper Association of America
• Paid circulation
– Excludes free circulation
• Daily and Sunday circulation
• Printed on newsprint – tabloid or broadsheet
– Excludes magazines
– Excludes news web sites (in my definition news web sites
are a substitute for newspapers)
• United States
– National, regional and local papers included
Spring 2009. Lecture 9
22
The Internet and Business.
R. David Seabrook. Purchase College, SUNY.
There were more than 1,400 daily
newspapers in the USA in 2007
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1,437 daily newspapers
A total daily circulation of 52.3 million
907 Sunday newspapers
A total Sunday circulation of 53.2 million
Source: Newspaper Association of America, http://www.naa.org/TrendsandNumbers/Total-Paid-Circulation.aspx,
accessed 4/6/08
Spring 2009. Lecture 9
23
The Internet and Business.
R. David Seabrook. Purchase College, SUNY.
Newspapers are a $55 billion
industry in the US
• Circulation expenditure $11 billion (2004)
• Advertising revenue $45 billion (2007)
• Totals a “$55 billion newspaper industry”
Source: Newspaper Association of America
http://www.naa.org/TrendsandNumbers/Advertising-Expenditures.aspx and
http://www.naa.org/TrendsandNumbers/Circulation-Expenditures.aspx, accessed 4/7/08
Spring 2009. Lecture 9
24
The Internet and Business.
R. David Seabrook. Purchase College, SUNY.
Circulation has fallen sharply in
the last four years
US Newspaper Daily Paid Circulation
70,000
Circulation (thousands)
60,000
18% decline from
1990 peak
50,000
40,000
30,000
20,000
10,000
0
1940
1950
1960
1970
1980
1990
2000
2010
Year
Source: Newspaper Association of America http://www.naa.org/TrendsandNumbers/Total-Paid-Circulation.aspx accessed 4/6/09
Spring 2009. Lecture 9
25
The Internet and Business.
R. David Seabrook. Purchase College, SUNY.
Newspaper ad revenue fell 16.6% in 2008 –
online ad revenue not enough
Spring 2009. Lecture 9
26
The Internet and Business.
R. David Seabrook. Purchase College, SUNY.
Newspaper Industry Structure
Spring 2009. Lecture 9
27
The Internet and Business.
R. David Seabrook. Purchase College, SUNY.
Most cities and towns were served by a single
local newspaper  fragmented industry with
limited local competition!
• Very large cities may have several newspapers, but
they usually target different market segments e.g.
– New York Times (targets educated, more affluent)
– New York Post (less educated, less affluent, but more numerous!)
• There are few nationally-distributed newspapers
– New York Times, Wall Street Journal, USA Today, Washington Post,
Christian Science Monitor (Source: http://www.abyznewslinks.com/unitena.htm )
• Most newspapers serve specific regions, cities, towns – e.g. Greenwich CT
– Greenwich Time – paid circulation
– Greenwich Citizen (Media News Group), Greenwich Post (Hersam Acorn)– free circulation
• Industry is characterized by local markets with limited competition
(Why is that? See economics)
Spring 2009. Lecture 9
28
The Internet and Business.
R. David Seabrook. Purchase College, SUNY.
Many newspapers are owned by
large publicly traded companies
Publicly Traded Newspaper Publishers Ranked by Market Capitalization as of 4/6/08
Rank
Name
1 News Corporation
2 Gannett Co., Inc.
3 The Washington Post Company
4 The New York Times Company
5 The McClatchy Company
6 Lee Enterprises, Incorporated
7 Media General, Inc.
8 GateHouse Media, Inc.
9 Daily Journal Corporation
10 Journal Register Company
11 Triple Crown Media, Inc.
Exchange
NYSE
NYSE
NYSE
NYSE
NYSE
NYSE
NYSE
NYSE
NASDAQ
NYSE
NASDAQ
Symbol
NWS.A
GCI
WPO
NYT
MNI
LEE
MEG
GHS
DJCO
JRC
TCMI
Last Trade
19.24
29.48
680.02
19.29
10.65
10.67
15.12
5.9
50
0.52
2.8
Change
-0.39 (-1.99%)
-0.79 (-2.61%)
+12.02 (1.80%)
-0.71 (-3.55%)
-0.28 (-2.56%)
-0.51 (-4.56%)
-0.16 (-1.05%)
-0.14 (-2.32%)
+16.97 (51.35%)
0.00 (0.00%)
+0.10 (3.70%)
Mkt Cap
60.17B
6.77B
6.47B
2.77B
875.82M
492.21M
345.61M
342.63M
75.01M
20.47M
14.97M
Source: Google Finance, accessed 4/6/08
Spring 2009. Lecture 9
29
The Internet and Business.
R. David Seabrook. Purchase College, SUNY.
News Corp. is an integrated media company
Sample of New Corp Media Assets
Film
20th Century Fox, Fox Searchlight Pictures, …
Television
Fox Broadcasting Company, Fox Sports,
Cable
Fox Movie Channel, Fox Sports,…
Newspapers The New York Post, The Wall Street Journal, Dow
Jones, plus British papers like The Times, The
Sun,….
Other
MySpace, Rotten Tomatoes, Ask Men..
Source: www.newscorp.com, accessed 4/6/08
Spring 2009. Lecture 9
30
The Internet and Business.
R. David Seabrook. Purchase College, SUNY.
The Media News Group is privately owned – it
owns regional papers across the country
Alaska
•KTVA
Colorado
•Brush News Tribune
•Denver Post
•Estes Park Trail
•Fort Morgan Times
•Journal Advocate
•Lamar Daily News
Connecticut
•Connecticut Post
•Danbury NewsTimes
•Darien News
•Fairfield Citizen
•Greenwich Citizen
•Greenwich Time
•New Canaan News Review
•Norwalk Citizen
•The Advocate
•The News Times
•Westport News
Massachusetts
•Ayer Public Spirit
•Berkshire Eagle
•Devens Commerce
•Groton Landmark
•Harvard Hillside
•Lowell Sun
•North Adams Transcript
•Pepperell Free Press
•Sentinel & Enterprise
•Shirley Oracle
•Townsend Times
•The Valley Dispatch
Michigan
Northern California
•Alameda Times-Star
•Argus
•Berryessa Sun
•Chico Enterprise Record
•Contra Costa Times
•Daily Democrat
•Daily Review
•Eureka Times-Standard
•Fremont Bulletin
•Fort Bragg Advocate-News
•Humboldt Beacon
•Inside Bay Area
•Lake County Record-Bee
•Marin Independent Journal
•Milpitas Post
•Monterey County Herald
•The Mendocino Beacon
•The Oakland Tribune
•Oroville Mercury Register
•Pacifica Tribune
•Paradise Post
•Redwood Times
•Red Bluff Daily News
•San Jose Mercury News
•San Mateo County Times
•Santa Cruz Sentinel
•Silicon Valley
•Tri-Valley Herald
•Ukiah Daily Journal
•Vacaville Reporter
•Vallejo Times-Herald
•The Willits News
Utah
•Park Record
•Salt Lake Tribune
•The Detroit News
Minnesota
•St Paul Pioneer Press
New Mexico
•Alamogordo Daily News
•Carlsbad Current Argus
•Deming Headlight
•Farmington Daily Times
•Four Corners Business Journal
•Las Cruces Sun News
•Ruidoso News
•Silver City Sun News
Vermont
•Bennington Banner
•Brattleboro Reformer
•Manchester Journal
Southern California
•Daily Breeze
•Impacto USA
•Inland Valley Daily Bulletin
•Grunion Gazette
•LA.com
•LA Daily News
•Long Beach Press Telegram
•Pasadena Star-News
•Redlands Daily Facts
•San Bernardino County Sun
•San Gabriel Valley Tribune
•U-Entertainment
•Whittier Daily News
Spring 2009. Lecture 9
Source: http://www.medianewsgroup.com/home/
31
Pennsylvannia
•Evening Sun
•In York
•Lebanon Daily News
•Public Opinion
•Smartmagpa.com
•York Daily Record
•York Dispatch
Texas
•Breckenridge American
•El Paso Times
•Graham Leader
•The Jack County Herald
•Jacksboro Gazette-News
•KLXK-FM
•KROO-AM
•KSWA-AM
•KWQA-FM
•Lake Country Senior Times
•Lake Country Shopper
•Lake Country Sun
•The Olney Enterprise
Verticals
•Bay Home Site
•Careersite
•Flip Side PA
•Great Escapes
•Home Connection Plus
•Motorway
•SOCAL HomeSite
•Southern CA Gaming
West Virginia
•Charleston Daily Mail
The Internet and Business.
R. David Seabrook. Purchase College, SUNY.
According to MondoNewspapers.com, the
top 100 US newspapers are owned by 40
different companies
Company
Gannett Company
Inc.
McClatchy
Company
MediaNews Group
Inc.
The New York
Times Company
Sample of Papers Owned
USA Today
White Plains Journal News
Miami Herald
Sacramento Bee
Kansas City Star
Denver Post
Los Angeles Daily News
The New York Times
Boston Globe
Source: Mondo Newspapers http://www.mondonewspapers.com/usa/owners.html, accessed
The Internet and Business.
32
4/7/08Spring 2009. Lecture 9
R. David Seabrook. Purchase College, SUNY.
Membership of a recently-formed consortium
indicates the fragmented nature of the
newspaper industry
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Belo Corp.
Calkins Media
Cox Newspapers (also owns Valpak)
The E.W. Scripps Company
Hearst Newspapers – division of Hearst Corporation
Journal Register Company
Lee Enterprises
McClatchy
Media General, Inc.
MediaNews Inc.
Morris Communications LLC – privately held
Paddock Publications Inc. – privately held
Source: Media News Group press release 4/17/2007,
Spring 2009. Lecture 9
The Internet and Business.
33
http://www.medianewsgroup.com/Press/Releases/2007/NPC_Yahoo_Release_FINALfor41607.pdf?
R. David Seabrook. Purchase College, SUNY.
source=rv
There is almost always an economic
reason for industry structure
• Little local competition – why? – economies of scale
– Cost of printing and distribution of paper means its rarely viable to
have two printing plants in one place
– Printing press is a fixed cost, so more circulation  lower unit cost
– Time sensitive material and transportation cost makes it hard to truck
in newspapers from (say) another state
– Advertisers prefer the largest circulation, so bigger paper gets bigger
(positive feedback), what Warren Buffett calls “survival of the fattest”
• Companies own multiple newspapers in a region –
why? – economies of scale again
– 80% of news the same, just change front page and a few others
– Advertisers like to reach everyone across a certain region
Spring 2009. Lecture 9
34
The Internet and Business.
R. David Seabrook. Purchase College, SUNY.
Economies of scale example – one newspaper
in a town make a profit because it can spread
fixed costs over many papers (see also next
page)
One newspaper company, fixed costs of $1 million per year,
market of 2 million papers per year
Fixed cost $1 million/year to run
Printing press
2 million
papers/year
Production cost per
newspaper: 50c
• Reporters
• Editors
If newspaper price is 60c  10c profit!
With only one company the cost per paper is low as the fixed
cost is spread out over 2 million papers. That’s economies of
scale. The company makes a profit.
Spring 2009. Lecture 9
35
The Internet and Business.
R. David Seabrook. Purchase College, SUNY.
With two companies they both make a loss, so
one goes out of business and you end up with
one newspaper and a monopoly in the town!
Two newspaper companies, split the market between them
Fixed cost $1 million/year to run
Printing press
1 million
papers/year
Production cost per
newspaper: $1
• Reporters
• Editors
Fixed cost $1 million/year to run
Printing press
Newspaper price of 60c  40c loss!
Production cost per
1 million
newspaper: $1
papers/year
• Reporters
• Editors
Newspaper price of 60c  40c loss!
Spring 2009. Lecture 9
36
The Internet and Business.
R. David Seabrook. Purchase College, SUNY.
The internet has radically altered
the industry structure
• Consumers now have many free substitutes
– Portals: AOL, Yahoo!
– TV: CNN.com
• Newspapers responded by creating their own
free web sites  cannibalization
• Global reach of the internet means that the
local monopoly of print news does not exist
online  intense competition for audience
• More competition, cannibalization  lower
profits!
Spring 2009. Lecture 9
37
The Internet and Business.
R. David Seabrook. Purchase College, SUNY.
Porter’s five forces model of industry
competition will help you define the players
Potential
Entrants
Threat of new entrants
Suppliers
Bargaining
power of
suppliers
Industry
competitors
Bargaining
power of buyers
Buyers
Rivalry among
existing firms
Threat of substitute products or services
Substitutes
Spring 2009. Lecture 9
38
The Internet and Business.
R. David Seabrook. Purchase College, SUNY.
Free news web sites are a substitute for newspapers
from a consumer’s perspective; from an advertiser’s
perspective Google, Monster etc. are substitutes
• Aggregators? (like
Google News)
Potential
Entrants
• Individual news
consumers
• Advertisers
• Other news outlets
(buy stories)
Industry
competitors
Suppliers
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Newsprint makers
News agencies
Technology vendors
Printing press vendors
• The New York
Times…
• The Journal
News…
Substitutes
Spring 2009. Lecture 9
39
Buyers
•
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News web sites
Job sites
Search engines
Craigslist
We’ll come
back to this
later
The Internet and Business.
R. David Seabrook. Purchase College, SUNY.
The internet changes news production and
distribution economics – see video
In-house
reporters,
photographers
Freelancers
Traditional News Production and Distribution
Editing,
Layout
Printing
Distribution
Customer
Agencies:
Reuters, AP,
Bloomberg,..
Freelancers
Agencies:
Reuters, AP,
Bloomberg,..
Spring 2009. Lecture 9
Internet News Production and Distribution
Editing, Web
Layout
Customer
WAY lower cost!!
40
The Internet and Business.
R. David Seabrook. Purchase College, SUNY.
TV sites and internet portals dominate
online news audiences
News Site Audiences for February 2008
Rank by
audience Brand or channel
1
CNN Digital Network
2
Yahoo! News
3
MSNBC Digital Network
4
AOL News
5
NYTimes.com
6
Gannett Newspapers and Newspaper Division
7
Google News
8
WorldNow 3
9
USATODAY.com
10
washingtonpost.com
sessions unique
per
audience
person
(000)
7.9
37,181
7.4
35,274
6.4
34,013
7.7
21,119
4.9
18,975
5.1
13,998
5.3
12,050
5
10,588
3.5
10,571
3.8
10,441
Source: Nielsen net ratings, reported on http://www.naa.org
Spring 2009. Lecture 9
41
The Internet and Business.
R. David Seabrook. Purchase College, SUNY.
The New York Times is the most visited
newspaper web site
Panel: Combined Home and Work
Period: 6 Month Average March - August 2007
Source : Nielsen//NetRatings
UV Rank
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
Category
New York Times
Washington Post, The
USA Today
Wall Street Journal
Los Angeles Times
Boston Globe
San Francisco Chronicle
Chicago Tribune
New York Post
Seattle Times/Post-Intelligencer
Houston Chronicle, The
Atlanta Journal-Constitution
Orlando Sentinel, The
Phoenix: Arizona Republic
New York: Newsday
New York Daily News
San Diego Union-Tribune, The
Philadelphia Inquirer/News
Dallas Morning News
Pittsburgh Post-Gazette
6 Month Average Metrics (March - August 2007)
Web
Unique
Time Per
Pages
Web Page
Visits Per
Visitors
Visitor
Per
Views (000)
Visitor
(000)
(hh:mm:ss)
Visitor
13,857
370,200
27
4.05
0:20:20
11,682
190,997
16
3.20
0:14:14
9,186
110,331
12
2.85
0:10:57
8,337
163,057
20
3.92
0:09:55
4,992
75,758
15
2.53
0:12:34
3,798
73,560
19
3.22
0:14:19
3,653
30,386
8
2.26
0:04:55
3,316
61,733
19
3.17
0:11:46
2,895
42,071
15
2.52
0:06:47
2,838
43,684
15
3.40
0:14:54
2,520
43,961
18
2.83
0:12:53
2,448
80,297
34
3.45
0:18:19
2,153
20,650
13
2.86
0:10:22
2,150
45,212
21
2.92
0:08:35
2,065
30,724
15
2.38
0:06:57
1,979
26,161
14
2.60
0:11:00
1,643
14,589
9
2.22
0:07:09
1,620
30,663
19
3.99
0:15:05
1,530
19,961
13
2.52
0:08:00
1,461
50,397
35
6.40
0:30:34
Source: Nielsen//NetRatings, CustomMegaPanel, US Report: NAA NADBase - Topline Panel: Combined Home
Spring 2009. Lecture 9
The Internet and Business.
42
and Work Period: Nov. 2006, www.naa.org
R. David Seabrook. Purchase College, SUNY.
Political news blogs generate the most
intense interest
News Site Audiences for February 2008
sessions unique
per
audience
person
(000)
19.9
3,445
8.9
1,204
8.3
10,177
7.9
37,181
7.7
21,119
7.4
35,274
6.4
34,013
6
796
5.3
2,674
5.3
12,050
Rank by
Sessions Brand or channel
1
drudgereport.com
2
Daily Kos^
3
Fox News Digital Network
4
CNN Digital Network
5
AOL News
6
Yahoo! News
7
MSNBC Digital Network
8
ksl.com
9
Breitbart.com
10
Google News
Source: Nielsen net ratings, reported on http://www.naa.org
Spring 2009. Lecture 9
43
The Internet and Business.
R. David Seabrook. Purchase College, SUNY.
Newspapers are forming alliances with
internet companies
Example of Strategic Alliance
Consortium of Local Newspapers
Yahoo!
• Unique local content
• Local relationships
• Membership
• 12 newspaper companies
• 264 newspapers
• 44 states
+
• National reach
• Advanced internet
advertising technology
• Enhanced newspaper online ad revenue using Yahoo!’s graphical
ads, ad-serving technology, targeting, inventory management
• Can provide national access to local advertisers
• Yahoo! paid search on newspaper web sites
• Yahoo! gets local news content to spread across its sites
Source: Media News Group press release 4/17/2007,
Spring 2009. Lecture 9
The Internet and Business.
44
http://www.medianewsgroup.com/Press/Releases/2007/NPC_Yahoo_Release_FINALfor41607.pdf?
R. David Seabrook. Purchase College, SUNY.
source=rv
Industry Economics
Spring 2009. Lecture 9
45
The Internet and Business.
R. David Seabrook. Purchase College, SUNY.
Direct quote from Warren Buffett
on newspaper economics: 1 of 2
“When Charlie and I were young, the newspaper business was as
easy a way to make huge returns as existed in America. As one not-toobright publisher famously said, “I owe my fortune to two great American
institutions: monopoly and nepotism.” No paper in a one-paper city,
however bad the product or however inept the management, could avoid
gushing profits.
The industry’s staggering returns could be simply explained. For
most of the 20th Century, newspapers were the primary source of
information for the American public. Whether the subject was sports,
finance, or politics, newspapers reigned supreme. Just as important, their
ads were the easiest way to find job opportunities or to learn the price of
groceries at your town’s supermarkets.
The great majority of families therefore felt the need for a paper
every day, but understandably most didn’t wish to pay for two.
Advertisers preferred the paper with the most circulation, and readers
tended to want the paper with the most ads and news pages. This
circularity led to a law of the newspaper jungle: Survival of the Fattest.”
Spring
2009. Lecture
9
The Internet and Business.
46 http://www.berkshirehathaway.com/letters/2006ltr.pdf
Source:
Berkshire
Hathaway
letter to shareholders 2006:
R. David Seabrook. Purchase College, SUNY.
Direct quote from Warren Buffett: 2 of 2
“Thus, when two or more papers existed in a major city (which was
almost universally the case a century ago), the one that pulled ahead
usually emerged as the stand-alone winner. After competition disappeared,
the paper’s pricing power in both advertising and circulation was
unleashed. Typically, rates for both advertisers and readers would be
raised annually – and the profits rolled in. For owners this was economic
heaven. (Interestingly, though papers regularly – and often in a
disapproving way – reported on the profitability of, say, the auto or steel
industries, they never enlightened readers about their own Midas-like
situation. Hmmm ...)
Now, however, almost all newspaper owners realize that they are
constantly losing ground in the battle for eyeballs. Simply put, if cable and
satellite broadcasting, as well as the internet, had come along first,
newspapers as we know them probably would never have existed….
…True, we have the leading online news operation in Buffalo, and it
will continue to attract more viewers and ads. However, the economic
potential of a newspaper internet site – given the many alternative sources
of information and entertainment that are free and only a click away – is at
best a small fraction of that existing in the past for a print newspaper
facing no competition….
We hope that some combination of print and online will ward off
economic doomsday for newspapers, and we will work hard in Buffalo to
Spring
2009. Lecture
9
The Internet
47 I think we will be successful.
develop
a sustainable
business model.
Butand Business.
R. David Seabrook. Purchase College, SUNY.
the days of lush profits from our newspaper are over.”
Roughly 75% of newspaper revenues
come from advertising
• Industry advertising revenue $45B
• Subscription revenue $11 B
• Ad revenue/total revenue = 45/56 = 80%
Spring 2009. Lecture 9
48
The Internet and Business.
R. David Seabrook. Purchase College, SUNY.
Real estate, automotive and employment are
the largest segments in classified advertising
2006 U.S. Newspaper Classified Advertising Revenue ($ millions)
3,089.330, 18%
5,155.220, 30%
Real Estate
Automotive
Employment
Other
4,741.139, 28%
3,999.541, 24%
Source: Newspaper Association of America, http://www.naa.org/TrendsandNumbers/Advertising-Expenditures.aspx, accessed 3/31/08.
Spring 2009. Lecture 9
49
The Internet and Business.
R. David Seabrook. Purchase College, SUNY.
Five forces analysis (1 of 2)
Factor
Impact on Newspaper Industry Profits
• Industry
competition
• Most newspapers serve individual regions
• Even national newspapers target different market
segments (e.g. NYT targets educated upper income,
USA Today targets mass market)
• Limited head-to-head competition  charge high prices
to advertisers  BIG profits!
• Suppliers
• ? Assume for now that supply of newsprint and
technology is competitive, so suppliers are not a big
factor in profitability
• New
entrants
• If Google News can use newspaper content for free
and take web site traffic then they are a threat
• Maybe the news agencies (AP, Reuters) might enter
the market with web sites aimed directly at the public
Spring 2009. Lecture 9
50
The Internet and Business.
R. David Seabrook. Purchase College, SUNY.
Five forces analysis (2 of 2)
Factor
Impact on Newspaper Industry
• Substitutes
• Free news sites on the web are a good substitute for
newspapers, especially for people under 40
• Online markets are a good substitute for classified ads
• Online advertising sites (such as Real Estate) a good
substitute for newspaper ads for some (many?) people
• Significant threat!
• Buyers
• Individual buyers don’t have much ability to negotiate
price
• But big advertisers such as Coca-Cola or General
Motors can probably “throw their weight around” and
demand discounts
Spring 2009. Lecture 9
51
The Internet and Business.
R. David Seabrook. Purchase College, SUNY.
Each advertising classification faces
online competition
• Real estate
• Zillow
• ForSaleByOwner.com
• Automobiles
• Autotrader.com
• Carsdirect.com
• Jobs
• Monster.com
• Careerbuilder.com
• HotJobs.com
Spring 2009. Lecture 9
52
The Internet and Business.
R. David Seabrook. Purchase College, SUNY.
Newspapers have taken a massive hit, losing around
41% of their classified revenue from 2006 to 2008
2006/2008 Newspaper Classified Advertising Revenue
6.000
Ad Revenue ($ billions)
5.000
4.000
2006
2007
2008
3.000
2.000
1.000
0.000
Real Estate
Automotive
Classification
Employment
Other
Source: Newspaper Association of America, http://www.naa.org/TrendsandNumbers/Advertising-Expenditures.aspx, accessed 4/6/09.
Spring 2009. Lecture 9
53
The Internet and Business.
R. David Seabrook. Purchase College, SUNY.
Google’s advertising revenue is growing!
Google Revenue (Millions)
$25,000
$20,000
$15,000
$10,000
$5,000
$0
2002
Spring 2009. Lecture 9
2003
2004
2005
54
2006
2007
2008
The Internet and Business.
R. David Seabrook. Purchase College, SUNY.
Source: Google Financial http://finance.google.com/finance?fstype=ii&q=NASDAQ:GOOG&hl=en
The New York Times company exhibits falling
advertising revenue and shrinking profit margins
New York Times Company Selected Consolidated Income Data
2008
2003
2000
1997
thousands thousands thousands thousands
Revenue
Advertising
Circulation
Other
Total
Production Costs
Materials
Wages
Other
Total Prodn Costs
SG&A
Total Operating Costs
EBITDA
Operating margin
$1,779,699 $2,120,814 $2,505,315 $1,999,844
910,154 $885,767 $761,475 $672,662
259,003 $220,619 $222,665 $193,912
$2,948,856 $3,227,200 $3,489,455 $2,866,418
250,843 $274,147 $363,334 $317,811
622,692 $671,040 $614,582 $604,924
441,585 $483,608 $480,134 $489,531
$1,315,120 $1,428,795 $1,458,050 $1,412,266
1,332,084 $1,258,855 $1,395,484 $999,050
$2,647,204 $2,687,650 $2,853,534 $2,411,316
$301,652 $539,550 $635,921 $455,102
10%
17%
Source:
New
York
Times
Spring
2009.
Lecture
9 Company Annual Reports
55
http://www.nytco.com/investors/financials/annual_reports.html
18%
16%
The Internet and Business.
R. David Seabrook. Purchase College, SUNY.
5 year NYT stock price vs. S&P500
Market
down
30%
NYT
down
90%
Source: BigCharts.com
Spring 2009. Lecture 9
56
The Internet and Business.
R. David Seabrook. Purchase College, SUNY.
Revenue analysis
New York Times Company – 2007 Source of Revenue
2007
thousands % total
Revenue
Advertising
Circulation
Other
Total
Spring 2009. Lecture 9
$2,047,468
$889,882
$257,727
$3,195,077
57
64%
28%
8%
100%
The Internet and Business.
R. David Seabrook. Purchase College, SUNY.
Look at “revenue drivers” to understand the impact
of the internet and to generate ideas to make more
money
Impact of Internet
Number of
sales
Price per
subscription
Lose ads to online
competitors
Ad price down due
to competition
Consumers get
free news online
Raise price to noninternet users
Number of
licenses
Price per
license
58
Web sites will pay
for content
Web sites will pay
for strong brands
Number of ads
Advertising
Price per ad
Revenue
Subscription
Other syndication,
licensing
Spring 2009. Lecture 9
The Internet and Business.
R. David Seabrook. Purchase College, SUNY.
Cost Analysis
New York Times Company – 2007 Cost Structure
Production Costs
Materials
Wages
Other
Total Prodn Costs
SG&A
$259,977
$646,824
$434,295
$1,341,096
$1,397,413
9%
24%
16%
49%
51%
Total Operating Costs
$2,738,509
100%
Note: SG&A means “Sales, General and Administrative” costs
Spring 2009. Lecture 9
59
The Internet and Business.
R. David Seabrook. Purchase College, SUNY.
Look at “cost drivers” to understand the
impact of the internet and to generate ideas
Impact of Internet
Papers printed
Reduce print costs
Cost of newsprint
Lower demand
Materials (9%)
Wages (24%)
Reporters, photog.
Printers, laborers
Technical staff
Costs
Other (16%)
SG&A (51%)
Spring 2009. Lecture 9
Reporters now do
video, voice as well
Reduce print staff
Need skilled
internet staff
??
Amount of advertising Need to advertise
to compete
Cost of advertising
Reporters edit
Number of managers
own copy
Cost of managers
Eliminate some
Building…
print facilities
60
The Internet and Business.
R. David Seabrook. Purchase College, SUNY.
Business Model
Spring 2009. Lecture 9
61
The Internet and Business.
R. David Seabrook. Purchase College, SUNY.
Newspaper business model before the
internet
• Why will people buy (give us $$)?
– We are the only source of local news
– People will pay to be informed of what’s going on
– People want to find out about local products and services
• Why will this business be profitable?
–
–
–
–
–
Limited or no competition
People will renew subscriptions every year
We will be “the only game in town” for advertisers
We can raise advertising rates every year
High local fixed costs plus low variable costs means competitors
will stay out (see economics section)
Spring 2009. Lecture 9
62
The Internet and Business.
R. David Seabrook. Purchase College, SUNY.
Many people say that because of the internet
“the newspaper business model is broken”
• Why will people buy (give us $$)?
– Local news YES - still need local reporters NO – bloggers do it better
– People will pay NO - Younger demographic used to free news
– People want local ads NO - Can find online YES? – real estate
• Why will this business be profitable?
–
–
–
–
Limited competition NO – very easy to reach new markets
People will renew subscriptions every year NO
We will be “the only game in town” for advertisers NO
We can raise advertising rates every year NO
Spring 2009. Lecture 9
63
The Internet and Business.
R. David Seabrook. Purchase College, SUNY.
Failed business models:
• Current model: combination of physical paper
and free online content not working
• Pay for selected content
– NY Times introduced Times Select
• Most content still free
• Columnists required paid access
– Abandoned the experiment on September 19, 2007
Spring 2009. Lecture 9
64
The Internet and Business.
R. David Seabrook. Purchase College, SUNY.
Influential observers believe the
newspaper in its current form is dead
• “the core assumption behind all imagined outcomes .
. . was that the organizational form of the newspaper,
as a general-purpose vehicle for publishing a variety
of news and opinion, was basically sound, and only
needed a digital facelift”
• “It makes increasingly less sense even to talk about a
publishing industry, because the core problem
publishing solves — the incredible difficulty,
complexity, and expense of making something
available to the public — has stopped being a
problem.”
Source: Clay Shirky, quoted in The Opinionator, March 16, 2009.
Spring 2009. Lecture 9
65
The Internet and Business.
R. David Seabrook. Purchase College, SUNY.
New business models that might work
include paid content for specialized
publications and internet-only newspapers
• Paid content (specialized publications)
– Wall St Journal charges $1.99/week for online access
– Works because people don’t feel compelled to send financial
news to their friends
• Internet-only newspapers
– Such as Seattle Post-Intelligencer
– Much smaller news staff, link to other news sources
– Much lower cost (due to lower staffing and abandoning
printing presses and distribution costs) may allow them to
survive on internet-only advertising revenue
Spring 2009. Lecture 9
66
The Internet and Business.
R. David Seabrook. Purchase College, SUNY.
There are several other business models
kicking around, but no silver bullet
• Micropayments
– Why will they buy? – exclusive content
– Readers pay a few fractions of a cent to read an article
– Experience not encouraging
• Endowments
– Why will they buy? – charity
– Turn newspapers into non-profits
– Endowments fund operations
• Public financing
– Why will they pay? – “public good”
– Similar to PBS, BBC
– Political barriers
Spring 2009. Lecture 9
67
The Internet and Business.
R. David Seabrook. Purchase College, SUNY.
Competitive Strategy
Spring 2009. Lecture 9
68
The Internet and Business.
R. David Seabrook. Purchase College, SUNY.
How do online news sites compete
without reporters?
• Buy news from wire services
– See Yahoo!
– See AOL
• Need their own editors to decide what to post
• Use their existing layout technology
• Provide complementary services (such as email) to
drive visits and hence advertising
Spring 2009. Lecture 9
69
The Internet and Business.
R. David Seabrook. Purchase College, SUNY.
How do blogs compete?
• Narrow focus e.g. political news
• Look for the latest information – exclusives
• Advertising-supported business model
• Blog companies starting to form (see
http://theinternetandbusiness.wikidot.com/online-publishing)
Spring 2009. Lecture 9
70
The Internet and Business.
R. David Seabrook. Purchase College, SUNY.
Every newspaper now has an online
presence
• Cannibalization – they “eat their own”
newspaper sales
• But better cannibalize yourself than have
someone else eat your business
• Almost all offer free content
• Try to drive number of visitors up to increase
advertising revenues
• But ad revenue does not climb fast enough to
offset falling offline ads and circulation
revenue
Spring 2009. Lecture 9
71
The Internet and Business.
R. David Seabrook. Purchase College, SUNY.
How can newspaper companies
compete?
• What do they have that online sites don’t?
–
–
–
–
Local reporters on the ground
Local ad sales people
Relationships with advertisers
Brand loyalty
• What can they do that online sites can’t?
– Reach people who don’t use the internet (currently an older,
wealthier population, but dying out)
– Reach people when they’re away from a computer or smart phone
– Deliver color advertising on paper that can sit around and be looked
at many times (“persistence”)
Spring 2009. Lecture 9
72
The Internet and Business.
R. David Seabrook. Purchase College, SUNY.
The New York Times’ strategy is to use its brand, to
become a dominant multimedia news platform, and
to focus on the most profitable industries
• New products and services – “leveraging” the trusted New
York Times brand
• Growth in digital operations
– Goal is “to build a fully interactive, news and information platform, achieving
sustainable leadership positions in our most profitable content areas”
– In 2007 “concentrated on building out...health, business and technology”
• Research and development, including data mining and web
analytics
• Rebalancing portfolio (selling some businesses)
• Cost management – consolidate printing plants
Source: The New York Times Company Annual Report 2007, pp25-26
Spring 2009. Lecture 9
73
The Internet and Business.
R. David Seabrook. Purchase College, SUNY.
Newspapers have formed strategic
partnerships with web sites
• A “strategic alliance” or “strategic partnership”
is an agreement to cooperate or work
together on some part of the business
• Auto advertising – MediaNews Group and
Kaango.com
• Job advertising – NYTimes and Monster.com
Spring 2009. Lecture 9
74
The Internet and Business.
R. David Seabrook. Purchase College, SUNY.
The New York Times has multiple
strategic alliances
New York Times Strategic Alliances
• CNBC and NYT share digital content in
business and technology
• Times Company “one of Google’s largest
content partners”
• Monster Worldwide alliance creates cobranded recruitments sites
• Alliance with Yahoo! for regional advertising
– Exchange ads, use behavioral targeting
Spring 2009. Lecture 9
75
The Internet and Business.
R. David Seabrook. Purchase College, SUNY.
The New York Times is trying to
develop innovative technology too
• Can send and receive Real Estate listings by
phone
• Customized newspaper online
Spring 2009. Lecture 9
76
The Internet and Business.
R. David Seabrook. Purchase College, SUNY.
Most newspaper business strategies
based on focus and differentiation
• Focus on different market segments to reduce
competition
– WSJ focuses on financial news; competes with Bloomberg,
Financial Times
– New York Times trying to be the global “quality newspaper of
record” – different content to tabloids
– NY Post competes with other tabloids, but now also celebrity news
web sites and sports sites
– Local newspapers try to compete by producing news more relevant
to small populations
• Most existing newspapers try to capitalize on their
brand – the trust customers have developed in them
Spring 2009. Lecture 9
77
The Internet and Business.
R. David Seabrook. Purchase College, SUNY.
Marketing Strategy
Spring 2009. Lecture 9
78
The Internet and Business.
R. David Seabrook. Purchase College, SUNY.
Marketing strategy: NY Times example
• Product: same positioning as physical paper: quality,
targeted at educated readers; online version has
more multimedia, blogs, interactive capabilities, user
comments
• Price: zero! (online) to readers; trying to charge
premium prices to advertisers
• Promotion:
– NYT uses heavy television advertising to try to boost subscriptions
– Deep discounting of initial subscription period
– Experimenting with viral marketing and social networking (Source:
naa.org)
– New York Times news quiz application on Facebook
– NYT application allows sharing of stories on Facebook
– Reporters now appear frequently on television
• Place: global distribution, trying to become more of a
global newspaper (see new Global Edition)
Spring 2009. Lecture 9
79
The Internet and Business.
R. David Seabrook. Purchase College, SUNY.
Future Developments
Spring 2009. Lecture 9
80
The Internet and Business.
R. David Seabrook. Purchase College, SUNY.
The newspaper industry is
undergoing wrenching change
• April 5: “Times Co. Threatens to Close Globe”
• April 2: “Hearst Seeks 20% Annual Cost Reductions at
Newspapers”
• March 29: “Extinction threatens the SF Chronicle”
• March 17: “Seattle Post-Intelligencer Shifts to Web Only”
• March 11: “As Cities Go From Two Papers to One, Talk of
Zero”
• February 27: “Rocky Mountain News Folds Amid Ad Slump”
• February 22: “Philadelphia Newspapers Seeking Bankruptcy”
• Twitter feed: http://twitter.com/themediaisdying
Spring 2009. Lecture 9
81
The Internet and Business.
R. David Seabrook. Purchase College, SUNY.
Some say the newspaper is dead;
certainly change will continue
• Some people predict that the newspaper is
dead – “the final copy of the final newspaper
will appear on somebody’s doorstep in 2043”
–
Source: Eric Alterman, “Out of Print: The Death and Life of the American Newspaper”,
The New Yorker, March 31, 2008, quoting Phillip Meyer, The Vanishing Newspaper
(2004) http://www.newyorker.com/reporting/2008/03/31/080331fa_fact_alterman
• More consolidation
– Mergers, consolidation of news staff
• Lower costs
– Reporters have to create video and do their own editing (see
wiki for source)
Spring 2009. Lecture 9
82
The Internet and Business.
R. David Seabrook. Purchase College, SUNY.
I believe that future success will depend on solving
a problem better than competitors, but even then its
not clear how much people will pay
• Anyone can publish content, so business models
based on publishing capability are dead
• But some problems persist
– Access to sources
– Developing a reputation to gain respect of the audience
– Filtering the good from the junk
• Successful future business models will need to solve
the remaining problems in a way that competitors
cannot
• How much will people pay for unique access to
sources, reputation, filtering the good from the junk?
Spring 2009. Lecture 9
83
The Internet and Business.
R. David Seabrook. Purchase College, SUNY.
Homework
Due 4/13/09 6:30 pm
Spring 2009. Lecture 9
84
The Internet and Business.
R. David Seabrook. Purchase College, SUNY.