USC Annenberg's Media Economics & Entrepreneurship M{2e} Presents:
Ken Doctor, Author of Newsonomics
Annenberg West Lobby, 12:00 noon PST/3:00 p.m. EST
Ken Doctor: It is good to be in the only city I think that has had three bankrupt newspapers. I
think you read--there's a lot--there is an asterisk, if you sent two. There's a lot of cities there.
Two (inaudible) of three. It was going to be interesting. So try to have a little fun and move
fairly quickly here. I call this plain infinity because there is chaos out there in the news world, as
you all know. And I have a sense that there are new ways that publishers of all kinds, new and
old, are figuring out how to play that chaos, play that infinity.
Tablet is the big news of the year for lots of good reasons, and I'll get into why. Most of you are
too young to recognize this guy. That's Charleston Heston, Cecile B. DeMille's The Ten
Commandments. If you have not seen it, it is a wonderful retro movie now - garish color and
garish screenplay. And there's Rupert Murdoch, who unbelievably has become the face of the
American newspaper industry. And he wasn't even an American until 15 years ago. Over here,
The Daily, his new publication, iPad only, coming out probably about two weeks from now.
Steve Jobs, the man with the golden tablet. So into 2011. We're into the year. I'm going to give
you a very, very short history of the internet and news as I see it and then touch on why I think
we're at an inflection point. In 2011, talked a little bit about tablets and paid content. All access
is the model that is being used now and in process throughout the American newspaper industry,
talk about that. The rise of marketing services, because advertising money is still the core of
what supports journalism in this country. And a little on how analytics is really the foundation
for a lot of what's happening and why we need to understand it better.
The who is very important. It is people who are creating this future. The future's not just
happening. It's the who. Rupert is part of the who. I'd like to talk about a number of people and
you'll see some of these people through the presentation. This is Rob Grimshaw, Managing
Director of FT, FinancialTimes.com. Very important. I've used the laws from the book here.
The 10 Percent Rule basically talks about using technology as a 10%--as a 90% layer with
humans on top of it. And this is a hard thing for traditional editors to get their head around-heads around, but Rob is doing it really well.
Arianna Huffington, a fine job of using lots of other people's content for free. Aggregation is our
for it, of course. Tina Brown, all about niches, magazine and maybe online. Tim Armstrong,
AOL CEO, who claims that he's going to revolutionize the nature of content in the USA. Matt
McAllister, a technologist, now working at The Guardian, all about using open platforms to
multiply the impact of news. Jonathan Mendez, doing similar work in advertising yield and has a
new company which is going to be very important this year. Marissa Mayer - she is the woman
who built the search business at Google, which has made Google a substantial company. She is
now working on a little thing called local. Jim Schachter, Editor at The New York Times, behind
major experimentation, Bay Area, Chicago, Texas. Jonathan Weber, who has now partnered with
Jim, he runs BayCitizen.com as the Editor and they are one of the most important online only
startup new sites to watch. Liz Mitchell, Culpepper, Virginia, one of 600 now Patch Editors.
AOL and AOL's Patch, the largest hirer of journalists in the U.S. in 2010. Bob Payne,
Communities Editor at Seattle Times. Jim Moroney, publisher of The Morning News, who is
really trying to move his company from one age to another. Walter Sanchez, small publisher in
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Brooklyn who is part of this trend in marketing. Bill Kling, KPPC had at the CEO level and
trying to put 100 new journalists in five markets--five radio markets around the country.
Lastly, Carrie Goldberg, who is the combination, a good personification of how topical and local
comes together, doing a major health blog now for public radio in Boston. Willie Sutton, old
time bank robber. This is all about how you figure out how to get some of merchant's monies to
support journalist, which we have done for a long time. And then, this guy. Now, Sam Zell
wrote a book. This is from Amazon. I didn't make this up. No Photoshop here. Money Talks,
BS Walks, and it doesn't list it as an autobiography, but a substantial influence.
So Act I. The internet news in three acts. The Euphoria of Infinity. Back when some of us--back
in the '90s when some of us in the news business got involved in the web there was this sense of
to infinity and beyond. It was--everything was open. It was a lot of excitement. This was the
picture. Steve Case and Jerry Levin, the AOL combination. It didn't end well. This could be the
picture of our decade that doesn't end well. Google is now struggling, even though they cleared
another profit of $2.5 billion in the last quarter. I love this picture though. This is Eric Schmidt
on the left, CEO, and now moving on from being CEO, and the heads of Intel, Logitech, and
Sony, as if they are taking direction from him. Google TV so far has flopped. Hard to know
where it will go, but this--I love this picture, and so I'd like to see it work.
The '90s. This is a New Yorker cartoon that sums it up so well. "Hey, remember that great chart
from the '90s?" And those of us who are in these companies remember the CEO saying, well, this
line, the traditional line, is kind of flat, maybe down a little. But this line is going to go way up
and it will all take care of itself. It didn't.
Act II, Lost in Space. Strange creatures, like Google and Yahoo all around. All kinds of
companies getting big at newspaper companies' expense. They didn't know what to do. Short
story, in 10 years, the newspaper industry in the U.S. is now taking in half as much revenue as it
did 10 years ago. That's about $25 billion a year less now than 10 years ago every year and still
sliding. Circulation, long, long slide. It actually goes back to about 1947 and it's still going
down. And this daunting realization that while the internet was great and it looked like that kind
of hockey stick growth, or I guess it would be that way, that you only got pennies from internet
advertising where you got dollars in print.
The understanding here, and this has finally sunk in, but it took way too long, is that there is an
infinity to the internet in terms of how much advertising space there is, and in everybody's ability
to get to news. And so, that meant the world of scarcity where The L.A. Times here could say,
we're the mass market in town, you want to buy an ad here, we're going to charge you whatever
we want and you're going to pay it, is gone. The same thing largely for broadcasters, although
that's waning a little more slowly. And that scarcity has been replaced by plenty.
There is worldwide distribution, which is very cool and we all love it that we can get media
everywhere, yet there is no economic model largely for monetizing, making money off of your
content in other countries, a big problem. Result - newspaper have been barely hanging on,
downsized in every respect - revenues, circulation, products, staff, capital. And the last point is a
very big one - clout. So the institutional capacity of having a newsroom of 500 or 1,000 or 200 in
a smaller city meant that you were a player at the table. These companies are no longer the
players that they were, and that's a societal problem.
Importantly, things are not okay, as you might believe by reading some of the press. This is
Gannett. Just two weeks ago, cut three New Jersey papers in half again. The cutting is still
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continuing. Advertising is still down. This little metric to compare. So that's Google. Google
announced fourth quarter, but Gannett hasn't, so I stayed with third quarter here. $7.3 billion in
the third quarter revenue for Google, 2.2 billion in profit. Gannett, and this is representational
here, so you can't read Gannett, right? Gannett, the largest U.S. newspaper company, 1.3 billion
in revenue, roughly one-sixth in revenue. Profits though, only 125 million, roughly oneseventeenth of the profits. Consequently, you can see that. So that's one company. You could do
a similar thing with Apple. You could do it with Facebook, but this is the largest U.S. newspaper
company. This is the-Unidentified Speaker: --That wouldn't be a bad profit margin in other industries.
Ken Doctor: No, it wouldn't be. It wouldn't be. But in also a sense of relative scale and what
they can do in society. So Google has been buying two companies a month for the last 14 months
or so. Gannett has not. So after about 15 years of digital transition, still newspaper companies
are stuck with 85% of the revenue being on the print side. They have not made the transition.
And importantly, this is a number that I did some--that I'm crunching on to get to and I think it's
an important number. So you've got a print world that is in slow decline, you've got a digital
world that is increasing rapidly, a lot of advertising money there, as we'll see. But in the old
world, newspaper publishers got 20% of the ad revenue generated in the U.S. or the ad spending
in the U.S. In the digital world they get about 10 to 12%.
So in the fastest growing part, they're getting the share, but they're getting half as much as they
were. This is part of the problem of that transition. End of this year, print revenue still down in
single digits, getting close to flat at some of these companies. Circulation revenue is down and
circulation is down, both. Staff cutting is continuing. Digital revenue is up. One CEO said to me
last week, he said, we're up 30%. The only problem is we need to be up 80%. So they're getting
there back into the teens. That's largely because of how they are selling products rather than a
real huge growth.
And newspapers are the only media type not really recovering after the recession. Even
magazines are positive again. Newspapers still are not positive. So we have a new inflection
point. And importantly, I'm not saying the inflection point, but an inflection point. Why? You
can pick out lots of factors. I've picked out five top ones - the rise of public equity, the tablet and
what it means, the new news players, paid content, and how advertising is changing. And let's
look at each of those individually.
So in the U.S., 14 newspaper companies went through bankruptcy. Most have emerged in
various phases of bankruptcy over the last three years now. Tribune and The L.A. Times, and
Sam Zell, the most spectacular flameout, unbelievable really in a lot of ways, amusing if it didn't
really affect the news coverage we all get. But 13 other ones in addition to that. So what
happened there was that they took on too much debt, largely through acquisition. Revenues
cratered - they did not think revenues would crater. The debt made it unable for them to pay their
bills and they declared bankruptcy. The bankers who had made loans, again, most spectacularly
in Tribune but in other companies as well, they're stuck with all this bank--this newspaper stock.
They traded the debt they had for equity in these companies after bankruptcy.
Just like with all the homes that are out there and the foreclosures, they don't want to own
newspaper companies. They don't really want to operate them. They know it's a headache. They
have now sold much of their interest to private equity companies, which are distressed industry
companies. And these companies say, just like Sam Zell said, Brian Tierney in Philadelphia,
Gary Pruitt, a number of years earlier, I guess only 2005, it keeps on looking like these newspaper
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companies get cheaper and cheaper and cheaper. And if you can just buy at the bottom you can
make a really good deal.
So now, especially Alden Global Capital and JP Morgan Equity, the equity group of JP Morgan,
and Angelo Gordon have been--those three companies have been very active in buying up the
equity of the banks who got stuck with the stock after the bankruptcy. They are now essentially
heavily influencing at least half a dozen major American newspaper companies.
What they want is more consolidation. They want--their ideal thing would be to take a blank
sheet of paper, if we had a white board up here, and they'd say, Los Angeles. Why would you
have Freedom newspapers, why would you have L.A. Times, why would you have Media News
Group and the L.A. Newspaper Group? Why can't we put them together in one big company?
We could save a lot of money. And we'll do--we'll still do some--we'll still do some journalism
and we'll get to the mobile future more quickly. This is what they'd like to do. We will see a lot
of rollup consequently across the U.S. in the next several years.
The tablet is so interesting. Basically, I think my headline on it is that it's certifying this new
news anywhere era. So the last three, four years we've all started using smart phones. iPhone has
been a phenomenon. It's a very interesting kind of thing. News companies haven't made much
money on it. And really, news companies have thought of it as--have thought of this era since
really the early '90s as we do two things now. We do print and we do online. We don't really like
to do online, but we do online because we have to do online and we'll kind of figure it out. That's
our business. Now, it's really changing. It is, we're a news company and we put out the news in
lots of different ways. And so, you've got the tablet, you've got the smart phone, you have online,
meaning desktop/laptop, and you have print, and soon will have the TV, whether Google figures
it out or not.
Seventy million tablets are projected to be sold in the U.S. in 2011-2012. Seventy million.
Fifteen million of those iPads, 20 million other. New players are multiplying like crazy. Public
radio wants to be public media. Half a dozen initiatives there. City startups, including Jonathan
Weber's in the Bay Area, Texas, Minnesota, Washington, D.C. Investigative players getting a lot
of philanthropic money doing some great work in four or five different centers. We have national
online only companies. And we have a lot of niche players who don't really get a lot of attention.
One of my favorite new niche players is Comcast. People have focused on Comcast buying
NBC. God knows what will happen with that. They now have 12 sport--regional sport sites
around the country. And they are becoming a major regional sports player with lots of video.
So the new news pie, right? It used to be newspapers, then radio came along and newspaper took
a little thinner slice, TV, online, now we really have tablets, we've got smart phones. Basically,
people spend about the same amount of time reading, although there's an asterisk to that and it's
just getting split up more and more. Paid contents getting tested. The newspaper model for
decades was advertising money plus circulation money. Online it was only advertising money
and not enough of it. It was like trying to ride a unicycle. Starting basically at the bottom of the
recession, Dean Singleton, the head of Media News, and Rupert Murdoch, among others, said,
this is lunacy. We've got to get those digital people to pay. We need two legs. This mobile brain
toggle. People are willing to pay for things on the smart phone that they weren't willing to pay
for online. We don't know exactly why. Ownership of app, something's going on there.
Journalism online is making it possible and easier for newspaper companies to sell subscriptions.
And then, Apple's new subscription policy is changing this. And finally, advertising. Scarcity.
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You could sell time, you could sell space. Now, if you're a merchant, you want to buy Facebook,
you want to buy Twitter, you want to buy Google search words. There's a whole world that has
opened up to you. So there are companies like this company here, Clickable, that is basically
seeing--you will see their green--dark green ads all around. I've seen them this last two weeks
basically saying to merchants across the country, use us to figure out how to simplify your
buying.
So with this inflection point, because all these things are coming together, we have essentially
replacement journalism. What will the replacements look like? We don't know. There have not
been replacements in history. But we're getting replacement journalists very, very quickly at this
point. We're getting replacement owners. We're getting replacement devices. And we're getting
replacement funding. This is all happening simultaneously and nobody really has a clue as to
how it's going to end up. Because it's like this. It's like when you get--it's when you break balls
on a pool table, you have no idea where they're all going to go. And there are too many moving
forces for us to make a prediction of what things are going to look like in 2015. But the way
people are trying to figure this out and all from the startup level to the private equity level is by
playing infinity and by that I mean trying to make sense of what is essentially limitless
opportunity out there.
So Act III. Think of a funnel here, and this is all of us. This is all of us up here. So now, we can
go anywhere, we can read anything, and we're all potential customers of the BBC or the South
China Morning Post or whatever. And advertisers have that same choice. Two billion people are
now on the internet worldwide, one-third of the world. Lots of growth still coming. And those
marketing choices.
So let's a little at news infinity. Two billion internet users. That's a big number. And if you look
at--if you look at the readership of papers or of newspaper companies, for instance, The
Guardian, a very well recognized and well regarded newspaper out of Britain, The Guardian, The
Times in London, The Telegraph, one-third of their online readership is in the U.K., one third is in
the U.S., and one third is around the world. Only one-third is in their traditional market. Largely,
they can only make money because of how they figured out how to sell advertising and how the
internet economy works still largely on a national basis. But look at what they've gotten. They've
got now two-thirds of their readers away from their home market. The New York Times is about
40% of their readers are all around the globe, yet they're focused on how they make money from
the ones in the U.S. for the same reason. But this is another huge opportunity.
Essentially, the newspaper industry has been juiced on Google. So I was at Knight Ridder late
'90s, Google came along. We started noticing Google was sending us a lot of traffic, the referrals
that we got from Google. And so, well, that's kind of cool. And there were questions. There
were questions. I remember the legal counsel of these newspaper companies were should we
allow Google to index basically the newspaper content? Well, it seemed like a good idea because
they were sending us customers. And it went from good idea and nice to have traffic to
essentially addiction. And today, 50% or more of newspaper traffic in the U.S. comes from
Google and Yahoo and Microsoft. Fifty, sometimes 60, sometimes 70%.
And so, this question of how do you have a business relationship with Google, if you want to try
to right that, has become an interesting one. And it's largely faded over the last year because of
all the paid content stuff and now the tablet stuff. But this question--and Google would say, well,
we're sending you all this traffic. Why can't you do something with it? And they'd say, well,
we're trying, but it doesn't seem to be making a lot of money. But they couldn't turn Google off,
of course, because they would lose half of their readership. So they've been juiced on Google.
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Another sense of infinity. Pew Internet says that largely because of smart phones Americans are
reading 13 minutes of news a day more. The first increase in news reading in--anyone has ever
tracked. With the tablet, does that mean people are actually going to read more news because we
can read it anywhere?
Smart phones. I imagine most of the people in this room probably have one, but only 20% of
Americans who have cell phones have smart phones. We're at the beginning of this market.
News anywhere. Let's look at the entertainment models, very good, especially being in L.A., the
entertainment capital. Exactly what you hear conjectured about with The New York Times today.
They're going to do this, they're going to do that. This is the model. HBO, Comcast, Netflix,
same thing. Very, very simple. Netflix says to you now, you know, forget that DVD stuff. Just
send us $8 a month automatic over the bank account and you can access our stuff anytime you
want on your laptop or your desktop or your tablet. And if you still want those DVDs, we've got
this other plan, but $8. Comcast is saying very interestingly there is Xfinity, which I like, Xfinity,
right, app. So I'm paying Comcast, God knows, $150, $160 a month and they're saying, well, you
can now get your stuff without a sling box through your electronic devices. Again, pay us once
and you get a lot. Kindle singles is a big idea of mixing and matching content.
So what's going on is infinity. You've got all this stuff going on, unlimited potential. But this is a
chart from Steve Yelvington from Morris Communications. And the way he looked at it, he said,
well, basically, yes, there's a huge amount of traffic coming in and it's great to count the page
views. But you can't really make money on at least half of those page views. The great majority
of people get one or two or three page views a month. Then you have a few regulars in here, 20
to 30. And if you get to 90 page views a month, categorization as a loyalist or an addict.
Another way to look at it, and this is very much at the core of what we're seeing in terms of these
all access models and what The New York Times will announce when they finally come forward.
So 75 to 80% of those readers are anonymous. They follow a link. Google, increasingly
Facebook and Twitter, they follow a link. They're there, they're gone. Another 10 to 15%, this is
a registration. It could be registration, it could be they're more engaged, they know the title, but it
may not be part of their daily habit. And maybe five to 10% are people who are really core.
Look at this number. NewYorktimes.com in the U.S. registers about 30 million unique visitors
per month. In print they have about a million, a little less than a million now, in terms of single
copy and subscriptions. About 3% of this. What The New York Times is trying to do with its new
plan, when it announces its paid plan, is get about 3%--if they got 3%, they'd be ecstatic--3% of
those 30 million uniques, 900,000 people, to pay them something for digital access. 900,000 is
almost the same number. And probably--they don't know, we don't know--I'd guess 80% of the
people who are going to pay them are print readers as well.
So even though you've got this huge 30 million number, you're still back to the same kind of core
that paid you in the old world. And so, in a sense we have a back to the future scenario
developing. Consequently, all access has arrived. This is the new business model and everybody
is aiming at those five to 15% and saying, all that Google traffic and Facebook traffic is good.
The New York Times is reportedly saying, we don't want to cut it off. We want to be able to sell
advertising against it and make a little money, but that's the extra money. That's not the core.
We have this convergence. We have a two-legged business model, the recognition in the mobile
marketplace, the tablet's unexpected success, both the 70 million coming, but the fact that early
evidence shows it's a great news reading device. People read longer stories, they spend more
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time on it. And the need to keep the digital and business growing. If you put up just a tall wall
and you say, either you pay or you can't read it, you lose most of your readership. So the metered
approach is the approach that is weighing out and you say basically, you want less than 20 page
views a month or 10 or 15? You're not going to ever see a pay wall, and that's going to be most
of the experience of most of the people who go to The New York Times. Keep the ad business
growing.
And then, we have the push given by the Apple subscription policy. Apple has not announced
this policy, but it has talked to many, many publishers who are all acting on the belief that the
policy is clear and it will be formally announced probably when they announce the iPad II. And
it is simply that if you are a news company you can sell access, a subscription access to a digital
product, mainly the iPad, but also a smart phone. You can do that, but you can't do it for the iPad
and have unrestricted access on the browser. So if you are free on the browser, you can sell an
iPad product, but you've got to sell it through the Apple store, you've got to give 30% to Apple,
and you get very little data or customer relationship.
Faced with the want to get more reader revenue from digital sources to transition with readers as
they move from print to tablet, consequently the Apple policy is both pushing and shoving
publishers in this direction of saying, let's restrict browser access. Let's offer all access. Pay me
one price, you can have access across the board.
So what we're going to see basically is three bundles. And a couple of extra bundles. You might
get like iPhone only bundle or a price--or a Blackberry only price. But essentially, print, digital,
or print plus digital. This up here is a screenshot from The Wall Street Journal. That's exactly
what they are doing today. They moved to this model about two months ago now. New York
Times does it, Financial Times does it. We'll see The Dallas Morning News do it. We'll see a lot
of smaller newspapers, dozens of smaller newspapers, do it within the next six months.
So will the readers accept this proposal? We don't know. And is this a play for basically taking
print readers who are older readers and getting them to value digital access differently, and saying
we're going to get a tiny percentage of younger readers who are already used to getting things for
free? We don't know. Is it simple and filling? Is it a simple proposition? The New York Times
idea and The Wall Street Journal idea may be simply a really good idea because it does one thing
really well. It says to everybody there's a value on digital reading, if you read our publication a
lot, and you are now a customer of The New York Times, for instance, across the board.
They have now--they will now make you a customer across the board because if you're a print
subscriber you are getting all digital access as part of your print subscription. So there might be a
psychological thing going on here of how you transition everybody from this era of news is free
to news has value online. It may be treating the addiction, and it is importantly making peace
with fly-by traffic. Fly-by traffic meaning all the stuff that comes from Google. Not that it is
without value, but that it has lesser value.
Marketing infinity, quickly. Digital ads will soon be the leading category of advertising
worldwide. U.S. is now third. We'll probably be first within two years. U.K. and Japan, number
two already. Ads are moving to marketing. Remember merchants don't want to buy advertising,
they just want customers. And advertising was the best way to do it and mass market of
newspapers was the best way to do it. So advertising budgets are fairly flat. Marketing budgets
overall are growing.
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Page search, a measurable result is half of all the online advertising in the country. That is an
amazing number. Now, in the U.S. alone, $66 billion is spent on self-marketing. This was a
number--I first heard this number in 2006 from an associate of mine from Outsell, one of the
companies I work with. The number was 22 billion, so a third of that five years ago. This is Best
Buy, for instance, saying, yes, it's fine to buy circulars in The L.A. Times, but we have
BestBuy.com, we have all these people's email addresses, we can do direct marketing.
Every business in the country is now looking at this. There are 8 million companies in the U.S.
You can break it down by email marketing that they're doing and social stuff they're doing on
their websites. They are now spending 50% of their dollars on direct to customer relationships,
cutting out media, just intermediating media. It's not because they don't like us. They just don't
need us.
So translate this to newspapers. For a metro paper, metro papers had it pretty easy. The ad
people were derided by the editorial people as order takers, often true, and they would
concentrate on the biggest buck advertisers and let everybody else go because newspaper
advertising was too expensive and too hard to get at. So in a metro area like L.A., 8% L.A. Times,
I would guess even 6% of all the businesses here they reached. What that means today as we
have this marketing push is that you have a new opportunity of 90% plus in metro areas in midsize cities probably 70% of businesses that are never advertised with that newspaper company.
But they don't want advertising by itself. They want marketing, they want customers.
So this funnel, they're taking this merchant funnel and newspapers are becoming resellers.
They're selling search engine modernization, search engine marketing, search engine
optimization, Facebook, they're selling mobile, they're reselling Groupon, you name it, they're
reselling everything that they can. They have changed and they are in the process of changing
everything they're doing from being an advertising company that sells space to being a
consultative selling company that says how can I help you get customers. They're doing a selfserve.
And interestingly, here, now, we know there's a lot of money here. You can see all the billions
that are at stake. This is a great idea. But newspaper companies are not the only companies that
have figured this out. Yellow Pages is deep into it. The local broadcasters are into it. There's
standalone national companies that are into it and there is a set of companies which we estimate
at $5.1 billion, which is now the marketing services industry to try to get between the merchants
new middlemen and these services.
Lastly, on analytics. So analytics are--is what--is coming to drive the business and important for
us all to understand. When we did business development deals in the early internet we would
say, we want some information from you about how stuff works and you try to get some and you
would hardly use, had nobody to look at it and understand it. It is changing from exhaust, what
kind of comes at the end of a process, to a business driver. Newspaper companies basically
they'd look at the circulation every six months, they'd look at the monthly revenue in advertising.
They didn't want to know a lot. I changed Sherlock's quote there.
I'll go back to the FT. The FT is a financial paper out of Britain, actually has more U.S. readers
than it has U.K. readers by a hair, a worldwide paper. People have thought about it as, well, it's
different. The kind of thing that The Wall Street Journal is different than The New York Times
and the FT is something else, it's foreign and all this kind of stuff. It is their model that is most
important. And they are the most advanced at understanding how to use analytics. This again is
Rob Grimshaw and he said we used to hold and manage data which would come in--that would
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be very familiar to newspaper people, and now we're learning from the internet. They're growing
on all fronts when you look at their metrics. They're growing in print, they're growing in online,
they're growing in advertising, they're growing in circulation. They have an 11-person team.
And Rob said the only thing--the only rule they had is they didn't want to hire anybody who was
from the newspaper industry. Hired everybody from consumer package goods companies and
you name it. Started with nine, now have 11, and they are handing information on a real time
basis through that company to make decisions. Basically, they are becoming the Amazon of
newspapering.
A direct internet retailer is how they look at what they do as a news company. They are looking
at their readership and watching how their readership is reading, how they're reading and what
they're reading, and adjusting. They're using it to drive their ad business in all kinds of ways.
They are sharing information with their advertisers that they're getting now in this quarter on a
real time basis, the only newspaper company I've ever heard of doing that. And what they're
creating is this new virtuous circle. They're saying we have all this information, this data, going
through our enterprise. And just like Amazon, that amazes us, or probably doesn't amaze us any
longer, but did at the beginning, where it was just stuff that we actually wanted to look at - books
that we wanted to look at, other electronics we wanted to look at - because they really were
starting to understand us. The FT is trying to do the same time, both with the two core parts of
newspapers and companies, readers and advertisers.
Twitter analytics, doing the same thing now, and it supplies the content creation, demand media,
IPO coming very soon. Demand media has really turned a lot of newspaper thinking on its end
and it's because of how they look at data. They are run by advertising guys who say, let's see
what the advertisers want to advertise. What kind of content would help them reach the right
audience? Let's go create the content over here. Let's go find the best people to write it over
here, figure out who they are, and put it all in a database. So database, database, database,
database.
Newspaper companies are slowly understanding this and slowly understanding how you can use
similar principles and merge them with long established editorial principles. We see a lot of
companies reaching out for communities and high end bloggers. And this is the key here, of
course, is reaching the high end of the blogosphere, whether it's in a metropolitan area or a
national level or in any topical area.
Two key questions to come out of the whole demand experience, partly out of what comes out of
the FT - what's your cost of content? There's no newspaper editor that could really tell you that,
and no one likes to think about it that way. But since this--at base a manufacturing process, you
need to know that. And then, you need to know what it yields per unit. If you're private equity
and you're looking at this business, you're saying, it really does come down to this doesn't it, or
am I missing something?
So my point here at journalist, once a journalist, always a journalist, is we better understand this
and not just because other people are doing it, but we can use a lot of these same tools merged
with our own beliefs, practices, and principles, to really grasp this new world. It's a time of
building blocks overall. You can see all that's in motion here, but there are lots of blocks to build
with. Metrics aren't what come after. They are what drive the business.
And lastly, 11 big questions here and I'll just run through them very quickly, and then see
whatever time we have for questions here. How much faster does print circulation drop because
of tablet reading? Tablets are going to hasten the demise of print, but we don't know how quickly
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and we don't know how newspaper companies are going to adjust to it. Will all access provide a
new bottom? Might it work? If it works and provides the stability, then you can grow from
there. Where are those tablet reading minutes going to come from? It's great there's 13 minutes
more reading, so far the early adopters. That won't last. They've got to come from somewhere.
They could come from print, they could come from broadcast, they could come from watching
TV. We don't know.
Who wins the aggregation game on the table? Everybody who won news in the first decade of
this century and millennium are aggregators. All the first products in the tablet, single title
products with the exception of Flipboard and one or two others. Ongo announced an aggregation
product finally today and there are going to be a lot of people trying to play the aggregation
game. How many advertisers do companies have? So this whole marketing services and the 92%
and the 8%, how many more advertisers do newspaper companies get, or any news companies?
How fast does this rollup of dailies happen? Is it possible to put together the three newspaper
companies in L.A.? And who is going to stop them? How much does The New York Times
experiments in regional get expanded? It's worked at a very low level. It works very well for
them business wise and in terms of readership. Could they do it in 10 cities and could they do it
five times bigger? What kinds of combinations?
So we've got all this new media. We've got this old media over here that is rolling up and trying
to roll up. We've got the new media up here that is just kind of chaotic. What if they got together
in some new ways at the same time these guys are doing a rollup, which I think is going to
happen in the next two or three years. Both those things are going to happen. How much more
cutting of journalist jobs will there be? 14,000 cut in the last five years. How much will local
broadcasters continue to gain in the digital world on print? And lastly, what's your question?
So thank you very much. Appreciate your time this morning. And I don't know how much time
we have for questions.
Gabriel Kahn, journalism professor: At least seven minutes or so.
Ken Doctor: Good.
Gabriel Kahn: Folks in the audience. I think we have a microphone over there.
Questions and Answers
Félix Gutiérrez, journalism professor: Well, thank you for your presentation. Very
informative. You left it off at a great point though at the end by your focus on content.
Ken Doctor: Yes.
Félix Gutiérrez: And I wonder what do you see ahead? How is all of this going to affect
content, the way it's gathered, the way it's disseminated in terms of first print or first sharing, and
then into the aggregation? What kinds of stories, what kinds of things, what is going to affect the
content we're going to be getting?
Ken Doctor: Sure. Well so, I started out with those pictures of all those people and the who and
very purposeful, because the real answer is it depends on what we all do. It is wide open at this
point. So we have all kinds of models. You look at the Patch model and I think the Patch model
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is very revealing, where Warren Webster, who is the President of Patch, part of AOL, says they
can do a local Patch for 4% of the cost of what a local newspaper would pay to produce the same
amount of content. Now, that seemed suspect to a lot of us, but it could be eight, it could be 12, it
could be 15%. So on a cost level in the creation of journalism, the part of this I like as an editor
and someone who values journalism is it's peeling away back to journalism. It's saying, okay,
what do you need to find out what's going on? You need somebody who is asking questions. You
need somebody who is out on the street.
So their model is take a community of 30,000 people. They don't have an office that they can go
into or hide in, right? They've got a tape recorder, they've got a video camera, and they're out
there talking to people and they've got a laptop to write stuff up and feed it into a central content
management system.
In a sense, I think we're going to see--in a sense media news is doing the same thing, right?
That's probably good in that we are stripping away layers of things that have encumbered
journalism for a long time. So that's good if in the recombination, I keep thinking of it as
recombinant DNA, in the recombination--and we're just at that point now where we can say, oh, it
really doesn't cost that much money. I mean, the newspaper industry lost $25 billion a year.
Well, we only lost 14,000 jobs. Well, that doesn't quite add up, right?
So let's strip it away. There's the Patch model. There's the Bay Citizen model, which is very
interesting, where they say, no, no, we're not paying people $30,000 a year like Patch, and we're
hiring the kind of people that have 10, 15 years experience. They've got their pick of people they
want. And they're paying well. In fact, they had to defend how much they are paying, which I
thought was funny. They're paying good professional salaries. I think what's going to happen is
we're going to see all these various experiments, which tend to strip things away, and then the
question really is this very big business question of how you get scale, especially in a local and
regional area. And L.A. is a fascinating test case for that. Where I live in the Bay Area is a
fascinating test case. We have--Bay Citizen has 20 people, probably 30, 40 Patches around there.
And these are energetic young journalists who are actually doing reporting. We can all criticize
different parts of Patch, but they're doing reporting.
The Chronicle and Mercury News are shadows of themselves. I think we're going to see new
combinations. I think we're seeing great stuff in investigative stuff. The new stuff also is not
only pared down in terms of resources and offices and stuff, but it is focused at saying on
education we don't want to cover the school board, we want to understand what is really changing
education in the Bay Area and who the movers and shakers are and what counts. All that's good
and I'm an optimist. But I also realize that there are a lot of forces of capital that just want to do
things cheaply. And at this point, we're much poorer in journalism than we were five and 10
years ago. We can be richer in journalism and in reporting and coverage five years from now, but
it's how we put this together.
Félix Gutiérrez: Thank you.
Jonathan Taplin, communication professor: I think there's one flaw with the argument for--.
Ken Doctor: --Only one? I think there's more than that.
Jonathan Taplin: For the tablet to be the next phase.
Ken Doctor: yes.
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Jonathan Taplin: The basic problem is every application that I at least have on my iPad has no
hyperlinks. In other words, you're basically going back to the old wall garden. In other words,
Wired wants to keep me inside Wired.
Ken Doctor: Right, right.
Jonathan Taplin: They don't want me to go anywhere else.
Ken Doctor: Right.
Jonathan Taplin: That to me, I've stopped using those applications completely and I'd much
rather use this just as a web tablet. Because The New York Times online is much more
hyperlinked than the New York Times app.
Ken Doctor: Right.
Jonathan Taplin: And I think that's a basic flaw. The other basic flaw that I see is that it seems
to me that Google is basically trying to repeal the laws of supply and demand. I mean, you made
a good point that the number of ad inventory units is going to infinity.
Ken Doctor: Yes.
Jonathan Taplin: We all know what happens when you have an infinity of supply. I mean, I
would--my guess is The New York Times business planning 10 years ago would have never
estimated they'd have 20 million uniques.
Ken Doctor: Right.
Jonathan Taplin: But they also thought that the worth of each ad unit would be far higher than it
is today.
Ken Doctor: Two quick things on that. In the app world, the app comment I think is very apt.
What's interesting that's going on--there's many things to write about that haven't been written
about. So apps look like a short term phenomenon. Apps are being replaced by HTML 5 and we
all read about HTML 5 when Apple said no to flash and then it was like, well, then we've got to
go learn HTML 5. What's that about? All the technologists I talk to in the news industry say
apps are nice, they're really a two-year phenomenon. They are out there and for the hyperlinking
reasons and other reasons, HTML 5 make those browser pages as functional, if used well, as
much fun, interactive, refined, as the apps. And so, for instance at The New York Times and a lot
of these companies, they are trying their entire text app on HTML 5.
So either the apps themselves get more web-like, or people do what you'll do and use HTML 5.
But on the tablet the browser experience is going to get better and better. The infinity and Google
thing is an interesting thing. And you're right. The question then becomes, in this infinity is the
matching of how do we get you, if it is an infinite number of placements, how do we get you the
things you're most apt to click on by? And so, Google and everybody else in that world is trying
to get smarter and smarter at the matching while fending off the do not track people.
Yes?
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Unidentified Audience Member: I actually see a different issue in that is actually I use--on my
iPad I access The New York Times through the web browser and it's a terrific experience.
Ken Doctor: Yes.
Unidentified Audience Member: So I highly recommend it. But from my perspective, I'm not
willing to pay for all access if I have to see ads. I'm going to tell you now, and you can take it
back to whomever. But consistently I will pay for all access if I can give up ads, just like I pay
for cable TV if I can give up ads, because that's what I don't want.
Ken Doctor: You don't want ads?
Unidentified Audience Member: I don't want ads. That's truly, truly what I care about is, when
I want to go shopping, and I dearly love to shop, I want to shop. But when I want to read the
newspaper, what I don't want is pop-ups.
Ken Doctor: So they want you to pay, let's say it's--.
Unidentified Audience Member: --If they want me to pay--.
Ken Doctor: --$20, right?
Unidentified Audience Member: --They want me to pay $20 a year.
Ken Doctor: How much would you pay not to get ads?
Unidentified Audience Member: I will pay $5--I will pay $60 a year not to have--that's $5 a
month. I pay $5 a month for other functionalities to not have ads or things that I can have for
free. So that--you may--as an editor, I was going to give that.
Ken Doctor: We'll see how many people are willing to do that.
Unidentified Audience Member: But that's--what my concern is that a lot of people are going to
say, what I don't want is the ads. Because frankly, as a New York Times reader, I'm not interested
in ads for products or stores in the city that don't exist here in Los Angeles.
Ken Doctor: What if your favorite publication said to you, you're only going to get ads for things
you tell us you're interested in?
Unidentified Audience Member: You know what? Those ads come to me in my mailbox and
when I'm interested in it, I open them up, and otherwise they go into the round file. I really only
want to be bothered with ads when I--.
Ken Doctor: --Recycled, right?
Unidentified Audience Member: Right, the recycling. I only want to see ads when I'm really
interested, otherwise they're really intrusive.
Ken Doctor: We'll see how far--how big of the market your segment is.
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Unidentified Audience Member: But the next issue that I have, of course, is that when people
provide me with digital content it's considerably cheaper for them to produce in terms of they
don't need paper, they don't need ink. They certainly need paper--pardon me, people. And being
a writer, I am not cheap here at USC. But it's disturbing to me when I look at an Economist let's
say subscription and it's still really a rather expensive subscriptions. And that--you asked me how
much would I pay. Sure, I pay $60 a year for The New York Times.
Ken Doctor: Right, right.
Unidentified Audience Member: To have no ads. But I'm still--.
Ken Doctor: --So look at the numbers. This is a really interesting point. So The Economist, I
know those people pretty well. They figure 25% of their readers are going to be on the tablet in
five years at least, right? So they're saying, we're going to do the quick switcheroo right now,
right, and we're going to have more profits at the end than we have right now. You're--you don't
want that.
Unidentified Audience Member: I'm telling you, if you look at their subscription price, it's not
substantially less.
Ken Doctor: I know. That's what I'm saying.
Unidentified Audience Member: And it's disturbing.
Ken Doctor: So, that's The Economist.
Unidentified Audience Member: So I have not switched digitally.
Ken Doctor: So look at The New York Times. New York Times is $600 a year or something,
seven-day subscription, $500, $600 a year. It's just an incredible amount of money. The--if they
price it at $20 a month, it's $240 a year. What they are taking into account--we'll see if it works-is what you're saying, is saying, it's going to be hard to justify $600 a year for a digital-only
product because some people out there can do math. But 240 is what we need when we take out
our paper cost and our ink cost and all that kind of stuff, because we still have all these highly
paid journalists. That's the kind of--the differential they're looking at. Do you buy that or not?
Unidentified Audience Member: I'm going to tell you, if they told me it was 240, and actually I
used to pay for The New York Times when they had--when it was electronic and limited access.
Ken Doctor: Yes.
Unidentified Audience Member: Because I used to be a paper subscriber, I wouldn't pay 240,
not for ads. On my--.
Ken Doctor: --One vote for no ads.
Unidentified Speaker: I think we have one more question here.
Unidentified Audience Member: You mentioned journalism as at base a manufacturing product.
Ken Doctor: Yes.
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Unidentified Audience Member: Could you talk a little bit more about that? Has it always been
a manufacturing product and we're just realizing it or have there been changes in the industry that
have made it so?
Ken Doctor: Yes, I think it always has been. And I think those of us who are journalists--and I
worked for Knight Ridder, which I call the silver standard. The New York Times always was the
gold standard and we were hopefully at least a part of the silver standard. What we learned as
editors in Knight Ridder was that we had two responsibilities. We had a responsibility to the
company, which was a profit making company, to put out a really good product. And not say
stupid things when the car dealers yelled and called and yelled at you. But also, that we were in
business as a public service. And what we learned was--and I think all good newspaper
companies have operated this way, was all kinds of issues along the way. You try to balance
those two things. And as an editorial person you understand you're working for this company,
but your bond to that reader is sacred that you basically try to tell the truth as far as you can see it.
But it's a manufacturing process. I mean, it's literally a manufacturing process. And I think
what's happened, like with the demand model and all these others, is it strips it away. And
demand, private equity, any business person, you talk to a business person that doesn't know
about newspapers and they'll say, I don't get it. How can you run a company where the only thing
you're thinking about is not profit? I mean, why would you do that? It doesn't make any sense,
because it doesn't make sense to anybody else in business, in for profit business. So I think it's
always been there. What I think is different now is it's been stripped away and in a way--and it's
like my Patch example.
It's not bad that it's been stripped away. What it then does is challenge all of us to say, that's
okay. Public service in a democracy in what we think is one of the more important democracies
out there is hugely important and of value. Then how does it get funded, how does it get paid
for? That's why I want to see The New York Times get paid one way or the other, right? And
whether it's non-profit, which is great, or for profit, I don't care. But I want this principle to
endure because otherwise we're screwed as a country.
So it's kind of laid bare, but it's not all that clear to people and it's not clear to a lot of very smart
people in business, because they just aren't used to thinking of holding both those things in their
mind at the same time.
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