Why some media outfits still refuse to go online

Jul 22nd 2010

Stuck in a time warp

http://www.economist.com/node/16646290

WHAT do the Beatles, Harry Potter, Bella magazine and the grizzled crew of the Northwestern, an Alaskan crab-fishing boat, have in common? They are scarcely available digitally. Whereas most media firms scramble to create iPad applications or fret about whether to chase online advertisers or build paywalls, a few digital resisters refuse to distribute over the internet at all.

They have some good reasons. Online advertising is worth much less than television or print advertising. It is hard to persuade people to pay much (if anything) for digital content. Technology firms such as Amazon and Apple can often set retail prices. Digital products can be less beautiful than physical ones.

But such gripes are widespread in the media industry. They must be set against the fact that digital distribution is a low-cost way of reaching huge audiences. What is more, refusing to go online is a sure way to alienate many potential customers. So why do the analogue holdouts hold out?

Simple technophobia is not usually the reason. Discovery Communications, whose “Deadliest Catch” television show follows those crab fishermen, has been a keen early adopter of high-definition television and 3-D. Yet Discovery is conservative when it comes to putting shows online. “Take a Break”, Britain’s fourth-biggest magazine according to the Audit Bureau of Circulations, puts none of its stories (mostly real-life family dramas) online. It nonetheless runs internet discussion groups and expects readers to apply online to enter competitions.

One thing many of the analogue holdouts have in common is that they sell few subsidiary products. Discovery is a rare American example of a pure television firm that derives little income from merchandising or other spin-offs. The Beatles, who no longer tour, do not regard music sales as loss leaders for more profitable concerts, as many bands do. Women’s weekly magazines tend to rely utterly on news-stand sales. One of the chief advantages of a website, selling subscriptions, holds no appeal to them.

The great thing about the internet is that it makes content universally available. But many of the holdouts are already ubiquitous. The Beatles’“1” is America’s best-selling album so far this century, according to Nielsen SoundScan. The Harry Potter books have sold more than 400m copies worldwide. At their peak they were sold in chemists and petrol stations.

The band of analogue holdouts is gradually dwindling. Because they are so few and so large, the holdouts are valuable: any technology firm that can persuade the Beatles to go digital will reap fat rewards. Theft provides another stimulus. All the analogue holdouts are widely available online—just not legally. That seems to be persuading even Harry Potter to look more closely at digital distribution. As Neil Blair of the Christopher Little agency, which represents J.K. Rowling, admits, holding the books back from e-readers “is not the best strategy for combating piracy”.

That would mean they are becoming essential gadgets for businesspeople, commuters, air travellers and the reading classes in general.

They might just mark a turning point in the fortunes of a British industry, particularly, grappling desperately with dramatic declines in sales, defection of advertisers and woeful returns on huge investments in glitzy websites and marketing budgets. It is an industry praying for a miracle.

Few newspaper readers appreciate the nightmare facing the companies that produce them.

Classified ads, once about a third of an average newspaper's revenue, have steadily migrated online -- a shift accelerated by the recession. Display advertising is now defecting too. And with so much content available cost-free on the web, and free-sheets given away to commuters, circulations are plummeting.

Normal readers are also defecting -- either grabbing a free-sheet on their way to work, or picking up their news via Google for free. Newspapers everywhere have been affected but no country, apart from the US, has suffered as much as Britain. Since 2007, British circulations have fallen by a quarter, according to an OECD report. In the US, they have fallen by a third -- with 293 newspapers and 1120 magazines folding last year alone. Advertising revenue may recover a little this year, but the trend is clear: over the past year, British broadsheets lost up to 16 per cent of their readers. Few businesses can deal with structural change on this scale. The losses are mounting.

The Times newspapers are losing pound stg. 1.6 million ($2.8m) a week between them. The Guardian and The Observer are losing pound stg. 3.2m. "No matter which way you look at it, the numbers are just unsustainable at this level," muttered one senior editorial figure after discussing the rosy hue painted on the results by Guardian Media Group outgoing chief executive Carolyn McCall. Something fairly substantial has to change.

Even the remaining profitable newspaper groups such as The Telegraph are not immune to the flight of advertising and readers.

What does a newspaper do? Salvation may come in the form of a Russian sugar-daddy, as it has for The Independent.

Others may give themselves away free, like the London Evening Standard.

But most proprietors and executives are frantically looking for a new way to make the newspaper business model work.

Newspapers may be powerful brands with high-quality content honed to the tastes of their target audiences, but hold on to the wrong business model for the digital age. Some 80 per cent of their costs tend to go on things like paper, printing presses and distribution. But the bit the punters are actually buying -- the content -- is as powerful a draw in the digital markets as at the newsagents.

The iPad and the host of digital tablets following may well become game changers, because the iPad makes browsing your book or newspaper feel almost like the real thing. And because it is a new mobile platform (a bit like a big smartphone), publishers believe there will be little resistance to paying a subscription, as long as it is not exorbitant -- maybe a tenner a month.

For their money, the punters will get a product miles ahead of the newspaper website. Publishers can deliver a complete, packaged paper, like a giant PDF, which means they can shape the layout, embed video and audio clips, and use clever navigation tools that learn about user preferences and give you your newspaper in the order you like to read it.

Once the principle of paying is established -- as it is already for music through the runaway successes of iTunes -- the next step will be to see if it can be applied to newspapers. Rupert Murdoch is, not for the first time, blazing a trail for his industry here by erecting a pound stg. 2-a-week paywall around the websites of The Times and The Sunday Times. The argument advanced by James Murdoch is that the company is "placing a proper value on creative endeavour" in the belief that its output is worth paying for. Journalists accustomed to loathing Rupert Murdoch now grudgingly wish him luck. If he pioneers a business model, others may follow.

Another potential lifeline is being offered by Google, which is the world's biggest media business.

This sounds ironic, as the company has long been described as the Darth Vader of the news world with its Google News search engine directing users to whatever they want to read, for free. It pledged resources to help fix the "monetisation problem" -- that is, how to persuade people to pay for the news found through its search engine. Google is cagey about details, but appears to be working on some solutions. One, apparently called Newspass, will be a system that allows users to make tiny payments to read articles and charge from a Google account. Google would, presumably, take a cut in the transaction.

As for the iPad itself, it is perhaps the biggest step yet on a road towards highly capable, light, portable reading devices that will make paper and smudgy ink look medieval. If it takes off, it could be the portal that allows users of both Google and Murdoch to pay for their product. Each publication could sell an app. What has made newspapers and magazines huge successes over the decades -- their range and their personalities -- ought to triumph on the new platforms if properly projected.

The clock is certainly ticking. Microsoft gives newspapers 10 more years at most as printed artefacts. One Financial Times executive has suggested it will be out of the pink newspaper business in five. Other publishers give it longer, but the time frame is years rather than decades.

To stay ahead of the game, newspapers and magazines -- even the one you hold now -- will have no choice but to migrate to an online format that people will want to keep paying for.

In launching the iPad, Jobs probably never gave a moment's thought to the survival of age-old British newspapers.

But if his iPad takes off, and leaves its owners willing to pay a little for something of quality to read on it, then this device -- and its successors -- may well save Fleet Street.