Quick Math on Local

I wanted to do some quick math on why I think a local only strategy is doomed. Allow me some assumptions. The first is that a local only strategy will be filled with local advertisers. Let us also assume that advertisers only care about local people that could patronize their businesses. This may not be true for some categories, but I'd guess them to be true for most.

Now lets take the the size of a fairly large city - Atlanta. In metro Atlanta there are around 5M people (give or take). The cumulative readership of the AJC is around 2.1M over four sundays. Let's assume they can convert all of this readership to online, or even grow it to 75% of the population.

We now need to make a guess on the both the number of pageviews each reader will generate, and the revenue that can be generated per page. I'll choose an RPM (revenue per thousand pages) of $25, and that each of these online reader visits 50 pages per month.

The math then looks like this (5,000,000 x 0.75 x 25 x 50 / 1000) = $4.68M per month. $56M per year.

75% penetration is pretty damn aggressive
$25 RPM is high, but possible
50 pages per month on average would be incredible

The ajc claims that they had 110M pageviews in January 2008, and most certainly they didn't come only from atlanta. If they did at a 50% penetration rate it would be 40 pages per user. I'd guess that less than half are from their area, but the penetration rate is much lower (20-30%). That would place current traffic at around 30 pv/user in the local area, and that still seems high.

The AJC is private, but I'd guess they were making between $300-450M per year in the print version. That's only local, delivered to the local people that the local advertisers value. Taking it to a logical conclusion gives me 20% of the revenue under pretty aggressive assumptions.

Certainly there are some additional streams of revenue that can be added, and there is the chance to monetize traffic outside the DMA. However, the core product, the product that is the mantra of local, local, local, the one that's set up for both content and sales to attack - does not look promising at the end game.

How Bad is it getting out there?

The debt loads of the major papers are becoming a big albatross according to this report by Bloomberg.

Some key points:

• Journal Register may only be worth half the debt it carries
• Tribune could reach technical default by the end of the year
• Morris is on the same timeline
• MediaNews may be very near violation of its covenants

This, of course, follows the news that Philly reached technical default and had an interest payment on a junior note blocked by a senior lender. (Senior Debt has the right to get paid first) The distress in the industry is being felt by the lenders, who are none to pleased given the overall credit markets.

I really would like to see some good news about the financal situation of some newspaper company, but thus far the gloom and doom persists.

Layoffs from McClatchy

Nothing particularly surprising in the latest news from McClatchy. That is perhaps the saddest part. Regular layoffs have become some commonplace in the industry that a routine 10% slash is no longer greeted with any dose of shock.

It appears that many larger papers, such as the Sac Bee, Miami Herald and Fort-Worth Star-Telegram could lose in excess of 100 people each. Unlike prior layoffs, this most reports have the reductions as very broad based rather than just newsroom focused. Some have reported that people have already been let go at some papers. Desperate times do call for desperate measures, but the unilateral nature here feels somewhat wrong.

An article in the Sacramento Bee is particularly haunting. Pruitt is quoted as saying, "I'm hopeful that we'll see some improvement (in revenue) as the year goes on."

Hope is not a strategy.

If it's ever going to stop someone needs to take the reins with an actual plan. Shaving staff as a reaction is too little to late.

Possible strategies:
1. Share production and content even for regional competitors to further reduce newsroom expenses. While this wouldn't be popular with journalists, it might be a proactive measure to shore up in the near term.
2. Restructure Sales Compensation to 100% commission and/or share in the ROI of advertisers. Perhaps they've done some of this, but most newspaper sales teams are commissioned only on incremental revenue. This was mentioned in some of the Tribune statements. Also a focus on advertiser ROI, as difficult as it is to measure, can move incentives in the right direction. The relationship then is one of partner rather than adversary.
3. Purchase ad agencies and/or develop relationships with competitive media to function as a media buyer. 15% of your competition is far better than 0%. A healthy portion of newspaper advertisers would have difficulty with an integrated multi-media campaign. Fill that need.
4. Start charging for all of the "value add" provided to advertisers. Many advertisers already avail themselves of creative services at the newspapers expense. Some of these sales may not be profitable as a result. Determine the true cost of ad placement, creative, tracking (tear-sheets), and account service.
5. Invest in real interactive businesses. Not the ones that provide services to the newspaper industry, but those that have real growth outside of the industry. Use the soapbox still provided by the core product to promote well. Make sure there is a good fit between current audience and acquired product for this very reason. Transform, rather than increment.

These aren't the only potential strategies, nor are they even that well thought (honestly), but it could be the semblance of a plan that employees and shareholders should expect. You have to do something, because hope isn't going to work.

PS - As cold hearted as "suits" like myself are famous for being, I do feel for everyone affected by the downturn and layoffs. I recognize that even the strategies that I have presented above aren't without pain, as well. I wish everyone affected by this and other restructurings the best. I've been through one myself, and I ended up in a much better situation as a result. It just didn't feel like it at the time.

Cutting coverage

This will sound more than a bit contrairan, but my proposal here is quite the opposite of what would seem to make sense. The traditional wisdom has been that the best items to cut from a newspaper are coverages that not a lot of people read. I think that thinking is misguided.

I'm not saying that you should have reporters dedicated to completely obscure subjects like the sale of handwoven Mongolian baskets by illegal immigrants. What I am saying is that the number of people that read a story is actually the wrong metric. To me, the right metric is the number of people that will purchase the product just for that one story. The strategy to get there is to write about subjects that a few people care passionately about, and compile a bunch of things just like that. The stories should be the unique voices that are strongly compelling to a few people, and can't be duplicated elsewhere. Religion, science, and arts coverage routinely gets dropped because of the limited interest. I'm arguing that there are quite a number of people that get the paper exclusively for those areas.

Its important to remember that newspapers are a bundle. Consumers don't pick up just the stories they want, the get all of them for the same low price. Its similar to the cable industry that would make you get the entire digital plus package if you only wanted access on one channel on that tier. By doing that they can actually subsidize a number of weak offerings that are put together. It doesn't matter which of the ten or twenty channels you want, the fact is that you wanted at least one of them enough to pony up the extra cash.

This sort of thinking is very bad for consumers, who end up paying for things they don't actually want, but the newspaper has always been that way. Nearly no one reads every word written in a paper on any given day. Editors need to think how to appeal strongly to a series of niches far more than the middle of the road story that many will glance over.

This sort of thinking also doesn't work as well on the Internet, where the model is far more efficient. I can search for a particular area of interest and go straight to the article from a number of sources. The brand around the niche is what can build loyalty over time to web properties. It's the strategy of companies like Gawker who focus on a series of niches with separate but affiliated sites which all have a similar tone.

Realistically, newspapers have to do a bit of both to work. They need the big stories that have broad appeal along with narrow stories that inspire passions. My greatest argument here is their need to recognize the economic situation of the product and exploit it to maximum gain. Cable does it well, and maybe its this sort of thinking that Cablevision can bring to its otherwise panned acquisition of Newsday.

Philly the first to fall?

CFO.com is reporting that the Philly Inquirer has missed a debt payment and is working hard to restructure its debt to avoid full default. One strategy they are considering is to pay the debt in kind - that is with more debt. Kind of like paying your visa bill with your Master Card.

There's still no sign that the situation in the industry is getting any better, so the situation doesn't look good there. Debt is unforgiving. It doesn't look to me like there's much hope left there. They don't have geographical diversity or other assets they can sell off like the Tribune. Minneapolis has a similar problem and might find itself under similar scrutiny soon as well.

I feel like I'm writing an obit and should express condolences.