The sound of trees clapping

The sound of trees clapping

: My friend Dave Morgan, head of Tacoda, writes a devasting analysis of the quicksand newspapers are in.

He begins saying that newspapers are not only losing tremendous classified ad volume to the likes of Craig but, more importantly, are also control of their rate card: That is, without a monopoly, they can’t control prices anymore. This, he says, is what used to happen to the second paper in towns, when there were second papers. But now the surviving papers are second to the internet:

But unfortunately for newspapers, these Internet companies are presenting a competitive profile that is much more threatening than just having another local newspaper to contend with. Google et al. have dramatically lower cost structures. They have larger and more attractive audiences. Their pricing models are more advertiser-friendly–selling qualified leads, not just space. And, they have nicer dispositions.

This dynamic, as it accelerates, will present a serious threat to the viability of a number of newspapers. Given the enormous cost structures attendant to newspaper publishing, from buying newsprint and operating printing presses to paying the salaries of editors and reporters, these companies can sustain price destruction for only so long….

This means that local ad pricing will drop, and competitively driven pricing schemes, like performance-based pricing and auction-based sales, will take hold. Most likely, this means that newspapers’ revenue from their current advertisers and ad products will drop… precipitously. This means trouble, because while revenue from existing operations will likely be cut, there is almost no way to make comparable cuts in cost structures. Too much of newspapers’ cost structures are fixed.

Will newspapers die? Morgan hopes that it doesn’t take dead dead-paper to wake up the news business as the ends of Eastern and Pan Am woke up airlines… and look how healthy they are today.

: A few of my earlier posts on the need for new business models for news here, here, here, here.