Newspapers Are Struggling With the Digital Age

The past several years have not been kind to print newspapers, as free Internet news sites siphon subscribers, and ad revenue, the industry's bread and butter, shrinks year after year. The pool of newsprint vendors has shrunk as well, as many papers have succumbed to the new reality and gone out of business or have been scooped up by more robust competitors. The news is not all bad, however, as those still standing become more innovative in their efforts to survive and thrive.

According to a recent report by the Pew Research Center, statistics show that while online advertising increased to $207 million in 2011 from the year previous, print ads fell to $2.1 billion -- quite an overall loss. Last year, advertising revenue was tallied at a scanty $24 billion, compared with nearly $49 billion in the year 2000; forecasts call for more losses this year. In just 11 years, the value of the newspaper industry itself fell from $59 billion to $34 billion.

As the Internet has attracted more users, the study found that it has increased the amount of time people spend reading the type of news historically supplied by newspapers. Those who own mobile devices receive news on those as well, and there is significant crossover between PCs and all types of digital devices, with many users consuming news on all the devices they own. In addition, people care about the source of their information, opting for traditionally well-regarded sources rather than social-media referrals.

Newspapers use alternative methods to bring in revenue
Of course, this spiking of interest in news and information consumption has not translated into increased profits for newspapers, some of which have come up with creative ways to make up the shortfall.

New York Times (NYSE: NYT  ) , for example, instituted a pay wall about a year ago and has reported that it has attracted 454,000 paid subscribers to its online content. The Times report noted that at the end of last year, that number stood at 390,000. The company is also halving its monthly freebie views to 10 from the current 20. The paper's price bundling also includes a print edition of the Sunday Times, perhaps so that digital subscribers don't forget what a real newspaper looks like.

Other newspapers are also following this model, with Gannett (NYSE: GCI  ) recently getting its feet wet by putting up a pay wall on all its publications except USA Today. Although Washington Post (NYSE: WPO  ) seems to have no plans to do the same, its star investor, Warren Buffett, has stated publicly that he thinks the Post's current model of giving away paid print content free online is unsustainable.

Diversification, generally an important factor in maintaining a steady stream of revenue, has had mixed results for some companies. Gannett has been able to keep profits higher because it owns television stations; this year is expected to be better than last, as it is an election year and political ads are very lucrative. On the other hand, The New York Times' formerly profitable website About.com has been floundering, in large part because of Google's (Nasdaq: GOOG  ) Panda algorithm update last year.

Mobile: the new frontier
The real challenge for newspapers is to harness the profit-making ability of the Internet, especially content for mobile devices. As customers increase their use of these devices to consume news content, newspaper companies will need to find a way to make money through mobile advertising. So far, doing so has proved elusive, and having a big competitor like Google throwing its weight around doesn't help. The report notes that the big G is expected to pull out all the stops in its quest to dominate the mobile advertising market this year, sucking in an estimated $5 billion in global mobile ad revenue.

One thing is certain: Newspapers are going to have to change the way they do business, or else. One idea is to move to a print Sunday edition only, as a supplement to digital weekly subscriptions. This makes sense in many ways, since Sunday papers did pretty well last year. Gannett is one publisher that offers special Sunday editions stuffed with advertising circulars, targeted to upscale households. This idea also more closely resembles the magazine format, which has seen some success in turning around its own dismal revenue numbers of the past few years. The Atlantic, for instance, now claims to bring in 50% of its revenue from digital advertising.

If newspapers are to survive, they are going to have to dedicate themselves to the mobile market. It is clear that more people are reading their news on mobile devices, and that the source of that news needs to be from reputable entities. Bringing in executives schooled in this area and who understand its importance is mentioned in the report, and I think this is a very important point. The high turnover in the top industry positions mentioned therein seems to indicate an inability on the part of publication leaders to deal with the dire straits in which the sector now finds itself. Without the expertise necessary to wring their fair share from the burgeoning mobile market, newspapers will soon be ancient history.

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Fool contributor Amanda Alix owns no shares in the companies mentioned above. The Motley Fool owns shares of Google. Motley Fool newsletter services have recommended buying shares of Google. The Motley Fool has a disclosure policy. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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