Web Sites Stalk Newspaper Revenue

You've probably heard this story by now. In the mid-1990s, Craig Newmark started Craigslist.org out of his apartment in San Francisco. It began organically, with users posting information about concerts, apartment rentals and job postings — all free of charge. Though he didn't know it at the time, Newmark had begun eviscerating the classified advertising market, a staple revenue generator in the print newspaper business model. "The ultimate bad competitor is Craig Newmark," says UNC's Meyer. "I used Craigslist recently, and I felt guilty about it."

If they love newspapers as much as Meyer, Craigslist users should feel guilty. The Project for Excellence in Journalism reported that in 2004 the San Francisco Chronicle in Newmark's hometown lost an estimated $US50 million in classified ad revenue to the site.

More significantly, Craigslist's effect on newspapers highlights one of the main challenges an industry encounters when a disruptive technology upsets its market: Not only is the core business broadsided by the fact that its product becomes available at a lower cost, but the task of identifying the emerging competition becomes strategically daunting.

Newspapers with deep pockets have partially weathered bad competitors like Craigslist by analyzing the demographics of their customer base through registration data and surveys. At the New York Times, for instance, chief advertising officer and senior VP Denise Warren says the NYTimes.com audience — with an average age of 48 — is "educated and affluent", and knowing that helps her reach advertisers.

"In any business, you're going to have the providers who are free or low cost, and you're going to have providers that are high value," says Warren. Since the Times can't compete on price with competitors like Craigslist, it is attempting to sell advertisers on the uniqueness of its specific audience.

Old Business Models Fight for New Life

How effective this has been for the Times, widely seen as the industry's leader, remains to be seen. On 21 September, 2005, the Times reported on its own business page that it would cut its workforce by 500 employees, using buyouts and severance packages. It attributed the decision to soft growth in advertising revenue and dips in circulation.

While NYTimes.com has garnered the largest Web audience of any newspaper, its staggering traffic still doesn't drop much to the bottom line. In fact, around 8 percent of the company's revenue comes from online operations, says Warren.

That's one of the major problems in dealing with disruptive technology. When a company is propelled abruptly into a new business with new competitors, the old business (which is in decline) remains for a significant time the primary bread­winner. In fact, according to a recent report by Merrill Lynch, it could take newspapers 30 years before online revenue will represent at least 50 percent of their top line.

Closing the gap between the revenue generated by the old model and that produced by the new is one of the greatest challenges for businesses adapting to disruptive technologies, and it's been an especially tough nut to crack for newspapers, says Gannett's Carroll.

One strategy newspapers have employed has been to try to ensure that online revenue growth outpaces the annual decline of print and to adjust investment accordingly. But Innosight's Anthony says executives facing disruptive change should utilize technology to improve their old business too — not just to build the new.

In December 2006, Wall Street Journal Publisher L Gordon Crovitz published an open letter to his readers, telling them that as the paper's Web site has been so effective in covering breaking news on a 24/7 basis, the print paper would start producing more "analysis". Subsequently, the Journal drastically reduced the size of its print product's format.

[Editor's note: As this story was poised to go online, Murdoch, who is in the midst of a possible $US5 billion deal to acquire Dow Jones & Company and therefore theJournal, posited in a Time magazine interview about the advantages of eliminating the print edition and putting everything online for free.]

Small and midsize newspapers across the country have begun trending in that direction too. At the Seattle Times, executive producer Stanley Farrar says analysis is "the most important thing we do". People working in the industry claim the strategy of defining different roles for the online and print products has given many newspapers a new sense of purpose and more optimism about their future. Newspaper-killer Newmark adds, "At some newspapers, they're making good progress using the new technology to do a better job," he says. "At others, they're using new technology as an excuse."