Why Newspapers are Collapsing

The Rocky Mountain News published its last paper on Friday, February 27, 2009.

The simple answer to why newspapers are dying is that it's being killed by the internet. The real answer is more about business practices and pricing.

It was a shock to some. But the writing has been on the wall for years. Not just for the Rocky Mountain News, but all newspapers.

Ten years ago newspapers treated the internet like a step-child to their core business. They just took the daily content and shoveled it onto their website. And only after it was published first on paper. They didn't want to scoop themselves. The one huge mistake they did was set-up a two-tiered ad base. The newspaper charged a premium for ads and the website a much, much cheaper one.

They set the bar for the CPM or cost per thousand impressions very low. So a full page ad in a big important newspaper might cost $100,000, but its website, which had wider reach, a few thousand. Which is fine if you have advertisers lining up to put ads in your paper product.

Fast forward ten years. Classified ads, a real money-maker at a newspaper, is dead, killed by free Craiglist and eBay. Display ads at newspapers are drying up. It's hard to sell a display ad when you don't have the metrics to back up its effectiveness.

On the internet you have page impressions and click-throughs. You can sell that, but at a much lower price that was set ten years ago. The internet can't save the newspaper, the cost of printing presses, delivery trucks, paper, and huge staffs can't be maintained by the humble revenues of internet ads.

It's the same problem on TV. Do you think the ad rate on a TV show on Hulu.com is the same on the network show on regular TV? Not by a long shot. Advertisers are used to paying the big bucks for ads on TV. And the ad salesman can stretch how effective the ads are, with really no hard data except for the nielsen ratings comprised of a few thousand families.

But the internet is different. You can tell how many times a video was watched on youtube and charge accordingly. Last week I could watch network shows via the internet and Hulu on my big screen TV on my Apple TV with Boxee installed. Not anymore. Hulu doesn't want you to watch its programming on your TV, just the screen on your computer. Why? Because there is a two-tiered ad rate, one for the regular TV and one for the internet.

Photographers are getting screwed too. The same photo that went for $200-300 on People magazine is $30 on People.com. The two-tiered pricing plan that was implemented 10 years ago as an incentive to get advertisers to put ads on the internet, now is coming back to cannabalize the industry. If newspapers and magazines can't generate enough revenue selling ads they have to pay less for content. That means less for photos and much smaller staffs.

Would things be different if newspapers had a better understanding of the potential of the internet ten years ago? Probably. They would of charged a lot more for those ads. Once you set a price point, its hard to raise it dramatically.

The bar now is free. Free everything. Free news on the internet, free ads on craiglist. Free pirated songs and software. You can't sustain a business on free.

Newspapers and magazines can survive. But only as a niche entity. One example is opera. It has survived even though it has a small audience of wealthy patrons. Just use the same business model as opera. Cater to a select few with a high-end product that people are willing to pay for. The trend of appealing to the masses with celebrity gossip to fill pages maybe the wrong direction.