Newspaper ad revenues have declined for more than 25 consecutive quarters and are half of what they were in 2005. At the same time, newspapers’ digital market share has evaporated in the face of new and aggressive competition.

Numerous analysts believe that the crisis newspapers face is a revenue problem, not a cost problem. Yet the industry appears to be resolutely fixated on reducing costs, even if it means sacrificing revenue needed to fund a digital future.

Newspaper comic strip icon Pogo said it best: “We have seen the enemy, and it is us!” Newspapers are having great difficulty moving smartly into the digital age, sitting symbolically on horse-drawn carts piled high with legacy baggage, mixed with assorted new technology.

The industry is trapped in a downward vortex because publishers are holding tight to traditional practices that are no longer appropriate. Newspapers, which rely on advertising sales for about 70% of their revenues, are still selling advertising like it’s the 1990s. They continue to embrace the publishing and sales practices they relied on when they had few competitors and could set the advertising agenda in their markets. Fortunately there is still time to make the core business healthier.

The future for newspapers will become brighter when they move to solve their revenue problems by adopting new and better ways to package, price and sell advertising, while giving their customers what they want. Clayton Christensen (the Harvard Business School professor who is known for his theory of disruptive innovation) repeats two of his key ideas in the Fall 2012 Nieman Reports:

Focus on the jobs that your customers are hiring you to do; and create a separate business focused on taking advantage of the disruption – and give it permission to outcompete and outperform its parent.

In order for newspapers to ensure that they can forge long-term, sustainable success, they must make five fundamental changes in how they go to market:

  1. Change the culture, which is key to successful change.
  2. Switch to simpler, systematic pricing and sales practices.
  3. Convert to compact format.
  4. Rethink the publishing cycle.
  5. Harness the power of technology – in print, digital and mobile platforms.

Let’s take them one at a time.

Changing the Culture

Most companies and industries wait too long to recognize problems and even longer to act. And much of the resulting action is often inadequate or misdirected. Newspapers are the venerable incumbents on a new playing field, facing a multiplicity of competitors who are playing by new and different rules.

Chasing each innovation, while aggressively stripping costs and resources out of the core business, is a recipe for trouble. Customers do not want to pay more for less, especially when there are plenty of alternatives.

There’s an old adage, “the future isn’t what it used to be,” which certainly applies to newspapers these days. To revitalize their business model, publishers must change their focus from that of lowering operating costs (internally focused) to reducing the price that customers (readers and advertisers) pay, while delivering improved results or a better user experience (customer focused).

When needs are emerging, customers look for performance. When needs are mature, customers look for lower costs. Investing in improved cost-effectiveness for mature needs can provide exceptional returns. The challenge for newspapers is to operate the core business more cost effectively, while providing customers (advertisers and readers), with better or improved products and service at realistic costs.

Newspapers appear to have one side of the equation right. They are aggressively reducing certain costs. The challenge will be to deliver better products and/or more results at lower prices. That’s what competitors are now offering.

Unless newspapers alter their internal operating culture to one focusing on their customers, the results will not be what publishers expect. The current model of charging customers more while delivering less (in print and digital) is the root cause of newspapers’ revenue and sustainability problems. Here’s how to make the core business healthier.

Look to our next blog for Pricing and Sales Practices.

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