News

Without question, the newspaper industry -- once a hugely influential and profitable business that created some of the world's wealthiest families -- is now in flux.

Yes, people are still reading newspapers but they're mainly an older demographic. And readership data show that a growing proportion of the lucrative 18-to-35 segment is getting its news on-line or through freebie commuter newspapers, raising concerns about the industry's sustainability and causing a paradigm shift in how newspaper executives see their product.

Mix in skyrocketing production costs (particularly newsprint, labour and delivery) and stellar growth of alternative forms of advertising channels (such as the Web's Craigslist and the blogosphere) and you've got a business with razor-thin profit margins.

Need proof? In recent months, U.S. newspaper giants The McClatchy Co., Gannett Co. Inc. and The New York Times Co. unveiled significantly weaker earnings figures.

Here in Canada, profit at the company that owns the Toronto Star was down 28 per cent during the second quarter; in June, Quebecor Inc. slashed 120 jobs across its Sun newspapers chain - a quarter of which were at its flagship Toronto Sun. (The Globe and Mail's parent, Bell Globemedia Inc., does not break out specific earnings data for the newspaper division.)

There are myriad others.

In response to these powerful headwinds, newspapers are investing heavily in their on-line properties and pondering delivering content to mobile devices. Of course, everything must be in an advertiser-friendly format or they can forget about a huge chunk of revenue.

So what's next for the newspaper industry?

We sat down with Hugh Dow, president of Toronto-based media buyer M2 Universal, to get his perspective.

Q. In what way are newspapers still a good media choice for advertisers?

The key factor is that they provide almost instant reach of over half of the population on a daily basis. According to the latest NADbank numbers, some 51 per cent of adults 18-plus read a newspaper during the average day and that comes, over the course of six or seven days, to close to 80 per cent. So in terms of providing very quick, rapid reach of a very sizable proportion of the population, that is a very important feature for an advertiser who requires something to happen quickly.

Q: What are some of the other things that newspapers do well, that some of the other media do not?

They provide immediacy and they have a high level of credibility with readers. They can provide information very quickly and they can also have the ability to provide a complicated or a lengthy message which, in many cases, other media cannot.

Q: And what is sounding alarm bells?

The newspaper medium is having to face up to some realities in terms of the fact that the younger audience is looking for alternative communication channels for news and entertainment and information. Also, the fact that the business model is changing and the market is being conditioned to either free or minimal-cost newspapers. That is challenging the historical and the conventional dual-revenue system that many newspapers had built their businesses on: an advertising revenue base and a subscription revenue base.

Q: Can you elaborate on what real impact the free daily commuter papers are having on the traditional mass-market papers?

In a number of key markets, they are now an accepted and viable presence both for readers and advertisers. In the Toronto market, you've got Metro and 24 Hours and between the two of them, they are delivering half a million copies in the Toronto and GTA market on a daily basis so they are a serious contender. . . . They have certainly conditioned the market to the fact that newspapers can be free and it has challenged newspapers that have relied on single-copy and newsstand sales. Now, some newspapers have covered their bets by being involved -- as both Quebecor and Torstar have -- with [24 Hours and Metro, respectively]. They decided to be part of this rather than combat it.

Q. And CanWest also tried it for a while but it didn't work out. From what you heard from advertisers, why was Dose such a flop?

I think there was, initially, a great deal of interest in the paper -- particularly the fact that it was part of a broader vision in terms of using the paper to provide a lead into websites and mobile communication forms. However, the fact of the matter is, it was a print vehicle and clearly print vehicles, particularly for the youth market, are not the communication channel of choice. They are moving toward the Web and mobile communications.

Q: Papers are betting lots of money on their websites as a way to keep readers and gain a new source of ad revenue. Is this a good thing?

Yes, because there appears to be, in many cases, an increasing number of success stories. I think particularly the efforts that The Globe and Mail has put into the sports website and the realization that you can use a mass-media vehicle to direct people to websites and to really provide a two-way communication. The website can direct people to the printed page; the printed page can direct people to the website. Using the synergies that are available, both through mass media and through a specialist media, is something that advertisers and media owners are now starting to see the real potential for.

Q: The Economist asserted in August that "newspapers are making progress with the Internet, but most are still too timid, defensive or high-minded." Do you agree?

I think there has been a certain denial of the changing consumer readership and circulation trends. I think most newspapers have come to terms with it. There were various levels of involvement but you'd be hard-pressed to find a daily newspaper in North America that isn't involved to some degree now. Some of them were dragged kicking and screaming into it, others were more forward-thinking. It's now an accepted fact of life in the newspaper industry that you have to be involved and you have to create something that capitalizes on the asset and resources base of the newspapers but at the same time provide readers and consumers with what they're looking for.

Q: Are there other things newspapers need to be doing to stay relevant?

The Toronto Star's experiment with its "PM" edition, which is essentially testing whether readers are prepared to download, print and to accept the paper in that form. If that proves to be viable proposition the implications are enormous in terms of removing two incredible costs out of the newspaper business model - distribution and printing. And if you can get consumers to actually print then you don't have the distribution costs. It's early days here and it may take many subsequent experiments and many years before we see that turning into something that is viable.

Q. "Citizen journalism" is a major buzzword right now in media boardrooms. Do you think advertisers will accept the concept of amateurs presenting the news to readers?

There is a certain level of interest. Certainly there are communities developing with like interests and it's a phenomenon that's affecting all media. Bloggers, podcasts -- all of those things are broadening the spectrum. Content is now being provided by the media moguls all the way down to somebody in a basement in Scarborough, which is a fascinating scenario and spectrum. But I think the credible, trusted source of information will continue to be the champion.

Q. We have a generation now that is very used to reading the news on the Internet and in commuter newspapers. W hat is the newspaper industry going to look like in 20 years time?

No. 1, I believe there will still be newspapers. They will not disappear but I think they will be a product that relies to a large extent on alternative distribution channels. The printed page will still retain a number of advantages that are very difficult for other communication channels to work with, or capture. I see the printed newspaper being an integral part of a communication spectrum with the Internet or BlackBerry or some other technology that we don't even know about. But the printed page will still be there.

THE HARD NUMBERS

32%

Percentage of 14 to 34-year-old Canadians who identified newspapers as the most valuable information source in a recent survey

2%

Percentage of 14 to 34-year-olds in the same survey who identified blogs as the most valuable information source

28 million

Number of copies of free newspapers printed daily worldwide

65+

The age group most likely (55 per cent) to read a newspaper in print version

INTERNET ADVERTISING BUREAU, D-CODE, PEW RESEARCH CENTER, THE ECONOMIST