• by Dave Morgan , Featured Contributor, April 5, 2007

 As regular readers know, I like to write about the newspaper industry from time to time. Not only did I work in the industry earlier in my career, but like many of us, I have a deep personal attachment to the product. I love reading news. I love reading newspapers. Newspapers have been in the news lately, with this week’s announcement of Sam Zell’s highly leveraged effort to buy the Tribune Company just one of a number of a number of “big” recent stories about the industry and the future path of newspaper publishing companies. So, with that as a backdrop, I ask you, “Which major newspaper will be first?”

No. I don’t mean which major metropolitan U.S. newspaper will be the first to collapse under its own weight and shut down, though I do expect that we will probably see one of those yet this year, or early next. In this case, I am focused on something more positive. I want to know which major newspaper will truly and dramatically change its business model and recognize that digital is its future and mass print is its past. Which newspaper will recognize that the headlines that it keeps publishing about its own businesses -- “newspaper ad revenue down 3% year over year” or “newspaper ad revenue was soft again last quarter” or “newspaper circulation fell 6% over last year” -- are not going away?

Ad revenue in most large newspaper markets will keep dropping 3-5% per year for the next five years. Real circulation -- excluding the tons of papers dumped on schools, hotels and the constantly-churning “free ten-week trial”  -- will keep dropping 3-7% per year for the next five years. Those two things are going to happen. Major metropolitan newspapers are largely powerless to stop them. Why? It’s simple. Every day, fewer people are reading daily newspapers than did the day before. Every day, more people are using the Internet for their news and information. Every day, the cost of energy, health care, pension benefits, wages, ink and newsprint in the cost-heavy industry goes up. Every day, more talented people leave the industry than join it. Every day, someone somewhere launches another new niche media product -- many times, a print product -- that continues to whittle away advertising revenue. That is daily newspapers’ future, and they must confront it.

What are most large daily newspapers doing about this? First, many deny it. Time and time again you hear them say “the decline will plateau” or “we’re just a quarter away from an uptick.”  Denial is bad. It prevents the implementation of solutions.

Then, there are those that grudgingly accept the decline but think that it will be long and slow and controllable, and that digital revenue will grow as print revenues declines, thus insuring the long-term life of the franchise.

That kind of vision would be nice if the newspaper business didn’t have an enormous fixed cost structure, but it does. There is not much difference in costs to print 5% fewer newspapers. You still need the presses and the sorters and the trucks and the press operators and the truck drivers. You still need the newsroom. You still need the sales staff. Of course, you don’t necessarily need the baseball team. Most newspapers have been responding to their declining financial fortunes -- and loss of favor with Wall Street -- by incrementally reducing the cost structures of their business. They have been cutting bit by bit, quarter over quarter. Laying off, and then laying off again.

Not only has this slow death killed morale at the papers, but it has typically been done with no vision for the future. The only future for those who survive cuts is hope that they will survive the next as well. Death by a thousand cuts -- not a great way to operate a healthy business.

What else are they doing? They are mashing together their fledging and fast-growing digital businesses with their tired and declining print businesses. It helps hide the print revenue decline -- a bit. It helps the print folks make their numbers -- a bit. It creates the opportunity to tout a vision of “integration” -- a bit. It demoralizes and scares away many of the very best digital talent -- a lot. For example, anybody who thinks that online salespeople and print salespeople are alike, sell alike, think alike, or truly want to work together, has not spent much time with both of them or truly asked for and listened to their opinions.

What should declining metropolitan newspapers do instead (and even those not yet declining, but soon to follow?

• They should dramatically shrink their core mass reach product and its cost structure. When I say dramatically, I mean dramatically -- by 40% or 50%. This will not only mean publishing less in the paper, it will mean publishing a lot less papers, maybe one-half as many. Newspapers need only watch the U.S. auto industry to understand why they need to do this. They must get much, much smaller. Stop dropping massive, multi-pound treatises on people’s doorsteps that fewer than 5% of the recipients can even think about reading cover to cover, and instead execute a massive shift into niche and non-daily publishing. Print can still be a great medium, just not the way that most large newspapers practice it today.

• They should quickly get rid of their sacred cows. This means everything from embracing -- and respecting -- content from their readers to selling off their printing presses and paper companies to changing the way they work with advertisers and selling them measurable results, not just space.

• Stop or unwind the forced digital integrations. Their digital media businesses might share the same brand name, and some of the content, but the future of local digital media is worlds away from the past of print newspapers. Forcing them together only serves to slow down the immediacy with which the print side will confront its decline and guarantees that the digital side will never be a viable long-term competitor for the hearts, minds and pocketbooks of local audiences and advertisers.

I am sure that I will get some flack about this column when I attend the Newspaper Association of America Publisher Conference in New York next week. But I think that most of the great newspaper folks know in their heart that I am right. The future of newspapers is not about a slow “controlled descent.” Things never work out that way. It is about implementing aggressive, proactive and -- for the newspaper industry -- radical changes to survive and thrive in the future.