The Internet isn’t going to kill newspapers but a study says the newest mass media is forcing the oldest to rethink its business model and could cause severe problems if they don’t change.
The
study, conducted by Gordon Borrell of Borrell Associates Inc. and Clark G. Gilbert of the Harvard Business School, warns that newspapers need to understand that their business is changing.
“They’re
not going to die anytime soon but they will be transformed, and we think significantly, by the disruption caused by the Internet,” Borrell said.
The change is already happening in classifieds, once
the newspaper industry’s exclusive province and among its most profitable franchises. But since the late 1990s, newspapers have seen its classified business fall as employment and other Web sites have
been siphoning them. That’s only going to continue and the future could mean a newspaper without classifieds because that business will migrate to the more efficient Internet. Creating online
classifieds only replaces a high-margin business with a low margin one, he said.
The study looks at newspapers in the context of other industries that faced similar disruption. Borrell said other
industries faced with such disruptions have their inefficiencies wrenched from the system.
“The business never goes away, it just becomes transformed,” he said.
Borrell warned the newspaper
industry as a whole is blind to the promise of the Internet because, right now, new media only captures about 3% of advertising revenues. But he said it’s important to keep in mind that the Internet
is still a new medium. Borrell predicted the Internet won’t reach the level of TV but is doing better faster than did cable TV, which took 12 years to catch on.
“They have to realize it is a new
business and that organizational separation to some degree is important … They have to view the Internet operation as something apart from their newspaper and allow it to develop market content, brand
respect, without letting the newspaper be a ball and chain to it,” he said.
Newspapers’ future in the online world will depend on their ability to serve up targeted advertising – either on the Web
or based on collectible user demographics.
“That’s where the excitement is, that’s where everything’s going to happen. The fact of the matter is that these applications are occurring out there
today, and I think it’s baloney to say that email and targeted advertising aren’t happening and there isn’t any revenue in it,” he said.
But many newspapers haven’t developed databases to allow
them to deliver these ads. Borrell said the typical newspaper’s idea of targeted advertising is to place tire ads in the sports section because guys read sports and guys buy tires.
It will take at
least a $1 million investment in a database system for a newspaper to be able to collect demographic information they can use for advertising online. But Borrell said the ROI is captured between six
months and two years.