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197 chapter eight The Far-Reaching Implications Economists often use the imagery of a hurricane to describe the process of creative destruction. In a storm’s immediate aftermath, when we observe the altered shoreline, our attention is most often focused on the wreckage— not on the scattered seeds of renewal inconspicuously left behind as the waves receded. Two decades after the Internet made landfall, the newspaper industry is still adapting. But it is much easier to determine the broad strokes of what papers must do to survive in this new environment. Based on the experiences of other industries, we know that all newspapers—the community, metro, and national papers—must pursue a three-pronged strategy that streamlines costs associated with the legacy print product while they simultaneously transition their readers and advertisers to multiplatform delivery of content. But the specific challenges newspapers will face will vary by market and community. Therefore, the key question for owners, publishers, and editors becomes: by pursuing this three-pronged strategy, can our newspaper make enough money to continue to supply the sort of “accountability journalism” that “feeds” our democratic and capitalist systems? “Going forward, what is an achievable and sustainable profit margin? That is the real question all of us are dealing with,” says John Mitchell, publisher of the independently owned Rutland Herald. “Could we put out a good paper with a 5 percent margin? Maybe so. But then, my family has never been in it for the money. We see newspapers as a public trust.” Warren Buffett, who now owns more than sixty community newspapers in Nebraska, New York, and North Carolina, has told investors in his company that he believes 10 percent margins are achievable, especially with publications in small and midsized markets. But what about the country’s ninety or so largest papers—the national and metro papers that sit atop the newspaper pyramid? They face very different market and the new world order 198 journalistic challenges than those that community newspapers must overcome . Can they achieve a 10 percent margin—or even a 5 percent margin? And is either level sufficient to fund the quality accountability journalism they produced in the latter half of the twentieth century? What makes the calculation of a future margin so difficult is that newspapers are “not one business, but two,” as Poynter analyst Rick Edmonds points out. Good newspapers serve both readers and advertisers well. Success with one group does not guarantee success with the other. According to a story in the New York Times, in his first meeting with reporters after purchasing the Washington Post, new owner Jeff Bezos “told reporters that the paper should focus on delivering important, compelling stories to its readers. If they do that, advertisers will come.” “In any commodity situation [as newspapers now face], the business strategy advice is to seek a differentiation,” says economist Eli Noam. This means that successful newspapers will first differentiate themselves from competitors, as Bezos suggests, by offering unique content that readers want—in other words, by being the “most credible and comprehensive sources of news and information readers care about.” But they also have to assemble the right size and the right type of audience to attract advertisers, which have historically provided the lion’s share of revenue that supports the news operations of most newspapers. The audience of readers has to be large enough to attract major advertisers in a particular market and to be divided into smaller segments that allow smaller or specialized advertisers to target a specific group of engaged readers. This means that a newspaper needs to provide a broad menu of news and information— content that is of interest to people living in a specific region as well as that which is of interest to people with certain affiliations and passions. “Realistically, no single news organization” can now produce all the news and information—both the geographic and special-interest information— that their readers and advertisers want and expect in the digital age “and do it well, through its own economic and editorial resources,” says Noam. Therefore, newspapers that survive and thrive—and achieve sustainable profit margins—will understand how to take advantage of the new economics of networking, he says. In an era of reduced margins, individual newspapers must learn to “rely substantially on others” to help them both produce and deliver this content and grow their audience so they remain attractive to advertisers. Noam’s vision of “networks” is very different from the chain-ownership...


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