Have newspapers had their chips?

As circulations flounder, desperate publishers struggle to maintain profitability and readership. Can they find a business model that ensures the survival of newsprint titles in a digital age?

by Matthew Lynn
Last Updated: 09 Oct 2013

On 13 February, a giant balloon rose majestically into the air and started to float above the City of London. On its side was emblazoned the familiar logo of the Financial Times, a paper that has chronicled the ups and down of the financial markets through a couple of world wars and more bubbles and crashes than even the most hardened sub-editor could remember.

The FT had plenty to celebrate. There are not many brands that are still going strong after one and a quarter centuries.

And yet, as the balloon drifted across the Thames and off into the dimming sunlight, it was impossible for the casual spectator not to wonder whether the brand was heading into the sunset as well - and whether the paper had any chance of being around to celebrate its second centenary, or even 150 years of continuous existence.

Newspapers are under pressure like never before.

Almost two decades after Netscape launched its ground-breaking browser and introduced us to the wonders of the world wide web, the death of the traditional paper-and-ink newspaper has seldom looked closer. Circulations hurtle relentlessly downwards.

Advertisers drift away from a medium that looks in terminal decline. Budgets get squeezed and papers get smaller.

Then, just when it seems that nothing could get any worse, the industry becomes embroiled in the phone-hacking scandal, the News of the World closes down, and the Leveson inquiry threatens a ferocious new regulatory regime that could squeeze out the pulse-quickening news, mischief and reporting that are perhaps the only thing newspapers had left going for them.

'The newspapers are going through a period of painful transition,' argues Rufus Olins, a former Sunday Times journalist and sometime editor of MT, who now runs Newsworks, a trade body that promotes all the main papers. 'But, as a country, we do newspapers really, really well. These are brands that still have a huge amount of loyalty and that can be made to work.'

Well, maybe. When I mentioned to a few journalists that I was writing a piece about the future of newspapers, two of them just joked. 'Why not do a tweet instead? They haven't got one. You don't even need all 140 characters.'

There is some truth in that. The newspaper industry has been through a traumatic decade: only the music industry has suffered the same kind of digital meltdown. It has had a near-death experience. It seems unlikely all the national newspapers that most of us grew up with will survive, at least in the form in which they are familiar.

And yet the industry is also resilient. It is possible - just possible - that it is starting to turn the corner.

It is experimenting with new business models, and some of them are finally starting to pay off. The FT, for instance, has built a sustainable subscription business online; News International is investing ferociously in its paywall; the i newspaper has found 240,000 daily readers from nowhere for a cheap, quick read; the Evening Standard has built a free model that works; the Daily Mail has created the world's largest news website and maintains its dominance of the British mid-market.

No less an authority than Warren Buffett, the world's greatest investor, thinks papers have a future. The man who started his career as a newspaper delivery boy told his shareholders four years ago that he wouldn't buy a paper at any price.

But in his latest letter to shareholders he explained at length why he'd been on a buying spree in the American industry. 'Papers delivering comprehensive and reliable information to tightly bound communities and having a sensible internet strategy will remain viable for a long time,' he argued.

The problem is that although there are signs of success, these are all different. There is little evidence of a single model for making newspapers work in the 21st century.

'If you go back to 1964, that was the heyday of newspapers in terms of circulation,' says Chris Blackhurst, editor of the Independent. 'The Daily Express sold 4.5 million copies and was the biggest paper in the world. But the papers were all pretty much on the same model. Now all the main companies are doing different things.'

Indeed. The question now is a slightly different one from whether newspapers will survive - and in many ways it's a more interesting one. It is: which newspapers will survive, and which has found the best way of securing its existence?

'Five years ago I would have said this industry was going through an existential crisis,' says John Ridding, chief executive of the FT. 'Now I would say it faced a problem of execution. That is a very different place to be.'

There's no denying that the crisis was an existential one: the scale of the decline has been shattering.

The Telegraph was selling 1.04 million a day in 2000; now it's 555,000. The Independent has dropped from 222,000 to 71,000 over the same period; the Guardian from 409,000 to 209,000.

Among the red-tops, the Sun has gone from 3.5 million to 2.4 million, and the Mirror from 2.07 million to 1.06 million.

In the mid-market, the Mail has dropped from 2.5 million to 1.8 million, while the Express has gone from 946,000 sales a day to 529,000.

Whichever way you choose to look at it, the numbers are catastrophic.

Everyone knows what the problem is. In 1992, the MIT campus newspaper, the Tech, decided to put all its content up on the web and not charge for it. One by one, just about every other newspaper in the world followed suit, creating websites that were entirely free. Says Blackhurst: 'The biggest mistake was that when Tim Berners-Lee came up with the web, all the main news organisations should have got together and said: we can't give this away.'

With the exception of Guardian executives who persist in believing that an entirely free news website can one day be profitable, most professionals now believe that advertising is not there in sufficient quantity to pay for expensive news operations.

In different ways, and with different degrees of success, the main publishers are now frantically trying to find a way of creating paid-for digital businesses - or at least a free/paid-for hybrid.

If any British newspaper has a future, it's the FT. In the latest financial year, its digital subscriptions rose 18% to 316,000 - indeed, digital subscriptions have now overtaken the print readership.

The FT's total paid-for circulation is now 602,000, so although print sales may have declined, the number of people paying for the product every day is at an all-time high.

Meanwhile, the price of the daily paper has been pushed up - not, says Ridding, to dissuade people from buying it so that it can become a purely digital operation, but so that the print division can pay for itself, even without advertising.

Looking back over its 125-year existence, Ridding argues, it is surprising how little the FT's fundamental mission has changed. When it was launched, the City was awash with information. Much of it was self-serving rumour and speculation, and the role of the paper was to establish the truth.

Today, Twitter may be the forum for the gossip and the rumours are spread globally, but that doesn't make the FT's core purpose any less compelling. 'The job of the FT is to be a trusted guide,' Ridding says. So long as it can achieve that, he believes, people will pay for it - and in sufficient quantities for the operation to run at a profit.

Whereas Ridding is a lifelong newspaper man who started as a journalist, Mike Darcey is the new boy on the block and in many ways the most radical. He joined Rupert Murdoch's News International (NI) as chief executive in January this year, after a stint as chief operating officer of BSkyB.

The group was the big beast of the traditional industry, controlling a third of the British newspaper business through its ownership of the Times, Sunday Times, Sun and News of the World.

But the phone-hacking scandal led to the closure of the NotW and, even without that self-inflicted wound, the group has struggled to cope with the transition to digital. It launched free websites, then switched to a paywall strategy, insisting that news had to be paid for. 'There are huge lessons that we can learn from pay-TV and other media,' Darcey says. 'What pay-TV has shown us is that against a backdrop of a free proposition it is possible to build a paid-for operation.'

The Sky comparison is a fascinating one. As Darcey rightly argues, until Sky came along, people were used to television being free. Yet it managed to persuade viewers to start paying for it. His task now is to build a similar operation at New International for the Times and the Sun's digital units.

'The read-across is very strong,' he says, lapsing into the consultant-speak that is his natural language. 'I hadn't really thought about it until I got the call to do this job, but the more I thought about it, the stronger it seemed.'

The company has already had some success. Since putting up a paywall around the Times website and charging for the Sun app, it has attracted 300,000 digital subscribers - 127,000 to the Times, 118,000 to the Sunday Times, and 45,000 paying app subscribers to the Sun.

It's a start, but there is still a long way to go before the newspapers' digital future is secured.

Darcey has taken a leaf out of his old company's book, with an early move to snap up mobile and internet rights to Premier League highlights for a rumoured £30m.

Cynics will argue that this is a typical Sky tactic, relying on footie to bludgeon its way into the market. But Darcey sees it differently. It is, he maintains, simply part of expanding the offering the papers make to subscribers.

Just as Sky continually expanded what you could get from your television and built an ever-closer relationship with its subscribers, he argues, newspapers have to add more quality content to persuade people that what they are offering is worth paying for. Just putting an old-style newspaper on the web and charging for it is not enough, but offer significantly more and the customers will come.

The Sky comparison is a compelling one - and it is obvious why News Corporation, NI's parent and the largest single shareholder in Sky, should draw inspiration from it. It certainly proves that whether an industry is paid-for or free is fluid: it can switch from one to the other surprisingly quickly.

The trouble is, there are also big differences. At Sky, live Premiership football was used as a battering ram to persuade people to start paying for their TV. Suddenly, Sky could offer them something they could not get from traditional terrestrial telly. The newspaper does not have anything quite so persuasive.

The Times's digital offering might be pretty good, but much the same news is available free elsewhere, while an avalanche of comment and analysis is available on blogs and on Twitter.

'People have been paying for newspapers for 200 years,' says Darcey. 'There are millions of people paying for newspapers every day. Some people have got used to not paying for news. But it is not like TV where people had been not paying for years. What we have to do is make the online experience as attractive as possible.'

The Times's paywall is too harsh for many of its critics. There's no free access - unlike the FT and the New York Times, which allow a limited number of free stories per month.

Darcey doesn't agree. 'You have to have clarity,' he says. 'We had the same arguments at Sky. People kept saying you should make some of it free as a marketing tool. It wouldn't really work. People already knew what Sky was. In the same way, people know what the Times is.'

Murdoch's empire has been built on clear, simple propositions, aggressively sold. It has worked brilliantly well over many decades. But whether it can work in digital remains to be seen. With the exception of the FT, none of the other companies is going down the same paywall route - and even the FT has the advantage of a huge, wealthy business audience that doesn't mind paying for information and it allows limited free access to its content.

NI's great rival isn't impressed. 'We have a very different approach from everyone else,' says Guy Zitter, group managing director of the Mail. 'If the product is free in one form, then why would anyone be expected to pay for it? The point is to create the product to fit the medium.'

It's a simple strategy, but one that surprisingly few of the Mail's competitors have followed. Instead of taking its content and slapping it up on a website, the company created what was in effect a completely separate entity, Mailonline.

A far less serious product than the paper, it has a constant stream of celebrity and wacky stories designed to appeal to bored desk cowboys browsing in the office or commuters grazing on their smartphones.

Mailonline has been a huge success - it is now the biggest news website in the world, with a massive audience in the US, where it has overtaken the worthy but often dull domestic offerings such as the New York Times and the Huffington Post.

True, the circulation of the main paper has fallen, but not by as much as most of its rivals. The website is not cannibalising the Mail. It complements it, creating a parallel business that is successful in its own right.

Combine it with the Mail's Metro unit, which gives commuters bite-sized chunks of news, and Zitter's precise, targeted approach starts to make sense. The Mail offers a leisurely read over coffee and is the premium product people pay for.

The Mailonline is a snazzy web offering that should make money in its own right - and feed readers to the paid-for paper. 'In five to 10 years' time, there will still be a printed Mail,' predicts Zitter. 'I am confident of that.'

Paradoxically, the web means that the influence of the papers is far greater than when they existed just on paper. As Olins points out, 200 million people a month read British newspaper websites. 'In the UK alone, we know that eight out of 10 people read our jounalism, and 10 million people pick up paper copies on a daily basis,' he says. 'We are more popular than sliced bread.'

Even for the weaker players, that makes a difference. 'We don't speak of the Independent any more,' says Blackhurst. 'We speak of Independent journalism. And that has a bigger reach than it has ever had.'

The trouble is that, with the possible exception of the FT, no one can be certain they can make that reach pay. It is possible that in a few years, several different models will exist. 'In television, you have pay-TV and free-to-air television, and they are both very strong models and they exist side-by-side perfectly well,' argues NI's Darcey.

True enough, but perhaps television is the exception. In most industries, a single dominant business model emerges.

The same might well be true of the news business. It's just that no one knows what it is yet.

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