The Online Experiments That Could Help Newspapers

A venture by The Bakersfield Californian is one of many ways newspapers are trying to generate new revenue

The Bakersfield Californian is an anomaly in the newspaper business. While other papers are shutting their doors and filing for bankruptcy, it's expanding. The reason is the paper's 2005 launch of an online social network, called Bakotopia.com, aimed at reaching nonreaders, especially the young people in this city of nearly 329,000.
The Web site has caught on to the point where Bakersfield Californian now publishes 20,000 copies of a free magazine with content from Bakotopia twice a month. The articles range from reviews of the local theater scene to goings-on at various hot spots. Because the magazine's audience is young, hip, and hard to reach, "advertisers do pay full rates," says Dan Pacheco, senior manager of digital products at the company. The magazine even turns a profit.
These are dark days for the newspaper business. Advertising is plummeting, and papers are going under with alarming regularity. In December, Tribune Co., which owns the Los Angeles Times and Chicago Tribune, filed for bankruptcy. This year, Hearst said it might sell or shut down the San Francisco Chronicle, and Philadelphia Newspapers, which owns The Philadelphia Inquirer, filed for bankruptcy. Just a week ago, the Rocky Mountain News in Denver published its last edition. Even the New York Times Co. (NYT), which owns one of the country's strongest papers, has suspended its dividend. The Zacks publishing stocks index is down 80% from its 52-week high.

Your Own Digital Magazine, Anyone?
Newspapers had hoped that their Web sites would help them replace evaporating print revenue. But an online ad typically garners one-tenth of the revenue of a print ad, estimates Rick Edmonds, media business analyst at the Poynter Institute. "The phrase in the industry is, 'You are trading dollars for dimes,'" he says.
But in the middle of it all, the independent, family-owned Californian is preparing to take the idea of Web-created niche magazines national. Using an $837,000 grant from the Knight News Challenge and about $200,000 of its own money, it's launching a site called Printcasting.com later in March. The site will allow individuals, schools, homeowners' associations, wine clubs, and the like to create their own digital magazines. "If we see a magazine that really has potential, we'll print it, place additional ads in there, and distribute it, [first in Bakersfield, then in five other cities as early as this summer]," Pacheco says. The Californian will get a cut of ad sales while spending little on the product itself. "This is cheap and targeted," Pacheco explains. "Even though there's an ad recession, it doesn't mean there're no more ads."
This is one of a slew of ideas—including micropayments, hyperlocal Web sites, and publications designed for e-readers—that publishers are trying in an attempt to stop their world from crashing down. "Publishers for the longest time were really in denial," says Alan Mutter, a managing partner at venture capital firm Tapit Partners, which makes tech-related investments. "In the last six months, their sales are so bad, they realize they need to do things differently."

Selling Ads on Yahoo Pages
Traditional media's troubles are creating opportunities for giants such as Yahoo! and a slew of startups like Printcasting.com, all of them betting that their tech know-how will help publishers get back on their feet. The idea is to reach out to new audiences, cut costs, and attract new kinds of advertisers. "There are a lot of people who see opportunity and are going after it," Mutter says.
This reinvention is taking publishers such as Bakersfield Californian away from selling ads just for their own news content. "Our future may be very different from how we started, in newspapers," Pacheco says. "[Going forward], we are the network that allows people to communicate among themselves."
Yahoo has another take on the same idea. Last year the Web giant began allowing some of the 796 newspapers it is partners with to sell ads against Yahoo's Web pages. Using the Web giant's new APT advertising platform, an Ohio newspaper can sell ads to be viewed by, say, local thirtysomething women who browse Yahoo online. "[Newspapers' salespeople] are selling audience groups vs. [newspaper] sections," says Lem Lloyd, vice-president for U.S. partnerships at Yahoo. "They change the game by offering a full suite of products."

Content Aggregated from Other Sources
Alternatively, some media companies, such as the Washington Post Co. (WPO) and NBC, are posting ads to their own sites, but are using others' aggregated content. They work with a startup called Outside.in that aggregates blogs and discussions around specific locations—by state, city, ZIP code—and serves the links up onto a map located on sites such as NBCChicago.com. There, users click on their neighborhood and find blogs and video related to happenings in the next block. Partly thanks to this feature, the overall audience for NBC's Web sites has doubled between December and February. "Our old strategy [of using only our stations' content] just had a limited growth opportunity," says Brian Buchwald, a senior vice-president at NBC. "Now, it's really about focusing on the growth of the market and being trusted by a particular user base."
Meanwhile, what the publishers themselves produce can be sold differently. Take Kachingle. Due to launch at the end of March, the site lets consumers make voluntary contributions of $5 a month or more to news and video sites and blogs they like. The blogs then list their Kachingle supporters in a special box. "In return, [consumers] get a way to say which sites are part of their persona," says CEO Cynthia Typaldos. Mobile applications that could sell for a fee or a subscription are another idea being mulled by the likes of the New York Times Co. On Mar. 4 the company released a new version of its free iPhone app that allows for faster downloading of stories, e-mailing, and saving articles for future reading. The company is still considering various monetization options.
These efforts alone, experimental as they are, won't keep publishers afloat. "Most of the publishers are now scrambling to just cut costs to the bone," says Ann Northrop, an analyst at investment researcher Zacks. One way that Hearst is slashing expenses is by outsourcing work to virtual communities of freelance writers. One such community, Helium, has allowed some 300 publishers to order stories on a specific topic, of a particular length, by a set deadline. The average price? $30 to $50. The community's 423,000 registered members produce an average of 10 to 15 submissions per publisher request. "[That way, publishers] have a choice, as opposed to working with one freelancer," says Peter Newton, vice-president for business development at Helium.
In a week, the site will roll out additional features allowing publishers to restrict assignments to writers based in a specific geographic location or accredited by a certain professional organization. Helium's top writer made $5,000 last year.

Specialized E-Readers
The arrival of specialized e-readers for scanning newspaper and magazine pages could shave printing and postage costs while helping to capture more advertising dollars. In the second quarter, The New York Times is planning to release an updated version of its Times Reader software, which will allow for an e-reader-like experience on many netbooks and mobile Internet devices. Meanwhile, expected to enter trials in the second half of 2009, an e-reader from Plastic Logic features a large, 8.5 x 11-inch screen, designed to allow newspaper publishers to display their custom layouts and ads (Amazon's (AMZN) Kindle e-reader doesn't support advertising). Because such specialized newspaper e-readers will require users to "turn" digital pages instead of scrolling through them, the users will be able to see all the ads on the page. So advertisers may pay higher rates for e-reader ads than for Web site ads, figures Robert Larson, vice-president for digital production at NYTimes.com.
Plastic Logic already has distribution deals with the Financial Times and USA Today, which will be offered on a subscription basis. Plastic Logic's investors, which include Oak Investment Partners and Dow Venture Capital, have already poured more than $200 million into the project. And Hearst is rumored to have developed its own magazine e-reader as well; the company declined to comment on the issue.
Will all these efforts succeed in resuscitating the industry? Not necessarily. They may simply be a sign of the rising threat for American newspapers. "The downturn in revenues has been so deep, there's a certain desperation in the media world," says Ken Doctor, affiliate analyst at publishing researcher Outsell. "It's pushing people in odd directions."

Source: BusinessWeek